The statement on disclosure of information to auditors

Q: What does this look like in practice?

Illustration only. A manufacturing company has three directors: a managing director, a sales director and a finance director. The year end is 31 March and the board approves the accounts and directors' report on 15 August. In June a major customer wrote to the sales director alleging faulty goods and threatening a claim. The sales director kept the letter to himself, hoping to settle it informally. At the approval meeting the finance director asked each director whether anything had come up that the auditor should know about, and also asked the audit partner whether any information was outstanding. The sales director said nothing. The statement in the report is false, because there was relevant audit information (the threatened claim, which may need a provision or a contingent liability note) that the auditor did not have. The managing director and finance director made the enquiries their duty required and knew nothing of the letter, so neither meets the knowledge or recklessness test. The sales director knew of the letter, did nothing to prevent approval, and is exposed to the section 418(5) offence. The correct course would have been to give the letter to the auditor before approval, so that the accounting could be considered under the rules described in legal claims: provision or contingent liability.

Every audited company’s directors’ report must contain a statement under section 418 of the Companies Act 2006 that, for each person who is a director when the report is approved, there is no relevant audit information the auditor is unaware of, and that the director has taken the steps a director ought to take to find such information and pass it on. If the statement is false, a director who knew or was reckless about that and did not try to stop the report being approved commits a criminal offence.

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Which companies have to include the statement?

Section 418(1) applies the requirement to every company that prepares a directors’ report, unless the company is exempt from audit for the year and the directors take advantage of that exemption. In practice the statement belongs in the report of any company whose accounts are audited, whether the audit is compulsory or voluntary. A small company that could claim exemption but chooses to have an audit, perhaps because a lender or shareholder asks for one, still needs the statement.

Some companies do not prepare a directors’ report at all. Section 415(1A) removes the duty to prepare one for a company that qualifies as a micro entity, so there is nowhere for the statement to sit. Small companies must still prepare a directors’ report, although section 444(1)(b) makes filing it with the registrar optional. The full contents of the report are covered in what goes in a directors’ report.

What exactly does each director confirm?

Section 418(2) requires a statement to the effect that, in the case of each person who is a director at the time the report is approved:

so far as the director is aware, there is no relevant audit information of which the company’s auditor is unaware; and
the director has taken all the steps that they ought to have taken as a director to make themselves aware of any relevant audit information and to establish that the auditor is aware of it.

Section 418(3) defines relevant audit information as information needed by the auditor in connection with preparing its report. That is wider than the figures in the ledgers. It can include a claim threatened by a customer, a regulator’s letter, a side agreement that changes the terms of a sale, a guarantee given by the company, or a dealing with a related party.

Two features are easy to miss. First, the statement is made person by person, so it speaks for each director individually rather than for the board as a body. Second, it covers the people who are directors on the date the report is approved. A director who resigned before approval is outside the statement; a director appointed a week before approval is inside it and has to do enough to be able to give it.

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What steps is a director expected to take?

Section 418(4) says a director is regarded as having taken all the steps they ought to have taken if they have made such enquiries of their fellow directors and of the company’s auditors, and taken such other steps (if any), as their duty to exercise reasonable care, skill and diligence requires. That links the statement directly to the general duty in section 174, explained in the duty of care, skill and diligence.

The standard is therefore not the same for every director. A finance director with detailed knowledge of the accounts is expected to do more than a non executive who attends four board meetings a year, but every director has to make some enquiries. Sensible steps in a typical private company include:

putting the statement on the agenda of the board meeting that approves the accounts, rather than treating it as boilerplate;
asking each director, by name, whether they know of anything the auditor has not been told, such as disputes, claims, regulatory correspondence, unusual contracts or personal dealings with the company;
asking the audit engagement partner whether any requests for information or explanations are still outstanding; and
checking that anything raised since the year end has actually been passed to the audit team, not just discussed internally.

How does the statement differ from the representation letter?

The auditor will also ask the directors for a written representation letter. ISA (UK) 580 paragraph 11 requires the auditor to request a representation that management has provided all relevant information and access agreed in the engagement terms and that all transactions have been recorded and reflected in the financial statements. That letter is a private document addressed to the auditor; see management representation letters.

The section 418 statement is different in three ways. It is public, because it forms part of the directors’ report sent to members and, where filed, placed on the register. It is a statutory requirement on the company rather than an audit procedure. And it carries its own criminal offence, separate from any offence that might arise from what is said to the auditor directly.

What is the offence if the statement is false?

Under section 418(5), where a directors’ report containing the statement is approved but the statement is false, an offence is committed by every director who:

knew that the statement was false, or was reckless as to whether it was false; and
failed to take reasonable steps to prevent the report from being approved.

Both limbs must be met. A director who is genuinely unaware of the problem, having made the enquiries their duty requires, is not caught. Nor is a director who knows the statement is wrong and objects to approval of the report, because they have taken reasonable steps to prevent it.

Section 418(6) sets the penalties. On conviction on indictment the maximum is two years’ imprisonment, a fine, or both. On summary conviction in England and Wales the maximum is twelve months’ imprisonment, a fine not exceeding the statutory maximum, or both; in Scotland and Northern Ireland it is six months, a fine not exceeding the statutory maximum, or both.

Related liabilities

The same facts can engage other provisions. Section 419(3) makes it an offence for a director to approve a directors’ report knowing it does not comply with the Act, or being reckless about that, without taking reasonable steps to secure compliance or prevent approval. Section 463 makes a director liable to compensate the company for loss caused by an untrue or misleading statement in the directors’ report, if they knew it was untrue or misleading or were reckless about it. And anyone who gives the auditor misleading information in response to a request commits a separate offence, covered in misleading the auditor under section 501.

What does this look like in practice?

Illustration only. A manufacturing company has three directors: a managing director, a sales director and a finance director. The year end is 31 March and the board approves the accounts and directors’ report on 15 August.

In June a major customer wrote to the sales director alleging faulty goods and threatening a claim. The sales director kept the letter to himself, hoping to settle it informally. At the approval meeting the finance director asked each director whether anything had come up that the auditor should know about, and also asked the audit partner whether any information was outstanding. The sales director said nothing.

The statement in the report is false, because there was relevant audit information (the threatened claim, which may need a provision or a contingent liability note) that the auditor did not have. The managing director and finance director made the enquiries their duty required and knew nothing of the letter, so neither meets the knowledge or recklessness test. The sales director knew of the letter, did nothing to prevent approval, and is exposed to the section 418(5) offence. The correct course would have been to give the letter to the auditor before approval, so that the accounting could be considered under the rules described in legal claims: provision or contingent liability.

What wording is normally used?

The Act asks for a statement “to the effect that” the two confirmations are true, so there is no prescribed form of words. Most reports follow the statute closely, stating that so far as each director in office at the date of approval is aware there is no relevant audit information of which the auditor is unaware, and that each has taken all the steps they ought to have taken as a director to make themselves aware of any relevant audit information and to establish that the auditor is aware of it. Keeping close to the statutory language avoids any argument that a paraphrase says something narrower than section 418 requires.

What mistakes come up most often?

Including the statement in an audit exempt company’s report. Where the directors have claimed audit exemption, section 418 does not apply and the statement wrongly implies there was an auditor. See audit exemption for small companies.
Leaving it out of an audited report. The omission makes the report non compliant, which can engage section 419(3).
Treating it as the finance director’s statement. It speaks for every director in office at approval, and each needs to have made enquiries.
Approving the report before the audit is finished. If late information is still being gathered, the directors cannot properly confirm the auditor has everything.
Forgetting events after the year end. Information arising between the year end and approval can be relevant audit information, particularly where it affects provisions, going concern or disclosures.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.