Boards are under increasing pressure to provide comfort over their distributable reserves. This is not only driven by a desire to enable them to execute on strategic initiatives, such as deals, but also because this provides a further indication of the effective control over quality and integrity of financial statements as a whole. The area of distributions and how they are structured and accounted for is buried in rules and guidelines which can be difficult to navigate.
Boards face unprecedented levels of scrutiny and shareholder action. Ensuring that shareholder value is managed, including through maintaining dividends and other returns to shareholders, is critical for the directors, but there are still high profile instances where lack of strategic planning for returns or failure to apply rules, lead to significant problems for companies. As regulators continue to review this area, boards must ensure they are in control of their distributable reserves.
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