What goes into the directors' report
What a directors' report in annual financial statements usually covers, which facts only the client can give, and where AI drafting helps or must stop.
By Achekam · · 4 min read · For Accountants & audit firms in South Africa, Nigeria, Kenya
The directors' report is the part of a set of annual financial statements most likely to go out with stale facts in it. Last year's dividend wording survives into a year with no dividend. A director who resigned in March is still listed. The paragraph on events after the reporting period says "none" because nobody asked.
It is a short document, and that is part of the problem: it looks easy, so it is drafted last and reviewed lightly. This article sets out what the report is for, what it typically contains, which facts only the client can supply, and how far AI drafting can safely go.
What the directors' report is for
The financial statements show figures and the notes explain them. The directors' report is the directors' own account of the year: what the company does, how it performed in their words, what they decided, such as dividends, share issues and appointments, and what has happened since year end. It is their report, not the preparer's, even when the preparer drafts it.
Company law sets the requirement and the minimum content, and each country's Act differs. In South Africa the governing law is the Companies Act 71 of 2008, whose official text and summary are published on gov.za; Nigerian clients report under CAMA 2020 and Kenyan clients under the Companies Act 2015. Check the current Act for the client's country, and the client's own constitution, before relying on a template.
Typical contents
Most directors' reports for owner-managed companies cover a recognisable list. Treat it as a starting point, not a substitute for the Act:
- Nature of business: what the company does and where, and any significant change in the year.
- Review of results: a short commentary on the year, pointing to the statements for the figures.
- Dividends: declared or paid during the year and after year end, or a statement that none were.
- Share capital: any issue, buy-back or change in authorised shares.
- Directors and secretary: names, with appointments and resignations and their dates.
- Holding company and subsidiaries, where there are any.
- Events after the reporting period: material events between year end and the date the statements are approved.
- Going concern: the directors' conclusion, consistent with the basis-of-preparation note.
- Auditor or independent reviewer: who was appointed, where that applies.
Facts only the client can supply
Much of that list cannot come from the trial balance. The ledger records a dividend paid; it does not record when the board declared it. It holds the directors' remuneration; it does not say who resigned. It knows nothing about a flood at the warehouse three weeks after year end.
Achekam is honest about that gap. The Studio builds a directors' report as part of the draft set from the mapped trial balance, but facts the trial balance does not hold are left as "[to be completed]" rather than guessed. Those markers are a to-do list. The practical way to clear them is to ask the client in one structured request: who the directors were, any changes, dividends declared, share transactions and anything significant since year end. Staff can create, send and track such requests for documents, answers and confirmations in one RFI console.
Keep the client's answers. When a reviewer asks why the report says nothing happened after year end, "the directors confirmed it on this date" is a far better answer than "nobody mentioned anything".
Where AI drafting helps and where it has to stop
When the firm has an AI key set up, AI writes narrative text in the draft, such as the nature of business, and that text is checked in code and labelled "AI draft - review before issue". The figures always come from code. Without a key, standard wording is used instead.
AI is useful for the descriptive parts of the report: turning a client's rough account of its activities into clear prose, or wording a change of business consistently with the notes. It has to stop where judgement or the client's own facts begin:
- Going concern conclusions are the directors' judgement, supported by evidence. Achekam's AI engine refuses any task whose type is giving an opinion, reaching a conclusion, approving or signing.
- Events after year end must come from the client, not from a model's idea of what is typical.
- Dividends and appointments are matters of record; take them from minutes and resolutions.
There is no separate accept step for each AI-written paragraph. The safeguards are the review stages and the partner's signature, so the reviewer has to read AI-labelled text as carefully as anything a junior drafted. AI-drafted narrative in the statements goes into this further.
Reading the report against the statements before issue
The last review of the directors' report should be a comparison, item by item, with the rest of the set:
- The nature of business agrees with the revenue policy and the revenue lines.
- Dividends agree with the statement of changes in equity.
- The directors listed agree with the related-party and remuneration disclosures.
- Events after year end agree with the note, including the absence of any.
- The going concern wording agrees with the basis-of-preparation note.
- The approval date matches the date the statements are authorised for issue.
Each set names a preparer, a reviewer and an engagement partner, and only a user with a partner role can sign. Where an auditor reports on the set, the auditor reads the directors' report as other information, which is covered in the auditor and other information.
A directors' report that agrees with the statements and carries no stale facts is a small thing to get right. Building the client request into the year-end routine is usually all it takes.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
