Directors must scrutinise company accounts.
That is the clear message emerging from Monday's Centro decision, and the message headlined in all the media reports of the decision.
What is equally significant for directors is what doesn't appear in the newspaper headlines – issues such as: * do directors have to be accounting standard gurus? * how do directors spot the ticking bomb buried deep in a massive board pack?

Background
ASIC argued that Centro's directors had breached their duties under sections 180 and 344 of the Corporations Act, because its 2007 annual accounts had not complied with the Corporations Act and the accounting standards: * the accounts had misclassified a number of borrowings as non-current liabilities when they were actually current; * just after the end of the 2007 financial year, Centro had given some guarantees as part of a transaction. ASIC argued that this was a material post balance date event and so should have been disclosed in the annual report; and * the board had not ensured that the CEO and CFO had provided the declaration of compliance required by section 295A.

Misclassification of current liabilities as non-current
Centro's 2007 annual accounts had misclassified a number of borrowings as non-current liabilities when they were actually current.
The directors argued that they could not be expected to know that the liabilities in question were current liabilities within the meaning of the relevant accounting standards. Among other things, they pointed out that: * there had just been a change in the relevant accounting standard and some greyness in its interpretation; and * the documentation relating to the borrowings was complex.
The Court dismissed the directors' argument for a number of reasons: * the accounting standard's meaning of non-current liability was "straightforward"; in this