An in-house counsel's job is to help achieve the client's business objectives whilst being aware of opportunities and constraints within its relevant legal environment. An in-house counsel's role in the organisation is therefore primarily to recognise and provide pro-active input into the management of legal risks. The in-house counsel is often thought of as the organisation's protector.

An in-house counsel needs to understand a client's business in order to protect it — for example, by:

• drafting transaction documents;

• negotiating commercial arrangements;

• reviewing contracts; and

• advising on various corporate matters.

In taking on these tasks, typically, it is expected that an in-house counsel understands the accounting and financial elements of the transaction or the matter to (for example) evaluate whether something is material and whether action is required. In this regard, something would be considered material if it is probable that users of the financial statements would have taken different actions if the information had not been misstated or omitted.

An in-house counsel needs to deal with a wide range of queries, many of these are business queries, albeit the professional advice that an in-house counsel gives is legal advice.

Accounting is often called "the language of business", and finance has been referred to as "the theory of business". Previously, arguably it may be possible to be an adequate in-house counsel without knowing much about accounting and finance, but it is no longer possible to advice on corporate or transactional matters without using the correct accounting and finance terminology and understanding the different financial statements. The ability to converse using the correct vocabulary adds to the in-house counsel's confidence and creditability, and the ability to understand what financial elements are at play avoids miscommunications that often lead to litigation.

It is an undisputed fact that the legal landscape is changing. This guide's emphasis is on the interpretation rather than the construction of finance and accounting information. It is not designed to turn in-house counsels into accountants; instead, it is an essential starting point for in-house counsels who may be struggling with the fundamentals of finance and accounting. It is also a useful refresher of basic finance and accounting - to enable in-house counsels working closely with finance, accounting, tax, auditing and other professionals, as well as senior and executive management, to discussing business in a confident, competent and proficient manner, and to add value to the organisation.

Accounting is not just about number crunching. The guidance note outlines the accounting process, explains the accounting standards, and introduces the basic accounting principles and guidelines, accounting elements and key accounting equations.

See Accounting — the essentials.

There are many different branches of accounting and they all serve different functions. The guidance note explains the differences between financial accounting and management accounting as well as the differences between internal auditing and external auditing. The concept of “true and fair view” in terms of financial statements is also explained. The guidance note also touches on what is tax accounting, forensic accounting and fund accounting.

See Branches of accounting and their functions.

Financial statements have a lot to do with financial records of an organisation. The guidance note defines these terms and introduces the four principle financial statements — statement of financial position, statement of profit and loss, statement of changes in equity, statement of cash flow. The information in financial statements will often indicate if an organisation is in financial distress. The guidance note will discuss these indicators. This guidance note will also explain the concepts of solvency and liquidity.

See Financial statements — an introduction.

The guidance note looks at the four principle financial statements in greater detail, including the information they provide and tips to interpret them. This guidance note provides an in-house counsel the ability to interpret simple financial statements and record noteworthy information. The guidance note also provides examples of:

• how these financial statements may look like in real life and highlight risk factors that may lead to financial distress; and

• how financial statements could be manipulated by unscrupulous practices and highlights warning signs that may indicate such practices.

This guidance note also explains the important role of an internal auditor in detecting and preventing financial statement fraud. The role of a forensic accountant is also explored.

See Financial statements – the information they provide and how to interpret them.