Owners using company funds for own use

​Owners of small private companies have great financial freedom. They can lease assets to the business, put family members on the payroll, and award themselves lavish perks. The truth is, that standard financial statements tell only half the story in small private companies. After all, when wealth flows freely between the owner and the business, personal finances are really part of the organization. Balance sheet figures are also misleading when lifestyle is factored in. In some cases, assets are inflated by beach cottages, mountain chalets, automobiles, and airplanes. Even income statements may be distorted in the small private company. In the small private company profitability doesn’t necessarily drive decision making. Other values are included in the after-tax profits  Hiring an uncle to advise the sales reps or a friend to work in the accounting department serve personal goals more than the profit margin. Similarly, spending for recreation or transportation and paying relatives, rents, salaries, or benefits well above market rates put artificially high costs on the books. Personal preference sets financial policy. This blurring of the lines between personal and company assets is assented to when the owner directors of the small private company approve the annual financial statements. Such approval implies that owner directors take full responsibility for content of the annual financial statements; every word and every number. It does not matter whether they have relied on those that maintain the accounting records that support the numbers if the annual financial statements; the owner directors are fully responsible for the accounting records as well. Section 66 of the Companies Act makes it abundantly clear that "The business and affairs of a company must be managed by or under the

direction of its board". In such circumstances as set above, it is absurd to posit the view that one of the owner directors has used company funds for personal use. In approving the content of the financial statements, the owner directors have tacitly agreed to the content of the annual financial statements and the accounting records that support them