Annual Reports Disclosure required under the

The accounts of the company are required to be audited by an external auditor
The auditor’s reports states the following:
They have sought and obtained all the information and explanation necessary for the audit work
Proper books of accounts as required by law have been kept by the company
Financial statements are in compliance with the applicable accounting standards
Any other specified matter

A company that has raised money by inviting the public to subscribe for its shares is required to sign a listing agreement with the stock exchange where it wants its shares to be traded
The listing agreement imposes a number of disclosure requirements
These are applicable to Listed Companies
E.g. Management Discussion and Analysis, Corporate Governance Report, Business Responsibility Report

1. Annual Reports ACCOUNTING FOR MANAGERS SESSION 21-22 ‹#›

2. Objective At the end of this session you should be able to understand Contents of Annual Report Director’s Report Auditors’ Report Financial Statements and Notes thereon Other Information ‹#›

3. Disclosure under the Companies Act, 2013 The companies registered in India are regulated in terms of the provisions of the Companies Act, 2013 It requires a number of disclosures These disclosures are applicable to all companies and are mandatory in nature E.g. Auditors’ Report, Directors’ Report, Details Regarding Subsidiary Companies. ‹#›

4. Disclosure required under the Listing Agreement A company that has raised money by inviting the public to subscribe for its shares is required to sign a listing agreement with the stock exchange where it wants its shares to be traded The listing agreement imposes a number of disclosure requirements These are applicable to Listed Companies E.g. Management Discussion and Analysis, Corporate Governance Report, Business Responsibility Report ‹#›

5. Disclosures required under the relevant accounting standards Most of the accounting standards, in addition to providing guidance for accounting, also impose certain disclosure requirements These disclosures are in addition to CA, 2013 E.g. Segment Reporting, Related Party Disclosure, Disclosure of Interest in Other Entities, Financial Instruments: Disclosures ‹#›

6. Voluntary Disclosures To ensure transparency, companies are making additional disclosures in their annual reports which go beyond the mandatory requirements as aforesaid No uniformity in type of report or contents of reports across companies E.g. Value Added Statement, Economic Value Added, Human Resource Accounting, Brand Valuation ‹#›

7. Auditor’s Report The accounts of the company are required to be audited by an external auditor The auditor’s reports states the following: They have sought and obtained all the information and explanation necessary for the audit work Proper books of accounts as required by law have been kept by the company Financial statements are in compliance with the applicable accounting standards Any other specified matter ‹#›

8. Auditor’s Report If auditors’ opinion on all of the above is affirmative, the auditors’ report is said to be a clean report If the auditors are not able to form an opinion, they may issue a disclaimer If they feel that the financial statements do not represent a ‘true & fair view’, they may issue an adverse opinion If they have any reservation, auditors may give a qualified report ‹#›

9. Directors’ Report It carries out a review of the company’s affairs for the year gone by and also covers any significant developments that might have happened between the end of the financial year and the date of the report Some components are: Directors’ Responsibility Statement A statement of independence by independent directors Explanations and Comments Particulars of contracts with related parties State of company’s affairs highlighting business performance and financial overview ‹#›

10. Directors’ Report Amount to be carried to reserves Dividend recommended Material changes and commitments affecting the financial position of the company occurring between the end of FY and Date of report Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and outgo Risk Management policy Corporate Social Responsibility Initiatives Formal Annual Evaluation of the Board and its committees and individual directors ‹#›

11. Details Regarding Subsidiary Companies As per Section 129 of the CA, 2013, a statement containing the salient features of the financial statements of subsidiary or subsidiaries is required to be attached with the financial statements of the holding company. This is, in addition, to the requirement of preparing and presenting consolidated financial statements ‹#›

12. Management Discussion and Analysis Industry structure and developments Opportunities and threats Segment-wise or product-wise performance Outlook Risks and concerns Internal control systems and their adequacy Financial performance with respect to operational performance Material developments in HR/IR ‹#›

13. Corporate Governance Report A brief statement on company’s philosophy on code of governance Details of the Board of Directors and committees thereof Specific Disclosures Disclosures on Materiality Details of Non-compliance, penalties, strictures on the company Whistle Blower policy and access to audit committee Market Price Data Distribution of Shareholding Outstanding GDRs/ADRs/Warrants or any convertible instruments, conversion date and likely impact on equity ‹#›

14. Business Responsibility Report The report demonstrates the steps taken by the company to implement the nine principles enumerated in the guidelines P1 – Businesses should conduct and govern themselves with ethics, transparency and accountability P2 – Businesses should provide goods and services that are safe and contribute to sustainability through their lifecycle P3 – Businesses should promote the well-being of all employees P4 – Businesses should respect the interests of, and be responsive towards all stakeholders, especially those who are disadvantaged, vulnerable and marginalized ‹#›

15. Business Responsibility Report P5 – Businesses should respect and promote human rights P6 – Businesses should respect, protect, and make efforts to restore the environment P7 – Businesses, which engaged in influencing public and regulatory policy, should do so in a responsible manner P8 – Businesses should support inclusive growth and equitable development P9 – Businesses should engage with and provide value to their customers and consumers in a responsible manager ‹#›

16. Segment Reporting (Ind AS 108) To better appreciate the performance of the business enterprise and the risk associated, information about segment-wise performance is essential An operating segment is defined as a component of an entity That engages in business activities from which it may earn revenues and incur expenses Whose operating results are reviewed regularly by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance For which discrete financial information is available ‹#›

17. Segment Reporting (Ind AS 108) Reportable segments are identified based upon the business activities in which it engages and economic environments in which it operates. The factors to be considered for business activities may include the nature of product and services, nature of customers, method of distribution, regulatory environment, etc. ‹#›

18. Related Party Disclosure (Ind AS 24) Ind AS 24 requires that an enterprise must identify and disclose its related parties. The definition of related parties is quite wide and includes key managerial personnel and their relatives, holding company, subsidiary company, joint ventures, associate company, fellow subsidiary company, etc. If any transaction has taken place between the related parties during the reporting period, appropriate disclosure need to be made in the annual report. Disclosure in ‘Notes to Accounts’ segment ‹#›

19. Interest In Other Entities Ind AS 112 requires an entity to disclose information that enables users of its financial statements to evaluate the nature of, and risks associated with, its interests in other entities; and also the effects of those interests on its financial position, financial performance and cash flows. The prescribed information is required to be disclosed regarding subsidiaries, joint arrangements, associates and structured entities that are not controlled by the entity. ‹#›

20. Disclosure Regarding Financial Instrument Ind AS 107 requires an entity to make adequate disclosures in their financial statements that enable users to evaluate the significance of financial instruments for the entity’s financial position and performance and the nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the end of the reporting period, and how the entity manages those risks. Disclosures relating to the nature and extent of risks arising from financial instruments include: Qualitative Disclosures Quantitative Disclosures Credit Risk Liquidity Risk Market Risk ‹#›

21. Voluntary Disclosures Value Added Statement Value Added is defined as the value of output produced minus cost of inputs. After ascertaining the value added, the distribution of the value added to various stakeholders is disclosed. By observing the value added statement over a period of time the reader can see the trends in value added as well as how the value added is being distributed amongst the various stakeholders ‹#›

22. Voluntary Disclosures Human Resource Accounting In the knowledge economy, one of the most valuable assets of any enterprise is its human resources. Many companies are providing information about their human resources in the annual report The information may include number of employees, age profile, revenue, profit or value added per employee, etc. The valuation of human resources is usually done at the present value of future earnings of the employees ‹#›

23. Voluntary Disclosures Economic Value Added   ‹#›

24. Voluntary Disclosures Market Value Added Market Value Added is the excess of market capitalization of the company over the shareholders’ funds and can be calculated as follows: MVA = Market Capitalisation – Shareholders’ Funds Or MVA = (Market Price per Share – Book Value per Share) x Number of Shares ‹#›

25. Brand Valuation A business enterprise over a period of time develops a brand equity whereby it is recognized by its customers, employees, suppliers and other stakeholders. Ind AS 38 does not permit recognition of self-generated brands in the accounting records The brand valuation is based upon existence of ‘excess profit’, that is, profit over and above the remuneration for capital and the brand strength. The brand strength is denoted by a multiple – stronger the brand, higher the multiple to be used ‹#›

26. Conclusion In this session we learnt about Contents of Annual Report Director’s Report Auditors’ Report Financial Statements and Notes thereon Other Information ‹#›