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CA CS – Suresh Agarwal
April 23, 2015
Board’s Report and Annual Return
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GovernmentInvestors
Shareholders
Society
“Fine” appears 189 times, “penalty” 41 times, “Prosecution” 24 times and “Imprisonment”76 times in the Companies Act 2013
Opportunity ??
Enhanced Responsibility Towards
•Management
•Audit Committee
•Independent Directors •Auditor
• Promoters
Board’s Report – At a Glance
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Rule no. 8
Form No. AOC-2
Other Sections Referred 92, 149, 178, 186, 188
Corresponding Sections of 1956 Act
215, 216, 217
26 March 2014Table of sections notified by MCA vide Notification File No. 1 l 15/2013-CI.V
1 April 2014 Circular No.07/2014
4 April 2014 Circular No.08/2014
Global Practices
Increased involvement of the Board & accountability
Transparency / Increased disclosure to the shareholders
Increased certification by directors
This report follows a ‘comply or explain’ approach
It is more self regulated than regulated
Involvement of various department for example Company Secretary, Finance and HR etc.
Stringent penalty and provision in case of Non-Compliance
Quality and Quantity of disclosures have been made extensive.
Board’s Report u/s 134 of Companies Act 2013Key Drivers for change
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Applicability - All companies, irrespective of their size and type
Effective Date - Financial year starting on or after April 1, 2014
(MCA circular No. 08/2014 dt. April 4, 2014)
Basis of Report- Standalone Financials
Board’s Report - General provisions
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Signing – The Chairperson, if authorized by the Board or
Two directors including a managing director or
One director (in case of OPC)
Abridged – Salient features by listed companies (no format)
Board’s Report
Penalty
Company – Minimum - Rs. 50,000 Max. 25 Lacs
Officers – Imprisonment upto three years or fine as above or both
General provisions
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• Compliance of all Applicable Laws• Risk Management• Internal Financial Control• Related Party Transaction• CSR• Directors Responsibility • Board Performance Evaluation.• Fraud• Explanation to Audit Observation• Remuneration of Managerial Personnel• Nomination and Remuneration Policy
New Disclosures under Board’s Report
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Board to periodically review compliance reports of all laws applicable to the company as well as steps taken by the company to rectify
instances of non-compliances.. (Clause 49(II)(D)(3) of Listing Agreement) 8
Financial statement, Board’s report, etc
Section 134
Directors’ Responsibility Statement – Company has proper systems in place to ensure compliance to all applicable laws and that the same are operating effectively
Mandatory Secretarial Audit Section 204
Listed and large public companies – Mandatory to get a secretarial audit done every year – Qualification in secretarial audit report to be explained in directors’ report
Compliances of all applicable laws
The Mandate on Risk Management
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Financial statement, Board’s report, etc
Section 134
Directors’ Report – (All companies) Company has defined and implemented a risk management policy and identified all risks which can threaten the existence of a company
Mandatory Secretarial Audit Section 204
Independent directors shall satisfy themselves on the integrity of financial information and that financial controls and the systems of risk management are robust and defensible
The mandate on Internal Financial Controls
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Various contexts to IFC in Companies Act 2013
Section 134 (5) (e) Requires that the directors, in the case of a listed company, had laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively.Section 143 (3) Requires that the Auditors’ Report to state that whether the company has adequate internal financial controls system in place and the operating effectiveness of such controls.Section 177 (4) Requires that every Audit Committee shall act in accordance with the terms of reference specified in writing by the Board which shall, inter alia, include evaluation of internal financial controls. Schedule IV – Code for Independent Directors Requires that the independent directors shall satisfy themselves on the integrity of financial information and that financial controls and the systems of risk management are robust and defensible .
Mandate on Related Party Transactions(RPT)
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Identification of Related PartySection 2(76) & 2(77)
Detailed list of Related Parties to be identified for the purpose of Section 188
Role of Audit Committee Section 177
Approval or any subsequent modification of transactions of the company with related parties
Framework for approval of Related Party Transactions Section 188
Financial statement, Board’s report, etc. Section 134
Directors’ Report (All companies)- To disclose the particulars of contracts or arrangement with related parties referred to in Section 188(1)
Corporate Social Responsibility
Composition of CSR Committee
Contents of CSR Policy
Annual report on CSR
In case of failure to spend 2% of Net profit, specify the reasons for
not spending the amount
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Directors Responsibility Statement
• Accounting standards• Accounting polices• Proper and efficient care for the following :- • Maintenances of adequate accounting records in
accordance with the provisions of this act.• For safeguarding the assets of the company and • For preventing and detecting fraud and other
irregularities
•Going concern basis• Internal financial controls (listed company only )• Compliance with all laws
Directors & KMPs
Changes in directors and key managerial personnel Statement of declaration of independence by independent
directors Appointment of independent director(s) for another term Directors retiring by rotation Reason for resignation by directors
Contents - Requirements in detail[Section 134(3)(d) & 149(7), 149(10), 168(1), Chapter IX Rule 8(5)(iii)]
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Directors & KMPs Remuneration
Details of commission / remuneration to any MD / WTD by holding or subsidiary company
In case of payment of remuneration beyond permissible limit by the companies having inadequate / no profit, followings under head “Corporate Governance”
All elements of remuneration including fixed, PLI etc.
Performance criteria
Service contracts, notice period severance fees
Stock option details, if any
Contents -Requirements in detail[Section 197(14), Sch. V, Part II, Section II]
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Other remuneration related disclosures [ For listed companies only] Ratio of remuneration of each director to median
remuneration of employees Percentage increase in remuneration of each director and
KMPs Percentage increase in the median remuneration of employees Number of permanent employees Relationship between average increase in remuneration and
company performance Comparison of remuneration of KMPs against company
performance Average percentile increase in salary of employees, other than
managerial personnel, comparison with percentile increase in managerial remuneration and justification
Ratio of remuneration of the highest paid director to the highest paid employee (only if exceeds the director’s remuneration)
Policy compliance affirmation
Contents - Requirements in detail[Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rule 2014]
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Audit Committee Composition of the Audit Committee
Any recommendation, not accepted by the Board and reason for non acceptance.
[Section 177(8)]
Details of establishment of Vigil Mechanism Policy on Vigil Mechanism
Operative effectiveness
Contents - Requirements in detailSection 177(8) and [Proviso to Section 177(10), Listing Agreement Clause 49 (II)(B)(5)(F)]
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Policy on Directors and, Remuneration Policy
Policy on directors’ appointment and remuneration including criteria for determining qualification, positive attributes, independence of a directors.
A policy relating to the remuneration of directors KMPs and other employees.
Contents - Requirements in detail[Section 134(3)(e), 178(3), Listing Agreement 49(IV)(B)(4)]
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A report on the performance and financial position of
each of the subsidiary, associate and joint ventures
included in the consolidated financial statement
Name of entities which have become/ ceased to be
subsidiaries joint ventures or associates to be
disclosed
Contents - Requirements in detailSection 134(3)(q), Rule 8(1) , 5 of the Companies (Accounts) Rules, 2014]
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Extracts of the annual return Basic Details – Name, CIN, registered office address, category,
listing status etc.
Principle Business Activity (contributing ≥ 10% ) -
Scope - description of main products/ services, NIC code, percentage of total turnover
Details of holding companies, subsidiary and associates
Scope – standard details (name, CIN, relationship and applicable section)
Shareholding pattern (similar to Cl 35)
Comparison between beginning of year and closing of year
Name-wise details of Promoters, top 10 shareholders, directors and KMPs incl. opening and closing, and date-wise changes in the holding and reasons for such changes
Contents - Requirements in detail
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Extracts of annual return cont.… Indebtedness (Secured, unsecured and deposits)
Principal amount, Interest due but not paid and interest accrued but not due. Opening, closing and overall changes (date-wise not required
Remuneration of WTD/ MD, and KMPs
Salary, Perquisites (under Income Tax Act 1961), ESOPs, Sweat Equity, Commission, others
Remuneration of Independent and other Non-Executive directors
Sitting Fees, Commission and others
Penalty, Punishment and Compounding
Relevant section, details, amount, authority, status of appeal, if any
Contents - Requirements in detail[Section 134(3)(a), 92(3), Rule 12(1) of the Companies (Management and Administration) Rules, 2014, and Form MGT 9]
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Particulars of Loan, Guarantees or Investments under Section 186 No specific format of reporting prescribed
Only the transactions / companies where the section apply need to report
The details may contain the following
Name of the entity and relationship
Nature of transaction (loan, guarantees, investments)
Amount
Principal terms and other details
Contents - Requirements in detail[Section 134(3)(g)]
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Details of significant and material orders by regulators, courts, tribunals impacting the going concern status and company’s operation in future
Contents - Requirements in detail[Section 134(3)(q), Rule 8(5)((vii) of the Companies Accounts Rule 2014]
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Contents - Other Requirements (Existing)
Financial summary or highlights
Transfer to any reserve
Proposed dividend
ESOP disclosures
Post financial year material events till the date of the report
Certificate of compliance of conditions of corporate governance
Explanation / comment on qualification / remark / reservation / disclaimer in the auditors’ report
Particulars of employees drawing remuneration beyond threshold limits
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Conservation of energy, technology absorption, foreign exchange etc.
Directors responsibility statement
State of affairs of the company
Change in the nature of business, if any
Disclosure about differential voting right shares
Disclosure about Sweat Equity Shares
Industry specific disclosures
IPO fund utilization
Contents - Other requirements (existing) cont.…
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Draft Board Report Content for the financial year 2014-15 (1/2)
Particulars Year ended 31st March 2015
Year ended 31st March 2014
TurnoverProfit/(Loss) Before taxationLess: Tax ExpensesProfit/(Loss) after TaxAdd: Balance B/F from the previous yearBalance Profit/(Loss) C/F to the next year
Financial Highlights(Standalone and Consolidated)
1. State of Company’s Affairs and Future Outlook2. Change in nature of business, if any3. Dividend4. Amounts Transferred to Reserve5. Change in Share Capital, if any6. Disclosure regarding Issue of Equity Shares with Differential Rights7. Disclosure regarding issue of Employee Stock Options8. Disclosure regarding issue of Sweat Equity Shares9. Extract of Annual Return10. Number of Board Meetings11. Particulars of Loan, Guarantees and Investments under Section 18612. Details of Loans13. Details on Investment14. Details of Guarantee/ Security Provided:15. Particulars of Contracts or Arrangements with Related Parties16. Explanation to Auditor’s Remarks17. Material Changes Affecting the Financial Position of the Company
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Draft Board Report Content for the financial year 2014-15 (2/2)18.Conservation of Energy, Technology, Absorption, Foreign Exchange Earnings and
Outgo19.Details of Subsidiary ,Joint Venture or Associates20.Risk Management Policy21.Details of Directors and Key Managerial Personnel22.Details of significant &material orders passed by the regulators or courts or
tribunal23.Voluntary Revision of Financial Statement or Board Report24.Statement in Respect of Adequacy of Internal Financial Control with Reference
to the Financial Statements 25.Deposits26.Receipt of any commission by MD/WTD from a company or for receipt of
commission/ remuneration from its Holding or subsidiary27.Declaration by Independent Auditor28.Re-appointment of Independent Auditor29.Secretarial Audit Report30.Corporate Social Responsibility (CSR) Policy31.Audit committee32.Statement Indicating the Manner in which Formal Annual Evaluation has been
made by the Board of its own performance, its directors and that of its committees
33.Nomination & Remuneration Committee policy34.Disclosure on Establishment of a Vigil Mechanism35.Corporate Governance36.Managerial Remuneration37.Disclosure under Sexual harassment of Women at Workplace(Prevention,
Prohibition & Redressal ) Act 201338.Fraud Reporting (Required by Companies Amendment bill, 2014)39.Statutory Auditors40.Cost Auditors41.Management Discussion and Analysis Report42.Directors Responsibility Statement
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Summing up
• Preparing the Board Report will definitely require the experience and expertise of a professional and the Board will need to be extremely cautions in certifying the same.
