Bharat's How to Draft Directors' Report by CA Kamal Garg

Division 1

Contents of Board’s Report

Chapter 1      Board’s Report — An Introduction                                  

Chapter 2      Disclosures pursuant to the Companies Act, 2013

2.1.     Disclosures under Section 134(3)

2.1.(a).   No need to give the extract of the annual return as provided under sub-section (3) of section 92

2.1.(b).   Number of meetings of the Board

2.1.(b).(i).   Whether dates of Board meeting required to given

2.1.(b).(ii).  Frequency of meeting – meaning of “year” thereof

2.1.(b).(iii). Practical Implications for Directors’ Report Disclosure

2.1.(c).    Directors' Responsibility Statement

2.1.(c).(i).    Author’s note – avoid boilerplate language

2.1.(c).(ii).  Author’s note – be careful for inconsistent accounting policies & unreasonable estimates

2.1.(c).(iii). Author’s note – accounting records for safeguarding assets and preventing fraud and other irregularities

2.1.(c).(iv).  Author’s note – going concern

2.1.(c).(v).   Author’s note – adequate ‘internal financial controls’

2.1.(c).(vi).  Author’s note – “all” laws to be interpreted reasonably in context

2.1.(ca). Details in respect of frauds reported by auditors under sub-section (12) of section 143 other than those which are reportable to the Central Government

2.1.(d).   A statement on declaration given by independent directors under sub-section (6) of section 149

2.1.(e).    In case of a company covered under sub-section (1) of section 178, company's policy on directors' appointment and remuneration including criteria for determining qualifications, positive attributes, independence of a director and other matters provided under sub-section (3) of section 178

2.1.(f).    Explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made—

                                                            (i)        by the auditor in his report; and                              

                                                           (ii)        by the company secretary in practice in his secretarial audit report 

2.1.(f).(i)     Author’s Note – meaning of Auditor

2.1.(f).(ii)    Author’s Note – meaning of explanation or comments

2.1.(g).   Particulars of loans, guarantees or investments under section 186

2.1.(g).(i).   Author’s Note – consistency in disclosure of loans, guarantees, and investments

2.1.(h).   Particulars of contracts or arrangements with related parties referred to in sub-section (1) of section 188 in the prescribed form

2.1.(i).    The state of the company's affairs

2.1.(j).    The amounts, if any, which it proposes to carry to any reserves

2.1.(k).    The amount, if any, which it recommends should be paid by way of dividend

2.1.(l).    Material changes and commitments, if any, affecting the financial position of the company which have occurred between the end of the financial year of the company to which the financial statements relate and the date of the report

2.1.(m).   The conservation of energy, technology absorption, foreign exchange earnings and outgo, in such manner as may be prescribed

2.1.(m).(i).   Author’s Note – missing disclosures on energy conservation, R&D, and foreign exchange when financial statements reveal what the Board’s report omits

2.1.(n).   A statement indicating development and implementation of a risk management policy for the company including identification therein of elements of risk, if any, which in the opinion of the Board may threaten the existence of the company

2.1.(n).(i).   Author’s Note – when the Board’s Report ignores the red flags in the financials

2.1.(o).   The details about the policy developed and implemented by the company on corporate social responsibility initiatives taken during the year

2.1.(o).(i)    Author’s Note – CSR disclosures: interpreting “policy developed and implemented” in light of ongoing projects

2.1.(p).   In case of a listed company and every other public company having such paid-up share capital as may be prescribed, a statement indicating the manner in which formal annual evaluation of the performance of the Board, its Committees and of individual directors has been made

2.1.(q).   Such other matters as may be prescribed – other than One Person Company or Small Company

2.1.(q).(i).   Author’s Note – can a show cause notice be reported

2.2.     Disclosures related to Employees

2.2.1       Calculation of remuneration

2.2.2       Calculation of percentage of shareholding

2.2.3       Employees' Particulars in loose Annexure

2.3.     Re-Appointment of Independent Director

2.4.     Change in the composition of the Board

2.5.     Disqualifications of Directors

2.6.     Audit Committee – disclosures for composition and reasons for not accepting Board’s recommendation

2.7.     Issue of Equity Shares with differential rights

2.8.     Sweat Equity

2.9.     Redemption of shares and/or debentures

2.10.   Investor Education and Protection Fund

2.11.   Disclosures pertaining to consolidated financial statements

2.12.   Vigil Mechanism

2.13.   Supplementing Disclosures

Chapter 3      Matters to be included in Board's Report for One Person Company and Small Company                                                                              

3.1.     One Person Company and Small Company

3.2.     Contents of the Board Report

(1)   Abridged report for one person company and small company

(2)   Particulars of contracts or arrangements with related parties

3.3.     Qualification, reservation or adverse remark or disclaimer made by the auditor

Chapter 4      Disclosure pursuant to the Listing Regulations            

4.1.     Report on projection made in offer document for public or right issue by a listed company

4.2.     Management Discussion and Analysis Report (MDAR)

4.3.     Report on Corporate Governance

Chapter 5      Disclosure pursuant to Employee Stock Option and Employee Stock Purchase Schemes                                                                                

5.1.     Under Companies Act, 2013

5.2.     Under SEBI Regulations

5.3.     Provision of money by company for purchase of its own shares by employees or by trustees for the benefit of employees

Chapter 6      Disclosures by Producer Companies                              

6.1.     Producer Company

6.2.     Mandatory contents of the Board’s Report for a Producer Company

6.3.     Application of provisions relating to private companies

6.4.     Interplay between Section 134 and Section 378ZR: reconciling general and special provisions

Chapter 7      NBFCs – Disclosures Pursuant to Directions of Reserve Bank of India        

7.1.     Non-Banking Financial Companies

7.2.     Miscellaneous Non-Banking Companies

7.3.     Residuary Companies

7.4.     Systemically Important Non-Deposit taking Company and Deposit taking Company

Chapter 8      Disclosures pursuant to National Housing Bank Directions  

Chapter 9      Other Disclosures                                                               

9.1.     Statement as to consolidated financial statements

9.2.     SWOT Analysis

9.3.     Projections and Estimates

9.4.     Disclosures as per Secretarial Standards

9.5.     Disclosure of commission to managing or whole-time director

9.6.     Additional information which may be given in the Board’s Report

9.7.     Dividend

9.8.     Major events occurred during the year

9.9.     General Information

9.10.   Investor Education and Protection Fund (IEPF)

9.11.   Details of Establishment of Vigil Mechanism

9.12.   Auditors

9.13.   Compliance with Secretarial Standards

Chapter 10    Secretarial Audit Report                                                    

Chapter 11    Cost Audit Report                                                              

11.1.   Requirements of the Companies (Cost Records and Audit) Rules, 2014

11.2.   Explanations in the Board’s report in response to Cost Auditors’ qualification

11.3.   Reporting of frauds

Chapter 12    Explanations in the Board’s Report in response to Auditors’ Qualification 

12.1.   Auditors’ remarks are not available to the Board at the time of its consideration and authentication of the balance sheet and profit and loss account

12.2.   Auditors’ report involves a debatable point

12.3.   Meaning of Auditor