Appointment of Director

What are the Contents of a Director’s Report?

The board meeting minutes are included in the directors' reports. These documents may be consulted at any moment, particularly if legal matters come up.

According to the Firms Act of 2013, the larger limited companies must file the Director’s report, a financial report created by the Board of Directors, after the fiscal year. Financial reporting is an important aspect of the business that provides information about the company’s state and its adherence to a number of accounting, financial, and CSR requirements. We shall inform you about the report’s contents in this article.

Brief Analysis of a Director’s Report 

Disclosure from every registered company is required (Except OPCs and small corporate entities). The Director’s Report reveals the following:

  1. State of a Company’s Business Proceedings – S 134 (3) (I): The financial results of the year, which will indicate the net profit before tax and the net profit after tax, as well as the allocation of profit, including the transfer to general reserve, which is left to the Director’s discretion, come first and foremost. The entire sales and income shall be included in the report on an annual basis. Additionally, it highlights the company’s issues that have impacted profits and the steps made to streamline operations and cut expenses.
  2. The number of Board Meetings Conducted 134 (3) (b): It is important to note the number of board meetings held during the year, their dates, the number of committee meetings held, and the number of board meetings that each director attended.
  3. Online Proof of Annual Return: The website address required by section 92 subsection(3) will be posted, if any.
  4. Inter-company Credits and Investments (186): In connection to loans, investments, and guarantees made by the company during the fiscal year, it is necessary to state that the company complied with the requirements of section 186 of the Companies Act of 2013.
  5. Related Party Fund Transfers (188): It calls for all of the transactions made by the company throughout the financial year, as well as the justification for doing so.
  6. Justification towards the Auditor’s Qualifications S 134 (3) (f): Every qualification, reservation, or critical remark made by the Statutory Auditor or Secretarial Auditor must be explained or commented on in the report.
  7. List of Associate Companies [Rule 8 (5) (iv)]: It includes the name of the business that is no longer one of its affiliates, joint ventures, or subsidiaries.
  8. Performance Insights of the Associate Companies: Each subsidiary, associate, and joint venture company’s performance and financial status will be covered in a different section of the directors’ report.
  9. Inputs of each Director per Section of the Company – S 134 (3) (q): The appointment and resignation of the Director/KMP during the year must be included in the Board Report.
  10. Dividends-S 134 (3)(K): The Board’s recommendation for the dividend rate for the reviewed year must be included in the report for the members’ approval at the AGM.
  11. The List of Events Taking Place after Balance Sheet Date-S 134(3)(L): The directors’ report must include any information that could affect the choice of how to use the financial statements.
  12. Amount Shifted to Any Reserve – S 134 (3) (J): The amount that the board proposes to any reserve, such as the reserve for debenture redemption under section 71(13), must be disclosed in the balance sheet.
  13. Risk Management Policy – S 134(n): If there are any risk factors, they are identified as well. According to the Board, the company’s continued existence may be in jeopardy.
  14. Constitution of Committee- Sexual Harassment at Workplace: The corporation must include information about the committee’s makeup for sexual harassment of women and the workplace in the board report.
  15. Statement on Internal Financial Standpoint – Rule 8 (5) (vii): Private limited companies are only obligated to remark on the internal financial control’s suitability and not its efficacy [section 134(5)(e)].
  16. Voluntary Revision of the Report (Section 131): The specific justification for the financial statement’s adjustment must be made public.
  17. Financial Events [Rule 8 (5) I and II]: Financial summary and any changes to the nature of the firm must be disclosed in the directors’ report.
  18. Elements Under Rule 8 (3): These include the following parts:
  • Conservation of Energy 

This head expresses the effect of energy on discourse.

Also, it states the use of alternative sources by the company and boasts about the financial commitment to energy-efficient equipment.

  • Tech Adaptation 

The Director’s Report clarifies all the following details with chronological stats: 

  • The initiatives taken to integrate technology
  • Benefits of product development, cost savings, product innovation, or effect replacement
  • Foreign technology, the specifics of the imported technology, the year of import, and if it has been completely absorbed. If not, then the cause and problem regions must be stated.
  • Spending on research and development 

 

  • Foreign Exchange Revenue 

It is expressed in terms of the actual inflows during the year and the real outflows of foreign exchange during the year.

19. Responsibilities of the Director S – 134 (3) (c): It relates to the two items listed in clause (c) of subparagraph (3):

  • Accounting guidelines
  • Accounting procedures

The effective and proper maintenance of these three things are also stated: 

  • Going issues
  • Internal financial controls that are bare minimum
  • Respect for all applicable laws

20. Particulars of Expenses: If the company is exempt from this requirement, it must state in the director’s report that the company has kept accurate records and accounts as required by law.

Purpose of a Director’s Report

A company’s directors are required to create the directors’ report after each fiscal year, under Section 134(3) of the Companies Act of 2013. Greater corporate transparency is ensured via the boards’ or directors’ report. 

Through the information in the directors’ report, the shareholders can make wise judgments. The data in the directors’ report enables shareholders to comprehend:

  • Whether the business can develop and flourish
  • How the company is performing within its market and how the market is performing generally 
  • How the company’s finances are doing
  • Whether the business complies with the requirements for corporate social responsibility, financial oversight, and accounting standards or not

Penalty For Not Filing the Director’s Report On-Time

When the board approves them, the firm’s chairman should sign the board report, also known as the directors’ report, and any annexures. When the board does not let the company’s chairperson to sign the concerned reports, at least two directors, one of whom must be a managing director, must sign the document. The directors’ report ought to be distributed, made available, or posted online with a signed copy.

A company must pay a penalty of Rs. 3 lakh for failing to prepare the Director’s Board Report and the annual report, and each officer of the defaulting company must pay a penalty of Rs. 50,000.

Conclusion

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