HOW TO PREPARE THE DIRECTORS’ REPORT AS PER COMPANIES ACT, 2013
HOW TO PREPARE THE DIRECTORS’ REPORT AS PER COMPANIES ACT, 2013
Director
Report is very crucial document of a Company. Every Company has to prepare it
annually. Its govern by Section 134 of Companies Act, 2013. This section states,
the clauses which are required to be mentioned in Directors Report.
As per
Act this is responsibility of Directors of the Company to Prepare Director
Report and become part of e-form AOC-4 as annexure. However, the people who are
certifying the e-form AOC-4 have to check whether all the information mentioned
in Directors Report are correct or not?
Professional
has to check the each and every information mentioned in the Directors’ Report.
Therefore, a question arise how to check the information mentioned in Directors
Report.
The
main thrust of this editorial is “How to Prepare Director Report?”
“What are the documents / information a person has to check while preparing a
Director Report?”
This is article no. 357 of the series of editorials written by the author on corporate
laws {Including Companies Act, 2013, SEBI, RBI Regulations, IBC, LLP Act, 2008 etc.}.
I.
ADDRESS TO MEMBERS:
Language:
|
How To Check The Financial Year
|
Your Directors have pleasure in
presenting the (No. of Financial Years) Annual Report together with the
Audited Statement of Accounts of your Company for the financial year ended
March 31, 2016
|
i.
Check
from the Annual Return/Directors’ Report of previous financial year.
ii.
Check
the incorporation date and calculate to verify.
|
II.
FINANCIAL HIGHLIGHTS:
Language:
|
How To Fill the Figures
|
|||||||||||||||||||||||||||||||||||||||
The
Company’s financial performance for the year ended March 31, _____:
|
Check the Statement of Profit & Loss Account
for the year ended March 31, _____. You will find required figures on the
FACE of Statement of Profit & Loss Account.
|
|||||||||||||||||||||||||||||||||||||||
|
Turnover: Section-
2(91)- "turnover" means the gross amount of revenue recognized in
the profit and loss account from the sale, supply, or distribution of goods
or on account of services rendered, or both, by a company during a financial
year.]
Deferred tax: As per Accounting Standard (AS) 22,
deferred tax is the tax effect of timing differences.
|
III.
STATE OF AFFAIRS: Section
134(3)(i)
Purpose
|
Language:
|
How to Check the
Affairs of the Company
|
134(3)(I)
The
State of The Company’s Affairs;
|
The
Company is engaged in the business of ___________________________. There has
been no change in the business of the Company during the financial year ended
31st March, 2016. Or there is _________________________ Changes in the
business of the Company during the financial year ended 31st March, 2016.
The
highlights of the Company’s performance are as under:-
o Revenue from operations increased by ______% from
Rs. _______ lacs to Rs. _____ lacs.
o Net Profit for the year increased by _______%
from Rs. _________ lacs to Rs. _____ lacs.
o Earnings per share have increased by _______%
from Rs. ______ to Rs. _______.
The increase in revenue, net profit and EPS as
mentioned above is accredited to increase in turnover in comparison to the
last financial year.
OR
The decrease in revenue, net loss and EPS as
mentioned above is debited to decrease in turnover in comparison to the last
financial year.
|
o Company can find the Affairs of the Company from
the Notes to Accounts (attached as part of Balance Sheet).
o Company can find if there is any Change in the
affairs of the Company by comparing the Notes to Account of Last financial
year TO current financial year.
How to analyze the Companies
Performance:
Check the Statement of Profit & Loss Account
for the year ended March 31, ________. All the adjacent required figures are
available on the FACE of Statement of Profit & Loss Account. Compare the
figures of Last financial year TO current
financial year and calculate the increase/Decrease in Revenue from Operation/
Net Profit/ Earning per share.
Formula for calculating Percentage
Change:
(Turnover of Current Financial Year- Turnover of
Last Financial Year/ Turnover of Last Financial Year)*100
If value comes in Positive (+) that will be result
of___________% increase in Revenue
If value comes in Negative (-) that will be
result of___________% decrease in Revenue
SAME FORMULA FOR NET PROFIT AND EPS.
|
Purpose
|
Language:
|
From where to Check
|
The amount, if any, which it
recommends should be paid by way of dividend;
|
In view of the sustained working
results during the year under review, the Board of Directors are pleased to
recommend a dividend of Rs ___/- per equity share
OR
In view of the planned business
growth, your Directors deem it proper to preserve the resources of the
Company for its activities and therefore, do not propose any dividend for the
Financial Year ended March 31, 2016.
|
First:
Check the Face of Statement of Profit and Loss
Account; Amount of Dividend will be mention there.
Second:
Check the Copy of General Meeting resolution in
case of final Dividend and check the Board Meeting resolution in case of
interim Dividend.
|
V.
DETAILS OF SUBSIDIARY,
JOINT VENTURE AND ASSOCIATE COMPANIES:
Purpose
|
Language:
|
How to find out
Subsidiary, JV and Associates
|
||||||||||
Rule 8(5)(iv)
The name of companies which have
become or ceased to be its Subsidiaries, joint ventures or associate
companies
during the year;
|
The Company does not have any
Subsidiary, Joint Venture or Associate Company.
OR
The names of companies which have
become or ceased to be the Company’s subsidiaries, joint ventures or
associate companies during the year under review is provided below:
![]() ![]() ![]() ![]() ![]() ![]()
|
First Check:
Check the Investment of the Company from Non
Current Investment in the Balance Sheet, check the relevant Note and analyze
about Subsidiary, Associate and Joint Venture as per definition given u/s
2(87) and 2(6) of the Companies Act, 2013.
Second:
Check from the (Accounting Standard) AS-18.
|
VI.
INTERNAL FINANCIAL CONTROL:
|
Language:
|
How to Check?
|
Rule 8(5)(viii)
ICAI guidance note on adequacy of
internal financial controls with reference to financial statements can be
referred for this Purpose.
|
The Company has in place adequate
internal financial controls with reference to financial statements. During
the year, such controls were tested and no reportable material weakness in
the design or operation was observed
|
Most listed companies are reading requirements
related to IFC as those referring to IFC for financial reporting along with
limited focus on the operational controls aspect.
Auditors are required to certify that the IFC in relation
to financial statement are designed and operate effectively.
|
VII. PARTICULAR OF LOAN AND INVESTMENT:
Purpose
|
Language:
|
How to Check?
|
Section 134(3)(g)
particulars of loans, guarantees or
investments under section 186;
|
Particular of Loans given,
investments made, guarantee given and securities provided along with the
purpose for which the loan or guarantee or security is proposed to be
utilized by the recipient are provided in the financial statement (please
refer Note _______ to the standalone balance sheet).
|
Check the Loan and Investment from the Assets
side of Balance sheet and relevant Notes.
Check the Guarantee from the Contingent
Liabilities and schedule. Also check from the Notes to Financial Accounts.
|
VIII.
CHANGE IN NATURE OF BUSINESS,
IF ANY:
Purpose
|
Language:
|
How to check?
|
Rules 8(5)(i)
|
There is no change in the business of
Company and its Subsidiary Company.
The Board may provide details
relating to change in the business carried on by the company or its subsidiaries.
This shall also contain details pertaining to classes of business in which
the company has an interest.
|
Check the Followings:
-
Main
object of the Company
-
Notes
of the Financial Statement
|
IX. AMOUNTS TRANSFERRED TO RESERVES, IF ANY:
Provision
|
Language:
|
How to check?
|
Section- 134(3)(J)
The Board of the company has decided/
proposed to carry Rs____
to its reserves
|
No amount was transferred to the
reserves during the financial year ended 31st March, 2016.
The Board of the company has decided/proposed
to carry Rs____ to its reserves.
|
Check the Assets side of Balance sheet, if there is
increase in reserve other than the balance of profit and loss account.
|
X.
CHANGES IN SHARE CAPITAL,
IF ANY:
Language:
|
How to check?
|
During the Financial Year 2014-15,
the share capital of the Company has been increased from ____ to ____,
pursuant to
allotment of____ equity shares of Rs
____ each under Private Placement/Preferential allotment/Rights issue
/Employee Stock Option Scheme of the Company
|
Check the Followings:
-
Whether
any PAS-3 filed
-
Check
from the Minutes of the Meeting
-
Difference
b/w amount of Capital in the Balance sheet.
|
XI. EXTRACT OF ANNUAL RETURN:
Provisions:
|
Language:
|
How to check?
|
Section 134(3)(a)
the extract of the annual return as
provided under sub-section (3) of section 92;
|
The extract of Annual Return, in
format MGT -9, for the Financial Year 2014-15 has been enclosed with this
report
|
Format of MGT-9 given in Companies Act, 2013. For
preparation of MGT-9 first prepare the MGT-7.
|
XII.
NUMBER OF BOARD MEETING:
Purpose
|
Language:
|
How to check?
|
Section 134(3)(a)
number of meetings of the Board; held
during the financial year 2014-15
|
During the
Financial Year 2014-15, [**] meetings of the Board of Directors of the
company were held. [Preferable to state the dates of meetings]
|
Check the Minutes of the Board Meeting.
Get the Index of Board Meetings from the Company.
|
XIII.
PARTICULARS OF CONTRACT
AND ARRANGMENT WITH RELATED PARTIES:
Provision:
|
Language:
|
How to check?
|
Section- 134(3)(h)
The Particulars of contracts or arrangement s
with related party referred to in Section 188(1) of the Companies Act, 2013
for the Financial Year 2014-15 in the prescribed format AOC-2, has been
enclosed with the report.
|
All related party transactions that were entered
into during the financial year ended 31st March, 2016 were on an arm’s length
basis and were in the ordinary course of business. Therefore, the provisions
of Section 188 of the Companies Act, 2013 were not attracted. Further, there
are no materially significant related party transactions during the year
under review made by the Company with Promoters, Directors, or other
designated persons which may have a potential conflict with the interest of
the Company at large. Details of the transactions are given in AOC-2
|
Check the following :
-
AS-18
-
Minutes
of Board Meeting & General Meeting (If any Resolution passed)
|
XIV. EXPLANATION TO AUDITOR’S REMARKS:
Provision:
|
Language:
|
How to check?
|
Section 134(3)(f)
Explanation
or comment by the Board on every qualification, reservation, adverse remark
or disclaimer made by the statutory auditor in his report and/or by the
secretarial auditor in the secretarial Audit Report.
|
The observations
of the Statutory Auditors, when read together with the relevant notes to the
accounts and accounting policies are self explanatory and do not call for any
further comment.
|
Check the Auditor Report
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XV. MATERIAL CHANGES AFFECTING THE FINANCIAL POSITION OF THE COMPANY:
Provision:
|
Language:
|
How to check?
|
134(3)(L)
Details regarding any material changes / events,
if any, occurring after balance sheet date till the date of the report to be
stated
|
No material changes and commitments affecting the
financial position of the Company occurred between the end of the financial
year to which this financial statement relates and the date of this report.
|
Check the following
-
Trial
Balance
-
Financial
Position
-
Market
Condition
|
XVI.
CONSERVATION OF ENERGY,
TECHNOLOGY, ABSORPTION, FOREIGN
EXCHANGE EARNINGS AND OUTGO:
Provision:
|
Language:
|
How to check?
|
134(3)(M)
The details of Energy, Technology, Absorption,
Foreign Exchange Earnings and Outgo are as under:
a)
Conservation
of Energy:
b)
Technology
Absorption:
c)
Foreign
Exchange Earnings/ Outgo:
|
The particulars as required under the provisions
of Section 134(3) (m) of the Companies Act, 2013 in respect of conservation
of energy and technology absorption have been furnished considering the
nature of activities undertaken by the company during the year under review.
|
Check the following
-
Financial
of the Company.
-
Check
with directors.
|
XVII. RISK MANAGEMENT POLICY:
Provision:
|
Language:
|
How to check?
|
134(3)(N)
Statement indicating
the development and implementation of the risk management policy of the
company Moreover, in case the Company has constituted a risk management
committee, then the constitution and the terms of reference of the same to be
disclosed.
|
The Company
has in place a mechanism to identify, assess, monitor and mitigate various
risks to key business objectives. Major risks identified by the businesses
and functions are systematically addressed through mitigating actions on a
continuing basis.
|
Check the policy prepared by the Company.
|
XVIII. DETAILS OF DIRECTORS AND KEY MANAGERIAL PERSONNEL:
Provision:
|
Language:
|
How to check?
|
Rule 8(5)(iii)
Details of
Directors and KMP appointed or resigned during the year.
Details of
directors retiring by rotation in the ensuing Annual General Meeting
|
There has
been no change in the constitution of Board during the year under review i.e.
the structure of the Board remains the same
|
Check the
Following:
-
DIR-12
-
MCA
-
Comparison
from last annual return
-
Register
of Director
|
XIX. DETAILS OF SIGNIFICANT
& MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS OR TRIBUNAL:
Provision:
|
Language:
|
How to check?
|
Details of
the order passed by the authorities which impacts the going concern status
and company’s operations in future
|
No
significant or material orders were passed by the Regulators or Courts or
Tribunals which impact the going concern status and Company’s operations in
future
|
Get the
information from the Management of the Company.
|
XX. VOLUNTARY REVISION OF
FINANCIAL STATEMENTS OR BOARD’S REPORT:
Provision:
|
Language:
|
How to check?
|
This section
is notified w.e.f. 01.06.2016
|
|
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XXI. DISCLOSURES UNDER SEXUAL
HARASSMENT OF WOMEN AT WORKPLACE
(PREVENTION, PROHIBITION & REDRESSAL) ACT, 2013
Provision:
|
Language:
|
How to check?
|
The employer
shall include in its report the number of cases filed, if any, and their
disposal under this Act in the annual report of his organization or where no
such report is required to be prepared, intimate such number of cases, if
any, to the District Officer.
|
The
Company is committed to provide a safe and conducive work environment to its
employees. During the year under review.
Your Directors
further state that during the year under review, there were no cases filed
pursuant to the Sexual Harassment of Women at Workplace (Prevention,
Prohibition and Redressal) Act, 2013
|
Get the information from the Management of the
Company.
|
XXII. CONSOLIDATED FINANCIAL STATEMENTS:
Provision:
|
Language:
|
How to check?
|
The
Board’s Report shall contain a Separate section wherein a report on the
performance
and financial position of each:
•
Subsidiary
•
Associate
• Joint
venture companies, including in the consolidated financial statement is
presented
|
Company
doesn’t have any subsidiaries so there is no need to prepare consolidated
financial statement for the F. Y. 2014-15. OR
Consolidated
financial statement is prepared and attached with financials.
|
Check
the followings:
-
Financial Statement
-
Whether company have subsidiary
or not
|
(Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES
Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com). Disclaimer:
The
entire contents of this document have been prepared on the basis of relevant
provisions and as per the information existing at the time of the preparation.
Although care has been taken to ensure the accuracy, completeness and
reliability of the information provided, I assume no responsibility therefore.
Users of this information are expected to refer to the relevant existing
provisions of applicable Laws. The user of the information agrees that the
information is not a professional advice and is subject to change without
notice. I assume no responsibility for the consequences of use of such
information. IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT,
SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION
WITH THE USE OF THE INFORMATION
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