Introduction: A Board Report is a crucial document prepared by a company’s board of directors to provide an overview of the company’s performance during the year. It is an essential part of a company’s compliance with legal and regulatory requirements, especially under the Companies Act, 2013. In this article, we will explore the contents of a board report, the legal provisions associated with it, and the penalties for non-compliance.
I. What is a Board’s Report?
A board report is prepared by the board of directors which gives overview of the Companies performance during the year. The Board report shall be attached with the signed copy of financials and auditors report which shall be circulated or published.
II. Provisions Referred:
a) Section 134 of the Companies Act, 2013
b) Rule 8 of The Companies (Accounts) Rules, 2014 applies to all companies except One Person Company or Small Company
c) Rule 8A of The Companies (Accounts) Rules, 2014 deals with Matters to be included in Board’s Report for One Person Company and Small Company.
III. Contents of the Board Report of Companies (Except One Person Company or Small Company):
The board report shall be attached with financials and placed before general meeting for members approval:
1. The web address of the company, if any;
2. Number of meetings of the Board held during the year;
3. Directors’ Responsibility Statement;
It shall state-
(a) in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures;
(b) the Directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year and of the profit and loss of the company for that period;
(c) the Directors had taken proper and sufficient care for the maintenance 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;
(d) the Directors had prepared the annual accounts on a going concern basis; and
(e) 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.
Explanation: For the purposes of this clause, the term “internal financial controls” means the policies and procedures adopted by the company for ensuring the orderly and efficient conduct of its business, including adherence to company’s policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information;
(f) the Directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.
4. 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;
5. a statement on declaration given by independent Directors under sub-section (6) of section 149;
6. 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;
7. explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made;
8. particulars of loans, guarantees or investments under section 186;
9. particulars of contracts or arrangements with related parties referred to in subsection (1) of section 188 in the prescribed form;
10. the state of the company’s affairs;
11. the amounts, if any, which it proposes to carry to any reserves;
12. the amount, if any, which it recommends should be paid by way of dividend;
13. 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;
14. the conservation of energy, technology absorption, foreign exchange earnings and outgo, in such manner as may be prescribed;
15. 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;
16. 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 8[annual evaluation of the performance of the Board, its committees and of individual Directors has been made;
17. the financial summary or highlights;
18. the change in the nature of business, if any;
19. the details of directors or key managerial personnel who were appointed or have resigned during the year;
20. a statement regarding opinion of the Board with regard to integrity, expertise and experience (including the proficiency) of the independent directors appointed during the year”.
21. the names of companies which have become or ceased to be its Subsidiaries, joint ventures or associate companies during the year;
22. the details relating to deposits, covered under Chapter V of the Act;
23. the details of deposits which are not in compliance with the requirements of Chapter V of the Act;
24. the details of significant and material orders passed by the regulators or courts or tribunals impacting the going concern status and company’s operations in future;
25. the details in respect of adequacy of internal financial controls with reference to the Financial Statements;
26. a disclosure, as to whether maintenance of cost records as specified by the Central Government under sub-section (1) of section 148 of the Companies Act, 2013, is required by the Company and accordingly such accounts and records are made and maintained;
27. a statement that the company has complied with provisions relating to the constitution of Internal Complaints Committee under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013;
28. the details of application made or any proceeding pending under the Insolvency and Bankruptcy Code, 2016 during the year along with their status as at the end of the financial year.
29. the details of difference between amount of the valuation done at the time of one-time settlement and the valuation done while taking loan from the Banks or Financial Institutions along with the reasons thereof
30. such other matters as may be prescribed.
IV. Contents of the Board Report of One Person Company or Small Company:
1. the web address, if any, where annual return referred to in sub-section (3) of section 92 has been placed;
2. number of meetings of the Board;
3. Directors’ Responsibility Statement as referred to in sub-section (5) of section 134;
4. 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;
5. explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made by the auditor in his report;
6. the state of the company’s affairs;
7. the financial summary or highlights;
8. material changes from the date of closure of the financial year in the nature of business and their effect on the financial position of the company;
9. the details of directors who were appointed or have resigned during the year;
10. the details or significant and material orders passed by the regulators or courts or tribunals impacting the going concern status and company’s operations in future.
V. Penalties:
Non-compliance with the board report requirements can result in penalties. Companies in default can face a penalty of Rs. 3,00,000, and officers in default may be penalized with Rs. 50,000.
Conclusion: A board report is not just a document but a reflection of a company’s financial and ethical standing. Understanding its contents and the associated legal provisions is essential for companies to fulfill their compliance responsibilities. Failure to do so can lead to significant penalties, making it imperative for businesses to take their board reports seriously and ensure they are accurate and comprehensive.
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