ADDITIONAL

DISCLOSURE
STATEMENT
S

Shubham
B.Com(H), C11
16BC412
MANDATORY CONTENTS OF
THE ANNUAL REPORT

Corporate Board of
Audit Governance Directors
Report Report Report
NEED FOR THE ADDITIONAL DISCLOSURE
STATEMENTS
• Stakeholders need information with respect to various parameters
• Explanatory details and detailed notes about the financial performance.
• Compliance with relevant Acts, Guidelines, Rules and Accounting Standards.
• Risk factors for information for all the stakeholders.
• Trends over past years performance through comparative analysis.
• Strategic/Key Focus Areas
• Significant Qualitative information
• Information needs of multiple stakeholders
• True and Fair View of the state of affairs of the enterprise.
AUDITOR’S REPORT

Meaning
According to Section 143(2) of the Companies Act, 2013, the auditor shall make a report to the
members of the company on the accounts examined by him and on every financial statements that
are required by or under the Companies Act to be laid down in it’s annual general meeting by
taking into account the accounting and auditing standards and the provisions of this Act.
CONTENTS OF THE AUDIT REPORT
The auditor’s report shall state the following:-
• According to Section 143(2), whether in his opinion and to the best of his information and explanations given to him
the books of accounts give a true and fair view.
• According to Section 143(3) the auditor has to report:
Whether he has obtained all the information and explanations
Proper books of accounts have been maintained by the company as required by the law.
• According to Section 143(1) the auditor is required to enquire into the following matters:
a) Secured Loans and Advances
b) Transactions represented merely by book entries
c) Sale of investments at less than sale price
d) Loans and Advances made by the company
e) Personal Expenses
f) Issue of shares for cash
• Whether any director is disqualified from being appointed
• Whether the company has adequate internal financial control systems and operating
effectiveness of such control
• Any qualification, reservation or adverse remarks relating to the maintenance of accounts and
other matters

Companies(Audit and Auditors Rules), 2014

• Impact of the pending financial litigations
• Provision for foreseeable losses
• Delay in depositing the money in the Investors’ Education and Protection Fund

Duty to Report on Additional Matters

ELEMENTS/FORM OF AN AUDIT REPORT
The Audit Report shall include the following basic elements as per SA 700 (Revised):-
 Title
 Addressee
 Opening or the Introductory Paragraph
 Management’s Responsibility
 Auditor’s Responsibility
 Opinion Paragraph
 Date
 Address
 Signature
 TYPES OF
AUDIT
REPORT

Standard
Unqualified Modified
Report
or Report
Clean Report

Qualified Adverse Disclaimer of

Report Opinion Opinion
 STANDARD UNQUALIFIED REPORT OR CLEAN REPORT

• No objection report
Instances of areas Fair Presentation Framework
with reasonable
satisfaction True and Fair View
Compliance Framework

• Derived from SA 700 (Forming an Opinion and Reporting

on Financial Statements)
INFOSYS LIMITED
SOURCE:HTTPS
://WWW.INFOSYS.COM/INVESTORS/REPORTS-FILINGS/QUARTERLY-RESULTS/2017-2018/Q4/DOC
UMENTS/STANDALONE/SA-FY18-ANNUAL-AUDITORSREPORT.PDF
 MODIFIED REPORT

• To highlight a matter regarding financial statements due to its importance

• Emphasis Of Matter paragraph is included preceding the opinion paragraph
• The addition of such a paragraph does not affect auditor’s opinion
 QUALIFIED REPORT

A report may be qualified :

• When there is some limitation on the scope of audit
• When there is disagreement with management on some matter
Derived from SA 705(Modifications to the Opinion in the Independent
Auditor’s Report)
 DISCLAIMER OF OPINION

• It is given when the auditor is unable to express his

opinion
• This may happen when the auditor is unable to collect
sufficient and appropriate audit evidence
 ADVERSE REPORT

• Disagreement
• Material
• Misstatement/ Misleading/ Incomplete information
(individually or in aggregate)
• Derived from SA 705 (Modifications to the Opinion in the
Independent Auditor’s Report)
JCT Electronics Ltd
Source: https://www.moneycontrol.com/bse_annualreports/5002220315.pdf
SUMMARY
If the auditor has evidences that financial statements are
misstated

Material but not

Material + Pervasive
pervasive

Adverse
Qualified
 If the auditor is unable to obtain
sufficient and appropriate audit
evidence

Material + Pervasive Material but not pervasive

Disclaimer Qualified
AUDIT CERTIFICATE AND AUDIT REPORT
REPORT:
Statement of collected and considered facts to give clear and concise
information

CERTIFICATE:
Written confirmation of the accuracy of facts and information

Distinction:
• Meaning
• Guarantee of Accuracy
• Liability of Auditor
• Preparation
• Purpose
• Frequency
Audit Certificate
 THE
FRAMEWORK
OF Accountabili
ty
Transparenc
y

CORPORATE Pillars of Corporate

GOVERNANCE
Governance

Fairness Responsibilit
y
 SALIENT • INDEPENDENT DIRECTORS
 At least one third of the board
PROVISIONS OF  As members of audit and remuneration committee
COMPANIES ACT  Not entitled to any stock options

2013 WITH  Tenure of appointment

 Liability of the independent director
RESPECT TO • Board of directors
CORPORATE  Maximum 15 Directors

GOVERNANCE  Duties of the directors have been notified for the very first time:-
• In accordance with the company’s articles
FRAMEWORK • To act in good faith and the best interest of the company
• Exercise duties with reasonable care, skill and diligence and
exercise of independent judgement.
 The director is not permitted to engage in any activity:-
• Where his direct or indirect interest conflicts with the interest of
the company
• Where he attempts to achieve any undue gain or advantage.
• ACCOUNTABILITY OF AUDITORS
 Compulsory rotation of auditors and audit firms
 The auditor cannot perform non audit services for the company and also for its associate and subsidiary
companies
• SERIOUS FRAUD INVESTIGATION OFFICE
 The SFIO report filed with the court for the framing of charges shall be treated as a report filed by the
Police Officer. It shall have the power to arrest in respect of certain offences of the Act which attract the
punishment for fraud.
• ADDITIONAL DISCLOSURE REQUIREMENTS
Filing Returns with the Registrar of Companies in case of any change in:-
 The number of shares held by promoters
 Top ten shareholders
Within a period of 15 days of such change.
• ESTABLISHMENT OF VIGIL MECHANISM :- For directors and employees to report any genuine
concerns.
• CLASS ACTION SUITS
“A class action is a type of lawsuit in which one or several persons sue on behalf of a larger group
of persons, referred to as the class.”
• SHAREHOLDER ACTIVISM
 Shareholder activism refers to the active influence on firm policy and practices through the use
of ownership position.
 The Companies Act, 2013 has pushed shareholder activism by measures such as; Introduction
of Electronic Voting for certain classes of companies, Class Action suits, approval of related
party transactions, Small Shareholders’ Director etc.
 E- Governance :- It refers to the effective and efficient utilization of the information technology
and telecommunications in effectively monitoring the performance and functioning of an
organization. Such use of information and communication technologies can be at all levels of
governance whether it is a government or business enterprise.
 Whistleblower Mechanism :- Safeguard against victimization; establishment of vigil
mechanism and penalties for making false complaints.
 BOARD COMMITTEES

Mandatory Committees Non- Mandatory Committees

• Audit Committee
• Corporate Governance
• Nomination and Remuneration
Committee
Committee
• Regulatory Compliance and
• Stakeholders Relationship
Government Affairs Committee
Committee
• Risk Management Committee
• CSR Committees
AUDIT COMMITTEE – SECTION 177

COMPOSITION
 Minimum three directors with independent directors forming a majority
 Members should have basic knowledge of finance and accounts.
FUNCTIONS
 Issues related to statutory auditors and his work such as-
Recommendations for his appointment, remuneration and his independence.
To examine the financial statements and auditor’s report thereon.
 Related Party Transactions – approval and modification, if any
 Internal Control
 Important Financial Issues such as –
 Scrutinising inter – corporate loans and investments
 Undertaking valuation of undertakings or assets of the company
 Monitoring the end use of funds raised through public offers
NOMINATION AND REMUNERATION
COMMITTEE – SECTION 178

COMPOSITION
 Three or more Non – Executive Directors , out of which half shall be at least independent
directors
 The Chairman can only be a member and cannot chair the committee.
FUNCTIONS
 Identify persons who are qualified to become directors and key managerial personnel
 To recommend their appointment/removal to the Board
 To evaluate performance of every director
 To recommend to the board remuneration policy for directors and key managerial personnel
STAKEHOLDERS
RELATIONSHIP COMMITTEE
APPLICABILITY
 Every company having more than 1000 shareholders, debenture holders,
deposit - holders and any other security holders at any time during a financial
year
COMPOSITION
 The Chairman shall be a non – executive director
 The Board may decide on other members
FUNCTIONS
 To consider and resolve the grievances of security holders of the company
CSR COMMITTEE – SECTION
135
ELIGIBILITY
Every company having
– Net worth equal to or more than 500 crores or;
– Turnover equal to or more than 1000 crores or;
– Net profit equal to or more than 5 crores
EXECUTION
2% of the average net profits of the company made during three
immediately preceding financial years.
NON MANDATORY
COMMITTEES
 CORPORATE GOVERNANCE COMMITTEE:- Size and Composition of the Board,
Appointment of new directors, succession planning for key positions etc.
 REGULATORY, COMPLIANCE AND GOVERNMENT AFFAIRS COMMITTEE:-
Ensures compliance with applicable legal and regulatory requirements .
 RISK MANAGEMENT COMMITTEE:- Design, implement and monitor an
appropriate Enterprise Risk Management System
CLAUSE 49 OF THE LISTING
AGREEMENT
1. Board of Directors
 Where the Chairman is a non – executive director, at least one- third of the Board
 Where the Chairman is an executive director, at least half of the Board
 Compensation paid to the non – executive directors shall be fixed by the Board of Directors and
will be approved by the shareholders in the general meeting.
2. Audit Committee
 Minimum three directors, two – third of which shall be independent.
 Conduct meetings at least 4 times in a year with a gap of not more than 4 months.
 Quorum:- 2 members or one – third of the members whichever is greater subject to a minimum
of 2 independent members
3. Disclosure of Accounting Treatment and Contingent Liabilities:-
 Justify why the alternative treatment is more representative of the business transactions.
 Clear description of the contingent liabilities accompanied by the auditor’s comments on the
management’s view.
4. Additional Disclosures:-
 Basis of Related Party Transactions:- A statement shall be placed before Audit Committee for
formal approval.
 Board Disclosures – Risk Management
 Proceeds from Initial Public Offerings:- Uses/ applications of funds by major category on a
quarterly basis
5. Certification by CEO/CFO:-
 Do not contain any materially untrue statement.
 Disclose to the Auditors and Audit Committee instances of significant fraud, if
any that involves management or employees having a significant role in the
company’s internal control system.
6. Report of Corporate Governance
A separate section in the annual report on compliance with Corporate Governance,
quarterly compliance report to stock exchange signed by the Compliance Officer or
CEO
BOARD OF DIRECTORS REPORT

Objective
 Proposes to explain to its shareholders the overall financial position of the company -
current operation and the future business scope.
 Details the state of the company and it’s compliance with the set of financial,
accounting and corporate social responsibility standards.
Disclosure Requirements as per Companies Act, 2013
 Extract of the Annual Return in the prescribed form.
 No. of meetings of the Board.
 Directors Responsibility Statement
 Company’s policy on directors’ appointment and remuneration.
 Particulars of loans, guarantees or investments
 Particulars of contracts or arrangements with related parties.
 The State of the company’s affairs.
 The amounts proposed to be carried to reserves.
 Material changes and commitments affecting the financial position of the company occurring between the end of the
financial year of the company and the date of the report.
 Policy developed and implemented by the company on CSR initiatives taken during the year.
 Detailed reasons for revision of the Board’s Report if its Financial Statements do not give a true and fair view of the state
of the affairs of the company or do not comply with the accounting standards notified by MCA.
 Reasons for not spending the CSR amount, if it fails to do so.
 Disclosure in the case of re-appointment of Independent Director.
 Composition of Audit Committee and where the Board of Directors have not accepted
the recommendation of the Audit Committee shall be disclosed with the reason
thereof.
 Ratio of remuneration of each director to the medium employees remuneration
 Details in respect of fraud reported by the Auditor.
DIRECTORS RESPONSIBILITY
STATEMENT

It shall state that:-

 Applicable AS have been followed in the preparation of Annual Accounts
 Directors have selected the accounting policies and have applied them consistently
 Directors have taken sufficient care in the maintenance of adequate accounting records, for
safeguarding the assets of the company, and preventing and detecting frauds and errors.
 Directors have prepared Annual Accounts on going concern basis.
 Directors have laid down the internal financial controls to be followed and such internal controls
are adequate
 Directors have devised proper system to ensure compliance with the provisions of all applicable
laws.
DISCLOSURE REQUIREMENTS AS
PER THE COMPANIES(ACCOUNTS)
RULES, 2014

 The report shall be prepared based on the standalone financial statements and shall contain a separate
section wherein a report on the performance and financial position of each of the subsidiaries, associates
and joint venture companies included in the Financial Statements is presented.
 It shall contain particulars of contracts relating to conservation of energy, technological absorption, foreign
exchange earnings and outgo.
 Statement indicating the manner in which the Board of Directors have made the formal annual evaluation
of its performance and that of its Committees and Individual Directors.
 Financial summary or highlights, change in the nature of business, details of directors or Key Managerial
Personnel who were appointed or have resigned during the year.
 Names of companies which have become or seized to be its subsidiaries, joint ventures or associate
companies during the year.
 Details of Deposits
 Details of significant and material orders,