The Board's Report, the Annual Report and Integrated Reporting

In one line

Every year the directors must attach to the accounts a report that explains the company's affairs, discloses what the Board did, and states in their own words that the accounts are properly prepared.

In exam wording: section 134(1) requires the financial statements to be approved by the Board and signed in the manner prescribed before submission to the auditor; section 134(3) requires a report by the Board to be attached to the statements laid in general meeting, containing seventeen specified matters; and section 134(5) prescribes the Directors' Responsibility Statement.

Why the law has this at all

The financial statements are numbers. They say what happened but not why, and they say nothing about how the company was governed.

The Board's report is the narrative that goes with them, and everything in the section 134(3) list is there because a member cannot get it from the accounts: how many times the Board met, what the auditors qualified and what the Board says about it, what related party contracts were entered into, what risks may threaten the company's existence, what the company did about corporate social responsibility, and how the Board evaluated its own performance.

And section 134(5) does something different again. The accounts are prepared by the management and audited by an outsider. The Directors' Responsibility Statement makes the directors say, in the first person and on the public file, that the accounting standards were followed, that the judgments were prudent, that adequate records were kept, that the going concern basis was used, and, in a listed company, that internal financial controls were adequate and operating effectively. It converts a diffuse responsibility into a signed assertion.

Some words this chapter uses

A qualification in an auditor's report is a reservation about the accounts. A disclaimer is a statement that the auditor cannot form an opinion. Going concern means the company is expected to continue in business. Internal financial controls are defined in the Explanation to section 134(5)(e). Integrated reporting is a practice of reporting financial and non-financial performance together; it is not a term of the Act.

Approval and signature: section 134(1) and (2)

Section 134(1). The financial statement, including the consolidated financial statement, if any, shall be approved by the Board of Directors before they are signed on behalf of the Board by:

• the chairperson of the company where he is authorised by the Board, or by two directors, of whom one shall be the managing director, if any; and
• the Chief Executive Officer, the Chief Financial Officer and the company secretary, wherever they are appointed;
• or, in the case of a One Person Company, only by one director,

for submission to the auditor for his report thereon.