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

Note the order of events, because it is often asked backwards: the Board approves and signs first, and the signed statements then go to the auditor. The auditor reports on what the Board has adopted.

Section 134(2). The auditors' report shall be attached to every financial statement.

What the Board's report must contain: section 134(3)

There shall be attached to the statements laid in general meeting a report by the Board which shall include:

• (a) the web address, if any, where the annual return referred to in section 92(3) has been placed;
• (b) the number of meetings of the Board;
• (c) the Directors' Responsibility Statement;
• (ca) details of frauds reported by auditors under section 143(12), other than those reportable to the Central Government;
• (d) a statement on the declaration given by independent directors under section 149(6);
• (e) for a company covered by section 178(1), the company's policy on directors' appointment and remuneration, including criteria for determining qualifications, positive attributes, independence of a director and the other matters in section 178(3);
• (f) explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made (i) by the auditor in his report, and (ii) by the company secretary in practice in his secretarial audit report;
• (g) particulars of loans, guarantees or investments under section 186;
• (h) particulars of contracts or arrangements with related parties referred to in section 188(1), in the prescribed form;
• (i) the state of the company's affairs;
• (j) the amounts, if any, which it proposes to carry to any reserves;
• (k) the amount, if any, which it recommends should be paid by way of dividend;
• (l) material changes and commitments affecting the financial position which have occurred between the end of the financial year and the date of the report;
• (m) the conservation of energy, technology absorption, foreign exchange earnings and outgo, in the prescribed manner;
• (n) a statement indicating development and implementation of a risk management policy, including identification of elements of risk which in the Board's opinion may threaten the existence of the company;
• (o) details about the policy developed and implemented on corporate social responsibility initiatives taken during the year;
• (p) for a listed company and every other public company having such paid-up capital as may be prescribed, a statement indicating the manner in which formal annual evaluation of the performance of the Board, its committees and of individual directors has been made; and
• (q) such other matters as may be prescribed.

Clause (a) is the one changed by the 2017 Amendment, and it is the counterpart of the substituted section 92(3): the annual return goes on the website and the report gives the web address. See [The Annual Return].

Clause (f) is the accountability clause. The Board cannot let an audit qualification pass in silence; it must explain or comment on every one, and on every qualification in the secretarial audit report as well.

Clause (l) is the subsequent events clause, and it catches what happened after the year end but before the report.

The first proviso: no repetition. Where disclosures referred to in this sub-section have been included in the financial statements, they shall be referred to instead of being repeated in the Board's report.

The second proviso: policies on the website. Where the policy in clause (e) or clause (o) is made available on the company's website, it is sufficient compliance if the salient features and any change are specified briefly in the report with the web address where the complete policy is available.

Section 134(3A). The Central Government may prescribe an abridged Board's report for a One Person Company or small company.

Section 134(4): the One Person Company. For a One Person Company, the report means simply a report containing explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made by the auditor. Nothing else in the seventeen-item list applies.

The Directors' Responsibility Statement: section 134(5)

It shall state that:

• (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 at the end of the financial year and of the profit and loss for that period;
• (c) the directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with 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;
• (e) in the case of a listed company, the directors had laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively; and
• (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.

The Explanation to clause (e) defines internal financial controls as the policies and procedures adopted by the company for ensuring the orderly and efficient conduct of its business, including adherence to the 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.

Two things to note. Clause (e) applies only to a listed company; the other five apply to all. And clause (f) is about compliance with all applicable laws, not merely with this Act, which is a very wide statement for a director to sign.

Section 134(6). The Board's report and any annexures shall be signed by its chairperson if he is authorised by the Board, and where he is not so authorised, shall be signed by at least two directors, one of whom shall be a managing director, or by the director where there is only one director.

Sending the documents to members: section 136

Section 136(1). A copy of the financial statements, including consolidated financial statements, the auditor's report and every other document required by law to be annexed or attached, which are to be laid in general meeting, shall be sent to every member, to every trustee for the debenture holders, and to all other persons so entitled, not less than twenty-one days before the date of the meeting.

The first proviso: shorter period. If sent less than twenty-one days before, they are deemed duly sent if so agreed by members (a) holding, where there is a share capital, a majority in number entitled to vote who represent not less than ninety-five per cent of the voting paid-up capital, or (b) having, where there is no share capital, not less than ninety-five per cent of the total voting power.

That is the same double test as the shorter-notice proviso to section 101(1)(ii)(a), and the two should be learned together.

The second proviso: listed companies. For a listed company the sub-section is deemed complied with if the documents are made available for inspection at its registered office during working hours for twenty-one days before the meeting, and a statement containing the salient features, or copies of the documents as any member may require, is sent to every member and every trustee for the debenture holders.

MU's "Integrated Reporting", answered honestly

The phrase does not appear in the Companies Act 2013. It is a reporting practice, not a statutory obligation, and an answer should say so and then show what the Act actually does.

Integrated reporting means presenting a company's financial and non-financial performance together, so that a reader sees not only the profit but the environmental, social and governance consequences of earning it, and how the company creates value over time.

The Act builds towards it without using the phrase, and the material is all in section 134(3):

• clause (m), conservation of energy, technology absorption, and foreign exchange earnings and outgo;
• clause (n), the risk management policy, including risks that may threaten the company's existence;
• clause (o), the corporate social responsibility policy and initiatives, which connects to section 135;
• clause (p), the annual evaluation of the Board's performance; and
• clause (d), the independent directors' declarations.

Add the consolidated statements under section 129(3) and the secretarial audit report under section 204, and what the member receives is a package covering money, governance, risk and social impact. For listed companies, SEBI requires a business responsibility and sustainability report, which is where formal integrated reporting has taken hold in India.

So the honest answer is: integrated reporting is not a requirement of the Companies Act, but section 134(3) already compels a company to report non-financial matters alongside its accounts, and the direction of the law is towards a single, combined report.

A worked example

Ratnagiri Chemicals Limited, a listed public company, closes its year on 31 March 2028 and holds its annual general meeting on 12 September 2028.

Approval and signature. The Board approves the financial statements, including the consolidated statements for its subsidiary, and they are signed by the chairperson, being authorised by the Board, together with the Chief Executive Officer, the Chief Financial Officer and the company secretary. They then go to the auditor for his report, which is attached to every financial statement: section 134(1) and (2).

The Board's report. It must state the web address where the annual return has been placed, the number of Board meetings, the Directors' Responsibility Statement, details of frauds reported by the auditor under section 143(12) other than those reportable to the Central Government, the independent directors' declarations under section 149(6), the nomination and remuneration policy, the Board's explanations on every audit and secretarial audit qualification, particulars of section 186 loans and investments and of section 188 related party contracts, the state of affairs, proposed reserves and recommended dividend, material changes since the year end, energy, technology and foreign exchange particulars, the risk management policy, the corporate social responsibility policy, and, being listed, the manner of the annual performance evaluation of the Board, its committees and individual directors.

The website shortcut. Its nomination and remuneration policy and its corporate social responsibility policy are on the company's website, so by the second proviso it need only give the salient features and any changes briefly in the report, with the web address.

No repetition. Several disclosures already appear in the notes to the financial statements. By the first proviso the report refers to them instead of repeating them.

The Directors' Responsibility Statement. Being listed, the company's statement must include clause (e), that internal financial controls were laid down and were adequate and operating effectively, as well as the five clauses every company must give.

Sending it out. The statements, the auditor's report and the attached documents must be sent to every member, every debenture trustee and every other person entitled, not less than twenty-one days before 12 September 2028, that is by 21 August 2028. Being listed, it may instead make them available for inspection at the registered office for those twenty-one days and send a statement of salient features, or full copies to any member who asks: second proviso to section 136(1).

A shorter period. Had it sent them late, they would still be deemed duly sent if agreed by a majority in number of the voting members who also hold ninety-five per cent of the voting paid-up capital.

A One Person Company. Sindhudurg Design (OPC) Private Limited need only attach a report containing the Board's explanations or comments on every qualification, reservation, adverse remark or disclaimer by the auditor: section 134(4). Its statements are signed by one director: section 134(1).

Distinctions that carry marks

What this does NOT mean

It does not mean the auditor signs before the Board. The Board approves and signs first, and the statements then go to the auditor for his report.

It does not mean every disclosure must appear twice. The first proviso to section 134(3) lets the report refer to disclosures already in the financial statements.

It does not mean every company gives the full responsibility statement. Clause (e) on internal financial controls binds a listed company only.

It does not mean integrated reporting is required by the Act. The phrase is not in the Act; what the Act requires is the non-financial content of section 134(3).

Quick revision

• 134(1): Board approves, then signature by the chairperson if authorised, or two directors including the MD, plus CEO, CFO and company secretary where appointed, or one director in an OPC, then to the auditor. 134(2): auditor's report attached to every financial statement.
• 134(3), seventeen items: (a) web address of the annual return; (b) number of Board meetings; (c) Directors' Responsibility Statement; (ca) frauds reported under section 143(12) not reportable to the Central Government; (d) independent directors' declarations; (e) the section 178 appointment and remuneration policy; (f) explanations on every audit and secretarial audit qualification; (g) section 186 loans, guarantees and investments; (h) section 188 related party contracts; (i) state of affairs; (j) reserves; (k) recommended dividend; (l) material changes since the year end; (m) energy, technology, foreign exchange; (n) risk management policy; (o) corporate social responsibility; (p) annual evaluation of the Board, for listed and prescribed public companies; (q) as prescribed.
• Provisos: disclosures already in the financial statements are referred to, not repeated; policies under (e) and (o) on the website need only salient features and the web address.
• 134(3A) and (4): abridged report may be prescribed for an OPC or small company; an OPC's report is only the Board's comments on audit qualifications.
• 134(5), six clauses: accounting standards with explained departures; consistent policies and prudent judgments giving a true and fair view; adequate accounting records, safeguarding assets, preventing and detecting fraud; going concern; internal financial controls, listed companies only, defined in the Explanation; and systems for compliance with all applicable laws.
• 134(6): signed by the chairperson if authorised, else at least two directors including a managing director, or the sole director.
• 136(1): send to every member, debenture trustee and other person entitled, not less than twenty-one days before the meeting. Shorter period on the majority in number plus ninety-five per cent in value test. Listed companies: inspection at the registered office plus a statement of salient features, or full copies on request.
• Integrated reporting is not a term of the Act; the Act's non-financial content is in section 134(3)(m), (n), (o), (p) and (d), with SEBI requiring a business responsibility and sustainability report for listed companies.

Test yourself

1. Who signs the financial statements, and when do they go to the auditor? After approval by the Board, they are signed by the chairperson where authorised by the Board, or by two directors of whom one shall be the managing director, if any, and by the Chief Executive Officer, the Chief Financial Officer and the company secretary wherever appointed, or by one director in a One Person Company. They are then submitted to the auditor for his report: section 134(1).

2. Name five things the Board's report must contain. Any five of the seventeen in section 134(3), for example: the web address where the annual return has been placed; the number of Board meetings; the Directors' Responsibility Statement; the Board's explanations on every qualification or adverse remark by the auditor and by the company secretary in practice; and the particulars of related party contracts under section 188(1).

3. State the contents of the Directors' Responsibility Statement. That the applicable accounting standards were followed with material departures explained; that accounting policies were selected and applied consistently and judgments and estimates were reasonable and prudent so as to give a true and fair view; that proper and sufficient care was taken for the maintenance of adequate accounting records, for safeguarding assets and for preventing and detecting fraud and other irregularities; that the accounts were prepared on a going concern basis; in a listed company, that internal financial controls were laid down and were adequate and operating effectively; and that proper systems were devised to ensure compliance with all applicable laws and were adequate and operating effectively: section 134(5).

4. What is a Board's report for a One Person Company? Only a report containing the explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made by the auditor in his report: section 134(4).

5. How long before the meeting must the accounts be sent to members? Not less than twenty-one days, to every member, every trustee for the debenture holders and all other persons entitled: section 136(1). A shorter period is deemed sufficient if agreed by a majority in number of the voting members representing not less than ninety-five per cent of the voting paid-up capital.

6. Does the Companies Act require integrated reporting? No. The phrase does not appear in the Act. But section 134(3) already requires non-financial reporting alongside the accounts, including energy conservation and technology absorption, the risk management policy, corporate social responsibility, the annual evaluation of the Board and the independent directors' declarations, and SEBI requires a business responsibility and sustainability report from listed companies.