I. Compulsory Reporting Requirements
1. Consolidated Financial Statement:
Applicable: To all the Companies having one or more subsidiaries.
Subsidiary includes: Associate Companies and Joint Venture Companies
Crux of the point: In addition to the stand alone financial statements prepared by the companies a combined financial statements of the parent company and its subsidiaries is to be prepared.
Challenges in adhering to the Act:
a. When there is complex group structure in place.
b. When the Joint venture companies follow different methods of financial reporting.
2. Cash flow statement:
Applicable: To all the Companies except one person companies, small companies and dormant companies
Crux of the point: All the respective companies have to include a Cash Flow Statement in their Annual Financial Statement.
(Rules are yet to specify the list of companies)
3. Reporting on Fraud: Serious Fraud Investigation Office (SFIO)
Applicable: To all the Companies on satisfying any one of the following:
- When the Frauds are happening frequently or
- When the fraud amount involved or is likely to be involved is not less than
o 5% of net profit or
o 2% of the turnover of the company for the preceding financial year.
Fraud: Fraud includes corrupt practices, deceit, conflicts of interest and bribery, also.
a. Reporting by Independent Director:
One of the duties of independent director as per Schedule IV is to report concerns about unethical behaviour, actual or suspected fraud or violation of the company’s code of conduct.
b. Re-opening / restatement of Financial Statements:
Voluntary revision of Financial Statements by Board:
- The financial statements can be voluntarily revised based on an application by the Board.
- The accounts of only 3 preceding financial years can be revised.
Revision of Financial Statements by SEBI, Regulatory authorities or Auditors:
- A legal framework has been put in place for the SEBI, Regulatory Authorities or Auditors to apply for restatement of company’s financial statement if needed.
- There is no time restriction if the revision has been initiated by the statutory regulatory authorities.
Challenges in adhering:
The tax implication has to be evaluated again by the companies based on the revised financials.
c. Maintenance of Books of Accounts:
The books of accounts and other relevant papers can be maintained in electronic mode in the prescribed manner.
1. Disclosures in the Board of Directors’ Report:
a. Extract of Annual Return
b. Number of board meetings
c. CSR initiatives and policy
d. Particulars of loans, guarantees, investments etc.
e. Secretarial Audit Report to be annexed to the Board’s report
f. Detailed reasons for revision of financial statements - Board’s duty to send revised financial statements to shareholders
g. Listed company to disclose the ratio of the remuneration paid to directorsand employees.
h. Receipt of commission by a director from the holding company or subsidiary company
i. Every related party transaction along with the justification for entering into such transaction has to be disclosed.
j. Additional information in Directors’ Responsibility Statement
o For listed companies - directors to lay down internal financial controls and ensure such controls are adequate and operating effectively
o Principal business activities, particulars of its holding, subsidiary and associate companies
o Details of shares, debentures and other securities with shareholding pattern
o Members and debenture holders with changes therein
o Promoters, directors, KMP with changes therein
o Meetings of members or class thereof, board and other committees and details of attendance
o Penalties imposed on the company, its directors or officers and details of compounding of offence
o Shares held by FIIs
2. Disclosures in the Auditor’s Report:
a. Auditors to conduct a more integrated audit and to give their opinion on the financial reporting and internal controls of the Company.