Section 134 of the Companies Act, 2013 (“the Act”) requires the board of directors to attach a report to the financial statements laid before the annual general meeting. The report is the board's account of the company's performance, governance, and compliance, and its contents are prescribed by Section 134(3) and the Secretarial Standard on Board's Report (SS-4).
The Mandatory Contents
Section 134(3) prescribes a long list of disclosures, including the web link of the annual return, the number of board meetings held, the directors' responsibility statement, the details of related party transactions in Form AOC-2, the explanation for any auditor qualification or reservation, the state of the company's affairs, the material changes affecting the financial position, the details of loans and investments, the risk management policy, the CSR contribution, the conservation of energy and technology absorption, and the foreign exchange earnings and outgo.
The related party transaction disclosure under Section 134(3)(h) is particularly significant for listed companies, which must also comply with Regulation 23 of the SEBI (LODR) Regulations, 2015. The board's report must disclose the transactions that are not at arm's length and the transactions that are material.
The Secretarial Standard SS-4
SS-4 prescribes the format and the disclosures for the board's report. The standard requires the report to be signed by the chairman of the board or by at least two directors, and it requires the report to be adopted by the board at a meeting. The standard also requires the report to disclose the compliance with the secretarial standards.
The Listed Company Overlay
A listed company must include the corporate governance report in the board's report or as an annexure. The corporate governance report must disclose the composition of the board and its committees, the remuneration of the directors, the general body meetings, the means of communication, and the compliance with the mandatory and non-mandatory requirements of the LODR.
The Directors' Responsibility Statement
Section 134(5) requires the directors' responsibility statement to confirm that the financial statements have been prepared in accordance with the accounting standards, that the accounting policies have been applied consistently, that the internal financial controls are adequate and operating effectively, and that the directors have taken proper care for the maintenance of the accounting records.
A board's report that omits a mandatory disclosure is defective, and the company and its officers are liable to penalty. The auditor must report on the adequacy of the internal financial controls, and the board's report must reflect the auditor's findings.
Call to Action
Anuj Desai & Associates advises companies on the Section 134 board's report—from the mandatory contents and the SS-4 compliance to the related party transaction disclosures and the corporate governance report for listed entities. If your board's report is due, we can help you ensure that it is complete and compliant.
📧 office@anujdesaiassociates.com
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🌐 https://anujdesaiassociates.com
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