CORPORATE REPORTING (ANNUAL REPORTING) - CORPORATE ACCOUNTING AND REPORTING

Notes 10 Pages

Bengaluru City University

Bachelor of Business Administration

Contributed by

Prajwal Hallale

CORPORATE ACCOUNTING AND REPORTING_2ND SEMESTER BBA_BANGALORE CENTRAL UNIVERSITY

Vinutha T.N, Assistant Professor, MES Institute of Management
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UNIT 5: CORPORATE REPORTING (ANNUAL REPORTING)
Corporate Reporting - meaning, types, characteristics of financial report, users of corporate
report; Components corporate report– general corporate information, financial highlights,
letter to the shareholders from the CEO, management's discussion and analysis; Financial
Statements-balance sheet, income statement, and cash flow statement, notes to the financial
statements; Auditor's report; Accounting Policies; Corporate Governance Report; Corporate
Social Responsibility Report (Discuss only Role and Significance of above components of
corporate report)
INTRODUCTION
A Sole Trading Concern is owned by proprietor, a firm by its partners and a company by its
shareholders. In Case of Public Limited Companies, the number of shareholders is large in
number. Businesses are operated by owners, but in case of companies, which would have lakhs
of owners (i.e., shareholders), it is impossible and impractical for all owners to come together
and run the business. Hence, the shareholders appoint a committee called "Board of Directors"
to run the business on their behalf. The Board of Directors, in turn, appoints the Executive
Management - i.e., CEO, CFO, COO etc., for managing the day-to-day business operations.
The owners (i.e., shareholders) need to be periodically informed and appraised about the
growth and progress of the business and its operations. For this purpose, the Board of Directors
and the Executive Management presents a report (usually, once a year) to the owners (i.e.,
shareholders) giving details of all business operations covering different perspectives. Such
periodic report given by the Management of the Company to its shareholders is called “Annual
Report” and the process of such reporting is called 'Corporate Reporting'.
OBJECTIVES OR PURPOSE OF CORPORATE REPORTING
Corporate Reporting is not an end in itself, but is a means for achieving certain objectives.
Following are some of the reasons for corporate reporting:
• To provide information relating to Financial Performance and Position to shareholders.
• To give details of operating, investing and financing cash flows of the company,
enabling shareholders to assess the extent of value creation or erosion by the company
• To highlight the various responsibilities of the Management and the extent to which
they are taken care of
• To provide report on the statutory obligations of the company.
• To provide information to external stakeholders (like Banks, Financial Institutions,
Vendors, Customers, Government agencies, Society in general etc.,) for enabling
decision making.
• To provide information to internal stakeholders (i.e., directors, managers etc.,) for
assessing performance, identifying concern areas and take corrective action.

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USERS OF ANNUAL REPORT
Following are some of the users of Annual Report and their purpose of use:
a) Owners: The owners provide funds for the operation of a business and they want to
know whether their funds are being properly utilised or not. They are also interested in
knowing the profitability and financial position of their business. The financial
statements prepared from time to time satisfy their curiosity.
b) Management: The information available in the books of accounts is much helpful to
the management to plan the future activities of the business. It also helps the
management to evaluate the performances and to take corrective actions wherever
necessary.
c) Investors: The prospective investors are in need of accounting information to judge the
profitability and solvency of the concern in which they are going to invest their savings.
d) Creditors: Creditors, want to know the financial position of a concern before granting
credit. The financial statements help in judging such position.
e) Debtors: Customers would like to have accounting information relating to profit made
and financial position of the business, because the financial position helps them to know
the continuity of services till the life time of the product.
f) Employees: Employees are interested in knowing the earning capacity of the firm.
They make use of the accounting information available from the financial statements
to support their claims for better emoluments, bonus, working conditions etc.
g) Banks and Financial Institutions: Banks and Financial Institutions expect financial
statements of a concern at least 3 to 5 years when they approach the bank for financial
assistance like loans, cash credit, over draft, etc.
h) Government: Government is also interested in the accounts of various business
concerns in order to impose income tax, sales tax and excise duty. Moreover, such
information is much helpful to the government to frame the economic policies of our
nation.
i) General public: General public will get to know the contribution of business the
society in the form of payment of tax, employment generation and contribution to
socially beneficial activities.
j) Researchers: At present, research scholars also use the accounting information
extensively for the purpose of their research work.
TYPES OF REPORTS
The Report prepared and presented by Company's Management are of three types viz.,
General Purpose Report: General Purpose Report is the report which provides general and
fundamental information of the company. It includes details like vision and mission of the
company, values of the company, products and services offered, who's who in the company,
and financial statements of the company.
Specific Purpose Report: Specific Purpose Report is the report prepared in adherence to legal
and regulatory requirements like Report of Board of Directors, Management Discussion and
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Analysis, Corporate Governance Report, Business Responsibility Report, Risk Management
Report, Corporate Social Responsibility Report, Secretarial Audit Report etc
Integrated Report: Integrated Report is a report of a broad range of measures that contribute
to long- term value and the role organisations play in the society. Some of these reports are
mandatory to be presented and hence become part of 'Specific Purpose Report'. Business Model
or Value Creation Model of Companies, Business Responsibility Report (i.e., principles- based
report), etc., are part of Integrated Reports.
CHARACTERISTICS OF CORPORATE REPORT OR ANNUAL
REPORT
Following are the qualitative characteristics that a Report must possess, to ensure that it meets
the purpose of reporting:
1) Understandability: An essential quality of the information provided in annual report
is that it is readily understandable by the users who are assumed to have a reasonable
knowledge of basic operations of the business. The information reflected in the annual
report should be drafted in such a way that it can provide its real meaning without
getting into too much complexity.
2) Relevance: The information that is being reflected in annual report must be relevant to
decision-making needs of the users. Information has the quality of relevance when it
influences the economic decisions of the users by helping them evaluate past, present
or future events or confirming, or correcting, their past evaluations.
3) Reliability: The information which is relevant for the users of annual report but not
reliable would eventually be misleading and will influence the decision taken by the
user. That is, the information in the annual report is expected to be relevant and reliable
as it is expected to have an error free and unbiased impact on the presentation of the
report.
4) Comparability: Users must be able to compare the information in annual report,
particularly the financial information, over a period of time in order to identify the
trends in financial position and performance. Further, the users must also be able to
compare the financial information of different entities in order to evaluate their relative
financial position, performance and cash flows. Hence, the measurement and display of
the financial effect of transactions and other events must be carried out in a consistent
manner throughout the entity and over time.
COMPONENTS / CONTENTS OF ANNUAL REPORT

I. Company Overview
1. Vision Statement of the Company
2. Mission of the Company
3. Values of the Company
4. Business Model / Value creation model of the company
5. Products and brands of the company
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6. Opportunities and Risks
7. Strategy of the company
8. Who's who in the company?
9. Financial Highlights/ Key Performance Measures
10. Message from Chairman / CEO etc.,

II. Statutory and other Reports
1. Report of the Board of Directors
2. Management Discussion and Analysis
3. Corporate Governance Report
4. Business Responsibility Report
5. Risk Management Report
6. Corporate Social Responsibility Report
7. Secretarial Audit Report

III. Financial Statements
1. Auditor's Report on Financial Statements
2. Standalone Financial Statements or Consolidated Financial Statements comprising of
a) Balance Sheet
b) Statement of Profit and Los
c) Statement of Changes in Equity
d) Notes to Financial Statements including Significant Accounting Polices
e) Cash Flow Statements
3. Additional Information like Economic Value Added

IV. Other Information:
1. Awards, Accolades, Rewards and Recognition
2. Additional corporate information
3. Notice of Annual General Meeting
4. Attendance Slip
4. Proxy Form
5. Glossary
A brief description and purpose of the above content is provided in the following paragraphs.
I. COMPANY OVERVIEW

1. Vision Statement: A Vision Statement describes what a company desires to achieve in
the long-run. Bata India Ltd., in its annual report states that its vision is "To Make Great
Shoes Accessible to Everyone"
2. Mission of the Company: Mission refers to short statement / statements regarding why
an organisation exists What its overall goal is? What are its goals in operations? What
kind of product or service it provides? Who are its primary customers/ markets? what
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is its geographical area of operations? Etc. Mission of the company articulates the
purpose or the company. The sole purpose of 'Mission' is to serve as company's goal or
agenda.
3. Values: The Values Statement also called the code of ethics, differs from both vision
and mission statements. The vision statement states where the organisation is going and
the mission statement states what it will do to get there. However, the 'value statement'
defines what the organisation believes in and how the people in the organisation are
expected to behave with each other, with customers and Suppliers, and with other
stakeholders. It provides a moral direction for the organisation that guides decision
making and establishes standards for assessing actions. It also provides a standard for
employees to judge violations.
4. Business Model or Value Creation Model: It is a company’s plan for making profits.
It identifies the products/ services the business will sell / offer, the target market it has
identified and the expenses it anticipates. It describes the rationale of how an
organisation creates, delivers and captures value in economic, social, cultural or other
contexts.
5. Products and brands of the company: Some companies provide details of all the
products and services offered by it and the brand names under which these are offered.
Further, a brief history and background of each brand can also be found in few annual
reports.
6. Opportunities and Risks: Opportunities and ‘External strengths’ a business entity
identifies. These indicate the growth potential and prospects for the company. Risks are
‘External Threats’ the company is exposed to. Some companies provide details of
various opportunities it has for its growth and the risks it might encounter in the future.
7. Strategy of the company: Strategy refers to a plan of action designed to achieve the
long term or overall aim of the enterprise. Some companies explain the ‘Strategy’ the
company is adopting to enable the stakeholders get a clear idea of its approach and path
towards the ‘value creation’.
8. Who's who in the company? Every Company mandatorily provides details of the
members of Board of Directors, Names of those in Executive Management, Members
of various committees etc., to enable the stakeholders know details of those managing
their business.
9. Financial Highlights/ Key Performance Measures: The major purpose of an annual
report is to provide financial information to the shareholders. While detailed Financial
Statements are given in Annual Reports, a snapshot of some of the important financial
performance measures are provided to enable a shareholder get an instant understanding
of the company's performance. Some companies provide these details for last 2-3 years,
while few other companies provide them for a period of 10 years. Usually, the following
information is given under this section:
1. Sales Volume
2. Turnover value
3. EBITDA Margin (EBITDA / Sales)
4 Operating Margin (EBIT/Sales)
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5. Earnings Before Tax (EBT Margin)
6. Free Cash Flow
7. Shareholders' Funds
8. Debt-Equity Ratio
9. Return on Equity (or Return on Net Worth)
10. Return on Capital Employed
11. Earnings per Share
12. Dividend payments
13. Client Metrics
14. Employee Metrics
15. Cash Usage
16. Economic Value Added
17. Market Capitalisation

10. Message from Chairman / CEO etc: The Chairman or CEO (or at times both of them)
address the shareholders through a letter in which they provide a brief snapshot of the
year gone-by and what lies ahead.

II. STATUTORY AND OTHER REPORTS
Every company must report to shareholders and other stakeholders regarding the developments
and activities in the company through certain Statutory Reports mandated by the Indian
Companies Act, SEBI and other agencies. Following paragraphs sets out such reports, their
purpose and examples:

1. Report of the Board of Directors: This is the primary report given by Directors (the
agents) to Shareholders (Principal) highlighting the operations, activities, decisions,
results etc., of the financial year under consideration. This is the report wherein
shareholders can get a summary of everything they need to know about the company's
activities over the last financial year. The contents of Directors' Report vary from
company to company.
2. Management Discussion and Analysis: This report is a very detailed analysis
provided by the Board and Executive Management, in accordance with the Listing
Requirements of Stock Exchanges, regarding the past, present and future of the
company. Every minute aspect of the business operations is explained, results justified
and concerns are shared in this report. There is no particular order or format in which
the report is prepared, although the contents remain similar for every company,
Information in this section can help shareholders, bankers, investors, vendors,
government agencies and the like in understanding the problems of the concern, the
current scenario and future prospects.
3. Corporate Governance Report: Corporate Governance Report provides annual
disclosure on the overall corporate governance system and the company's adherence to
the code of conduct for the listed companies. This Report is a part of Annual Report as
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per the requirement of "Securities and Exchange Board of India (Listing Obligations
and Disclosure Requirements) Regulations'
4. Business Responsibility Report: Securities and Exchange Board of India mandated
inclusion of Business Responsibility Report as a part of the Annual Report for top 100
listed companies. The said reporting requirement is in line with the 'National Voluntary
Guidelines on Social, Environmental and Economic Responsibilities of Business'
notified by Ministry of Corporate Affairs, Government of India.
Business Responsibility Report is a disclosure of the adoption of responsible business
practices by a listed company to all its stakeholders. This is important considering the
fact that these companies have accessed funds from the public, have an element of
public interest involved, and are obligated to make exhaustive disclosures on regular
basis.
SEBI has prescribed a format for Business Responsibility Report as a mandatory
requirement for top 100 listed companies by SEBI's Circular dated August 13, 2012.
Other companies are encouraged to use the Business Responsibility Report for making
disclosures to their stakeholders. Business Responsibility Report must be submitted as
a part of the Annual Report.
5. Risk Management Report: This is a voluntary report presented by some companies.
This report highlights the risks for the company, as perceived by the Management, the
mechanism to counter the risks, the risk management framework, risk-governance
structure, risk management highlights of the latest financial year etc.
6. Corporate Social Responsibility Report: The Corporate Social Responsibility or
Sustainability report ids a periodical report publishes by companies with the goal of
sharing their CSR actions and results. The report synthesizes and makes public the
information organizations decide to communicate regarding their commitments and
actions in social and environmental areas. By doing so, organizations let stakeholders
(i.e., everyone interested in their activities) aware of how they are integrating the
principles of sustainable development Into their everyday operations.
The main intention of a CSR or sustainability report is to improve the transparency of
organizations' activities. The goal is twofold:
On one hand, CSR reports aim to enable companies to measure the impact of their
activities on the environment, on society and on the economy (the famous triple-
bottom-line). In this way, companies can get accurate and insightful data which will
help them improve their processes and have a more positive impact in society and in
the world.
On the other hand, a CSR or sustainability report also allows companies to externally
communicate regarding sustainable development and CSR. This allows stakeholders,
such as employees, investors, media, NGOS, among other interested parties, to get to
know better what are the short, medium and long-term goals of companies and make
more informed decisions. These decisions can spread from investing in a business,
buying its products, writing positive (or negative) reviews, among others.
7. Secretarial Audit Report: Securities and Exchange Board of India, in its circular
issued in February 2019, mandated that 'every listed entity and its material unlisted
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subsidiaries incorporated in India shall undertake secretarial audit and shall annex with
its annual report, a secretarial audit report, given by a company secretary in practice, in
such form as may be prescribed with effect from the year ended March 31,2019.
In pursuant to this, all listed companies publish Secretarial Audit Report in which the
Company Secretary certifies the compliance of applicable statutory provisions and the
adherence of good corporate practices by the company.

III. FINANCIAL STATEMENTS
Following are the components under "Financial Statements" section of the Annual Report:

1. Independent Auditor's Report: This is a report given by the auditor of the company
(who is appointed through a resolution in the Annual General Meeting) certifying that
"to the best of information and explanation made available to him, the financial
statements give a true and fair view in conformity with the accounting principles
generally accepted in india". This report includes Auditor's opinion of company's
financial statements, basis of such opinion, key audit matters, information other than
financial statements and auditors report thereon, responsibilities of the management for
the standalone financial statements, auditor's responsibilities for the audit of standalone
financial statements, report on other legal and regulatory requirements.
2. Standalone Financial Statements and Consolidated Financial Statements:
Standalone Financial Statements are financial statements of the company alone, while
Consolidated Financial Statements are statements which combine the financial
information of the company, its subsidiaries, associates and joint ventures. Financial
Statements (both Standalone and Consolidated) include the following
a) Balance Sheet: It is a statement which shows details of Liabitities and Assets
(1.e., Sources of Funds and Application of Funds) as at a given point of time.
This statement Is prepared to show the 'financial position' of the company at a
given point of time.
b) Statement of Profit and Loss: It is a statement prepared at the end of an
accounting period showing the results of the entity (i.e., profit or loss) for the
period. This statement gives details of 'revenues' and 'costs' of the period and
shows the profits (or loss) of the entity before taxes and after taxes. It shows the
profits that are available for distribution to owners and for future retention.
c) Statement of Changes in Equity: 'Equity' refers to Shareholders' funds or
owners' funds. 'Equity' of a company includes 'share capital' and 'other equity
(i.e., retained earnings)'. The Statement of Changes in Equity (SOCIE) shows
details of any changes in the "share capital' and 'other equity' during the
accounting period under consideration. It gives details of issue of shares during
the period, buy-back /redemption of shares, transfer to various reserves, transfer
from reserves, details of utilisation of reserves etc.
d) Notes to Accounts: "Notes to Accounts' is a kind of annexure to 'Balance Sheet'
and "Statement of Profit and Loss'. The 'Balance Sheet' and 'Statement of Profit
and Loss' gives abridged information of each item. The details for each item
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(i.e., asset, liability, revenue, costs etc.,) are given under 'Notes to Accounts'.
Further, details of accounting policies, underlying accounting assumptions etc.,
are also given under this section.
e) Cash Flow Statement: It is a statement which gives details of 'Cash Inflows'
and 'Cash Outflows’ during the accounting period. These details are given under
three headings viz., 'From Operating Activities', 'From Investing Activities' and
'From Financing Activities'. Under each heading, the 'Net Cash Flow' (i.e.,
difference between 'Cash Inflows' and 'Cash Outflows') are shown. This
information is very useful, particularly to shareholders, in understanding
whether the company is 'creating value' or 'eroding value' of shareholders.’
3. Any Other Information: Few companies also show additional financial information
and financial measures which can be of use to the stakeholders.

IV. OTHER INFORMATION
1. Awards, Accolades, Rewards & Recognition: In this section, companies give details
of Awards secured by it from its operations and other activities, achievements made by
the company, media coverage for its performance, rewards from government and other
agencies, recognition conferred by international bodies etc.
2. Notice of Annual General Meeting: The Annual Report is actually an annexure to the
Notice of Annual General Meeting. The shareholders are notified about the date of
Annual General Meeting and invited to attend the same. To ensure that the shareholders
are equipped with all information of the company before they attend the meeting, the
annual report is sent to them beforehand. This notice, apart from mentioning the date,
time and venue of the meeting, also sets out the agenda for the meeting and the
resolutions that have to be passed during the meeting.
3. Attendance Slip: This is a slip that has to be filled by the shareholders willing to attend
the Annual General Meeting, and carry along for submission at the venue of the
meeting. This slip grants entry to the shareholder for the meeting and enables the
company to know the details of shareholders who made their presence at the Meeting.
The shareholders are required to give details of their Registered Folio / Depository
Participant ID and Client ID, along with their name and address. The slip must affixed
with shareholder's signature. At the venue of Annual General Meeting shareholders will
be asked to make a signature, which will be verified with the signature in the
'Attendance Slip'. This is to ensure that the person attending meeting is the original
Shareholder.
4. Proxy Form: In case the shareholder is not able to attend the Annual General Meeting,
he can nominate any other person as his 'proxy' for attending the meetíng on his / her
behalf. When a shareholder is sending a 'proxy' on his behalf to attend the meeting, he
has to fill a form called 'Proxy Form' wherein he provides his details, details of the
proxy and requests the company to consider participation of his proxy in the meetin
and vote on his behalf.
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The Proxy Form is given by the Company in its annual report and will contain space
for shareholder information and proxy information. Further, it also lists out the various
resolutions to be passed at the Annual General Meeting.
The Proxy must carry this form along with his valid Identity proof and submit at the
venue of the Annual General Meeting.
5. Glossary: To enable the users of annual report in understanding the content, some
companies provide a 'glossary' of all basic, important, relevant and unique terminology
used in the report. Further, this section also provides full form of the abbreviations used
in the report.

Important Questions

1. Characteristics / Features of Good Report
2. Types of Report
3. Users of Report
4. Components of Report
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