10 Important Contents of an Annual Report | Company Accounts

The following points highlight the nine important contents of an annual report.

Contents and Structure of an Annual Report

Content # 1. Chairman’s Speech:

Chairman’s speech highlights corporate activities, strategies, researches, labour relations, main achievements, focuses on future goals, growth. In corporate annual report, the chairman’s speech may not always be found but may be provided to shareholders as a separate document. Chairman’s speech may concentrate on economic condition of the industry to which the corporate unit belongs and the economy of the country.

Sometimes chairman’s speech contains useful data on sales, foreign exchange earnings etc. for different segments of the company. Speech may consist of generalizations and constructive comments about industry and economy. This speech is actually delivered at the annual general meeting of the shareholders. Investors should carefully read the future plans and strategies of the company.

Content # 2. Director’s Report:

Section 217 of the Company law makes it mandatory on the part of directors to make out and attach to every balance sheet laid in an annual general meeting of the company, a report, known as director’s report. As per provisions of Section 217 of Company law, directors are to present their report with respect to the state of company’s affairs, the amount if any which they purposes to earn, to any reserve and dividend, materials changes and commitments if any, conservation of energy ; technology absorption and foreign exchange earnings. The board’s report is generally signed by the chairman if authorized, otherwise it is signed by the company’s manager or secretary if any, by not less than two directors of the company, one of whom shall be managing director.

Content # 3. Auditor’s Report:

Section 227 of the Companies Act says that the auditors shall make a report to the members of the company. It is the obligatory duty of the directors to get the accounts of company audited every year by qualified auditors. An auditor is appointed by the shareholders of a company to audit accounts and as such, auditor addresses the report to the shareholders of the company on the accounts audited by him. It is the duty of the board of directors to attach the auditor’s report to the balance sheet so as to provide a copy of auditor’s report to every member of company. Following is the specimen of a auditor’s report for reference of the students.

Auditor’s Report:

To the members of MRO-TEK LIMITED,

1. We have audited the attached Balance Sheet of MRO-TEK LIMITED, as at 31st March 2008 and also the Profit and Loss Account and the Cash Flow Statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these Financial Statements based on our audit.

2. We conducted our audit in accordance with Auditing Standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Financial Statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

3. As required by the Companies (Auditors Report) Order, 2003, issued by the Central Government of India, in terms of subs- section (4A) of Section 227 of the Companies Act, 1956, we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said order.

4. Further to our comments in the Annexure referred to in Paragraph 3 above, we report that:

(a) We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purpose of our audit.

(b) In our opinion, proper books of accounts as required by Law have been kept by the company so far as appears from our examination of such books.

(c) The balance sheet and profit and loss account and cash flow statement dealt with by this report are in agreement with the books of account.

(d) In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with this report comply with the Accounting Standards referred to in Sub-section (3C) of Section 211 of the Companies Act, 1956.

(e) On the basis of written representations received from the Directors and taken on record by the Board of Directors, we report that none of the Directors of the company are disqualified as on 31.03.2008 from being appointed as Directors of the company under clause (g) of sub section (1) of Section 274 of Companies Act, 1956. (j) In our opinion and to the best of our information and according to the explanations given to us, the accounts together with the notes thereon give the information required under the Companies Act, 1956 in the manner so required and give a true and fair view in conformity with the Accounting Principles generally accepted in India:

(i) In the case of Balance Sheet, of the state of affairs of the company as at 31st March 2008;

(ii) In the case of profit and loss account, of the Profit for the year ended on that date; and

(iii) In the case of Cash Flow Statement of the Cash Flows for the year ended on that date.

for Narayanan, Patil and Ramesh

Chartered Accountants

Place: Bangalore, L R Narayanan

Date: 14 May 2008 Partner

Membership No. 200/25588

Source: Annual Report MRO-TEK LIMITED 2007-08

Content # 4. Balance Sheet:

Balance sheet which is also known as position statement provides a bird’s eye view on company’s financial position as well as condition. This statement indicates whatever company has and whatever company owes. The excess of assets over liabilities is known as owners equity/shareholders funds.

Content # 5. Profit and Loss Account:

The profit and loss account which is also known as Income Statement indicates net profits earned by company during current financial year. Income statement also indicates profits available for distribution and appropriation after meeting tax liabilities. Profit and Loss Appropriation Account or Retained Earnings Account is also submitted with profit and loss account which indicates appropriations made during the period.

Content # 6. Schedules:

An average annual report generally contains some schedules forming part of balance sheet and others forming part of profit and loss account. These schedules are attached with financial statements for giving detailed information regarding items concerned. Students are advised to see schedules forming parts of accounts on Page 8.34 of Chapter 8 for reference.

Content # 7. Cash Flow Statement:

The accounting standard AS-3 (Revised) cash flow statements issued by ICAI in March 1997 has made obligatory on the part of companies for reporting its cash flows as per the requirements of the standard. Detailed discussion has been made in chapter 5 entitled cash flow statement regarding preparation of cash flow statement as per provisions of AS-3.

Content # 8. Accounts of Subsidiary:

Section 212 of the Companies Act 1956 requires companies to provide statement pursuant to section 212 regarding information’s about subsidiaries duly signed by directors and company secretary on behalf of the board of directors along with detailed information regarding directors of different subsidiaries along with secretary auditors and bankers. An information about the addresses of registered offices is also to be attached.

Content # 9. Corporate Governance:

Corporate Governance focuses on a company’s structure and processes to ensure transparent and responsible corporated behaviour corporate Governance is not a sati exercise rather it is a dynamic process effective corporate Governance not only reduces the agency costs incurred due to division of ownership but it helps in saving of time and resources of investors. On the other hand poor corporate governance practices enhance the agency costs and reduce firm valuation.

Whereas good corporate governance facilitates independent supervision of company’s management and encourages effective decision making which enhances firm value, reputation, credit rating, improves overall performance, lowers cost of capital, improves access to capital markets and increases competitive edge.

The financial year 2000-01 is important for those who value of corporate governance. A beginning has been made in India far mandatory observance of corporate governing practices through clause 49 of the listing agreement of the stock exchanges.

All companies which are part of Group A of Bombay Stock Exchange or S & P CNX Nighty index as on January, 1, 2000 have to implement Corporate Governance practice on or before March 31, 2001. Other listed companies with paid up capital of Rs 30 million and above are also to implement Corporate Governance practices as per the time schedule given in clause 49, but in any case not later than March 31, 2003.

Following are extracts from annual report of MRO-TEK limited 2007-08for reference of the students:

Corporate Governance:

(Pursuant to Clause 40 of the Listing Agreements entered into with the Stock Exchanges)

Company’s Philosophy on Corporate Governance:

The Company’s philosophy on Corporate Governance is aimed at assisting the top management of your company in the efficient and ethical conduct of its business, in meeting its obligations to shareholders, stakeholders, Government and the society at large.

MRO-TEK’s business objective and that of its management and employees is to manufacture and market the Company’s products in such a way as to create value that can be sustained over the long term for consumers, shareholders, employees, business partners and the national economy.

MRO-TEK is conscious of the fact that the success of a corporation is a reflection of the professionalism, conduct and ethical values of its management and employees. In addition to compliance with regulatory requirement, MRO-TEK endeavors to ensure that highest standards of ethical and responsible conduct are met throughout the organisation.

Board of Directors:


The present strength of the Board is six Directors, comprising of two Executive and four Non-Executive, Independent Directors.

S. Narayanan, Chairman and Managing Director and H. Nandi, Managing Director are the two Executive Directors.

R. Rajagopalan, N. Sivaram, A. Mohan Rao, and A. Murali are the four Independent, Non-Executive Directors on the Board of your company.

Whole-time Directors:

The present five-year tenure of S. Narayanan and H.Nandi, as Chairman and Managing Director, and Managing Directors, respectively of the Company, ended on 31 March 2008.

Based on the recommendations of the Remuneration Committee and the Board of Directors, approval of the members is now sought for their re-appointment for a further period of five years, effective from 1 April 2008 to 31 March 2013, on terms and conditions detailed in the Notice.

The fixed component of salary payable to each of them, as detailed in the Notice is Rs 5, 00,000 (Rupees five lacs only) per month and ‘Commission on Net Profits’ limited to 5% of Net profit for each year as defined under the Companies Act, 1956, as reduced in the aforesaid fixed component of salary shall be ‘performance linked’, such ‘performance’ being ‘linked’ directly to the profits earned by the Company year to year.

However, minimum remuneration, where in any year, there is no profit or profits are inadequate, the fixed component of salary payable to each of them, shall be restricted to? 3, 50,000 (Rupees three lacs fifty thousand only) per month, as provided under Schedule XIII to the Companies Act, 1956.

The draft of Service Contracts incorporating the terms, as detailed in the Notice, are available with the Company Secretary for inspection by the members any time during the working hours of the Company.

While no notice period and/or severance fee is provided/proposed to be provided therein, contribution of the Company to the provident Fund and Super-annulation, at percentage as applicable to other Senior Executive may be termed as ‘pension’. No Stock options are planned in relation to this re-appointment.

Number of Board Meetings:

A total of six Meetings of the Board of Directors were held during the year under review, on 23 May, 27 June, 27 July, 24 October 2007, 23 January and 26, March 2008.

Directors' attendance record and directorships

Audit Committee:

The Audit Committee comprises of R. Rajagopalan as the Chairman, with N. Sivaram, A. Mohan Rao and A. Murali as the other members of the Committee-all of them being independent and non-executive Directors.

R. Ramaswamy, the Secretary of the Company, is also the Secretary of the Audit Committee.

The role and terms of reference to the Audit Committee covers the areas mentioned under Clause 49 of the Listing Agreement and Section 292 A of the Companies Act, 1956, besides other terms as may be referred, from time to time, by the Board of Directors.

During the year, the broad terms of reference of the Audit committee, were to review with the Management, the Internal Auditors and the Statutory Auditors:

(i) the Company’s accounting and financial controls and reporting processes-quarterly and annual.

(ii) Accounting and financial policies and practices.

(iii) Internal control and internal audit systems.

(iv) Compliance with Company policies and applicable laws and regulations.

(v) To recommend to the Board, regarding the appointment/reappointment of Statutory, Internal and Cost Auditors and the remuneration payable to them.

(vi) Remuneration to Directors.

(vii) Accounting of ESOP Costs in accordance with SEBI guidelines.

Remuneration and Compensation Committee:

The Remuneration and Compensation Committee comprises of R. Rajagopalan as the Chairman, N. Sivaram, A. Mohan Rao and A. Murali as the other members of the Committee all of them being independent, non-executive directors.

R. Ramaswamy, the Secretary of the Company, is also the Secretary of this Committee.

The terms of reference to this Committee include:

(i) Formulation of policy relating to, and fixation of, remuneration payable, and other service terms and conditions applicable to the Executive Directors, and other senior executives of the Company;

(ii) Remuneration payable to the non-executive Directors for meetings of the Board and/or various committees attended and

(iii) Administering of Company’s Employees Stock Option Scheme.

Remunerations to the whole-time Directors and other Directors of the company are derived from, and in accordance with the relevant regulations of the Companies Act, 1956, and approved by the shareholders of the company.

Individual agreements listing out such terms and conditions are duly executed with the whole-time directors, for the specific period/s of appointment/s, so approved. No agreements are made with the non­executive Directors relating to their tenure and/or remuneration.

Details of the remuneration paid to the Directors are detailed in the relevant schedules forming a part of the Annual Accounts for the year ended 31 March 2008. No stock options were granted/allotted under ESOS, to any of the directors. This committee met twice during the year, on 24 October 2007 and 26 March 2008, and was attended by all the members R. Rajagopalan, N Sivaram, A. Mohan Rao and A. Murali.

Shareholders Committee:

The shareholders Committee comprises of A. Mohan Rao as the Chairman, N. Sivaram, R. Rajagopalan and A Murali, as the other members- all of them being Non-Executive, Independent Directors.

The committee met four times during the year, on 23 May, 27 July, 24 October 2007 and 23 January 2008.

The Shareholders committee has constituted a sub-committee comprising of S. Narayanan, H. Nandi, and R. Ramaswamy, (also as Compliance Officer), with any two of them forming a quorum.

The terms of reference to this committee/sub-committee include:

(i) To approve all transfer (including transmission, transposition, re-mat) requests received.

(ii) To note the transfers which have taken place till the immediately preceding date on which Beneficiary Position (Benpos) report is received,

(iii) To scrutinize and note the highlights of the Benpos report and

(iv) To review action taken on shareholders’ grievance/s.

This sub-committee normally meets on the 4th and 19th day of every month, and if any of those days fall on a Sunday or a holiday, on the immediately preceding working day, provided there are any subjects referred to the committee to be resolved during this respective fortnight/s.

The Shareholders committee which meets once every calendar quarter, reviews the report and takes note of the highlights furnished by the sub-committee on transactions in the equity shares of the Company, as also directs the sub-committee in all its actions.

The Shareholders Committee met four times during the Financial Year ended 31 March 2008, and a total of 8,668 Shares in the physical form, were transferred during the Financial year under review. All complaints received from shareholders and investors have been solved to the satisfaction of the complainants. All valid requests for share transfers received during the year have been acted upon by your Company and no request for transfer has either been refused or is pending.

Information on Investor Complaints for the Year:

Information on Investor Complaints

Remuneration of Directors for 2007-08:

Remuneration of Directors

General Body Meetings:

Location and time for previous three Annual General Meetings for the financial years ended on March 31:

General Body Meetings

General Body Meetings


Transactions with related parties are disclosed in note 29 in Schedule 18 to the Accounts in the Annual Report. The Register of Contracts containing the transactions, in which directors are interested, is regularly placed before the Board for its ratification and approval.

During the previous three years, or in any of the earlier years, there were no strictures or penalties imposed by either SEBI or the Stock Exchanges or any statutory authority for non-compliance of any matter related to the capital markets.

The Company’s personnel have access to the Audit Committee to refer any matter’s regarding concerns about unethical behaviour, actual or suspected fraud or violation of Company’s code of conduct or ethics policy.

Compliance with Non-Mandatory Requirements:

(i) Remuneration and compensation Committee has duly been constituted.

(ii) The company is in the regime of unqualified financial statements.

(iii) The Company consistently trains its Board members, on an on-going basis, in the business modal of the company as well as the risk profile of the business parameters of the company, their responsibilities as Directors, and the best ways to discharge them.

(iv) The company has a procedure of bringing to the notice of management, any matter/s regarding concerns about unethical behaviour, actual or suspected fraud or violation of company’s code of conduct or ethics policy.

Means of Communication:

Means of CommunicationIndustry Structure and Developments, Opportunities and Threats, Segment-wise performance, outlook, Risks and Concerns of your Company and discussion on financial performance with respect to the Operational Performance:

To the extent applicable, have duly been covered in the Director’s report.

Shareholder Information:

Shareholder Information

(c) Date of Book Closure- 14 June 2008 to 25 June 2008 (both days inclusive)

(d) Date of Dividend Payment- After the date of AGM and within the stipulated period of 30


(e) Listing on stock exchanges:

i. National Stock Exchange (NSE), Bombay Stock Exchange (BSE).

ii. Annual listing fee has been remitted for NSE and BSE for the year 2008-09.

iii. Annual custody fee has been remitted from NSDL and CDSL for the year 2008-09.

Bombay Exchange and National Stock Exchange

Bombay Exchange and National Stock Exchange

Certificate of Auditors on Corporate Governance:

To the members of MRO-TEK LIMITED

We have examined the compliance of conditions of Corporate Governance by MRO-TEK Limited, for the year ended on 31 March 2008, as stipulated in clause 49 of the listing agreement of the daid Company with stock exchanges.

The compliance of conditions of Corporate Governance is the responsibility of the management. Our examination was limited to procedures and implementation thereof adopted by the Company for ensuring compliance of the conditions of the corporate governance. It is neither an audit nor an expression of opinion on the financial statements of the Company.

In our opinion, and to the best of our information and according to the explanations given to us, we certify that the company has complied in all material respects with the conditions of Corporate Governance as stipulated in the above mentioned listing Agreement.

We further state that such compliance is neither an assurance as to the future viability of the company nor the efficiency or effectiveness with which the management has conducted the affairs of the Company.

for Narayanan, Patil and Ramesh

Place: Banaglore, Chartered Accountants

L.R. Narayanan

Date: 14 May 2008 Membership No. 200/25588

Content # 10. Accounting Policies:

It has been observed that an average annual report in India use to contain a statement of disclosure on accounting policies followed by the company while preparing financial statements. It may be due to the mandatory compliance of AS-1 (Disclosure of accounting policies). Accounting policies are the specific accounting principles and the methods of applying those principles.

Accounting policies represent choices among different accounting methods that can be used while preparation of financial statements. Every reporting entity use to disclose various accounting policies followed while presenting various items of income statement as well as of balance sheet for instance method followed for charging depreciation on Fixed Assets.

Submitted by : Professor Aashika, Category : Annual Report