Professional Documents
Culture Documents
The accepted form of financial reporting is the annual report. The most
important components of the annual reports are the balance sheet, which
depicts the financial position of the business at a specific point of time, and
the income statement, which depicts the performance of the same organisation over a specific period of time. Balance sheet and profit and loss account
should fully, fairly and adequately meet the informational needs of the parties
involved. Public interest in the efficient operation and conduct of corporate
enterprises has been increasing and therefore, custodian of public funds should present annual report in an appropriate manner to investors, creditors,
consumers, government, and the public at large so as to fulfil their curiosity
I
Accounting Principles Board. (1 970). Statement No.4, Busic concepts a d accounting principles rtnderlying firrancia1 srutemcnts of bitsiness enrerprises. New York: AICPA. p.6.
regarding the working and performance of the enterprise. This chapter describes the overall objectives of corporate disclosure and evaluates the co~npan y annual report as a source of information. The regulatory framework
of disclosure in corporate annual reports in India have also been discussed in
this chapter.
2.1
clf
reliability of its working .%ohlerer' s Dictionary for Accountants defines it as an explanation, or exhibit, attached to a financial statement, or embodied in a
'Corporate
Disclosure'
or
'Financial
Reporting'
conr~otes
the private domain (of management) into the public domain.' Corporate
disclosure is that aspect of financial reporting which has to do with the
presentation of descriptive or supplementary data as distinguished from the general form of financial statements. Thus disclosure means reporting of
M. Saeed. (1990). The theory of corporate disclosure and its applications In financial
4
reporting. I n M. Saeed (Ed.), Corporateflnancial reporling. New Delhi: Anrnol Publications. p.239. W. W. Cooper., & Y.!jiri. (Ed.) (1984).Kokler's dicriorlrdry for occnutltnnts. New Delhi: Prenticc H a 1 1 of India Pvt. Ltd. p. 176. American Accouniing Asstwiation. ( 1977). Conceptucrlfi-umewurkfor~nmcidoccauntinng unb reporting: Elcntenrs oflfinamcial starernents uad their measurement. USA :AAA. p. 19.
Elements of an
Information system
Sender
Corporate disclosure
System
Entity
Message Channel
Reccivcr
Data
Annual reportsiother published statements
Monitor
2.2
that nothing is omitted. Fair disclosure means that accounting principles have
been applied in a fair manner so as to report the true and fair view of the
anything which influences the decision o f the user must always be reported.
~ u z b ~ while ,' discussing these three points of disclosore, has raised the
S. L. Buzby. (1974). The nature of adequarc disclosure. The JoluurnuI ofAc.counriir~cy,13714). 311-47.
ii
What is the purpose of the disclosure of information? i.e., objectives of corj~orate ddisclnsure;
111
...
iv
2.2.1
reports are used by a variety of groups for diverse purposes. Users can be
direct or indirect users. One major direct user group is the shareholders, which
ranges from an ordinary investor, who neither has the authority nor the
expertise to obtain and understand financial information, to a sophisticated
investor, who has the expertise of understanding and interpreting such
tax authorities and government. The indirect users, who do not directly use the
information for themselves, but need information to help those who have
direct interest in a business enterprise or to provide financial consultancy, includes financiaVsecurity analysts, brokers, stock exchanges, financial press and reporting agencies, etc. However, the direct and indirect users are not
reports as follows:
'
managers and other users, with primary emphasis on the needs of present and potential owners and creditors.
Various levels of user competence have been suggested as a basis for
preparing financial reports. Mautz and har rap prefer the professional
J. Lal. ( 1 985). Corporate annual reports - Theory and practice. New Delhi: Sterling Publishers Pvt Ltd. p.40. Accounting Principle Board. (1970). Statement No.4. Busic concepts and accounsing principles underlyingfinmciad stcarements ofbusiness enterprises. New York: AICPA. p.47. R. K. Mautz., & H. A. Sharaf. (1464). Thephilosophy uofuuditing. AAA's Monograph No.6. Florida: AAA
report should serve primarily those users, who have lirnited authority, ability
the more effective and efficient report wiIl be achieved when the dominant
group is singled out as the focal point of the report. In conclusion, the
investor (existing and potential) is the dominant and primary user of corporate
annual reports. Hence, the preparers of annual reports should give top priority
to their requirements while deciding about the items of information to be
Objectives of Corporate Disclosure The concept of adequate disclosure involves identiQing the objectives
professional institutes all over the world have made attempts to define the objectives of financial statements and financia1 reporting which are vital to the
development of financial accounting theory and practice. It can be rightly said
that most of the attempts in the area of financial reporting objectives have
it1
these countries
!'
American Institute of Certified Public Accountants. (1973). Rrpurf ofrhe 3 r d group ~ on ~ h c objectives offinancial statements. New York: AICPA. p. 1 7. M. N.Chetkovich. (1955). Standard of disclosure and ~ h r i devclopmcn~. r ~ h ~ru u r n uoj' t Accountancy, 118(12), p. 17.
formulated by Accounting Principles Board (APB), Financial Accounting Standards Board (FASB), The Corporate Report (London), Trueblood Committee, Institute of Chartered Accountants of India (ICAT) e tc.
qualitative objectives.12
(1) The particular objective of financial statements is to present fairly and in
of an enterprise.
(2) The general objectives of financial statements according to this
statement are:
(I)
k
3
show its resource base for growth. (ii) To provide reliable information about changes in resources resulting from a business enterprise's profit directed activities in
order to :
12
provide the management with information for planning and control; and
i.
1 Relevance, which means selecting the information most likely to aid the
users in their economic decisions.
2 Understandability, which implies not only h a t the selected information
must be intelligible but also that the users can understand it. 3 Verifiability, which implies that the accounting results may he corroborated by independent measures using the same measurement
methods.
4 Neutrality, which implies that the accounting infocrnation is directed
towwds the co~nnlonneeds of the users rather than the particular needs of
specific users.
6 Comparability, which implies that the differences should not be the result
(1)
( 2 ) An objective of financial statements is to serve primarily those users who have limited authority, ability or resources to obtain infor~nation and who rely on financial statements as their principal source of
information about an enterprise's economic activities.
(3) An objective of financial statements is to provide information useful to investors and creditors for predicting, comparing, and evaluating
potential cash flows to them in terms of amount, timing, and related
uncertainty .
13
Report ofthe AICPA study group on the objeclives of financial statements. np. cit., 6 1-66.
transactions having or expected to have significant cash consequences. This statement should report data that requires minimal judgement and
(10) An objective of financial statements is to provide information useful for the predictive process. Financial forecasts should be provided when they
effectiveness of management of resources in achieving the organisation's goals. Performance measures should be quantified in terms of identified
goals.
(12) An objective of financial statements is to report on those activities of the enterprise affecting society, which can be determined and described or
measured and which are important to the role of the enterprise in its
social environment. The Trueblood Report also presented seven qualitative characteristics which financial statement information should possess in order to satisfy the
needs of the users. These are:
1
3 Reliability;
4
6 Consistency; and
7 Understandability.
Corporate Report' as a discussion paper to review the scope and objectives of published financial reports, public accountability of economic entities and
AStatementofValueAddedtoshowhowthewealthwasproduced,and
how it has been distributed among the employees, the s tatc. the providers
of capital and its reinvestment for maintenance and expansion.
2)
etc.
3)
4)
tZ
5)
6)
The Accounting Standards Steering Committee. (1976). The Curpbrate Report. London: The Institute of Chartered Accountants i n England and Wales. 1C)-17.
and practicality) the report rejected the use of historical cost in favour of
Business Enterprises" issued in November 1978 by US Financial Accounting St'mdards Board. The objectives of financial reporting developed in this statement are the f ~ l l o w i n g : ' ~ (i) Financial reporting should provide information that is useful to the
present and potential investors, and creditors and other users in making
rational investment, credit, and similar decisions. The information
should be
comprehensible to those
who have
a reasonable
understanding of business and economic activities and are willing to study the information with reasonable diligence. (ii) Financial reporting should provide information to help present and potential investors and creditors and other users in assessing the
amounts, timing, and uncertainty of prospective cash receipts from
provide information to help investors, creditors, and others, to assess the m o u n t s , timing and uncertainty of prospective net cash inflows to
the related enterprise.
(iii)
15
Financial Accounting StnnJwds Board. ( 19781. Concept No. I by business enterprises. USA : FASB. p.19.
(iv)
and
creditors'
expectations
about
future enterprise
(v)
enterprise obtains and spends cash, about its borrowing and repayment
owners.
The FASB emphasised the use of financial reporting for different classes
of users and not for the creditors and the investors only. Predictability was
information.
The Stamp Report, 1980 The Canadian Instjtu te of Chartered Account ants (CICA) published a
report in June 1980 on Curparale reporting - Itsfurure evolution, written by
I)
to both
function but also of its success (or otherwise) in achieving the goal of
3)
It is therefore necessary that the standards governing financial reporting should have ample scope for innovation and evolution as improvements
become feasible.
4)
D. S. Ubha. (2001). Corpurote disclosure pmciizes: Text and case sfudies. New Delhi : Deep & Deep Puhlicati~ns. p.10.
given in a such a manner as to minit~use uncertainty about the validity of the information on innovation and evolutiotl of the enterprise. It should be useful
for both sophisticated and tznsophisticated users. Accounting Standards Board of ICAI also has framed the objectives of financial statements which states that financial statements should be prepared
for meeting the common needs of most users and its main objective is to
provide information about financial position, performance and cash flaws of
an enterprise.
2.2.3 Quantum of Information
After identifying the target audience a d the purpose for which information is to be used, the next issue in the corporate disclosure would be
to
relevant to a specific set of users. Needs and expectations of users are a part
''
N.M. Bedford. (1973). Ex&ensionof nrrountir~g disclosure. New Jersey : Prentice Hall Inc.
p.350.
bodies:
4. Informational needs of the users: and 5 . Willingness on the part of the management to disclose adequate and
relevant information.
A large nurnber of suggestions and recommendations have been given
prirrcipks for b.u.~iness enterprises. Ntw York : AICPA, p. 7. Accounting Principles Board. op. cit., 91-98.
pension and retirement plans, contingent assets and contingent liabilities, amounts committed for future capital expenditure, property, plant and equipment, long-term investments, long tern1 receivables, goodwill, patents,
trademarks and similar assets, expenditure carried forward such as
like cash, marketable securities, receivables, inventories, long tern1 liabilities such as secured loans, unsecured loans, inter-company loans, loans from
accounting methods. chandra2' finds in formar ion concerning the income statement, earning per share, budgeting projections and forecasts more useful
to security analysts for making investment decisions. Brurnrnet, Flarnholtz and
pyle2' have recommended that tirrlls should account for their human resources in their balance sheets. Keeping in view of these arguments, i t may be pointed
out that corporate annual reports should contain only those items of information which are useful in making informed decisions and are needed by the users.
2,2.4 M o d e of Disclosure The method in which the information is presented is also important.
''
I
22
N. M. Bedford. op. cit., p.350. G.Chandra. ( 1 975). Informational needs of security analysts. The Journal ofAccountancy, 138( 12), p.70. R. L. Brurnrnet., E. G . Flamholtz., & W. C. Pyle. (1968). Human resource management - A challenge for accountant$. The Accounting Review, 4.712). 2 17-224.
other three issues in corporate disclosure viz., users, objeclivzs and quantum.
(i)
account;
(ii) terminology and detailed presentations;
(iii) parenthetical information;
supplementary i n formation;
enhance the reader's understanding of the data and minimise the possibility of
tnisinterpretition. Investors would undoubtedly like to see accounts drawn up
it1
manner which provides the most satisfactory basis of assessing the future
ability".'4
23
S. Chander. t 1992). Corporate reportiw~ practices in public nnd private Sectors. New Delhi : Deep and Deep Publications. p.16.
24
ar~c,ounring commitfee.
of reported financial data for investor decisions depends upon its usefulness
and timeliness. If there is undue delay in reporting of information, it may lose
its relevance. Timely disclosure is fundamental to good investor relations. A
for the economic decisions which it might influence and to avoid delays in
disclosure. Statement No.4 of the Accounting Principles Board ( 1970P specified timeliness as one of the objectives of accounting. Delay in financial
2 . 3
Qualitative Characteristics of Financial Reporting Qualitative characteristics are the attributes [hat make the information
provided in the financial statements useful to users. Such attributes or characteristics denote the quality of information and hence make financial information more useful. The qualitative characteristics are closely related to
the broad ethical goals of truth, justice and fairness that are generally accepted
25
26
American Accounting Assuc ialion's committee on concepts and standards underlying Financial Statements. (1955). Standard of disclosure for published financial reports. The Accortnring Review. 20(3), p. 302. Accounting Principles Boud. op. cit., 18-19.
of USA, the Trueblood Report and ICAI have suggested certain qualitative
requirements of
financial
reporting. The
five
princ~pal quditative
2.3.1 Relevance
Relevance implies that all those items of information should be reported that aid the users i n making predictions or decisions. Relevance is a
designed to facilitate or results desired to be produced". The question of relevance arises after identification of the purpose for which the information
will be used. It means that information relevant for one purpose may not be
necessarily relevanc for other purposes.
Releva~~ce is the dominant criterion of taking decisions regarding
Thus it can be said that relevant infornution is that which satisfies the
itlformational needs of the users and helps them in evaluating the management
Materiality determines which information should be presented in the financial statements. The concept of materiality does not depend solely on the
amount of information. It refers to the quantitative as well as qualitative
" American
taken on the basis of financial statements, Materiality provides a threshold or cut off point rather than being a primary qualitative characteristic which the information nlust have, if it is to useful. ~ o h l e ? defines materiality as the characteristic attaching to a statement, fact or item whereby its disclosure or
the met hod of giving it expression would be likely to influence the judgement
materiality refers to the significance of a specific item in a specific context. Materiality places restriction on how much should be disclosed. Hence it determines an upper limit on quantum of informat ion that companies can disclose to make annual reports more informative.
2 . 3 . 3
Understandability
An essential quality of information provided in financial statements is
that it must be readily understandable by users. Information in annual reports should be presented in a way that can be understood by well-informed as well
''
29
accounting, New Delhi : Prentice Hall of India Pvt. Ltd. p. 279. The Accounting Standards Steering Committee. op, cit,. 28-29.
holding the balance between the need to ensure all material matters
are disclosed and the need to avoid confusing users by the
provision of too much details. Understandability calls for the provision, in the clearest form, of all the information which the
reasonably instructed reader can make use of and the parallel presentation of the main features for the use of the less
sophisticated.
Comparability
Economic decision requires making a choice among possible courses
accounting
information. Financial
3rl
With in formation that facilitate interpretation, users are able to cornpare and
assess the resul is of similar transactions and other events among enterprises.
Consistency of method over a period of time is adjunct to comparability. Consistency is an important factor within a single enterprise. The qualitative standard of fair presentation in financial statements depends, in part, on
consistency of method.
111
period, the use of similar measurenlent, concepts and procedures for related
items within the statement of a firm for a single period and the use of same
2 . 3 . 5 Reliability
Reliability of financial infor~natjon disclosed is an important ~h.dracte~ist1~. Reliable information is required to f o r m judgements about the
and can be depended upon by users to represent faithfully that which it either
purports to represent or could reasonably be expected to represent. It is the
need for reliable information that underlies the requirement that financial
Faithful Representation
Most financial information is subject to some risk of being less than a faithful representation of that which it purports to portray. This is not due to
bias, but rather due to inherent difficulties either in identifying the
transactions and other events to be measured or in devising and applying measurement and presentation techniques that convey messages that
events it purports to represent, it is necessary that they are accounted for and presented in accordance with their substance and economic reality and not merely in their legal form. The substance of transactions or other events is not always consistent with that which is apparent from their legal or contrived form.
Prudence
The preparers of financial statements have to contend with the
machinery, and the warranty claims that may occur. Such uncertainties are
recognised by the disclosure of their nature and extent and by the exercise of
prudence in the preparation of the financial statements. Prudence is the
inclusion of a degree of caution in the exercise of the judgements needed in making the estimutes required under conditions of uncertainty, such that
assets or income are not overstated arid liabilities or expenses are not
understated. However, the exercise of prudence does not aIlow the creation of hidden reserves or excessive provisions, the deliberate understatement of
its relevance.
It is the responsibiIity of management to report reliable information in
therein. There are many factors affecting the reliability of information. Possibility of error in measuring information and business events may create
The above mentioned qualitative characteristics make financial statements more useful. The qualities are based largely on the needs of the
users of the financial statements. The qualitative characteristics should be arranged in terms of their relative importance to determine the desirable trade
include:
r
Prospectus
Press releases - regular news, inspired newspaper editorials,
financial analysts.
Digital media - corporate websites, public websites, CDs, etc. Published company annual reports,
expensive, mast timely, and fairest method nf reaching all shareholders and
other present or pot en tial investors. Corporate annual reports represent the
most easily accessible and extrerneIy important source of basic information
competence and integrity of those who make them and their adherence to
generally accepted accounting principles.
There are several important reasons for treating the annual report as a valuable source of information to the shareholders and other users. Firstly, annual report, being the audited dr~cument, provides authenticated information
about the issuing entity and thus creates confidence among the public. Secondly, it is relatively more and easily accessible than any other source of
decisions.
2 . 6
Contents of Annual Reports A corporate annual report has differen1 sections dealing with different
Report
The above statements and accounts are mandatory requirements to be complied with by the management. Certain companies make voluntary disclosures Iike human resource accounting. accounting for changing prices,
value added statement, social reporting etc. The form and content of annual
reports to a great extent depends upon the corporate disclosure environment
prevailing in a country.
2.7
contravene the statute law. In India, the first statutory Act giving a legal recognition to the preparation of balance sheet was passed in 1882, known as
the Indian Companies Act, 1882, which contained specific provisions about the preparation of balance sheet and its audit was made compulsory vide
section 74. The preparation of profit and loss account, circulation of annual
accounts, content of auditors' report, directors' report, etc. were contained in
sheet and disclosure of many new items in it as per section 130 to 132.
Articles 107 to 108 of Table A appended to the Act presented guidelines for preparation of profit and loss account and balance sheet and a compulsory
form of balance sheet (Form F of Schedule 111) was aIso given by law.
The provisions about disclosure were further amended by The
Conlpanies (Amendment) Act, 1936. Profit and loss account was given a
status equal to that of a balance sheet. Section 131 was newly introduced
companies in the light of the experience of the huge changes taking place in
the organisation and working of the joint stock companies. On the basis of
number of sections explained below, which have significant bearing on disclosure of information in the ccrrporate annual reports.
Section 209 : Books of account should be kept only on accrual basis and
according to double entry system of accounting (effective from 15.06.1988).
Section 211(1) : Balance sheet to give a 'true and fair view' of the
state
of
it1
generation and
supply of electricity).
Section 211(2) : Profit and loss account to give a 'true and fair view' of the
profit or loss for the financial year. Information to be disclosed in Profit and
loss is prescribed and set out in Part I1 of Schedule VI. (except for an insurance or banking company or a company engaged in generation and
supply of electricity).
Section 211(6) : Information to be disclosed by way of notes and such notes
to form part of the accounts, i.e., balance sheet and profit and loss account.
Section 212 : Balance sheet, profit and loss account, auditors' report and
directors' report of the subsidiary company to be attached to the balance sheet
of the holding comp;iny.
Section 216 : Profit and loss account to be antiexed and auditors' report to be
attached to the balance sheet.
(a)
Stateofcompany'saffairs;
Dividend recommetlded; Material changeslevents after balance sheet date insofar as they
accounts examined by him and on every balance sheet and profit and loss
account and annexures thereto.
Section 619 :
Section 641 (1) : Central Government vested with powers to alter disclosure
requirements in Schedule VI.
Since its enactment. the Companies Act, 1956 has been amended
several
times in line with the growing needs of the users of information and
Companies Act, 1956. certain changes were made in the information requircd
to be disclosed in the balance sheet and profit and loss account. Although the
Act was amended in 1962, 1963, 1964, 1966 and 1967, no changes were brought about by them so far as the matters connected with the corporltte
disclosure were concerned. However, the Amendment Acts of 1965 and 1969 brought about some changes in the matter concerning corporate disclosure,
especially with regard to the maintenance of cost accounts and the adoption of
cost audit in specific companies.
(ii) Quantities and amounts in respect of the turnover of each class of goods; (iii) Break up in quantity and value in respect of each class of raw materials
consurned or purchased;
(iv) Class wise break up of quantity and value in profit and loss account in
purchased;
(v) Break up of expenditure on salary, wages and bonus in respect of
actual production in respect of each class of goods manufactured. The Companies (Amendment) Act, 1988 brought drastic changes in the
provisions on disclosure contained in the Companies Act, 1956. Amendment
to sec.209 of the Act has mandated that every company should keep its books
31.10.1998).
Section 211 (3C) - Accounting standards, initially, to mean the standards of
accounting recommended by the Institute of Chartered Accountants of India
(effective 3 1.10.1998).
statement indicating, inter aliu, that the annual accounts have been prepared
on a going concern basis and that applicable accounting standards have been
followed (effective 13.12.2000).
and
balance
31.10.1998).
(Auditor's Report) Order' (CARO) 2003 (effective from 0 1.07.03) as amended by the Companies (Auditor's Report) (Amendment) Order, 2004.
Section 292 A
more to constitute an audit committee, inter ulin. to review the half yearly and
13.12.2000).
and loss account the specified qualitative and quantitative discIosures in the
prescribed format. Disclclsures required include registration details, generic
The Companies Act, 1956 has been amended for a number of times and
many changes have been brought ahout in the disclosure provisions, still the
legal provisions regarding disclosure fall short of the informational needs of
the investors and other users. 2.72 Disclosure and ICAI
TCAI plays a pivotal role in regulating the disclosure practices of the companies, both in the public and the private sectors. The institute regulates
the reporting practices of companies in a variety of ways. First. members of
the
institute
certify
the
annual
accounts
of
the
conipanies
as
assures the users that information contained in the annual reports is reliable.
Second, for preparation and present ation of information in the annual reports,
it issues accounting standards, guidance notes, expert opinions etc. These
competition for the best presented published accounts (renamed as ICAI Awards for Excellence in Financial reporting).
ICAI constituted Accounting Standards Boud (AS B) in April 1977,
with the objective of harmonising the diverse accounting policies and
Companies Act, 1956. According to a press note dated 07.02.06, the NACAS
(National Advisory Committee on Accounting Standards) constituted under section 2 10 A of the Companies Act, 1956, had already completed a review of all the standards issued by the ICAI till that date and had submitted its
recommendations to the government for adoption of the 25 accounting
standards.12 Besides these accounting standards the institute has also issued
some exposure drafts, guidance notes and expert opinions on various
statements', which sets out the concepts that underlie the preparation and
presentation of financial statements for external users.
programmes are specifically conducted for the members of the institute and
the officials working in different organisations, who are related to the
11
Pursuant !u AS 26 becoming mandatory and the contenls of AS 8 being subsumed in AS 26. AS 8 stands withdrawn.
2.7.3
to
modifications,
on
selected
topics.
regard to the information which should find a place in the annual reports of
public enterprises. These guidelines require the following information to be
included:
1.
A summary of financial results indicating annual turnover, profit
after depreciatiot~and interest but before tax, provision for taxation, net profit, appropriations to reserves and provisions, proposed
dividend, etc.;
2.
3.
Information about changes in capital structure; Important changes in pricing policy; Changes in accounting methods e.g., changes in the methods of
4.
7.
future outlook;
8.
training etc;
continuous basis. SEBI regulates the business in stock exchanges and other
securities market. All listed companies must follow the rules and regulations
annual reports etc. and are disseminated through media, websites of the
b. Nature of his expertise in specific functional areas: and c . Name of companies in which the person also holds the directorship
and the membership of committees of the board.
performance.
with
a. Board of directors
b. Audit committee
c. Remuneration committee
d. Shareholders Committee
company.
replaced by an Act of Parliament. The SEBI is under the overall control of the
Ministry of Finance, and has now become a very important constituent of the
functioning of the joint stock companies. Many a times, the suggestions of these cornrnittees have implications for improving the level of corporate
reporting. A short review of the recommendations by certain committees are given below:
directors' report so that annual report may provide useful information to the
shareholders and other users. The Commi [tee has recommended that the
balance sheet and profit and loss account should be prepared in vertical form
and suggested a form for preparing balance sheet in this format. The
Committee was that of the view that the directors' report should be broad
(i)
Arnount of deposits received from the public during the year, total
repayments during the year and outstanding with a break-up of dues within one or two years.
(ii)
(iii)
(iv)
which have not yielded any return during the year and reasons
thereof, if the investments exceed 5 percent of the company's paid up
capital and free reserves.
(v)
PiiTticulars of material liability and matters adversely affectinp the profitlloss, asset and liability position since the closing of the year to
the date of adoption of accounts by the directors.
(vi)
(vii)
Details about the company's socid activities and the future plans for
the same.
(viii) Statement indicating the loss suffered by the company in any division
of the activities, which accounts for not less than 10 percent of rhe
total turnover of the company.
(ix)
Accounting ratios such as ratio of current assets to current liabilities, inventory to sales, trade receivables to sales, net income to net sales and net worth, return on capital employed, profit before interest and
tax to total assets, net profits after tax to total assets and net profit
(x)
(xi)
(xii)
Particulars of any contract in which directors or their spouses or dependent children have interest.
company investment and loans. The committee felt that the inclusion of these items in the Directors'
report will make the annual reports more informative and meaningful. Though
these suggestions were not accepted in total, but these did influence the
disclosure practices of the corporate sector in India. Many companies started
disclosing these items voluntarily in their annual reports as a result of these. Also, government has implemented many of the recommendations in a piecemeal manner through various Companies (Amendments) Acts.
Governance issued in late 2000 stressed the need for accounting standards in
the areas of consolidation, segment reporting, deferred tax accounting and related party transactions.
relationship, the role of independent directors, and how their independence and effectiveness can be ensured. The committee submitted its report on 23rd
this committee was corporate governance which in turn will have an impact
o n corpordte disclosure standards and practices of companies. The committee
should
characteristics such as relevance, materiality, reliability, comparability and understandability. The adherence of Indian companies regarding the different disclosure requirements is a matter of great concern to the various interested
groups. The researcher has made an attempt to analyse the disclosure practices of Indian companies in the next chapter.