Corporate Disclosure .ppt
- 2. Rationale` for Disclosures An effective disclosure based regulation (DBR) implies greater responsibilities on the company directors, its management and advisers An effective DBR promotes investor activism Markets believe that perceived benefits outweigh perceived costs
- 3. Disclosure based Regulation – Components & types of disclosure Disclosures Disclosures by whom for whom Public Listed Cos. Shareholders Intermediaries Investors Stock Exchanges MARKET Intermediaries Mutual Funds Regulator Analysts & advisors Government Other stake - holders
- 4. Disclosure Based Regulation Components & types of disclosures Initial Disclosures – Disclosures for raising capital by companies, mutual funds in offer documents - Public Offers - Private Placement Continuous disclosures – financial / non-financial Frequency of disclosure Dissemination process – electronic, physical, centralised, dispersed Accessibility of information
- 5. Disclosure Based Regulation Initial Disclosures Continuous disclosures Corporate Governance Financial disclosures Risk based disclosures for intermediaries Disclosures for stock exchanges
- 6. Disclosures Board of Directors: information that must be supplied Annual, quarter, half year operating plans, budgets and updates Quarterly results of company and its business segments Minutes of the audit committee and other board committees Recruitment and remuneration of senior officers Materially important legal notices and claims, as well as any accidents, hazards, pollution issues and labor problems Any actual or expected default in financial obligations Details of joint ventures and collaborations Transactions involving payment towards goodwill, brand equity and intellectual property Any materially significant sale of business and investments Foreign currency and other risks and risk management Any regulatory non-compliance
- 7. Disclosures Disclosures to shareholders in addition to balance sheet, P&L and cash flow statement Board composition (executive, non-exec, independent) Qualifications and experience of directors Number of outside directorships held by each director (capped at director not being a member of more than 10 board-level committees, and Chairman of not more than 5) Attendance record of directors Remuneration of directors Relationship (familial or pecuniary) with other directors Warning against insider trading, with procedures to prevent such acts Details of grievances of shareholders, and how quickly these were addressed Date, time and venue of annual general meeting of shareholders
- 8. Disclosures Disclosures to shareholders in addition to balance sheet, P&L and cash flow statement Dates of book closure and dividend payment Details of shareholding pattern Name, address and contact details of registrars and/or share transfer agents Details about the share transfer system Stock price data over the reporting year, and how the company’s stock measured up to the index Financial effects of stock options Financial effects of any share buyback Financial effects of any warrants that are to be exercised Chapter reporting corporate governance practices
- 9. Disclosures Disclosures to shareholders in addition to balance sheet, P&L and cash flow statement Detailed chapter on Management Discussion and Analysis focusing on markets, operations, finances, accounts, risks, opportunities and threats, internal control systems Consolidated financial statement, incorporating accounts of all subsidiaries (over 50% shares held by reporting company) Details of all significant related party transactions Detailed segment reporting (revenues, costs, operating profits and capital employed) Deferred tax liabilities and assets and debit/credit in the P&L for the reporting year
- 10. Disclosures (A) Basis of related party transactions I. A statement in summary form of transactions with related parties in the ordinary course of business shall be placed periodically before the audit committee. II. Details of material individual transactions with related parties which are not in the normal course of business shall be placed before the audit committee. III. Details of material individual transactions with related parties or others, which are not on an arm’s length basis should be placed before the audit committee, together with Management’s justification for the same
- 11. Disclosures (B) Disclosure of Accounting Treatment To disclose in the financial statements, if an accounting treatment other than prescribed in Accounting Standard has been followed alongwith explanation. (C) Board Disclosures – Risk management Internal and external business risks Procedures to inform Board members about the risk assessment and minimization. Periodically reviewed
- 12. Disclosures (D) Proceeds from public issues, rights issues, preferential issues etc. To disclose to the Audit Committee, on use/application of funds as and when any issue is made (E) Additional disclosures: In the Annual Report the criteria of making payments to NEDs to be disclosed or a reference to be made that the same is available on the company’s website number of shares and convertible instruments held by NEDs. NEDs shall disclose their shareholding (both own or held by / for other persons on a beneficial basis) in the company in which they are proposed to be appointed as directors, prior to their appointment.
- 13. Disclosures F) Management A Management Discussion and Analysis report to form part of the Annual Report. G) Shareholders Disclosures to shareholders in case of appointment /reappointment of directors, quarterly results and presentations made, shareholders’ grievance committee and share transfer committee, shareholding pattern-change
- 14. CEO/CFO certification The CEO, i.e. Managing Director and the CFO i.e. whole-time Finance Director or head of the finance function to certify to the Board that: (a) They have reviewed financial statements and the cash flow statement for the year and these statements: (i) do not contain any materially untrue statement or omit any material fact or contain statements that might be misleading; (ii) together present a true and fair view of the company’s affairs and are in compliance with existing accounting standards, applicable laws and regulations. (b) no transactions entered into by the company during the year which are fraudulent, illegal or violative of the company’s code of conduct.
- 15. CEO/CFO certification (contd) (c)They accept responsibility for establishing and maintaining internal controls and that they have evaluated the effectiveness of the internal control systems of the company and they have disclosed to the auditors and the Audit Committee, deficiencies in the design or operation of internal controls, if any, of which they are aware and the steps they have taken or propose to take to rectify these deficiencies. (d)They have indicated to the auditors and the Audit committee (i) Significant changes in internal control during the year; (ii) Significant changes in accounting policies during the year and that the same have been disclosed in the notes to the financial statements; and (iii)Instances of significant fraud of which they have become aware and the involvement therein, if any, of the management or an employee having a significant role in the company’s internal control system
Editor's Notes
- #11: Instead of Statement of all Related Party Transactions being approved/ ratified by the Audit Committee, as envisaged in original Report a statement of Related Party transactions in a summary form, needs to be placed before the Audit Committee periodically. Material individual transactions which are not in the normal course of business viz. sale/lease of assets to a related party to be disclosed to the Audit Committee If any Material individual sale/purchase transaction with related party below or above market price need to be disclosed to the Audit Committee The word ‘Material’ being not defined whether recourse to be made to definition of ‘significant transactions or arrangements’ given in Explanation 2 of Clause III, dealing with subsidiary companies. There should be a separate sub-clause giving definition of important terms appearing in different sub-clauses of Clause 49
- #12: If any accounting treatment other than prescribed in Accounting Standard is followed an explanation to be given how such alternative treatment is more representative of the true and fair view of the underlying business transaction in the Corporate Government Report. A business is subject to various risk factors viz. Operating risk, Foreign Exchange risk, Changes is Govt. policies, External risk, A company has to assess such risk and lay down procedure for minimizing the same. This should be informed to the Board members periodically. In Tata Steel we inform Foreign Exchange risk quarterly and Insurance risk once in a year.
- #13: The NEDs are paid remuneration by way of commission and sitting Fees. In terms of the shareholders approval obtained, the commission is paid at a rate not exceeding 1% of the profits of the company. The distribution of commission amongst the NEDs is placed before the Board. The commission is distributed on the basis of their attendance and contribution at the Board and certain Committee meetings as well as time spent on operational matters other than at the meetings.
- #16: No penalty is prescribed as recommended in Sarbance &Oxley Act /Naresh Chandra committee.