The Exposure Draft on Non-Financial Disclosures - Views and comments solicited by 4th August, 2010

Posted on    26 July 2010


Views and Comments solicited

 Please send your comments to the Dean, ICSI-CCGRT at or by Wednesday, 4th August 2010.






One of the principal underpinnings of good corporate governance is that shareholders and other stakeholders are provided with detailed information on financial and operating results in order to understand the current state of affairs, like balance sheet, profit and loss account and notes thereto, directors report, auditors report and management discussion & analysis.


Over the years, corporate entities have realised that users of such annual reports have varied needs e.g. investors/lenders seek information as to whether the company has made an effective and efficient use of resources provided to it and whether the company has performed its obligations as to environmental, social and ethical issues. It is increasingly recognized that relationships with key stakeholder groups including customers, employees and communities can impact the companys financial performance and future value. In other words, an intangible business value, positive or negative, may be attributed to a companys relationships with its stakeholders.


As an initiative towards non-financial reporting, the Ministry of Corporate Affairs, Government of India has issued Corporate Governance Voluntary Guidelines, 2009 for voluntary adoption by the corporate sector, wherein the Government has recommended disclosure of certain non-financial aspects.


The purpose of this guidance note is to help those responsible for preparing company annual reports, to make appropriate non-financial disclosures that address the major concerns of various users of such annual reports. All companies (private or public) are encouraged to follow the suggestions contained in this guidance note and make appropriate non-financial disclosures in their annual/biannual reports.


This Guidance Note focuses on important non-financial disclosures and the timing of such disclosures in annual or biannual reports as the case may be.

Mode & Frequency of Disclosures

Organizations may adopt a consistent and periodic cycle for issuing a report. For many organizations, this will be an annual cycle, although some organizations choose to report biannually. An organization may choose to update information on a regular basis during the financial year. This has advantages in terms of providing various users with more immediate access to information, but has disadvantages in terms of comparability of information. However, organizations may still maintain a predictable cycle in which all of the information that is reported covers a specific time period. Reporting on economic, environmental, and social performance could coincide or be integrated with other organizational reporting, such as financial statements. Coordinated timing will reinforce the linkages between financial performance and economic, environmental, and social performance.

The Companies Act, 1956 (hereinafter referred to as the Act) governs the regulation of companies in India and includes sections on disclosure and reporting on various aspects of company operations.  Some of the mandatory non-financial disclosures are:

1.           Management Discussion and Analysis

2.           Disclosures in the Boards Report

a.      Information required to be given in the Boards report under the Act includes:

°  State of affairs of the company

°  Particulars as to the conservation of energy, technology, absorption, foreign exchange earnings and outgo in such a manner as may be prescribed in Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988.

b.      Changes to be mentioned in the Boards Report include: [Sec. 217(2)]

°  Changes in the nature of the companys business.

°  Changes in the companys subsidiaries or in the nature of business carried on by them.

°  Changes in the classes of business in which the company has an interest.

c.       Particulars about certain specified employees: [Sec. 217(2A)]

d.      Composition of audit committee: [Sec. 292A and clause 49]

According to section 292A of the Act, the annual report shall mention the composition of audit committee. If the company is a listed company, then such company should meet the requirements of clause 49 of the listing agreement.


e.      ESOP/ESOS:

According to the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines 1999, the board shall make disclosure in its report with regard to ESOS and ESPS in accordance with the Guideline No. 12 and 19 respectively.


  1. Shareholders Resolution:

If no action has been taken on any resolutions which were passed by the shareholders in the previous meetings, the reason thereof be disclosed in the report.


g.      Change in the composition of the Board:

The appointment, reappointment, change in the office of the director on account of any reason be disclosed.


h.      Disqualification of Director:

The disqualification, if any, of any director, due to non-compliance of any provision of the Act including the act or non-compliance, due to which a director is disqualified be disclosed.



3.           Environmental Statement

In terms of the Environment (Protection) Rules, 1986, every industry, which needs to have consent under Water (Prevention & Control of Pollution) 1974 and Air (Prevention & Control of Pollution) 1981 or authorization under the Hazardous Wastes (Management and Handling) Rules, 1989 issued under the Environment (Protection) Act of 1986, is required to submit an annual Environmental Statement to the concerned State Pollution Control Board.


Apart from the mandatory requirements, the organizations are encouraged to make certain voluntary disclosures as discussed in this Guidance Note.


Contents of the Disclosures

In order to ensure a balanced and reasonable presentation of the organizations performance, a determination must be made about what content the report should cover. This determination should be made by considering both the organizations purpose and experience, and the reasonable expectations and interests of the various users of the annual reports. Both are important reference points when deciding what to include in the report. This Guidance Note suggests a list of items that can be included in Non-financial disclosures made by Corporates.


Suggested list of items that can be included in Non-financial disclosures


1.           Organizational Profile


Name of the organization and Location of headquarters, Principal Business, Vision & Mission, Primary brands, products, and/or services together with the business operational structure including location of manufacturing plants, Names of holding companies, subsidiaries, and joint ventures, countries where the organization operates, Shareholding Pattern indicating identity and percentage of ownership of largest shareholders, Markets served (including geographic breakdown, sectors and customers served) alongwith Achievements and Awards won, if any.


2.           Corporate Governance Report

(Other than those prescribed in clause 49 of Listing Agreement)

2.1             Ownership and shareholders rights including changes in control

°         Voting rights including veto powers of certain shareholders

°         Mechanism for Clarifications and open dialogue with all the shareholdersindividuals, corporate or QIBs.

°         Reference to processes enabling minority shareholders to express opinions to the Board

2.2             Governance Structure & Policies

2.3             Secretarial Audit

Whether the organization has carried out Secretarial Audit by an independent Professional? If so, The Secretarial Audit Report or Certificate should be attached.

2.4             Detailed information about the Board

°         Members of the Board and key executives

°         Independence of the Chairman

°         Mode of Selection of Directors

°         Process for evaluation of the Board

°         Compensation Policy to the Directors

2.5             Particulars of Internal Auditors

2.6             Risk Management Framework

2.7             Internal Code of Conduct, Business Ethics & Whistle Blower Mechanism

2.8             Commitment to External Initiatives


3.           Sustainability Report


The sustainability report should provide a balanced and reasonable representation of the sustainability performance of a reporting organization including both positive and negative factors. In this regard, the following disclosures could be made:-


3.1             Economic Performance

°         A concise disclosure on the management approach, organization-wide goals and policies with reference to the economic aspects such as economic performance, market presence and economic impacts

°         Key Economic Performance Indicators

°         Dividend Policy

°         Bonus Issue Policy

°         Measures taken to align stakeholders

°         Contribution towards the growth of the economy/National Exchequer


3.2             Environmental Performance

°         A concise disclosure on the management approach, organization-wide goals and policies with reference to various environmental aspects such as materials, energy, natural resources, emissions, effluents and wastes, compliance etc.

°         Sustainability strategies / Initiatives and Policy of the company towards the following environmental aspects and the impact thereof:

°  Climate change, Global Warming & Sustainability Preparedness

°  Management of Natural Resources

°  Conservation of Energy

°  Any other environmental or ecological footprints and initiatives to improve the same including measures taken for control of water / noise / air pollution alongwith its impact

°         Compliance

The extent of compliance with the various environmental laws and rules in the country such as the Environment (Protection) Act 1986, Water (Prevention & Control of Pollution) 1974, Air (Prevention & Control of Pollution) 1981, Noise Pollution (Regulation and Control) Rules 2000, Biological Diversity Act 2002, The Public Liability Insurance Act 1991, Forest (Conservation) Act, 1980, Hazardous Wastes (Management and Handling) Rules, 1989, Bio-Medical Waste (Management and Handling) Rules 1998, The Ozone Depleting Substances (Regulation and Control) Rules, 2000 etc.


3.3             Social Performance

°         A concise disclosure on the management approach, organization-wide goals and policies with reference to the social aspects such as product responsibility, human rights, inclusive development and Infrastructure Investment & services

°         Strategies / Initiatives of the company towards the following social aspects:-

°  Product Responsibility

°  Protection of Human Rights

°  Inclusive Development

°  Social Infrastructure Investments & Services made to create enduring symbols of excellence in the field of arts, culture, sports etc.

°         Compliance

The extent of compliance with relevant social laws and regulations

3.4             Value Statements

3.5             CSR Initiatives of the company relating to customers, employees, suppliers, shareholders and especially to community such as self employment schemes,  women empowerment, providing minimum education to children, promotion of sports, rehabilitation after natural calamities etc.


4.           Innovation and Strategy / Research & Development


Policy and measures for development of greener products, systems, processes and technologies which are not only environmentally responsible but also financially beneficial as well


5.           Business Continuity Planning including Preparedness for Disaster Management


6.           Intangible assets reporting


6.1             People / Human Resources

°         Measures for Integration of Employees into Corporate Strategies

°         Mechanism or policies within the organization for Employees Rights & Welfare

°         Work culture within the organization

6.2             Valuation of Intangible Assets

°         Human Resource Valuation / Human Resource Accounting

°         Valuation of brand

°         Valuation of other intangible assets by using various methods in order to minimize the information asymmetry between management and shareholders



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