Let us make an in-depth study of the additional information in annual reports.
Additional Information in Annual Reports:
Annual report of any successful corporate entity serves the purpose of a standardized quality mirror which reflects true and fair financial picture of the reporting entity. In early seventies financial reporting was being done to fulfill informational quarries of shareholders only.
Growth in the number of corporations with the passage of time has created a new type of corporate reporting framework in which financial reporting is done in such a way that it provides not only financial information through annual reports but also concentrates on disclosures of additional information for other than the primary users of annual reports like, research scholars, consumers, accounting professionals and community at large.
Additional information being provided by corporations through annual reports differ with each other. Let us discuss what kind of additional information is expected by various users of annual reports in addition to the contents of annual reports made mandatory by Company Law.
Section 219 and 220 of Company Law require directors of a Company to present annual accounts for the consideration of the shareholders. A failure to present the accounts is a punishable offense. These annual accounts are generally presented through annual reports.
Additional Information Expected:
(I) Management discussion and analysis
(II) Environment report
(III) Social report
(IV) Shareholder information and Stock market data
(V) Financial highlights of ten years
(VI) Accounting ratios.
(VII) Foreign currency transactions.
(VIII) Accounting for price level changes.
(IX) Valuation of human resources.
I. Management Discussion and Analysis:
Under this head an additional information can be provided to the users of annual report regarding management decisions, perception and analysis of management decisions taken over during financial year.
Contents under this head can be discussed as under:
It has been noticed from annual reports of some reputed companies that management generally present the focus of its unit on different areas of operations since the inception of the unit. Under
this sub-head companies are not providing information to its user groups on overall view but some material on outlook of the current financial year. An analysis can be made on general growth which took place during financial year for instance.
i. “Gross Revenue gre by 15% year to year to Rs 4982.3 crores in 1999-2000, operating margins remained flat despite improved assets utilization.”
ii. Operating profits grew from Rs 678 crores in 1998-99 to Rs 756 crores in 1999-2000.”27
(b) Strategic Moves:
Strategic Moves made by management during the year under report can be discussed and presented under this head to gain confidence of shareholders and General public. Management has to remain alert throughout the year to deal with various problems and shareholders real owners of corporate entity being absentee owners look upon management to take various strategic moves throughout the year on their behalf. Disclosure of such information will enhance their confidence in management.
For instance various strategic moves taken over by management of Grasim Industries Ltd. were as under to enhance shareholder value:
(i) Cement restructuring
(ii) Commenced trial runs at “Grasim South”
(iii) Restructured existing high cost debt
(iv) Suspended operations at Mavoor
(v) Rationalisation of work force at the Fibre Division.
(c) Segmental Analysis:
An analysis and review can be presented if reporting entity has various segments in its organisational structure. Segmental analysis will present a better picture before users of annual report and help them to understand the performance of each segment separately.
A comparative analysis will depict a clear and better picture for instance:
(d) Technological Initiatives:
An analysis can also be made on technological initiatives taken by management during the year under report. In the world of rapidly changing technology, industrial units are also taking initiatives in changing technologies. A light on changing technology will help in gaining confidence of consumers. For instance: Technology initiatives taken by LML Limited in 1999- 2000 are reported as under.
“The goal of the company is to become self sufficient in technology so as to be able to introduce vehicles relevant for the Indian market in the short to medium term and to build on this capacity and develop vehicles for overseas market in the medium to long term. The Company sources need based expertise and technology from overseas parties.
Apart from up-gradation of existing products and new product development, the company is also working for the development of two wheelers based on alternate fuels (like LPG) and direct fuel injection engines, as part of its commitment for environment. The R&D facilities at Kanpur are recognized by the Department of Science and Technology, Government of India.
The R&D Centre employs around 172 technical personnel and provides facilities in the areas of:
(i) CAD/CAM systems
(ii) Rapid proto typing
(iii) Computer simulation
(iv) Dynamo meters and
(v) Tool making
(e) Business Restructuring:
Management discussion and analysis may include views of management on business restructuring Enhancing competition, open up of economy, concept of global market, entry of multinational companies has compelled Indian Companies to have business restructuring.
Management’s discussion on this aspect will enlighten users of annual reports about policies of business restructuring for instance: Information disclosed by LML Limited through its Annual Report of 1999-2000, reproduced as under:
Present Product Portfolio:
Almost the entire production of the Company is presently in the metal body geared scooter segment. The most popular models in this segment are NV Xpress, Star Xpress, select II, Pulse and Sensation. The Company has nominal presence in the light two wheeler category through its model Trendy.
The new Xpress 5 port engine using reed valve fuel induction technology, developed by the Company has been acclaimed as one of the best performing engine, delivering very high levels of fuel efficiency and acceleration while complying with the Y2K emission regulations.
The Company during the current year is endeavoring to introduce vehicles in new segments and to fortify its presence in existing segments.
Broadly speaking the new range would include:
(i) 2 stroke metal body geared scooters by redefining the products;
(ii) 2 stroke plastic body gearless scooters;
(iii) 4 stroke motorcycles; and
(iv) 4 stroke scooters, both in geared and gearless versions.
All products are based on contemporary technology sourced or developed by the Company. In addition, some of the vehicles would carry many new features like disc brakes, electric start, digital ignition, autolube and the most advanced front and rear suspension systems manufactured in collaboration with Bitubo of Italy.
During 2001-02, the Company is working to place in the market:
(i) 4 stroke plastic body scooter;
(ii) 4 stroke step-thru bike; and
(iii) 4 stroke Chopper style motorcycle.
With the enlargement of product range on the above lines, the Company will emerge as a stronger player in the two-wheeler industry with product offering across all segments and with maximum dispersion over a larger price band.
Retailing & Customer Care:
Of the several initiatives taken by the Company, many relate to retailing and customer care. Responding to the need of the consumers, who require quality attention, upgrading of the showrooms and workshops has been undertaken, which would bring in very high quality of service and ambience.
The Company is also linking, in the first phase, 120 dealers, its regional offices, warehouses and marketing offices through a virtual private network operating on V-SAT. The trial runs for the first batch of dealers have already commenced and the entire process is expected to be completed by June, 2001.
(i) Risks and Concerns:
Management discussion and analysis may include various risks involved and concerns. The domestic, regional and global macroeconomic environment directly influences consumption of various scarce resources. Any economic slowdown may adversely affect supply dynamics in any industry, potentially affecting profitability of all other companies in India and abroad.
A dynamic business environment carries with it certain element of risk. It is important for shareholders and investors to be aware of the risks that are inherent in the company’s business. For instance Tata Engineering a reputed company of Tata group has reported in its annual report reproduced for reference.
Risks and Concerns
1. External Risks:
Cyclicality of the Commercial Vehicle industry
The Company is aware of the ever-shortening business cycles for the Commercial Vehicle Industry. Coupled with this are other factors like:
(a) Global crude prices now have a direct effect on diesel prices in India, which is expected to be more pronounced when the Administered Price Mechanism is dismantled in April 2002;
(b) The macro-economic performance of the economy continues to be the barometer of the transport industry; and
(c) Road transport continues to face severe competition from alternate modes like railways and pipelines.
The Company is working on a long-term strategy to reduce its dependence on the off take of Commercial Vehicles by increasing its revenues from non-cyclical businesses such as engines for industrial and marine applications, the aggregates reconditioning business, spare parts sales and hire purchase activities.
The Company is also looking at opportunities arising from the marketing of special and fully-built- up vehicles. As a long-term strategy, the Company would also like to leverage the revenues from its Passenger Vehicle business, which follows a somewhat different cyclical pattern.
The Company also plans to increase its exports of Commercial Vehicles over the next few years to enable it to have a steady stream of export revenues that will not only benefit its own bottom-line but also help increase the country’s foreign exchange reserves.
Concern for the Environment:
The stand of environmental activists for banning vehicles running on diesel has been addressed by the Company in all its submissions to the Courts. The Company believes, and has pleaded, that banning of diesel as an automotive fuel will not improve the levels of pollution in the cities.
It is necessary that cleaner fuels are provided for automobiles and an enforcement programme for the maintenance of in-use vehicles is also made mandatory. On its part, the Company has provided the country with engines that are Euro II complaint for its full range of Utility Vehicles and Cars and Euro I complaint for its range of Commercial Vehicles. The development of engines that run on alternate fuels has also been taken up as has the development of Euro III and Euro IV engines for the company’s range of Passenger Vehicles.
Quantitative Restrictions and Global consolidation:
The lifting of trade barriers in accordance with WTO regulations is expected to see the entry of used and new imported vehicles on Indian roads from 2001-02. A consolidation in the international auto industry with mergers and acquisitions by some of the world’s majors is very likely to have some effect on the expanding Indian market. The Company, on its part, would make the most of any opportunities that may arise from these events in the development and supply of products to other partners and markets and in addressing the Indian market across all segments of its vehicles.
The rationalization of sales tax for automobiles at 12% has substantially increased the price of Commercial Vehicles and affected the market across the country. In the Passenger Vehicles segment, it affected the market in the East and North.
However, the Budget proposal lowering the excise duty on Cars resulted in a minor boost in sales in March 2001 which is expected to continue during the year. Similarly, the concession of an accelerated depreciation of 50% for Commercial Vehicles may also encourage purchase of Commercial Vehicles.
Choice of products:
The choice available to the Indian customer for Cars and Utility Vehicles has never been so varied. This, coupled with increasing purchasing power and the availability of credit for the purchase of Cars, is expected to offer continuous growth for this industry for a few years.
2. Internal Risks:
Loss in 2000-01:
The Company believes that its performance in 2000-01 is primarily a reflection of the economic slowdown coupled with the full impact of the commissioning of the Indica plant. The Company has put in place several financial and operational measures to control costs, bring down its break-even points and improve its sales realizations whenever the market so permits. Plans are also being laid out to widen the Company’s product range and to strengthen its processes and systems in the selling and service areas. The Company expects to improve its performance during the year 2001-02 and show a healthier financial position for the year.
Investments and under-utilisation of capacities:
The Company has made substantial investments in both, the Commercial Vehicle and Passenger Car businesses. Some of these investments, like that of the indica, are still in the gestation period but with the increasing acceptability of the Indica, utilisation of capacity is bound to improve.
New products/variants introduction plans have been undertaken so as to enable the Company meet the competitive pressures on both the Commercial Vehicle and Passenger Car businesses and further widen its product range. The Company is also addressing the utilisation of capacities through sharing of its capacities and engineering skills with other auto manufacturers.
II. Environment Report:
Corporate industrial sector in every country is serving the society by providing goods and services but also destroying environment by creating water, air and soil pollution. Mills, mines, chemical industries, tanneries and other concerns often have waste waters containing highly toxic or objectionable chemicals that can render large streams unfit for future use.
Safe to manufacture implies environmental issues ISO- 14000 series has been introduced and certification under this series is given only to industrial unit which is environmental friendly. Reporting entity should provide environment report along with financial issues.
General public is interested to know the damages being made by an industrial unit and activities being performed by the unit for environmental protection. A regular environmental disclosure will improve the image of the reporting entity. Various companies are voluntarily disclosing environmental information in a variety of ways like press- releases reports to environmental regulators, environmental audit reports etc.
A research study was done by Dr. K. Eresi on “Information disclosure in Annual report” which was published in Journal “The Chartered Accountant” January 1996. Dr. Eresi has made following conclusions. “Only 30% of the Sample Companies (68 companies) have disclosed EI and remaining 70% did not show any concern for environment and environmentally sensitive companies have disclosed only positive information about environmental matters except one company which has showed negative information also.”
For the benefit of the students an extract of annual report of Grasim Industries Ltd. is reproduced as under:
Environment Protection: A Way of Life at Grasim28:
At Grasim we firmly believe in sustainable development. We fully appreciate that the earth’s resources and its capacity to absorb pollution and regenerate are finite. Therefore, operations at all of our Units are conducted in a manner that respects the ecological balance.
Naturally then the environmental dimension forms an integral part of all business decisions.
Pollution prevention, product stewardship and clean technologies enable us to fulfill our goal of sustainable development.
We have clearly spelt out production norms that enable us to run our operations in an Eco-efficient manner. These revolve round:
(i) Adoption of cleaner technologies. ,
(ii) Designing products and processes with as little environment impact as possible.
(iii) Optimizing resource efficiency in plant operations to minimize waste while maximizing treatment of inevitable wastes in an environmentally compatible manner.
(iv) Creation and building of an Eco-friendly family.
To achieve these goals, environment protection systems and processes are well in place.
To meet the challenge of environment protection in a proactive manner, unavoidable wastes are dealt with in the most efficient and scientific way.
State-of-the art industrial treatment plants are in operation at all of our Units for air, water and solid wastes. An appreciable quantity of the treated effluent is reused to meet the plants’ needs. The solid waste sludge is used as a soil conditioner in the special green belts developed at the sites. Alongside, full-fledged laboratories for testing of treated effluent, water and air have been set up at the plants.
Pulp and Fibre units at Harihar and Nagda are certified under ISO 14001. Our ongoing focus has been and continues to be directed towards increasingly developing environment friendly process and sub- processes. We have succeeded in eliminating the use of heavy metals such as zinc in the conventional fibre process as also in the fibre, which is a path-breaking feat.
At the Pulp Plant at Harihar, Bio-methanation unit for treatment of BOD rich waste liquor generates methane, which is used as a substitute for LDO in the pulp flash drying process.
At Pulp and Fibre units, we are continuously innovating the process and more effective treatment of the inevitable waste and the following innovations in that direction are under progress:
At Birla Cellulosic, we have worked out a novel method of treating and reusing effluents. We have opted for vermicastings consisting of diverse bacteria in abundance, viz. cellulose degrading, naturally oxidising, nitrogen fixing and fungi actinomycetes, a facilitating bacteria.
These render the treated effluent highly productive for agriculture. An innovative experiment using the approach of phyto-remediation for utilisation of secondary treated effluent is being carried out at our treated effluent disposal farm in Birla Cellulosic. Mainly plantation crops like coconut, accasiamangium (Australian teak) have been grown and field crop like vegetables, cotton, sugarcane and wheat cultivated.
(i) Experiments on utilisation of fly ash and ETP sludge were carried out on wheat cultivation. Periodic analyses of the fruits and vegetables at reputed labs have indicated encouraging results.
(ii) Successful trial of proto-type sludge dryer for ETP sludge drying to facilitate final disposal of incineration in existing Boilers.
At Textile units-Grasim Gwalior, Bhiwani Textiles Mills and Elegant Sinners-towards waste recovery, we recycle steam condensate through Ogdem Pump in the fibre dyeing process. The condensate water is used in the final process and this has resulted in saving energy besides upgrading the quality of the dyed fibre. Through recycling and utilising waste steam and water, we have been able to improve the recovery of chemicals from the effluent discharge.
Cement units are ISO 14001 certified. Reuse of bi-products and residual wastes is in-built into the cement production systems. Our production processes are highly energy efficient. The environmental standards followed at our cement plants are fully in conformity with the stringent local and national regulations. To ensure a dust free atmosphere in and around the plant and not to allow dust to escape into the environment, our cement plants have electrostatic precipitators and dust collectors such as bag house and bag filters.
As in all the Plants, at Sponge Iron Unit at Salav, at Alibaug, environment management systems are accorded a priority. The superior technology Plant has in-built pollution abatement systems. Its liquid effluent is recycled. As it uses natural gas as the prime source of energy, gases from its stocks are free of pollutants. Alongside dry bag filters and wet scrubbers ensure a dust free environment.
A systematic assessment at all of the plants for potential hazards and the risk of accidental pollution is in-built as a proactive measure.
Through these ways of conserving the environment, we make sure that in meeting our needs, we do not encroach upon the ability of future generations to meet their needs of the earth’s finite resources.
In fact our Plants have a very wooded look, given the thousands of trees that encircle them. Importantly it adds grace and beauty to our Plants. The effect is one of tranquility.
III. Social Report:
Financial statements prepared under financial accounting are basically meant to serve the needs of shareholders and investors in making sound economic decisions. Exchanges between a corporation and its social environments are practically ignored.
This nature of financial accounting has led to, in recent years, a serious debate that business activity should conform to socially desirable objectives i.e. products should not be harmful to the users, environment should be saved from industrial malpractices in the form of pollutions of every kind.
Reporting entity is supposed to disclose social information to the society. Hence a social report along with financial reporting is also desirable as an additional information in annual reports. Social report must convey the social transactions taken place between corporate entity and society during the year under report.
Number of industrial units are performing social activities like, arranging medical camp, spreading education, providing various canteen and ration facilities to employees. Some of the units have also undertaken village adoption schemes. Here is an extract of a social report submitted by Grasim Industries Ltd. in their Annual Report of 1999-2000 which is reproduced as under:
Social Report: Beyond Business—Reaching out to Communities29:
To qualitatively impact the life of the weaker sections of society, we engage in a series of welfare driven initiatives. These are carried out under the aegis of “The Aditya Birla Centre for Community Initiatives and Rural Development”, spearheaded by Mrs. Rajashree Birla, who is director of the Board of your Company.
Our vision is “To actively contribute to the social and economic development of the communities in which we operate. In so doing, build a better, sustainable way of life for the weaker sections of society”. Our far-ranging activities span a host of villages, crisscrossing the country. From Nagda, Jawad, Gwalior, Raipur in Madhya Pradesh, Bhiwani in Haryana, Shambhupura in Rajasthan, Harihar and Malkhed in Karnataka, Mavoor in Kerala, Kharach in Gujarat, Raigarh and Hotgi in Maharashtra, Reddipalayam in Tamil Nadu, our work is visible. Our focus areas are health-care, sustainable livelihood and education.
To provide health care to villagers in the nook and cranny of the villages surrounding our units, we organize medical camps.
“Our Social engagement stems from our fundamental belief that the organization of the future will be judged by the values it stands for, for its contribution and for the benefits it offers to communities amidst which it operates”.
—Smt. Rajashree Birla, Chairperson, The Aditya Birla Centre for Community Initiatives and Rural Development.
At more than a 100 medical camps conducted during the year, over 20,000 villagers were examined and treated for diverse ailments including tuberculosis, leprosy, cataract, polio and skin-related diseases. Immunization camps form part of this activity. Hundreds of people have benefited immensely. For instance, 343 patients gained better sight through the operation of the cataract in their eyes.
The physically impaired are also serviced by us. Our team of doctors examines the extent to which their disability can be reduced. Depending on their affliction, they are provided with tricycles, callipers, crutches, artificial limbs, and special shoes—to cite a few examples. These supportive aids have been instrumental in significantly enhancing the self sufficiency levels. We were able to teach out to more than 1500 physically impaired persons.
We have also begun laying stress on family planning. At Harihar, 256 family planning operations were carried out.
To raise the literacy level, in the areas around our Plants, we recourse to various ways. These encompass the setting up of adult education centres, and “balwadis”, which are non-formal education centres.
Ta encourage and imbibe values among students, Birla Cellulosic have evolved the “Jivan Utkarsh Shibir”. These are residential camps organized during the summer where students are given an orientation into basic values such as honesty, integrity, simplicity, perseverance which are all character forming. Additionally, they are given guidance on career planning.
To encourage girl students, special scholarships are offered at many of our Units.
At Bhiwani, we have taken on the responsibility of supporting the education of 640 students, through paying their fees, supplying text books and stationery, free of cost.
We are involved in developing the infrastructure for rural schools in Reddipalaym, ostensibly one of the most backward areas in Tamil Nadu.
In collaboration with the District Education Department, we organized Teachers Training programmes at VikramIspat. The teachers were drawn from the schools in the villages. At Harihar, we have undertaken a similar project Distribution of text books to the Panchayat Schools, and financial aid to needy educational institutions also forms part of canvas. We have kindled the desire to learn among 6000 children.
Women Empowerment Projects:
To empower women through attaining financial independence, we train them in various vocations. Our carpet weaving project at Athana, spearheaded by Vikram Cement is growing from strength to strength. Besides giving meaningful employment oppotunities to more than 50 of the poorest women, it has instilled in them a deep sense of pride, as their carpets increasingly find the acceptance of global customers.
Aditya Cement have initiated the skill Development Training Programme for women below the poverty line. Around 450 women are being trained in the art of sewing and embroidery at 33 sewing centres and 8 embroidery centres.
Towards Sustainable Livelihood:
Acting as a catalyst, our teams narrow in on farmers who can avail of the economic programmes launched by the Government. They then assist the farmer in accessing the necessary funds which go towards enhancing his yield. The farmer is thus assured of a sustainable income, given a normal monsoon.
To boost agricultural and horticultural activities, we reach out to thousands of farmers in manifold ways. Farmer training programmes, teaching them better farming techniques on demonstration plots and agricultural meetings where agricultural experts give them valuable inputs which are proving most useful to them. To enable villagers have a sustainable livelihood, hundreds of them have been trained in cottage industries as well.
Village Development Schemes:
We aim to embed the villages with at least the basic amenities, such as providing support towards better infrastructure through construction of roads, check-dams, drains and the repair of buildings which house the panchayats.
The Changing Face of Nagdo and Malkhed:
At Nagda, we have taken the challenging task of converting the village of “Nayan” into a model village. Under this project initiated last year, a Community Hall-cum-Training Centre has been established. The Centre serves as a Balwari, reading room cum library, a Sewing Centre and hub for cultural activities. Decent sanitation facilities have been provided as well under this project. Under the Swasthi Gram Yojana, the Malkhed Village, which has been adopted by us, is making remarkable progress. Among our collective accomplishments are providing water supply, constructing 100 toilets, cementing and tarring of the roads, plantation in the village, soil conservation in the farmer’s lands, and constructing a small two room school in the centre of Malkhed, among others.
Garnering Development Aid:
For the year 1999-2000, we mobilized over Rs 1900 lakhs through different development programmes. This is apart from our own contribution. We influenced the lives of 50,000 people directly, by ensuring their well- being physically, and for many others a sustainable means of livelihood.
Making a Difference:
Our involvement in these community driven initiatives has made a perceptible difference to the lives of the marginalized villagers. Many of them are no longer below the poverty line and are in good-health. And gives us a humble sense of fulfillment, and pride in the fact that we are helping in shaping new societies.
IV. Shareholder Information and Stock Market Data:
Reporting entity is expected to provide full information related with shareholders. Entity should disclose additional information for shareholders in addition to routine information. Most of the corporations are providing shareholders information in descriptive form as well as data based information on number of shares, categories of shareholders, dematerialisation of shares and liquidity and outstanding GDR warrants, transfer agents, share transfer system and investor services. Following are extracts from Annual Report Wockhardt Limited 2007.
1. Annual General Meeting
Date and time: Monday, April 28, 2008 at 3.15 p.m.
Y.B. Chavan Auditorium, Gen. JagannathBhosaleMarg, Next to Sachivalay? Gymkhana, Mumbai400 021.
2. Financial Calendar:
Financial reporting for:
3. Dates of Book closure for annual General meeting: April 22, 2008 to April 28, 2008 (both days inclusive)
4. Payment of interim dividend: 8 November, 2007 Payment of final dividend: End of May, 2008
5. Registered office: Wockhardt Towers, BandraKurla Complex, Bandra (East) Mumbai 400 051.
6. Listing on stock exchanges at:
(A) Equity Share The Bombay Stock Exchange Limited
The National Stock Exchange
(B) GDRs Luxembourg Stock Exchange
(C) FCCBs The stock Exchange of Hong Kong Ltd.
7. Listing Fees:
Paid for all the above stock exchanges for 2007-2008.
8. Stock Market data:
(a) Stock code
Bombay Stock Exchange Limited: 532300 National Stock Exchange: Wockpharma
(b) Stock price data 2007
C-13, Pannalal Silk Mils Compound
L.B.S. Marg, Bhandup (West), Mumbai 400 078.
Tel: 022 2596 3838/2594 6970-78
Fax : 022 2594 6969
11. Share Transfer System:
The trading of equity shares of the Company is mandatory in the dematerialized form. All the powers concerning share transfer is delegated severally to Mr. H.F. Khorakiwala, Chairman and Managing Director and Mr. R.B, Gandhi, Company Secretary to expedite the process of share transfer. All shares have been transferred and returned in 21 days from the date of receipt, so long as the documents have been clear in all respects, accordingly no shares are pending transfer for more than 21 days as at the end of the year.
12. Distribution of Shareholding as at December 31, 2007:
13. Dematerialisation of Shares:
As on 31st December, 2007, out of the public holding of 28,850,521 equity shares, 27,156,081 equity shares representing 94.13% of public holding, is in dematerialised form. The company’s shares are compulsorily tradable in dematerialised form since listing. Number of outstanding GDRs as on December 31, 2007 are 774,718.
14. Investors Correspondence:
Rajive B. Gandhi
Wockhardt Towers, BandraKurla Complex, Bandra (East), Mumbai 400 051
E-mail for investors correspondence [email protected](dot)com
16. Declaration under Clause 49 of the listing Agreement regarding adherence to the Code of Conduct by Chairman and Managing Director:
The Board of Directors of the Company has adopted the code of conduct for directors and Senior Management of the company and the same has been posted on the company’s website.
All the Board Members and the Senior Management Personnel have affirmed their Compliance with the respective code.
V. Financial Highlights of Last 10 years:
Additional information may include ten year highlights on various financial items that information will help the users of financial information look upon trend formed with the help of ten years highlights. Users will have a better view of performance of the reporting entity over a period of time.
Items to be shown in highlights can be as under:
(2) Other Incomes
(3) Gross profit
(4) Operating Expenses
(7) Net Profit
(8) Fixed Assets
(10) Current Assets
(11) Shareholder’s Funds
For instance 10 years highlight of Raymond Limited has been reproduced as under which has also shown book value of shares along with earnings per share and dividend per share.
1 US$ = Rs 43.62 (Exchange rate as on 31.3.2000)
All references to $ are to US Dollars
Per share figures up to 1996-97 have been recast to adjust for 1:1 bonus issue in 1997-98.
* Adjusted for CW1P and revaluation
VI. Accounting Ratios:
Accounting ratios on liquidity, solvency, profitability and activity can also be presented as additional information in annual report. Sometimes an absolute figure conveys nothing. But if the same item is presented in relation to some other item, it may convey better information. Ratio analysis has been assumed very popular technique of financial analysis since its inception.
Following ratios can be calculated and presented for users of annual reports:
(1) Current Ratio
(2) Quick Ratio
(3) Return on Investment
(4) Debt Equity Ratio
(5) Debt Service Ratio
(6) Stock Turnover
(7) Stock Velocity
(8) Debtor Turnover
(9) Debt Collection Period
(10) Payable Turnover
(11) Working Capital Turnover
(12) Assets Turnover
(13) Earnings Per Share
(14) Dividend Payout Ratio
(15) Earnings Yield Ratio
VII. Foreign Currency Transactions:
Generally reporting entities use to disclose information on foreign currency transactions in statement of significant accounting policies. However an additional information is expected on foreign currency transactions by the companies which are involved in foreign trade. Some of the companies may make investments in shares of foreign subsidiary companies. A detailed information can be presented in Annual report.
For instance Philips India Ltd. a reputed company has disclosed information on foreign currency transactions in statement of accounting policies as under “Foreign currency transactions are recorded in the books of the company at standard exchange rates fixed every month on the basis of a review of the actual exchange rates.
The difference between the actual rate of settlement and the standard rate in case of:
(i) Revenue transactions, charged or credited to profit and loss account.
(ii) Import of fixed assets, adjusted in the carrying value of the concerned assets.
(iii) In respect of current assets and current/long term liabilities other than those incurred for acquisition of fixed assets, the overall net loss or gain, if any, on conversion at the exchange rates prevailing on the date of balance sheet is charged to revenue. In respect of liabilities incurred for acquisition of fixed assets, the net gain or loss on such conversion, is adjusted in the carrying value of the related assets. The cost of forward exchange contracts is spread over the period of contract.”
VIII. Accounting for Price Level Changes:
Financial statements being submitted under conventional accounting are prepared on the basic assumption that financial information presented through these financial statements is based on stable monetary unit which is violated in the periods of rising prices.
Following effects of inflation on financial statements are noted:
(i) Profits are overstated in income statement which leads to number of problems further like, over distribution of dividend, settlement of wage claims on the terms, which reporting entity could not afford, excess taxation on reporting income, under pricing of sales all mislead the investors regarding performance of reporting entity.
(ii) Book values of assets in position statements become unrealistic.
(iii) Inadequate funds available for replacement of fixed assets.
(iv) Capital erosion is more
(v) Faulty valuation of inventories.
Reporting entities are expected to submit at least separate disclosure on effects on inflation on income and position statements if cannot account for with the help of accounting for price level changes.
IX. Valuation of Human Resources:
The competence and calibre of human beings working in an organisation are the real assets of an enterprise. An organisation with incompetent staff will fail sooner or later where as on the other hand any enterprise having competent staff may survive and perform well even in adverse situations.
Mitsushita Company Japan which has assumed status of world leader in electronics has attained the top position due to calibre, commitment loyalty and character of the employees working in the campus of Mitsushita.
It is very sad to note that accounting researchers even till today could not develop a full proof accounting system to evaluate the human resources and to put them on balance sheet. Top companies particularly in public sector have started providing information on their human assets through their annual reports. Following are extracts from Annual Report of HFCL of 1999-2000.
The breakup of the value of human resources and employees mix across divisions is as under:
Every reporting company has to provide additional information pursuant to the provisions of paragraph 3, 4C and 4D of part II of Schedule VI to the Companies Act 1956 on following items:
(a) Capacity, production turnover and stocks.
(b) Raw materials and components consumed.
(c) C.I.F., value of imports.
(d) Expenditure in foreign currency.
(e) Remittance in foreign currency on account of dividend.
(f) Raw materials/stores/spares parts and dies consumed.
(g) Earning in foreign exchange.
Additional Information under Part II of Schedule VI to the Companies Act, 1956:
Additional information as required under Part IV of Schedule VI of the Companies Act 1956. Balance Sheet abstract and company’s general business profile:
(i) Registration details.
(ii) Capital raised during the year.
(iii) Position of mobilisation and deployment of funds.
(iv) Performance of company.
(v) Generic names of principal products/services of the company. Following are extracts of Annual report of Grasim Industries for 1999-2000.
1. Capacity & Production:
(a) Registered capacities are those capacities or which registrations granted pursuant to the schemes of delicensing.
(b) The Installed Capacities are certified by the Management and accepted by the Auditors as correct, being a technical matter.
(c) # Includes third party processing.
(d) Installed capacities for the year indicated above include those vested in the Company consequent to the Scheme of arrangement, necessary applications have been submitted to obtain endorsement of the name of the Company.
(e) ## Quantitative data cannot be given as production represents fabrication, machining, etc. against individual tailor made orders.
2. Turnover and Stocks:
(1) Inter-Divisional transfers
(2) @ Includes Service Income Rs 27.36 Crores (Previous year Rs 20.79 Crores), tax deducted at source Rs 0.14 Crore (Previous year Rs 0.27 Crore).
3. Raw Materials, Stores, Spare Parts and Components:
Companies Act 1956 in India has made it obligatory for the companies incorporated under Act to appoint auditors in an annual general meeting. An auditor appointed at one annual general meeting holds office from the conclusion of that meeting until the conclusion of next annual general meeting as per Sec 224 of Company Law.
Every company in its annual reports submits audit report duty signed by auditors appointed at annual general meeting. Auditors have to audit balance sheet and profit and loss account of the company and have to provide information to the shareholders of the company in form of their opinions.
On preparation of Profit and Loss account and Balance Sheet for example they have to give their opinion, that whether Profit and Loss account and Balance Sheet comply with accounting standards referred to in sub section 3C of Section 211 of Companies Act, 1956 to the extent applicable. Following is the instance of an auditor’s report submitted for shareholders of WOCKHARDT Limited in annual report of 2007-08 reproduced as under:
The Members of Wockhardt Limited
1. We have audited the attached Balance Sheet of Wockhardt Limited (‘the Company’) as at December 31, 2007 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 (Auditor’s Report) Order, 2003 (as amended) issued by the Central Government of India in terms of sub-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 daid Order.
4. Further to our comments in the Annexure referred to above, we report that:
(i) We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purposes of our audit;
(ii) In our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of those books;
(iii) The balance sheet, profit and loss account and cash flow statement dealt with by this report are in agreement with the books of account;
(iv) In our opinion, the balance sheet, profit and loss account and cash flow statement dealt with by this report comply with the accounting standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956.
(v) Without qualifying our opinion, we state that the financial statements are without provision for premium payable on 108,500 Zero Coupon Foreign Currency Convertible bonds of USD 1000 each (refer note 30(d) to the financial statements) as the premium payable on redemption which is contingent upon a future uncertain event, namely, the redemption of such bonds is presently not determinable.
(vi) On the basis of the written representations received from the directors, as on December 31, 2007, and taken on record by the Board of Directors, we report that none of the directors is disqualified as on December 31, 2007 from being appointed as a director in terms of clause (g) of sub-section (1) of section 274 of the companies Act, 1956.
(vii) In our opinion and to the best of our information and according to the explanations given to us, they said accounts give the information required by 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 ;
(a) In the case of the balance sheet, of the state of affairs of the company as at December 31, 2007;
(b) In the case of the profit and loss account, of the profit for the year ended on that date; and
(c) In the case of flow statement, of the cash flows for the year ended on that date for S. R. Batilboi and Co.
per Vijay Bhatt
Membership No.: 36647
February 20, 2008
Annexure referred to in paragraph 3 or our report of even date
Re: Wockhardt Limited
(i) (a) The company has maintained proper records showing full particulars, including quantitative details and situation of fixed assets.
(b) The company has a program for phased physical verification of all its fixed assets over a period of three years, which in our opinion, is reasonable having regard to the size of the company and the nature of its assets.
Accordingly, certain fixed assets have been physically verified by the management during the year and discrepancies noticed on such verification, which were not material, have been properly dealt with in the books of account.
(c) There was no substantial disposal of fixed assets during the year,
(ii) (a) The management has conducted physical verification of inventory at reasonable intervals during the year.
(b) The procedures of physical verification of inventory followed by the management are reasonable and adequate in relation to the size of the company and the nature of its business.
(c) The company is maintaining proper records of inventory and discrepancies noticed on physical verification of inventory were not material and have been properly dealt with in the books of account.
(iii) (a) As informed, the company has not granted any loans, secured or unsecured to companies, firms or other parties covered in the register maintained under section 301 of the Companies Act, 1956.
(b) As informed, the company has not taken any loans, secured or unsecured from companies, firms or other parties covered in the register maintained under section 301 of the Companies Act, 1956.
(iv) In our opinion and according to the information and explanations given to us, there is an adequate internal control system commensurate with the size of the company and the nature of its business, for the purchase of inventory and fixed assets and for the sale of goods and services. During the course of our audit, no major weakness has been noticed in the internal control system in respect of the areas.
(v) (a) According to the information and explanations provided by the management, we are of the opinion that the particulars of contracts or arrangements referred to in section 301 of the Act that need to be entered into the register maintained under section 30 have been so entered.
(b) None of the transactions made in pursuance of such contracts or arrangements exceed the value of Rupees five lakh in respect of any one such party in the financial year.
(vi) The company has not accepted any deposits from the public
(vii) In our opinion, the company has an internal audit system commensurate with the size and nature of its business.
(viii) We have broadly reviewed the books of account maintained by the company pursuant to the rules made by the Central Government for the maintenance of cost records under section 209(1)(d) of the Companies Act, 1956, and are of the opinion that prima facie, the prescribed accounts and records have been made and maintained. We have not, however made a detailed examination of the records with a view to determining whether they are accurate or complete.
(ix) (a) Undisputed statutory dues including provident fund, investor education and protection fund, or employees’ state insurance, income-tax, sales-tax, wealth-tax, service tax, customs duty, excise duty, cess have generally been regularly deposited with the appropriate authorities.
(b) According to the information and explanations given to us, on undisputed amounts payable in respect of provident fund, investor education and protection fund, employees’ state insurance, income-tax, wealth-tax, service tax, sales-tax, customs duty, excise duty, cess and other undisputed statutory dues were outstanding, at the year end, for period of more than six months from the date they became payable.
(c) According to the records of the company, the dues outstanding of income-tax, sales-tax, wealth- tax, service tax customs duty, excise duty and cess on account of any dispute, are as follows:
(x) The company has no accumulated losses at the end of the financial year and its has not incorrect cash losses in the current and immediately preceding financial year.
(xi) Based on our audit procedures and as per the information and explanations given by the management, we are of the opinion that the company has not defaulted in repayment of dues to a financial institution and banks. The company does not have any debenture holders.
(xii) According to the information and explanations given to us and based on the documents and records produced to us, the company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities.
(xiii) In our opinion, the company is not a chit fund or a nidhi/mutual benefit fund/society. Therefore, the provisions of clause 4(xiii) of the companies (Auditor’s Report) Order, 2003) (as amended) are not applicable to the company.
(xiv) In our opinion, the company is not dealing in or trading in shares, securities, debentures and other investments. Accordingly, the provisions of clause 4(xiv) of the companies (Auditor’s Report) Order, 2003 (as amended) are not applicable to the company.
(xv) According to the information and explanations given to us, the company has given guarantees for loans taken by subsidiaries from banks or financial institutions, the terms and conditions whereof in opinion are not prima-facie prejudicial to the interest of the company.
(xvi) The company had raised funds through unsecured foreign currency convertible Bonds and though foreign currency borrowing, which pending/part utilization, have been gainfully deployed in Bank Deposits. Based on information and explanations given to us by the management, all other term loans were applied for the purpose for which the loans were obtained.
(xvii) According to the information and explanations given to us and on an overall examination of the balance sheet of the company, we report that no funds raised on short-term basis have been used for long-term investment.
(xviii) The company has not made any preferential allotment of shares to parties or companies covered in the register maintained under section 301 of the companies Act, 1956.
(xix) The company did not have any money through a public issue during the year.
(xx) The company has not raised any money through a public issue during the year.
(xxi) Based upon the audit procedures performed for the purpose of reporting the true and fair view of the financial statements and as per the information and explanations given by the management, we report that no fraud on or by the Company has been noticed or reported during the course of our audit.
For S. R. Batliboi & Co.
per Vijay Bhatt
Membership No.: 36647
February 20, 2008
Section 227 of Companies Act 1956 has mentioned various power and duties, every auditor has the right of access to the books and accounts and vouchers of the Company. The audit report submitted by auditor should state clearly whether the accounts are kept in accordance with the provisions of the Act and whether they give a true and fair view of the state of affairs of the company.
Section 227 (1 -A) of the act require the auditors to inquire into the following matters:
(1) Whether Loans and advances made by the Company on the basis of security have been properly secured and whether the terms are not prejudicial to the interests of the Company or its members.
(2) Whether book entry transactions are not prejudicial to the interests of the Company.
(3) Whether the Company is not an Investment or a banking Company, whether any securities have been sold by the Company at a price less than at which they were purchased.
(4) Whether personal expenses have been charged to revenue account.
(5) Whether Loans and advances made by the Company have been shown as deposits.
(6) Whether cash has been actually received in respect of any shares shown in the books to have been allotted for cash. If no cash has been received whether the position stated in the books is correct.