Changes to the Board Report for the Current Financial Year: A Comprehensive Update
Riteek Baheti
Associate Member, Institute of Company Secretaries of India (ICSI) LL.B.
Proprietor, Riteek Baheti & Associates
(Kolkata-based Practicing Firm)
Registered Valuer, Insolvency and Bankruptcy Board of India (IBBI)
(Security or Financial Assets Valuation Specialist)
The Board Report plays a vital role in corporate governance by acting as a bridge between a company’s board of directors and its stakeholders. This report provides crucial insights into a company’s performance, policies, and forward-looking strategies. As part of continuous efforts to enhance transparency, accountability, and compliance with evolving laws, the Ministry of Corporate Affairs (MCA), the Securities and Exchange Board of India (SEBI), and other regulatory authorities frequently update the disclosure requirements for Board Reports. The financial year 2024-25 has witnessed some key regulatory and statutory updates that companies must incorporate in their Board Reports.
This article outlines the significant changes to be included in the Board Report for the current year and highlights the rationale behind them.
1. Mandatory Disclosure of ESG Practices
In alignment with global sustainability trends, companies (especially listed entities and large unlisted public companies) are now required to disclose their Environmental, Social, and Governance (ESG) initiatives in the Board Report. While earlier ESG disclosures were limited to Business Responsibility and Sustainability Reporting (BRSR), the scope has now widened to include:
a. Energy efficiency practices
b. Social welfare initiatives
c. Gender diversity data
d. Corporate social responsibility (CSR) impact analysis
e. Board-level ESG risk management frameworks
f. This step aims to promote ethical corporate conduct and long-term sustainable growth.
2. Enhanced Disclosures on Corporate Governance
In line with SEBI’s latest updates, companies must provide an extended analysis of their governance framework in the Board Report. This includes:
a. A clear description of the roles and responsibilities of independent directors
b. Attendance and effectiveness of board and committee meetings
c. Succession planning practices
d. Mechanism for evaluating the performance of directors and committees
This move strengthens stakeholders’ confidence in management processes and leadership transparency.
3. Statement on Internal Financial Controls (IFC)
The requirements concerning the adequacy and operating effectiveness of internal financial controls have been reinforced. The Board is now expected to provide:
a. A detailed account of risk management strategies
b. A commentary on any material weaknesses identified during the year
c. Changes made to the internal control systems
d. Reporting any fraud or irregularities detected by internal or statutory auditors
This change ensures that stakeholders are aware of the financial discipline and risk management integrity followed by the company.
4. Update on Statutory Auditors’ Qualifications and Adverse Remarks
A new requirement mandates the Board to address any qualifications, reservations, or adverse remarks made by auditors in their report. The response must include:
a. Clarifications from the management
b. Corrective steps taken or proposed
c. Expected resolution timelines
This change enhances the accountability of the Board and ensures that management cannot ignore red flags raised by auditors.
5. CSR Reporting Enhancements
Amendments to Section 135 of the Companies Act, 2013 have introduced tighter CSR obligations. The Board Report must now include:
a. A statement on unspent CSR amounts and the reason for their non-utilization
b. Transfer of unspent amounts to the specified funds (as per the law)
c. Details of any impact assessment conducted (for companies exceeding specified CSR thresholds)
Companies must also upload their CSR policies and project-specific spending details to their official website and provide the URL in the Board Report.
6. Disclosure on Utilization of Borrowed Funds and Share Proceeds
In case of borrowings or issue of shares, companies are required to explain:
a. The purpose for which the funds were raised
b. Actual usage vs. proposed usage
c. Deviation (if any) and explanations
This disclosure, applicable especially to listed entities, has been made compulsory under SEBI (LODR) Regulations to ensure the funds raised from investors are used appropriately.
7. Maintenance of Annual Return on Website
As per Section 92(3) of the Companies Act (amended), companies are now required to publish their Annual Return (Form MGT-7) on their official website and include the link in the Board Report.
This promotes greater transparency for stakeholders and enables easy public access to corporate information.
8. Board Diversity and Inclusion Metrics
Companies are expected to discuss their board composition in terms of gender, age, skillset, and independence. The following are now suggested disclosures:
a. Number of women directors
b. Details on diversity and inclusion policies
c. Initiatives to promote inclusiveness across management levels
Although currently recommended for certain companies, these practices are rapidly becoming governance norms.
9. Details of Application under Insolvency and Bankruptcy Code (IBC)
If any application has been made or admitted under the Insolvency and Bankruptcy Code, the Board Report must disclose:
a. The name of the party that initiated the application
b. Status and outcome of the application
c. Financial impact and contingency steps
This transparency is critical for current and potential investors to assess the company’s solvency risk.
10. Revised Reporting of Fraud Under Section 143(12)
If any fraud has been reported by auditors under Section 143(12) of the Companies Act, it must be disclosed in the Board Report with:
a. Nature of the Fraud
b. Parties involved
c. Financial impact
d. Corrective actions
This requirement discourages fraudulent practices and promotes a culture of openness and accountability.
11. Impact of Amendments in Companies (Accounts) Rules, 2024
With the introduction of Companies (Accounts) Second Amendment Rules, 2024, the following disclosures are to be newly inserted or expanded upon:
a. Material changes and commitments, if any, affecting the financial position of the company
b. Statement on compliance with Secretarial Standards
c. Emphasis on digital records maintenance, audit trails, and data security compliance (especially for companies operating cloud-based ERPs)
These updates reflect the evolving regulatory landscape in a digital-first world.
Conclusion
The Board Report is no longer a mere formality but a crucial disclosure document that defines how responsibly a company operates. The regulatory changes for the current year aim to bring greater clarity, accountability, and ESG consciousness into board-level communications. Directors and compliance officers must remain vigilant in incorporating these revisions correctly; failure to do so may expose the company to legal and reputational risks.
Timely adaptation to these updates not only ensures legal compliance but also fosters stakeholder trust, brand integrity, and investor confidence. Companies must consider these changes not as additional burdens but as an opportunity to demonstrate transparency and good governance.
For any clarifications or queries, please feel free to reach out to us at admin@fintracadvisors.com
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