Contents
PAGE
Chapter-wise Marks Distribution
I-5
Previous Exams Trend Analysis
I-7
Chapter-wise Comparison with Study Material Important Amendments for Examination
I-13 I-15 1.1
Chapter 2 u Legislative Framework of Corporate Governance in India
2.1
Chapter 3 u Board Effectiveness
3.1
Chapter 4 u Board Processes through Secretarial Standards
4.1
Chapter 5 u Board Committees
5.1
Chapter 6 u Corporate Policies and Disclosures
6.1
Chapter 7 u Accounting and Audit Related Issues, Related Party Transactions and Vigil Mechanism
7.1
I-29
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Chapter 1 u Conceptual Framework of Corporate Governance
I-30
CONTENTS
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Chapter 8 u Corporate Governance and Shareholders Rights
PAGE
8.1
CHAPTER 9 u Corporate Governance and other Stakeholders
9.1
Chapter 10 u Governance and Compliance Risk
10.1
Chapter 11 u Corporate Governance Forums
11.1
Chapter 12 u Risk Management
12.1
Chapter 13 u Internal Control
13.1
Chapter 14 u Reporting
14.1
Chapter 15 u Ethics and Business
15.1
Chapter 16 u CSR and Sustainability
16.1
Chapter 17 u Anti-Corruption and Anti-Bribery Laws in India
17.1
Solved Paper : June 2023 (Suggested Answers)
P.1
Solved Paper : Dec. 2023 (Suggested Answers)
P.19
14
REPORTING
CHAPTER FINANCIAL REPORTING Q1. Define financial reporting. What are its main components ? [December 2021, 5 Marks]
The main components of financial reporting are: u
The financial statements - Balance Sheet, Statement of Profit & Loss, Cash flow statement & Statement of changes in stock holder’s equity.
u
The notes to financial statements.
u
Quarterly & Annual reports (In case of listed companies).
u
Prospectus (In case of companies going for IPOs).
u
Management Discussion & Analysis (In case of public companies).
Q2. Elucidate the purposes and limitations of Financial Reporting. [June 2021, 5 Marks] Ans. Financial reporting is the process of producing statements that disclose an organisation’s financial status to management, investors and the government. u
Purpose of Financial Reporting: Financial reporting serves two primary purposes. n
It helps management to engage in effective decision-making concerning the company’s objectives and overall strategies. The 14.1
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Ans. Financial reporting is the process of producing statements that disclose an organisation’s financial status to management, investors and the government. Financial Reporting involves the disclosure of financial information to the various stakeholders about the financial performance and financial position of the organisation over a specified period of time. These stakeholders include - investors, creditors, public, debt providers, governments & government agencies. In case of listed companies the frequency of financial reporting is quarterly & annual.
14.2
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data disclosed in the reports can help management discern the strengths and weaknesses of the company, as well as its overall financial health. n
u
Financial reporting provides vital information about the financial health and activities of the company to its stakeholders including its shareholders, potential investors, consumers, and government regulators. It’s a means of ensuring that the company is running appropriately.
Limitations of Financial Reporting
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Financial Reporting involves the disclosure of financial information to the various stakeholders about the financial performance and financial position of the organisation over a specified period of time. These stakeholders include-investors, creditors, public, debt providers, governments & government agencies. u
In case of listed companies the frequency of financial reporting is quarterly & annual. However, the current financial reporting model was developed in the 1930’s for an industrial world.
u
In general, the model provides a backwards-looking review of performance and does not provide enough relevant information for decisionmaking today.
u
The financial reporting model is like “looking in the rear-view mirror,” when in fact the road ahead is very turbulent and there are huge impacts on the company, both societal and environmental.
u
It is not necessarily the volume of information, but the lack of a comprehensive story, which is where improvements in corporate reporting are needed.
u
In today’s world Investors expect information about Business model and strategy, intangible factors and sustainability (i.e. economic, environmental, social) commitments, impacts and performance that affect a company’s value today and its ability to create value in the future, etc.
BOARD'S REPORT Q3. Specify, in brief, the information to be disclosed in board’s report. [December 2021, 5 Marks] Ans. A board’s report should typically include information under following heads:
REPORTING
14.3
u
Company Specific Information
u
General Information
u
Capital and Debt Structure
u
Credit Rating of Securities
u
Investor Education and Protection Fund (IEPF)
u
Management
u
Disclosures Relating to Subsidiaries, Associates and Joint Ventures
u
Details of Deposits, Particulars of Loans, Guarantees and Investments
u
Particulars of Contracts or Arrangements with Related Parties
u
Corporate Social Responsibility (CSR)
NON-FINANCIAL REPORTING Q4. Why Non-Financial Reporting is important for companies? [June 2021, 5 Marks] OR
Ans. Non-financial reporting is an opportunity to communicate in an open and transparent way with stakeholders. In their non-financial reports, firms volunteer an overview of their environmental and social impact during the previous year. The information in non-financial reports contributes to building up a company’s risk-return profile. Non-financial reporting includes a. Board’s Report b. Corporate Social Responsibility Report c. Corporate Sustainability Reporting Many opine that from the time of Industrial Revolution, economic development has come at the cost of environment and has brought about large scale destruction of nature. Due to the negative externalities of economic development, the practice of non-financial reporting started largely in response to pressure from non-governmental organisations (NGOs) and civic society, which claimed that many firms lacked social and environmental responsibility. It epitomises that a company’s financial health is dependent on much more than the assets on its balance sheet and the movements on its profit and loss account.
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“Non-financial reporting is the practice of measuring disclosing and being accountable to internal and external stakeholders for organizational performance towards the goal of sustainable and inclusive development of a company” Critically analyze [Dec. 2022, 5 Marks]
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Therefore non-financial reporting plays an important role as is a structured way of presenting information about ones performance. It is the practice of measuring, disclosing and being accountable to internal and external stakeholders for organisational performance towards the goal of sustainable and inclusive development.
CORPORATE SUSTAINABILITY REPORTING Q5. Role of Government in Sustainability Reporting? [June 2016, 5 Marks] OR Explain the regulatory framework with respect to sustainability reporting in India. [June 2022, 5 Marks] OR
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Attempt the following: Write note on sustainability reporting in emerging economies. [December 2010, 5 Marks] Ans. ‘Sustainability reporting’ is a process for publicly disclosing an organization’s economic, environmental and social performance. Global Reporting Initiative (GRI) has developed a generally accepted framework to simplify report preparation and assessment, helping both reporters and report users gain greater value from sustainability reporting. Sustainability Reporting Framework in India In India, the Ministry of Corporate Affairs (MCA) recommends sustainability reporting. Considering the importance of sustainability in businesses, MCA had launched Corporate Social Responsibility Voluntary Guidelines in 2009. To take this further, in 2011 MCA issued ‘National Voluntary Guidelines on Social, Environmental and Economical Responsibilities of Business’ which encouraged reporting on environment, social and governance issues. SEBI in its (Listing Obligations and Disclosure Requirements) Regulations, 2015 has mandated the requirement of submission of BRR for top 1000 listed entities describing initiative taken by them from an environmental, social and governance perspective in the prescribed format. Regulation 34(2)(f) of SEBI (LODR) Regulations, 2015 The annual report shall contain the following: (f) For the top one thousand listed entities based on market capitalization, business responsibility report describing the initiatives taken by them from an environmental, social and governance perspective, in the format as specified by the Board from time to time:
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Provided that the requirement of submitting a business responsibility report shall be discontinued after the financial year 2021-22 and thereafter, with effect from the financial year 2022-23, the top one thousand listed entities based on market capitalization shall submit a business responsibility and sustainability report in the format as specified by the Board from time to time: Provided further that even during the financial year 2021-22, the top one thousand listed entities may voluntarily submit a business responsibility and sustainability report in place of the mandatory business responsibility report: Provided further that the remaining listed entities including the entities which have listed their specified securities on the SME Exchange, may voluntarily submit such reports. Explanation: For the purpose of this clause, market capitalization shall be calculated as on the 31st day of March of every financial year. [Substituted by the SEBI (Listing Obligations and Disclosure Requirements) (Second Amendment) Regulations, 2021 w.e.f. 5.5.2021].
Ans. Annexure I of SEBI’s circular dated 4th November, 2015 prescribes the format given below for “Business Responsibility Report”: SECTION
PARTICULARS
SECTION A GENERAL INFORMATION ABOUT THE COMPANY
DETAILS 1. Corporate Identity Number (CIN) of the Company 2. Name of the Company 3. Registered address 4. Website 5. E-mail id 6. Financial Year reported 7. Sector(s) that the Company is engaged in. 8. List three key products/services that the Company manufactures/provides. 9. Total number of locations where business activity is undertaken by the Company including national and international locations. 10. Markets served by the Company.
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Q6. As per SEBI Circular No. CIR/CFD/CMD/10/2015 dated 4th November, 2015, a format for ‘Business Responsibility Report (BRR)’ has been prescribed. This circular prescribes the BRR framework into five sections. Explain the contents of these five sections, in brief. [June 2022, 5 Marks]
14.6 SECTION
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PARTICULARS
SECTION B FINANCIAL DETAILS OF THE COMPANY
DETAILS 1. Paid up Capital (INR) 2. Total Turnover (INR) 3. Total profit after taxes (INR) 4. Total Spending on Corporate Social Responsibility (CSR) as percentage of profit after tax (%).
SECTION C OTHER DETAILS
5. List of activities in which expenditure in 4 above has been incurred. 1. Does the Company have any Subsidiary Company/Companies?
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2. Do the Subsidiary Company/Companies participate in the BR Initiatives of the parent company? If yes, then indicate the number of such subsidiary company(s). 3. Do any other entity/entities (e.g. suppliers, distributors etc.) that the Company does business with, participate in the BR initiatives of the Company? If yes, then indicate the percentage of such entity/entities? [Less than 30%, 30%-60%, More than 60%]. SECTION D BR INFORMATION 1. Details of Director/Directors responsible for BR (a) Details of the Director/Director responsible for implementation of the BR policy/ policies 1. DIN Number 2. Name 3. Designation (b) Details of the BR head 2. Principle-wise (as per NVGs) BR Policy/ policies SECTION E PRINCIPLE-WISE PERFORMANCE
3. Governance related to BR This sections provides for 9 principle wise performance
Q7. “Global Reporting Initiative (GRI) Sustainability Reporting Standards (GRI Standards) helps businesses, governments and other organizations understand and communicate the impact of business on critical sustainability issues.” Considering the statement, discuss any five distinctive elements of the GRI Standards. [June 2022, 5 Marks]
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14.7
Ans. The distinctive elements of the GRI Standards - and the activity that creates them - include: 1. Multi-stakeholder input: The approach is based on multi-stakeholder engagement, representing the best combination of technical expertise and diversity of experience to address the needs of all report makers and users. This approach enables to produce universally-applicable reporting guidance. 2. A record of use and endorsement: New audiences for sustainability information, like investors and regulators, are now calling for more and better performance data. Annual growth in the number of reporters is expected to continue, as we work towards a key area of our strategy; more reporters and better reporting.
4. Independence: The creation of the Global Sustainability Standards Board in 2014, and related governance structure changes, have strengthened the independence of the standards aspect funding approach also ensures independence. It aims for a degree of self-sufficiency. Funding is secured from diverse sources; governments, companies, foundations, partner organizations and supporters. 5. Shared development costs: The expense of developing GRI’s reporting guidance is shared among many users and contributors. For companies and organizations, this negates the cost of developing in-house or sector based reporting frameworks. Q8. Corporate reporting is an essential means by which companies communicate with investors as a part of their accountability and stewardship obligation.” Comment and list out the expected information required by investors. [December 2020, 5 Marks] Ans. Investors expect the following information: 1. Business model and strategy. 2. Intangible factors and sustainability (i.e. economic, environmental, social) commitments.
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3. Governmental references and activities: Enabling policy is a key aspect of overall strategy and GRI work with governments, international organizations and capital markets to further this agenda. As a result, 35 countries use GRI in their sustainability policies and look for guidance as the world’s most widely used sustainability reporting standards. In addition GRI have long-standing collaborations with over 20 international organizations such as the UNGC, OECD and the UN Working Group on Business & Human Rights.
14.8
REPORTING
3. Impacts and performance that affect a company’s value today and its ability to create value in the future. 4. Key aspects of corporate governance. 5. Internal controls. 6. Human rights/diversity practices and policies. 7. Key financial ratios
CHALLENGES IN MAIN STREAMING SUSTAINABILITY REPORTING Q9. Attempt the following: As the company secretary of Sound India Ltd. You are required by the chairman to prepare a note for the Board of Directors highlighting the following: (i) Importance of sustainability reporting. (ii) Available framework for sustainability reporting.
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(iii) Challenges involved in main streaming sustainability reporting. [December 2014, 8 Marks] OR Sustainability Reporting being relatively a new concept, what challenges do you foresee in mainstreaming sustainability reporting? [June 2021, 5 Marks] OR Sustainability reporting can help organizations to measure, understand and communicate their economic, environmental, social and governance performance, set goals, and manage change more effectively, but many organizations find it difficult to prepare sustainability. Explain the challenges which may be considered in the mainstreaming sustainability reporting. [Dec. 2022, 5 Marks] OR “A sustainability report is the key platform for communicating sustainability performance and impacts.” Explain the benefits of sustainability reporting for an organization. [Dec. 2022, 5 Marks] Ans. (i) Importance of sustainability reporting Internal benefits of sustainability reporting for companies and organizations can include:
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14.9
u
Increased understanding of risks and opportunities.
u
Emphasizing the link between financial and non-financial performance.
u
Influencing long-term management strategy and policy, and business plans.
External benefits of sustainability reporting can include: u
Mitigating – or reversing – negative environmental, social and governance impacts.
u
Improving reputation and brand loyalty.
u
Enabling external stakeholders to understand the organization’s true value, and tangible and intangible assets.
(ii) Sustainability report
Sustainability Reporting Framework in India In India, considering the importance of sustainability in businesses, MCA had launched Corporate Social Responsibility Voluntary Guidelines in 2009. To take this further, in 2011 MCA issued ‘National Voluntary Guidelines on Social, Environmental and Economical Responsibilities of Business’ which encouraged reporting on environment, social and governance issues. SEBI in its (Listing Obligations and Disclosure Requirements) Regulations, 2015 vide Regulation 34 has mandated the requirement of submission of BRR for top 1000 listed entities describing initiative taken by them from an environmental, social and governance perspective in the prescribed format. (iii) Following are the challenges in main streaming sustainability reporting: 1. Government Encouragement: In many jurisdictions, there are no guidelines on sustainability reporting to encourage the corporate sector. While on the other hand, there are voluntary as well as mandatory guidelines from regulators for reporting on
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A sustainability report is a report published by a company or organization about the economic, environmental and social impacts caused by its everyday activities. A sustainability report presents the organization’s values and governance model, and demonstrates the link between its strategy and its commitment to a sustainable global economy. A sustainability report is the key platform for communicating sustainability performance and impacts – whether positive or negative.
14.10
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sustainability aspects like in India we have SEBI framework of Business Responsibility Report. 2. Awareness: Lack of awareness about the emerging concept of sustainability reporting is also a major challenge which the government and corporate governance bodies need to address by arranging the sustainability awareness programme for the Professionals, Board of Directors and Management in the corporate sector.
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3. Expertise Knowledge: Sustainability Reporting is relatively a new concept in many jurisdictions and organization found it very difficult to prepare a sustainability report in the absence of expert guidance on the subject. The professional bodies in various jurisdictions should impart the expert knowledge of sustainability reporting to their members to develop a good cadre of experts in this emerging area of sustainability reporting. 4. Investor Behaviour: It is a recognized principle that investors should consider the Environmental, Social and Governance (ESG) issues while making investment decisions. There are specific regulators guidelines for the institutional investor to be vigilant on voting aspects and be concerned about the governance practices of the companies in which they invest.
KEY DRIVERS OF SUSTAINABILITY REPORTING Q10. What do you mean by Corporate Sustainability Reporting? Discuss the benefits and key drivers of sustainability reporting. [December 2020, 5 Marks] OR Answer the following: What are the key drivers of sustainability reporting? [December 2016, 5 Marks] [June 2015, 5 Marks] Ans. Sustainability reporting is a process for publicly disclosing an organization’s economic, environmental and social performance. Global Reporting Initiative (GRI) has developed a generally accepted framework to simplify report preparation and assessment, helping both reporters and report users gain greater value from sustainability reporting. Benefits of sustainability reporting u
Emphasizing the link between financial and non-financial performance.
u
Influencing long term management strategy and policy and business plans.
u
Streamlining processes, reducing costs and improving efficiency.
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14.11
u
Benchmarking and assessing sustainability performance with respect to laws, norms, codes, performance standards and voluntary initiatives.
u
Avoiding being implicated in publicized environmental, social and governance failures.
Key drivers of sustainability reporting Regulations: Governments, at most levels have stepped up the pressure on corporations to measure the impact of their operations on the environment. Legislation is becoming more innovative and is covering an ever wider range of activities. The most notable shift has been from voluntary to mandatory sustainability, monitoring and reporting.
u
Customers: Public opinion and consumer preferences are a more abstract but powerful factor that exerts considerable influence on companies, particularly those that are consumer oriented. Customers significantly influence a company’s reputation through their purchasing choices and brand.
u
Loyalty: This factor has led the firms to provide much more information about the products they produce, the suppliers who produce them, and the product’s environmental impact starting from creation to disposal.
u
NGO’s and the media: Public reaction comes not just from customers but from advocates and the media, who shape public opinion. Advocacy organisations, if ignored or slighted, can damage brand value.
u
Employees: Those who work for a company bring particular pressure to bear on how their employers behave; they, too, are concerned citizens beyond their corporate roles.
GLOBAL REPORTING INITIATIVE - SUSTAINABILITY REPORTING FRAMEWORK Q11. Explain briefly the following: Global reporting initiative (GRI). [December 2014, 3 Marks] OR Attempt the following; What is the main function of global reporting initiatives? [June 2010, 5 Marks] Ans. The GRI Standards represent global best practice for reporting publicly on a range of economic, environmental and social impacts. Sustainability reporting based on the Standards provides information about an organization’s positive or negative contributions to sustainable development.
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u
14.12
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The modular, interrelated GRI Standards are designed primarily to be used as a set, to prepare a sustainability report focused on material topics. Preparing a report in accordance with the GRI Standards provides an inclusive picture of an organization’s material topics, their related impacts, and how they are managed. An organization can also use all or part of selected GRI Standards to report specific information. GRI Sustainability Reporting Standards (GRI Standards) help businesses, governments and other organizations understand and communicate the impact of business on critical sustainability issues. Q12. “Report content should be balanced and reasonable presentation of the organisation’s performance.” In the light of above statement, discuss the steps to use the GRI Reporting Framework. [December 2016, 5 Marks] OR
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Write a short note on reporting principles and standard disclosures under Global Reporting Initiative. [December 2021, 5 Marks] Ans. The Global Reporting Initiative (GRI) had launched the fourth generation of its sustainability reporting guidelines: the GRI G4 Sustainability Guidelines (the Guidelines) in 2013. The aim of G4, is to help reporters prepare sustainability reports that contain valuable information about the organization’s most critical sustainability-related issues, and make such sustainability reporting standard practice. Applicability G4 is applicable to all organizations, large and small, across the world. The Guidelines are now presented in two parts to facilitate the identification of reporting requirements and related guidance. It consist of following two parts— Part 1 - Reporting Principles and Standard Disclosures: It contains the reporting principles and standard disclosures and also sets out the criteria to be applied by an organization to prepare its sustainability report in accordance with the Guidelines. Part 2 - Implementation Manual: It contains reporting and interpretative guidance that an organization should consult when preparing its sustainability report. Standard Disclosures Following are two different types of Standard Disclosures
Governance Risk Management Compliances & Ethics (GRMCE) | CRACKER AUTHOR PUBLISHER DATE OF PUBLICATION EDITION ISBN NO NO. OF PAGES BINDING TYPE
: : : : : : :
RITIKA GODHWANI TAXMANN FEBRUARY 2024 7TH EDITION 9789357787772 468 PAPERBACK
Rs. 575
Description This book is prepared exclusively for the Professional Level of Company Secretary Examination requirement. It covers the questions (topic/subtopic wise) & detailed answers strictly as per the old syllabus of ICSI. The Present Publication is the 7th Edition for the CS Professional | Old Syllabus | June 2024 Exam. This book is authored by Adv. Ritika Godhwani, with the following noteworthy features:
Coverage of this book includes
Fully-Solved Questions of Past Exams; Topic-wise, including:
Solved Paper: Dec. 2023 | Suggested Answers
[Arrangement of Questions] Questions in each chapter are arranged ‘sub-topic wise’
[Important Additional Questions] with Answers are provided
[Marks Distribution] Chapter-wise marks distribution from June 2019 onwards
[Previous Exam Trend Analysis] from Dec. 2021 onwards
[ICSI Study Material Comparison] is provided chapter-wise
[Important Amendments for Examination] is also covered
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