Larger Limited Companies are required to file a financial document called Director’s report at the end of the financial year. It shall be attached to every financial statement.
At the end of each accounting year, there are some statutory accounts i.e a set of financial reports provided by the Private limited company registration. Director’s report is amongst these accounts, which is produced by the board of directors and outlines the financial state of the company.
Profit and loss statement, balance sheet, and in some cases, an auditor’s report is some other reports which make up a company’s statutory accounts.
Which companies need to create Director’s reports?
A private limited company has to fulfill at least two following conditions, only then they need to submit a director’s report to HMRC. Small companies are exempted to produce the director’s report. Only large organizations are required to produce director’s reports; small companies or micro-entities are exempt. And if a Private limited company fulfills at least two following conditions, only then they need to submit a director’s report to HMRC.
- A turnover of more than £10.2 million
- £5.1 million or more on the balance sheet
- 50 employees or more.
What is the purpose of a Director’s report?
Under Section 415 of the Companies Act 2006, the directors of a company are required to prepare a directors’ report at the end of each financial year. This legislation is part of a general move towards greater corporate transparency.
The information provided by the directors’ report helps shareholders understand:
- Whether the company’s finances are in good health;
- Whether the company has the capacity to expand and grow;
- How well the company is performing within its market, and how well the market is performing in general;
- How well the company is complying with financial regulations, accounting standards, and social responsibility requirements.
By knowing this information, shareholders can make better-informed decisions and can hold the directors of the company to greater account.
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What is included in a director’s report?
As a minimum, a directors report should always state:
- The names of each director who served during the reporting year;
- A summary of the company’s trading activities;
- A summary of future prospects;
- The principal activities of the company and, if relevant, the principal activities of its subsidiaries;
- Recommendations for dividends for the reporting year;
- Any financial events that occurred after the date on the balance sheet, if these events could affect the company’s finances;
- Significant changes to the company’s fixed assets.
- The extract of the annual return as provided as provided u/s 92(3).
- Number of Meetings of the board.
- Directors’ Responsibility Statement
- details in respect of frauds reported by auditors u/s 143(12)
- a statement on declaration given by independent directors u/s 149(6)
- company’s policy on directors’ appointment and remuneration
- particulars of loans, guarantees or investments u/s 186
- particulars of the contracts or arrangements with related parties referred to in section 188(1) in the prescribed form.
- a statement indicating development and implementation of a risk management policy for the company including identification therein of elements of risk, if any, which in the opinion of the board may threaten the existence of the company.