Lesson 2 of 3 · 8 min
The list that has to be there
Related-party contracts, frauds the auditors found, changes after the year ended, and risks that may end the company are all required contents.
Beyond the auditor's objections, the board's report has a checklist of required contents. Four of them are worth going to directly, because each is a place where something uncomfortable has to be written down by someone who would generally prefer not to.
| What must be disclosed | Why a reader goes there |
|---|---|
| Particulars of contracts or arrangements with related parties | Money moving between the company and people connected to it |
| Details of frauds reported by auditors, other than those reportable to the Central Government | Fraud found by the auditor, written into the report |
| Material changes and commitments affecting the financial position, between the year end and the date of the report | Things that happened after the accounts closed |
| Elements of risk which in the board's opinion may threaten the existence of the company | The board's own statement of what could end it |
The third row is the one most readers skip and most often matters. Accounts close on a date; the report is written later. Anything material that happened in between — a large commitment entered into, a change in financial position — has to be disclosed there and nowhere else in the numbers. A reader who only studies the financial statements has, by construction, read a document that stops before the report was written.
Match them up
Where would you look?
Match the question to the required disclosure that answers it.
Pick a term on the left.
Check yourself
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Kabir asks
What must the board's report say about related parties?
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