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.
Drag each meaning up or down until it sits beside the term it belongs to.
Check yourself
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Kabir asks
What must the board's report say about related parties?
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