What is a directors report in the UK? Talking about the UK, the government decided to go deeper into the documentation of the director’s report for better transparency and a clear picture of where a company stands in the eyes of the government and among its competitors. For clear directions regarding the director’s report, the UK government brought into force the Companies Act 2006, which outdated the Companies Act 1985. The Companies Act 2006 was passed by the parliament of the United Kingdom, which is the primary source of the United Kingdom company law. Let us continue reading to learn more about what is a director’s report.

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What is a Director’s Report in the UK?

One of the common queries among individuals is what is a director’s report. The director’s report is a document prepared by the board of directors of a company. This document enlists the current state of the company and its conformity with financial standards, accounting rules, and corporate social responsibility standards defined by the government. It is the responsibility of the company to produce this report annually and disclose it to the public to maintain transparency and reputation in the industry. The director’s report provides a foreground for the shareholders to think about future partnerships and investments with the company. The publication of the director’s report is compulsory in all European countries.

What are the Duties to Prepare the Director’s Report?

These duties are mentioned under section 415 of the Companies Act 2006. It’s the primary responsibility of the board of directors to prepare the director report at the end of each financial year. The section 415 states that the director’s report must be prepared for the financial year in which

• The stated company is a parent company
• Group accounts are set by the board of directors

The director’s report prepared by the board of directors may lay emphasis on the points that they categorise as crucial for the transparency and growth of the company, such as points that are vital to the undertakings such as consolidation.

The section 415 also states that it’s the responsibility of each director to play his part in the director’s report preparation. If the report is not prepared at the end of each financial year, it is regarded as an offence that is committed by each person who was holding the position of director at the said duration. A person found guilty of making this offence is liable to a fine or conviction on indictment.

What is the Content of the Director’s Report?

The content of a director’s report includes the following.

1- General

The general contents of the director’s report are mentioned in section 416 of the Companies Act 2006. This section states that the report must contain:

• The names of the members of the board of directors preparing the report.
• The fundamental activities of the company were performed in the said financial year.

Moreover, the director’s report should contain any amount that is considered vital for the growth of the company and must be paid by way of dividends. This is for the large companies; however, this also applies to the small companies. Changes can be made in the format of the director’s report by the secretary of state highlighting the points that should be disclosed to the public; however, these changes should be unbiased.

2- Business review

The contents of the business review section in the director’s review are mentioned under section 417. This is only applicable to large companies that do not fall under the umbrella of small companies. This review serves the purpose of informing the members of large companies how the board of directors has performed during the financial year under section 172. Section 172 highlights the duties of the board of directors to promote the success of the company. The crucial points that must be included in the director’s report are:

• Transparent and unbiased review of the company’s performance in the financial year
• A clear picture of the risks likely to be faced by the company

In contrast to the general contents of the director’s report, the business review must contain a detailed analysis of the yearly growth of the company and initiatives taken for its better ranking among other competitors. The business review report must state a clear picture of the company’s growth, whether it is consistent with the previous growth or not. This clear picture is important for the employees as well as the shareholders.

The company’s financial records must also be included where necessary in the director’s report. These figures provide insight to shareholders regarding the company’s assets and future potential that the company might hold. However, some matters don’t need to be mentioned in this section, such as negotiations that are ongoing or developments that are being undertaken. If disclosure of these would be biased to the development of the company.

What is the Statement as to Disclosure to Auditors in a Director’s Report?

This part of the director’s report is explained under section 418 of the Company Act 2006. The companies that are exempted from the current financial year report are not liable for this part of the director’s report. This part must contain all relevant information that is needed by the auditors. In addition, this part should also mention all the necessary steps that were taken by directors during the financial year to keep them aware of the audit matters of the company.

Each statement of the director’s report and each figure mentioned must be authentic. If the statement in the report is approved but actually its false, every member of the board of directors is held accountable for making such an offence. A person responsible for such an offense in England or Wales is liable to imprisonment for a duration of twelve months or a fine not exceeding the statutory limit.

How is Approval and Signing of the Directors’ Report Done?

The final draft of the director’s report must be approved, proofread, and signed on behalf of the directors by the secretary or a director of the company. If the director’s report is published but it does not comply with the Company Act 2006, and the members of the board knew this and did not take any steps to amend the mistake, it makes an offence. Any member of the company’s board of directors who has committed such an offence is liable to imprisonment and imposition of a fine.

The Bottom Line

In conclusion, to the discussion of what is a director’s report, we can say that the director’s report is a document describing a clear picture of a company’s growth and success rate. This document enlists the steps taken by the board of directors for the company’s growth. This report is guided by the Company Act of 2006, providing insights into how to write certain sections of the director’s report. The report also includes the factors affecting the company, such as environmental factors or restrictions imposed by the government. The Company Act 2006 also highlights the importance of independent judgment of the board of directors and unbiased analysis of the company’s performance. The disclosure of important information to the public is important, which is in favour of company employees and shareholders. The audit section of the report must be completed with great accuracy to have a clear idea of the company’s financial status. You can also get in touch with one of our professionals to learn more about this.

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Disclaimer: The general information provided in this blog about what is directors report in the UK includes text and graphics. It does not intend to disregard any of the professional advice in the future as well.