Directors’ report

Updated: Aug 20, 2021

When the annual financial statements of a company are produced they normally include a report by the directors on the activities of that company during the period covered by the accounts and their views as to the future prospects of the company. The Companies Act 1948 referred to certain information that should be given in a directors’ report and further enacted that such a report must be included among the documents required to be filed with the Registrar of Companies at the time the annual return is submitted. The 1967 Companies Act broadened the extent of the information that had to be contained in the report and, in addition, stated that the report must be included with the published accounts sent to members. The scope of the directors’ report was even further widened by the Companies Act 1981.

The contents of the report must now include, inter alia: (1) the names of all persons who were directors of the company at any time during the financial year; (2) a summary of business development during the year plus any developments anticipated in the near future; (3) the main activities of the company and its subsidiaries, including any changes in those activities during the year; (4) details of amounts that are to be recommended for payment in dividends or put to reserves; (5) details of research and development activities during the year; (6) details of any acquisitions by the company of its own shares; (7) directors’ interests in shares or debentures and options to acquire such interests; (8) events since balance sheet date that might influence in a material sense the picture presented by the accounts; (9) contributions for charitable or political purposes; (10) alterations to fixed assets and, where applicable, amounts by which market value differs substantially from book value of any land or interest in land; (11) provisions for health and safety of employees; (12) various details concerning pay, involvement of, and consultation with. employees where number exceeds 250 – and also in such instances details of company policy towards disabled employees.

The 1967 Act required the directors’ report to contain a breakdown of the turnover and profits of the company between various distinct business activities and also obliged disclosures of numbers employed and aggregate remuneration. The 1981 Companics Act stated that this information must be given in notes to the accounts themselves.

Two further provisions of the new Iegislation are of particular importance. The first is that companies qualifying as small companies are relieved of the obligation to file a directors’ report – though not of the obligation to provide one for members. The second is that the directors’ report must now be subject to audit as with the annual accounts and the auditors’ report should indicate that this had been effected. An omission to mention the directors’ report will be taken to mean that the auditors have approved it.

Reference: The Penguin Business Dictionary, 3rd edt.

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James Knight
Editor of Education
James is the Editor of Education for Invezz, where he covers topics from across the financial world, from the stock market, to cryptocurrency, to macroeconomic markets.... read more.