CORPORATE DISCLOSURE AND INVESTOR PROTECTION

CORPORATE DISCLOSURE

To make investing as fair as possible for everyone, companies must disclose both good and bad information. Primary objective: To provide adequate, full and fair information to the present and prospective investors. The information ranges from : company objective to financial details, operating results, governance structure and policies, the board of directors, their remuneration, significant foreseeable risk factors and the material issues regarding employees and other stakeholders, etc. Some of the international organizations on transnational disclosures: (1) The UN centre on Transnational Corporations (2) The organization of Economic Cooperation and Development (3) The European Union

NEED OF CORPORATE DISCLOSURE

In the past, selective disclosure was a serious problem for investors because insiders would frequently take advantage of information for their own gain - at the expense of the general investing public. INVESTORS: Increased corporate disclosure is said to provide the investors with a basis on which to judge a security. It improves the subjective probability distribution of the expected return from a security and reduces the risk associated with the return stream. LABOUR UNIONS: the demand for more disclosures by MNCs is made by labour unions who are interested in the security and welfare of the employees host country GOVERNMENT: of the developing countries who tend to see the Multinational as a direct challenge to their national sovereignty and are interested in monitoring the macroeconomic impact of the MNCs activities. PUBLIC: at large which is concerned about the adverse environmental and social effect of the corporations

CORPORATE DISCLOSURE IN INDIA

In India, disclosure requirements are primarily contained in the Companies Act, 1956. The provisions with regard to the form and contents of the balance sheet and profit and loss account are contained in section 211. Besides Section 217 requires a report by the board of Directors to be attached to every Balance Sheet and the contents of the boards report are also specified in this act. The other regulators are Reserve Bank of India(RBI) and the Securities and Exchange Board of India (SEBI). The banking Regulation Act (1949) empowers the RBI to regulate functioning of the financial sector, including banks and financial institutions. To protect investor interests, SEBI has issued a listing agreement which specifies disclosures applicable to listed companies in addition to other auditing and accounting requirements. In particular, it requires compliance with applicable auditing and auditing standards issued by ICAI (Institute of Chartered Accountants of India). The listing agreement provides for mandatory publication of audited consolidated financial statements in addition to individual financial statements. The company has the option to submit unaudited results for quarterly and year-to-date financial results, these shall, however, be subjected to limited review by the auditors of the company. Where the company opts for submitting audited quarterly and year-to-date results, they must be accompanied by an audit report.

DIRECTORS REPORT

The annual report in the form of Directors Report is a valuable source of information to the shareholders and other users. The annual report, being an audited document provides authenticated information. Besides financial statements, it contains other valuable information such as highlights of the year, historical data, significant performance ratios, accounting policies, price-level adjustment statements, human resource accounting, segmental information, companys present and future policies. The purpose is to place before the shareholders, the state of companys affairs and salient features of its working results for the year covered, including future prospects. The report should cover the following: Material changes and commitments, if any, affecting the financial position of the company which have occurred between the end of the financial year of the company and the date of report, conservation of energy, technology absorption, foreign exchange earnings and outgo, changes which have been occurred during the financial year in the nature of companys business in the companys subsidiaries, particulars in respect of certain employees.

DIRECTORS REPORT

The most important element of disclosure is about the state of companys affairs, but this carries an element of subjectivity. Some companies prefer to include financial highlights in the boards report as indicative of the state of the companys affairs, while others give such financial highlights separately from and independent of, the boards report. Some information required to be included in the Boards report may not be included and such non-disclosure maybe defended on the plea that the disclosure thereof would be harmful to the business of the company or any of its subsidiaries. Section 219(1) makes it obligatory that a copy of every balance sheet(Including the profit and loss account, auditors report, directors report and every other document specified to be attached thereto) which is to be laid before the annual general meeting of the company shall be sent, not less than 21 days before the meeting to every member of the company, besides other persons so entitled. The preparation and dissemination of information by companies involve certain costs. Therefore, the perceived

WORKING GROUP RECOMMENDATIONS

In August, 1996, a working group was constituted to rewrite the Companies Act,1956. The working group submitted its report in February 1997. In this part, the working group recommendations regarding financial and non-financial disclosures are covered.

ON FINANCIAL DISCLOSURES
1) A tabular form containing details of each directors remuneration and commission should form a part of the Directors Report in addition to the usual practice of having it in a note to the profit and loss account. 2) Costs incurred, if any, in using the services of a Group Resources Company must be clearly and separately disclosed in the financial statement of the user company.

3)

A listed public company must give certain key information on its divisions of business segments as a part of the Directors Report in the Annual Report. 4) Where a company has raised funds from the public by issuing shares, debentures or other securities, it would have to give a separate statement showing the end-use of such funds. 5) The disclosure on debt exposure of the company should be strengthened. 6) In addition to the present level of disclosure on foregin exchange earnings and outflow, there should also be a note containing separate data on/of foregin currency transactions that are germane in todays context: (i)Foreign holding in the share capital of the company (ii) Loans, debentures, or other securities raised by the company in foreign exchange.

7) There are often differences in assets and liabilities between the end of the financial year and the date on which the board approves the balance sheet and profit and loss account. 8) If any fixed asset acquired through or given out on lease is not reported under appropriate sub-heads, then full disclosure would need to be made as a note to the balance sheet. 9) Any inappropriate treatment of an item in the balance sheet or profit and loss account should not be allowed to be explained. 10) The threshold remuneration of those employees whose details have to be divulged under Section 217(2A) should be raised to Rs. 5 lakh per year.

Directors Report :The proposed section 176 of the Companies Bill deals with the directors report laid before a general meeting.
It includes according to section 176(3) The share turnover of each division in total turnover of the company if it exceeds 10% of the total turnover, Review of operations during the year, Market conditions , Future prospects.

Debt Exposure clear discrimination b/w long term and short-term loans and other loans. Data On Foreign Currency Transactions Investments made by the Companies Cash Flow Statement Earning Per Share= net income /total shares outstanding

NON- FINANCIAL DISCLOSURES

Comprehensive report on the relatives of the Directors- either as employees or board members- to be an integral part of Directors report of all public limited companies. Companies have to maintain a register which discloses the interest of directors in any contract arrangements of company and must be open to be investigated by any shareholder in the Annual General Meeting(AGM) of all public limited companies. Similarly the existence of the directors shareholding register must be open to be investigated by any shareholder in the Annual General Meeting(AGM) of all public limited companies. Details of loans to the directors would be disclosed as an annex to the Directors Report in addition to bring a part of schedules of financial statement.

INVESTOR PROTECTION

Who are the Investors?

An investor is someone who allocates capital in the company/ financial markets etc.. Investors invest their hard earned money with the expectation of financial returns. Type of Investors:
Individual investors (including trusts on behalf of individuals, and umbrella companies formed by two or more to pool investment funds) Angel investors (individuals and groups) Venture capital funds, (which serve as investment collectives on behalf of individuals, companies, pension plans, insurance reserves, or other funds). Businesses that make investments, either directly or via a captive fund Investment trusts, including real estate investment trusts Mutual funds, hedge funds, and other funds, ownership of which may or may not be publicly traded (these funds typically pool money raised from their owner-subscribers to invest in securities)

INVESTOR PROTECTION
Investor protection focuses on making sure that investors are fully informed about their purchases, transactions, affairs of the company that they have invested in and the like. Investor protection is one of the most important elements of a thriving securities market or other financial investment institution. Simply put, investor protection is

the effort to make sure that those who invest their money in regulated financial products are not defrauded by brokers or other parties

NEED FOR INVESTOR PROTECTION

Corporate Scams and Accounting Scandals Insider Trading Non-disclosure of material facts Companies Taking investors money and disappearing Terrorist funding

SEBI and INVESTOR PROTECTION

The Securities and Exchange Board of India Act, 1992 (the SEBI Act) was amended in the years 1995, 1999 and 2002,the primary function of which is the protection of the investors interest and the healthy development of Indian financial markets.

OBJECTIVES OF SEBI

Investor protection, so that there is a steady flow of savings into the Capital Market. Ensuring the fair practices by the issuers of securities, namely, companies so that they can raise resources at least cost. Promotion of efficient services by brokers, merchant bankers and other intermediaries so that they become competitive and professional.

INVESTOR PROTECTION MEASURES BY SEBI

Section 11(2) of the SEBI Act contains measures available with SEBI to implement the legislated desire of investor protection. The measures available with SEBI include the following: regulating the business in Stock Exchanges (SEs) and any other securities markets registering and regulating the working of intermediaries like stock brokers, sub-brokers, registering and regulating the working of venture capital funds and collective investment schemes, including mutual funds prohibiting fraudulent and unfair trade practices relating to securities markets prohibiting insider trading in securities

regulating substantial acquisition of shares and takeover of companies promoting investors education and training of intermediaries of securities markets Carry out inspection/ audits of the SEs / intermediaries etc. call for information from any bank / any authority / corporation / agencies in respect of any transaction in securities which is under investigation or inquiry by SEBI performing such functions and exercising such powers under the Securities Contracts (Regulation) Act, 1956 (SCRA) conducting research

SEBI REFORMS ON STOCK EXCHANGES

IPO

grading/credit rating Prohibition of Insider Trading Action against directors of vanishing companies Investors Grievances Redressal Cell Investor awareness campaign
Advertisement Educative materials All India radioWebsite dedicated to investor education: http://investor.Sebi.Gov.In Cautionary message on television
COMPENSATION

FROM INVESTOR PROTECTION FUND

Thank You!