Governance report is a relatively new framework for Ukrainian business. We have prepared short guidelines for you, in which we describe what it is, who and how shall prepare it and where to submit it.
One of the results of amendments to the Law of Ukraine “On Accounting and Financial Reporting in Ukraine” was the introduction of a new category of reporting for Ukrainian enterprises, namely the Corporate governance report.
The introduction of this form of reporting to the legislation of Ukraine is the result of the implementation of the EU Directives regarding annual financial statements, consolidated financial statements and related statements of certain types of enterprises, as well as the disclosure of non-financial and other information by individual large enterprises and groups.
2. What is a governance report?
Corporate governance report is a document that contains financial and non-financial information describing the condition and development prospects of the enterprise and revealing the main risks and uncertainties of its activity.
Analysis of the activity, condition and development of the enterprise is carried out taking into account the size and type of activity of the enterprise, and includes both basic financial and non-financial (if necessary) performance indicators for a particular activity, including environmental and social information, with reference to relevant indicators of annual financial statements and an explanation regarding the amounts under the relevant indicators (if applicable).
3. Who should prepare the report?
Medium-sized enterprises and public interest entities (issuers of securities, banks, insurers, non-state pension funds, other financial institutions, as well as all large enterprises).
Medium-sized enterprises, however, may not disclose non-financial information in the Corporate governance report. Micro and small-sized enterprises are exempted from submitting a governance report.
4. Procedure and deadlines for submitting the report
The Corporate governance report is submitted together with the annual financial statements. Given the general deadlines for submission of annual financial statements, public interest entities and medium-sized enterprises are required to submit a governance report by February 28 of the year following the reporting year to the tax and statistical authorities. The Corporate governance report is also submitted together with the financial statements to other bodies depending on the type of activity of the enterprise, for example, to the National Bank or to the National Commission of Securities and Stock Market.
5. Information to be disclosed in the report
First of all, nowadays there is no officially approved form of the Corporate governance report and a single approach to its content.
However, given the provisions of national regulations, methodological recommendations of the government agencies and existing international practice, this report is not another classical form of financial statement.
This is a stand-alone report performing individual tasks and explaining the factors that have influenced and will affect the financial results of the enterprise.
In particular, the Ministry of Finance of Ukraine has developed general Methodological recommendations regarding the execution of governance reports, which set out a list of information that companies are encouraged to disclose in their own governance reports.
5.1. Enterprises bound to submit the Corporate governance report shall disclose, in particular, information on:
- organizational structure and description of the enterprise activity;
- results of activities;
- liquidity and liabilities;
- environmental aspects;
- social aspects and personnel policy;
- research and innovation;
- financial investments;
- development prospects;
- corporate management.
In accordance with the methodological recommendations, the key objective of this report is to explain the features of the enterprise activity that cannot be disclosed in the financial statements.
Thus, the Corporate governance report is a kind of business plan of the enterprise, which, in particular, describes the business processes of future periods, and therefore can additionally address a number of important issues: disclosing the effective business model of the enterprise and its growth prospects; confirming the transparency of activities to the control and regulatory authorities; being an additional means of confirming its own financial stability and investment attractiveness for potential investors.
6. Additional information to be disclosed by financial institutions and issuers of securities
6.1. Financial institutions (in addition to the information mentioned in paragraph 5.1.) shall also disclose in the report information, in particular, on:
- the purpose of the financial institution;
- compliance / non-compliance with the principles or code of corporate governance;
- owners of substantive participation;
- membership of the financial institution;
- facts of violation of internal rules by members of the financial institution;
- interventions applied during the year by public authorities to the financial institution;
- the amount of remuneration of members of the financial institution;
- significant risk factors that affected the activities of the financial institution during the year;
- availability of risk management system and its key characteristics;
- results of the functioning of the internal audit (control) system;
- facts of alienation of assets during the year in the amount exceeding the one established in the charter of the financial institution;
- the results of the valuation of assets in the case of their purchase and sale during the year in excess of the amount specified in the charter of the financial institution;
- transactions with related parties;
- applied recommendations of the bodies exercising state regulation of financial services markets regarding the auditor’s report;
- an external auditor of the financial institution’s supervisory board appointed during the year;
- activities of the external auditor;
- protection by a financial institution of the rights and interests of financial services consumers;
- corporate governance of a financial institution.
6.2. Banks and other financial institutions (in addition to the information mentioned in paragraphs 5.1 and 6.1.) shall also disclose information comprising a description of:
- the nature of the business;
- management goals and strategies to achieve these goals;
- resources, risks and relationships with shareholders and related parties;
- performance and prospects for further development;
- key performance indicators.
6.3. Issuers of securities that are financial institutions (in addition to the information mentioned in paragraphs 5.1 and 6.1.) shall also disclose the following information:
- information on the corporate governance code;
- an explanation by the issuer of which parts of the corporate governance code it evades and the reasons for such evasions (if applicable);
- information on the general meeting of shareholders (participants);
- information on the issuer’s supervisory board and executive body;
- description of the main characteristics of the issuer’s internal control and risk management systems;
- a list of persons who directly or indirectly own a significant block of shares of the issuer;
- information regarding any restrictions on the rights of participation and voting of shareholders (participants) at the general meeting of the issuer;
- the procedure for appointing and dismissing officials of the issuer;
- powers of the issuer’s officials.
6.4. If the issuer of securities is not a financial institution, only the information mentioned in paragraphs 5.1 and 6.3 shall be disclosed.
|It is worth noting that the Ministry of Finance of Ukraine and the above-mentioned state regulators have established only a minimum list of areas and indicators of enterprises that should be disclosed in governance reports and left enterprises the right to disclose other information that enterprises deem appropriate.|
Автори: Elena Lynnyk, Pavlo Khoma