The Essence and the Obligated Entities
Management reporting — in the language of the law, the governance report — is an obligation of public-interest entities and of first and second category enterprises: they must prepare it and submit it to the Service. The procedure for its preparation and submission is determined by the Service, taking into account the requirements of the relevant European Union directives. This document complements the financial statements by allowing the reader to assess the entity's activity not only through figures but also through the prism of development, risks and governance. The requirements also extend to groups of the category that meets the criteria of first and second category enterprises, so a business with a group structure must plan the distribution of reporting duties in advance. For companies of this scale the governance report is not an optional courtesy toward the public but a statutory deliverable with a fixed deadline.
The Three Components
The governance report comprises three components: a business review, a corporate governance report and a non-financial report. The business review is prepared by public-interest entities and first and second category enterprises. The corporate governance report is prepared by the person defined by law. The non-financial report is prepared by a public-interest entity that corresponds to the size category of a first category enterprise and, in the reporting period, employs on average more than 500 employees. A subsidiary enterprise is not obliged to submit a non-financial report where the relevant information is given in the group's consolidated report. This architecture distributes the content precisely, and each component follows its own logic and degree of detail.
The Content of the Business Review
The business review, taking into account the volume and complexity of the activity, reflects an exhaustive analysis of the entity's development, results and position, and of the principal risks and uncertainties it faces. It additionally includes the necessary financial and non-financial indicators, including those connected with employment and environmental protection, as well as explanations of the amounts reflected in the annual financial statements. The review must collect information on development plans, research conducted, the activity of branches, credit, market, liquidity and cash-flow risks and the mechanisms for managing them, and also on the acquisition of own shares — the reason, the number and value of acquired and disposed shares, and the consideration performed. Written properly, the review gives the reader a genuine understanding of where the entity stands and what awaits it.
Corporate Governance and Non-Financial Reporting
The corporate governance report must at least include a review of the corporate governance code and practice, an analysis of deviations from the code with their reasons, a description of the internal control and risk management systems connected with the preparation of the statements, and a review of shareholders' rights, of the composition and functioning of the governing body and the supervisory board, and of the diversification policy. The non-financial report contains the information necessary to determine the entity's influence on environmental, social, employment, human-rights and anti-corruption matters — from a short review of the business model to an analysis of risks and non-financial indicators. Where the entity does not apply a policy in these directions, a clear and reasoned explanation is included in the report.
The Auditor's Role and Submission Deadlines
Public-interest entities and first and second category enterprises are obliged to provide the governance report to the auditor. The auditor expresses an opinion on the compliance of the review and of the defined components with the regulatory acts and on their consistency with the financial statements, verifies the information of the corporate governance and non-financial reports and, where necessary, points out material inaccuracies. The submission deadline matches that of the financial statements: the governance report is submitted to the Service by 1 October of the year following the reporting period, together with the financial statements. Where information is already reflected in the financial statements, the entity is relieved of the duty to repeat it in the governance report.
Frequently Asked Questions
Who is obliged to prepare the governance report?
Public-interest entities, first and second category enterprises, and groups of the corresponding category.
What does the non-financial report cover?
The information needed to assess the entity's influence on environmental, social, employment, human-rights and anti-corruption matters.
When is the governance report submitted?
By 1 October of the year following the reporting period, together with the financial statements.
The management report consists of three components: a business review, a corporate-governance report and a non-financial report. The business review is prepared by SSEs and first- and second-category enterprises, the corporate-governance report by the person defined by law, and the non-financial report only by SSEs of the size noted above. The procedure for preparing and submitting the report, taking into account the requirements of the corresponding EU directives, is established by the service.
Who prepares the non-financial report?
An SSE corresponding to the size category of a first-category enterprise and having, in the reporting period, an average of more than 500 employees.
How We Help on Legal.ge
The governance report is a multi-component document in which the correctness of content and the observance of deadlines matter equally. Our team will help you define the scope of the obligation, fill in the components and prepare the interaction with the auditor. Contact us for an approach tailored to your entity.