Accounts under Companies Act 2013
The new Act has introduced certain significant amendments. It has also introduced several additional requirements such as preparation of consolidated financial statements, additional reporting requirements for the Directors in their report.
Books of accounts under Companies Act 2013 (Sec. 128)
Every Company shall prepare and maintain books of accounts including other relevant books, papers and financial statements at the registered office [section 128(1)] for every financial year representing true and fair view of the state of affairs of the company. Books of accounts can be kept at some other place as decided by board of directors. The company shall within seven days file a notice with the registrar in writing giving full details of that other place.
Where a company has a branch office in India or outside India, it shall be deemed to have complied with the provisions of sub-section (1), if proper books of account relating to the transactions effected at the branch office are kept at that office and proper summarized returns periodically are sent by the branch office to the company at its registered office or the other place referred to in sub-section (1).
Also, books of accounts and relevant papers can now be maintained in electronic mode [section 128(1) of the Act]. Such books shall remain accessible in India so as to be usable for subsequent reference. These records shall be retained completely in the format in which they were originally generated, sent or received, or in a format which shall present accurately the information generated, sent or received and the information contained in the electronic records shall remain complete and unaltered.
This also means that the books of accounts shall not be capable of being altered subsequently. Any wrong journal entry entered in the software shall be capable of being altered only by reverse entry and not by deletion.
The Act also states that the servers for the maintenance of record shall be maintained in India. This information shall also be provided to the Regsitrar in the Annual Return of the Company.
Books of accounts shall be open for inspection for directors during business hours [section 128(3)]. The officers and other employees of the company shall give assistance related to the inspection to the concerned person. Please note that this subsection does not talk of inspection by people other than Directors. Every Company shall keep books of accounts for a period of 8 years together with all relevant vouchers also.
If any managing director, whole time-director and Chief financial officer contravene the provision of this section then such person shall be punishable with imprisonment for a term of 1 year or with fine not less than five thousand rupees but may extend to five lakh rupees or both.
Financial statements ( Sec. 129) The Financial statements shall give a true and fair view of the state of affairs of the company and it should comply with accounting standards given u/s 133 & shall be in the form or forms as may be provided for different class of companies in Schedule III. This does not apply to any insurance, banking or any electricity company or to any other class of company for which a form of financial statements has already been specified. The company shall disclose in its financial statements for the deviation from the accounting standards with reason and stating its affect on the financial statements.[section129(5)]. Consolidated financial statements in case of subsidiaries
The Companies Act, 2013 Act mandates consolidated financial statements (CFS) for any company having a subsidiary, associate or a joint venture [section 129(3)]. Further, the 2013 Act requires adoption and audit of CFS in the same manner as standalone financial statements of the holding company [section 129(4)].
The consolidation of financial statements of the company shall be made in accordance with the provisions of Schedule III of the Act and the applicable accounting standards.
Reopening of accounts on Court’s or Tribunal’s Orders (section130) and. Voluntary revision of financial statements or board’s report (Sec 131)
The Companies Act 2013 act states that a company can re-open its books of accounts and recast its financial statements after making an application in this regard to the central government, the income tax authorities, the SEBI, or any other statutory regulatory body or authority or any other person concerned, and an order is made by a court of competent jurisdiction or the Tribunal under the following circumstances:
- Relevant earlier accounts were prepared in a fraudulent manner
- The affairs of the company were mismanaged during the relevant period, casting a doubt on the reliability of the financial statements
If it appears to the board of directors of the company that
- the financial statement of the company or
- the board report
does not comply with the provisions of Sec. 129 and Sec. 134 of the Act in respect of any of three preceding financial years, after obtaining approval from the Tribunal. The Tribunal shall give notice to the central government and the income tax authorities and shall take into consideration the representations, if any, made by the government or the authorities before passing any such order. A revised financial statement or report shall not be prepared or filed more than once within a financial year and the detailed reasons for revision of such financial statement or report shall also be disclosed in the board’s report in the relevant financial year in which such a revision is being made. And the accounts so revised or recast shall be final.
Constitution of National Financial Reporting Authority (Sec. 132)
The Central Government may, by notification, constitute a National Financial Reporting Authority to provide for matters relating to accounting and auditing standards.
Central government to prescribe accounting standards (Sec. 133)
The central government may prescribe the accounting standards recommended by the Institute of Chartered Accountants of India, in consultation and after examination of the recommendations of National Financial Reporting Authority.
Financial statement, Board’s report, etc (Sec. 134)
1.) The financial statement, including CFS, shall be approved by the Board of Directors before they are signed on behalf of the Board. The FS shall be signed at least by the
- chairperson of the company where he is authorised by the Board or by two directors out of which one shall be managing director ;
- the Chief Executive Officer, if he is a director in the company ;
- the Chief Financial Officer and
- the company secretary of the company,
wherever they are appointed.
In the case of a One Person Company, the FS shall be signed only by one director, for submission to the auditor for his report thereon.
2.) The auditors’ report shall be attached to every financial statement.
3.) There shall be attached to statements laid before a company in general meeting, a report by its Board of Directors, which shall include—
a) The extract of the annual return as provided under sub-section (3) of section 92;
b) Number of meetings of the Board;
c) Directors’ Responsibility Statement;
d) A statement on declaration given by independent directors under sub-section (6) of section 149;
e) in case of a company covered under sub-section (1) of section 178, company’s policy on directors’ appointment and remuneration including criteria for determining qualifications, positive attributes, independence of a director and other matters provided under sub-section (3) of section 178;
f) Explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made—
i. by the auditor in his report; and
ii. by the company secretary in practice in his secretarial audit report;
g) Particulars of loans, guarantees or investments under section 186;
h) Particulars of contracts or arrangements with related parties referred to in sub-section (1) of section 188 in the Form AOC-2
i) The state of the company’s affairs;
j) The amounts, if any, which it proposes to carry to any reserves;
k) The amount, if any, which it recommends should be paid by way of dividend;
l) 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 to which the financial statements relate and the date of the report;
m) The conservation of energy*, technology absorption**, foreign exchange earnings and outgo*** {information should be given in detail as per the rules}
n) a statement indicating development and implementation of a risk management policy for the company including identification therein of elements of risk, if any, which in the opinion of the Board may threaten the existence of the company;
o) The details about the policy developed and implemented by the company on corporate social responsibility initiatives taken during the year;
p) Every listed company and every other public company having a paid up share capital of twenty f crore rupees or more calculated at the end of the preceding financial year shall include, in the report by its Board of directors, of its own performance and that of its committees and individual directors.
q) Such other matters as may be prescribed.
4.) The report of the Board of Directors to be attached to the financial statement shall, in case of a One Person Company, mean a report containing explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made by the auditor in his report.
5.) The Directors’ Responsibility Statement referred to in clause (c) of sub-section (3) shall state that—
a) in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures.
b) the directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year and of the profit and loss of the company for that period;
c) the directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities;
d) The directors had prepared the annual accounts on a going concern basis; and
e) The directors, in the case of a listed company, had laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively.
Explanation.—For the purposes of this clause, the term “internal financial controls” means the policies and procedures adopted by the company for ensuring the orderly and efficient conduct of its business, including adherence to company’s policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information.
f) the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.
6.) The Board’s report and any annexure shall be signed by its chairperson of the company if he is authorised by the Board and where he is not so authorised, shall be signed by at least two directors, one of whom shall be a managing Director, or by the director where there is one director.
7.) A signed copy of every financial statement, including consolidated financial statement, if any, shall be issued, circulated or published along with a copy each of—
(a) any notes annexed to or forming part of such financial statement;
(b) the auditor’s report; and
(c) the Board’s report
8.) If a company contravenes the provisions of this section, the company shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to twenty-five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees, or with both.
* Conservation of energy-(i) the steps taken or impact on conservation of energy,
(ii) the steps taken by the company for utilising alternate sources of energy;
(iii) the capital investment on energy conservation equipments
* *Technology absorption-
(i) the efforts made towards technology absorption;
(ii) the benefits derived like product improvement, cost reduction, product development or import substitution;
(iii) in case of imported technology (imported during the last three years reckoned from the beginning of the financial year)-
(a) the details of technology imported;
(b) the year of import;
(c) whether the technology been fully absorbed;
(d) if not fully absorbed, areas where absorption has not taken place, and the reasons thereof; and
(iv) the expenditure incurred on Research and Development.
*** Foreign exchange earnings and Outgo-The Foreign Exchange earned in terms of actual inflows during the year and the Foreign Exchange outgo during the year in terms of actual outflows.
CORPORATE SOCIAL RESPONSIBILITY ( Sec. 135)
Section 135 of the 2013 Act, provide that every company having a net worth of 500 crore INR, or more or a turnover of 1000 crore INR or more, or a net profit of rupees five crore INR or more, during any financial year shall constitute the corporate social responsibility committee of the board comprising of three or more directors, out of which, at least one director should be an independent director. The composition of the committee shall be included in the board’s report. The committee shall formulate and recommend to the board a policy, including activities specified in Schedule VII. The committee will recommend the amount of expenditure to be incurred to the board. The board shall disclose the contents of the policy in its report, and place it on the website, if any, of the company. The board shall ensure that would at least 2% of the average net-profits of the immediately preceding three years would be spent on CSR activities, and if not spent, explanation for the reasons thereof would need to be given in the director’s report.
Right of member to copies of audited financial statement ( Sec.136)
The act mandates every company to send a copy of the financial statements including consolidated statements and other documents annexed to the financial statements not less than 21 days before the date of the meeting to every member of the company. Companies having subsidiaries shall place separate audited accounts related to each of its subsidiaries on its website and also provide copy of audited accounts to any shareholder who asks for it.
Copy of financial statement to be filed with Registrar (Sec. 137)
1) A copy of the financial statements, including consolidated financial statement, along with all the documents which are required to be or attached to such financial statements under, duly adopted at the annual general meeting of the company, shall be filed with the Registrar with FORM AOC-4 within thirty days of the date of annual general meeting with such fees or additional fees as may be prescribed within the time specified under section 403.
Where the financial statements are not adopted at annual general meeting or adjourned annual general meeting, such unadopted financial statements along with the required documents shall be filed with the Registrar within thirty days of the date of annual general meeting and the Registrar shall take them in his records as provisional till the financial statements are filed with him after their adoption in the adjourned annual general meeting for that purpose.
Financial statements adopted in the adjourned annual general meeting shall be filed with the Registrar within thirty days of the date of such adjourned annual general meeting with such fees or such additional fees as may be prescribed within the time specified under section 403.A One Person Company shall file a copy of the financial statements duly adopted by its member, along with all the documents which are required to be attached to such Financial statements, within one hundred eighty days from the closure of the financial year. A company shall, along with its financial statements to be filed with the Registrar, attach the accounts of its subsidiary or subsidiaries which have been incorporated outside India and which have not established their place of business in India.
(2) Where the annual general meeting of a company for any year has not been held, the financial statements along with the documents required to be attached duly signed along with the statement of facts and reasons for not holding the annual general meeting shall be filed with the Registrar within thirty days of the last date before which the annual general meeting should have been held with fees or additional fees as may be prescribed within the time specified, under section 403.
The fees or additional fees referred to in sub-section (1) of section 137 and in the second proviso to the said sub section and in sub-section (2) of the said section shall be as specified in the Companies (Registration Offices and Fees) Rules, 2014.
(3) If a company fails to file the copy of the financial statements under sub-section (1) or sub-section (2), before the expiry of the period specified in section 403,the company shall be punishable with fine of one thousand rupees for every day during which the failure continues but which shall not be more than ten lakh rupees, and the managing director and the Chief Financial Officer of the company, if any, and, in the absence of the managing director and the Chief Financial Officer, any other director who is charged by the Board with the responsibility of complying with the provisions of this section, and, in the absence of any such director, all the directors of the company, shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees, or with both.
Internal audit (Sec. 138)
Companies would be required to conduct internal audit by appointing an internal auditor, who shall be a chartered accountant or any professional as may be decided by board. However central government may prescribe the manner of intervals in which the internal audit shall be conducted and reported to the board.
Companies required to appoint internal auditor as per the prescribed rule:
a) Every listed company
b) Every unlisted public company having-
i) Paid up share capital of fifty crore rupees or more during the preceding financial year; Or
ii) Turnover of two hundred crore rupees or more during the preceding financial year; or
iii) Outstanding loans or borrowings from banks or public financial institutions exceeding one hundred crore rupees or more at any point of time during the preceding financial year; or
iv) outstanding deposits of twenty five crore rupees or more at any point of time during the preceding financial year; and
c) Every private company having-
- turnover of two hundred crore rupees or more during the preceding financial year; or
- Outstanding loans or borrowings from banks or public financial institutions exceeding one hundred crore rupees or more at any point of time during the preceding financial year.
An existing company covered under any of the above criteria shall comply with the requirements of Section 138 and this rule within six months of commencement of such section.
Posted by Akansha Srivastava
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