Accounts of Companies [Ch IX]

1.

Definition of Books of account [S.2(13)]

“books of account” includes records maintained in respect of—

• all sums of money received and expended by a company and matters in relation to which the receipts and expenditure take place;
• all sales and purchases of goods and services by the company;
• the assets and liabilities of the company; and
• the items of cost as may be prescribed u/s 148 in the case of a Co which belongs to any class of companies specified under that section

2.

Books of accounts etc. to be kept by company

• Every company shall prepare and keep books of account and other relevant books and papers and FS for every FY which give a true and fair view of the state of the affairs of the Co
• such books shall be kept -
  • on accrual basis and according to the double entry system of accounting
  • at its registered office
    • may be kept at such other place in India as BoD may decide - within 7 days the Co shall file with RoC notice in writing giving the full address of that other place
• If a Co has a branch office in India / outside India → books of account or other relevant papers of such branch can be kept at such branch and a proper summarized return sent at registered office (or such other place where books of account are maintained) at quarterly intervals
• books of account or other relevant papers may be kept in electronic mode in prescribed manner

3.

Books of account to be kept in electronic mode

[R. 3]

• Such books of account shall :-
  • remain accessible in India
  • remain complete and unaltered
  • be capable of being displayed in a legible form
• Information received from branch offices shall not be altered
• There shall be a proper system for storage, retrieval, display or printout of the electronic records as AC / BoD may deem fit
• Books of account and other books and papers of the Co maintained in electronic mode may be a place outside India, if a back-up thereof is kept in servers physically located in India on a periodic basis
• Co shall intimate to RoC on an annual basis at the time of filing of FS -
• the name of the service provider;
• the internet protocol address of service provider;
• the location of the service provider (wherever applicable);
• where the books of account and other books and papers are maintained on cloud, such address as provided by the service provider

4.

Open for inspection [S.128(3), R.4(1)]

• Books of account and other books and papers maintained by the Co shall be open for inspection to any director
  • If maintained within India → at the registered office / such other place in India during business hours
  • If maintained outside India → copies of quarterly summarized return kept and maintained
• Inspection in respect of any subsidiary → only by the person authorized by a BR

5.

Preservation of books of accounts[S.128(5)]

• Books of accounts together with the vouchers relevant to entry in such books of account shall be kept in good order by a Co -

1.

Definition of FS [S.2(40)]

“financial statement” in relation to a company, includes—

• a balance sheet as at the end of FY;
• a profit and loss account / in the case of a company carrying on any activity not for profit, an income and expenditure account for FY;
• cash flow statement for FY
  • Not applicable to OPC, Small Co, Dormant Co;
• a statement of changes in equity, if applicable; and
• any explanatory note annexed to, or forming part of, any document referred to above

2.

FY [S.2(41)]

• period ending on the 31st March every year
• In case of a New Co incorporated on or after 1st January → period ending on the 31st March of the following year

Exception: If a Co / body corporate, which is a Hold Co / Sub Co of a company incorporated outside India and is required to follow a different FY for consolidation of its accounts outside India → NCLT, if satisfied , may allow any period as its FY, whether or not that period is a year:

Entities existing as on 1 April 2014 were provided a period of 2 years to align its FY

3.

Financial Statements [S.129 (1), (2), (5)]

• Should give a true and fair view of the state of the affairs of the Co
• Should comply with AS notified u/s 133; If not complied with, then Co has to disclose in its FS –
  • deviation from AS;
  • reasons for such deviation and;
  • Financial effects, if any, due to such deviation
• Should be prepared in the form provided in Sch III of Co Act 2013.
• Exceptions: these provisions Not Applicable to:
  • any Insurance / Banking Co
  • any Co engaged in the generation / supply of electricity
  • any other class of Co for which a form of FS has been specified in orunder the Act governing such class of Co
• At every AGM, BoD of the Co shall lay FS for the FY.

4.

Consolidated Financial Statement [S.129(3), R. 6, 5]

Where a # Co has one or more Sub Co / Asct Cos then,

• in addition to FS, it has also to prepare CFS of the Company and of all the subsidiaries in the same form and manner as that of its own in accordance with Sch III and the applicable ASs
• CFS should also be placed before the AGM.

A separate statement containing the salient features of the FS audits subsidiary/ies in Form AOC-1 is also required to be attached to the FS.

# If such Co is not required to prepare CFS under AS → the Co has to only comply with provisions on CFS provided in Sch III of the Co Act 2013

5.

AS [S.132, 133]

• For the preparation of FS, the CG would prescribe the standards of accounting, as recommended by ICAI in consultation with and after examination of the recommendations made by the National Financial Reporting Authority (NFRA).
• NFRA is a new regulatory body sought to be set up under Co Act 2013. Till NFRA is constituted, CG has prescribed to follow the existing standards recommended by ICAI in consultation with National Advisory Committee on Accounting Standards (NACAS) issued under Section 211(3C) of the 1956 Act. Presently, the AS issued under Co (ASs) Rules 2006 or the Co (Ind ASs) Rules 2015 will apply.

6.

Preservation of books of accounts [S.128(5)]

• Books of accounts together with the vouchers relevant to entry in such books of account shall be kept in good order by a Co –

1.

Governing Section of Co Act 2013

S.130

S.131

2.

What can be re-opened / revised

• Re-open books of account
• recast its FS

Revise FS / BoD’s report

3.

Application by

CG / Income-tax authorities / SEBI / any other statutory regulatory body or authority / any person concerned

The Co

4.

Whom to make an application

• Competent court, or
• NCLT

NCLT

5.

Reason for re-opening:

Not specified

If it appears to the directors of a Co that— FS / BoD’s report do not comply with the provisions of S. 129 / 134

6.

NCLT to give notice to:

CG, Income-tax authorities, SEBI, any other statutory regulatory body or authority or any person concerned

CG & Income-tax authorities

7.

Order is made by a court of competent jurisdiction / NCLT

to the effect that—

(i) the relevant earlier accounts were prepared in a fraudulent manner; or

Not specified

(ii) the affairs of the Co were mismanaged during the relevant period, casting a doubt on the reliability of FSs

8.

Finality / How many times revision possible

Accounts so revised / re-cast shall be final

Revised FS / BoD’s report shall not be prepared / filed more than once in a FY

9.

Revision confined to:

Not specified

Where copies of the previous FS / BoD’s report have been

• sent out to members /

• filed with RoC /

• laid before the Co in GM,

• the revisions must be confined to—

• the correction in respect of which the previous FS / BoD’s report do not comply with the provisions of S. 129 / 134, and

• the making of any necessary consequential alternation

10.

Period of Limitation

No order shall be made in respect of re-opening relating to a period earlier than 8 FYs immediately preceding the current FY

except where CG has issued directions u/s. 128(5) for keeping books of account for > 8 years i.e. in case of investigation order under Ch. XIV

• For any of the 3 preceding financial years after obtaining approval of NCLT

11.

Disclosure

Not specified

Detailed reasons for such revision shall also be disclosed in the BoD's report in the relevant FY in which such revision is being made