Companies Act, 2013 Tracker VI Accounts of Companies CNK & Associates LLP
ACCOUNTS OF COMPANIES The provisions related to Accounts of Companies are contained in Chapter IX comprising of Section 128 to 137 of the Companies Act, 2013 ( the Act). A summary of the provisions of the Act and corresponding Rules pertaining to Accounts of Companies are stated below: Books of accounts Every Company is required to maintain books of accounts at its registered office for every Financial Year (FY). The Act has defined FY to mean the year from April to March. However, in case a Company or Body Corporate which is a Holding or a Subsidiary of a Company incorporated outside India is required to follow a different FY for consolidation of its accounts outside India then it can do so with prior approval of the National Company Law Tribunal. The Act has provided a transitional period to 2 years for existing Companies to have their FY other than April to March to change the same to April March. Books of Accounts (BA) maintained by a Company (including for its branches) are required to show (a) all money received and spent and details thereof, (b) sales and purchases of goods, (c) assets and liabilities and (d) items of cost as may be prescribed. The BA should be prepared on accrual basis using double entry system of accounting. The BA may be maintained in the Electronic mode as well. The BA prepared in electronic form should fulfill the following conditions Should remain accessible in India ; Be retained completely in the format in which they were originally generated, and the information contained in the electronic records shall remain complete and unaltered; Should have a proper system for storage, retrieval, display or printout of the electronic records and such records shall not be disposed of or rendered unusable, unless permitted by law; and Adequate backup of BA maintained in electronic mode shall be taken. In case where the BA are maintained outside India, back up should be kept on servers physically located in India on periodic basis. The Company shall have to intimate to the Registrar of Companies (RoC) on an annual basis at the time of filing of financial statements- the name of the service provider; the internet protocol address of service provider; the location of the service provider (wherever applicable); where the BA are maintained on cloud, such address as provided by the service provider. BA may also be kept at any place other than the registered office with intimation to the RoC (within 7 days) regarding the full address of such place. BA of the branch office in India or outside India CNK & Associates LLP Page 2 of 6
may be kept at that office however periodical returns must be submitted to the head office by the branch. The BA shall be open for inspection to any director during business hours. In case of BA maintained outside India, summarised returns of the BA should be sent to the registered office at quarterly intervals and shall be kept open to the directors for inspection. The Company is required to maintain the BA along with supporting vouchers if any for a period of 8 years unless the Central Government (CG)requires the Company to maintain the same for a longer period owing to any investigation being ordered on the Company. Besides BA, every Company has to maintain deeds, vouchers, writings, documents, minutes and registers as required. Contravention of the above provisions can entail penalties and prosecution. Financial Statements The Financial statements (FS) should Present a true and fair view of the affairs of the Company Comply with the accounting standards (AS) notified under Section 133 of the Act Be prepared in the format as prescribed in Schedule III of the Act (which is similar to revised Schedule VI of the 1956 Act). FS are defined in the Act to include the following: Balance Sheet as at the end of the FY; A Statement of Profit and Loss Account, or in the case of a Company carrying on any activity not for profit, an Income and Expenditure Account for the FY; Cash Flow Statement for the FY; Statement of changes in Equity, if applicable; and Explanatory notes annexed to, or forming part of, any document referred to above. FS with respect to OPC, small Company and dormant Company, may not include the Cash Flow Statement. If the FS of the Company do not comply with the AS then the Company has to disclose in its FS The deviation from the AS; The reasons for such deviation and; Financial effects, if any, due to such deviation. The FS of the company have to be placed before every Annual General Meeting (AGM) of the Company. Accounting Standards (AS) For the preparation of FS, it is provided that the CG would prescribe the standards of accounting, as recommended by ICAI in consultation with and after examination of the recommendations made CNK & Associates LLP Page 3 of 6
by the National Financial Reporting Authority (NFRA). NFRA is a new regulatory body sought to be setup under the Act. A circular has also been issued that till NFRA is constituted, the existing standards issued under Section 211(3C) of the 1956 Act should be followed. Preparation of Consolidated Financial Statements (CFS) Where a Company has one or more subsidiaries then, in addition to the 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 and the same should also be placed before the AGM. A separate statement containing the salient features of the FS and its subsidiary/ies is also required to be attached to the FS. Definition of Subsidiary The Act defines subsidiary Company to means a Company in which the Holding Company (i) Controls the composition of the BoD; or (ii) Exercises or controls more than one-half of the total share capital either at its own or together with one or more of its subsidiary Companies: The phrase total share capital is defined to mean the total of means the aggregate of paid-up equity share capital; and convertible preference share capital. Definition of Associate Company The Act defines Associate Company to mean a Company in which that other Company has a significant influence, but which is not a Subsidiary Company of the Company having such influence and includes a Joint Venture (JV) Company. Significant influence is defined to mean control of at least 20% of total share capital, or of business decisions under an agreement; Manner of preparing CFS Schedule III of the Act prescribes general guidelines for preparation of CFS. The Act also mentions that Subsidiary includes Associate Company and JV. CNK Analysis The definition of subsidiary and associate as per the Act is different and much wider than the definition under the AS. The relevant Rule for the same however mentions that the consolidation of FS of the Company shall be made in accordance with the provisions of Schedule III of the Act and the applicable AS. This, in our view, may be interpreted to mean that for the purpose of preparing CFS, the definitions as per the AS can be considered whereas for other purposes of the Act the definition as per the Act is to be considered. CNK & Associates LLP Page 4 of 6
Penalties and Fines In case of contravention of any of the above provisions there are penalties leviable and there can even be prosecution Reopening of accounts The Act contains provisions to reopen its accounts. A Company would be able to re-open its books of accounts and recast its FS after making an application in this regard to the CG, the Income Tax (IT) authorities, the Securities and Exchange Board of India, 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 FS. The accounts so revised or re- cast above shall be final. Voluntary revision of FS A Company can undertake voluntary revision of FS if it appears to the Director of a Company that the FS of the Company does not comply with the provisions of the Act in respect of any of 3 preceding financial years, after obtaining approval from the Tribunal. A revised FS or report cannot be prepared or filed more than once within a financial year and the detailed reasons for revision of such FS or report shall also be disclosed in the Board s Report in the relevant financial year in which such a revision is being made. Where the copies of the previous FS or report have been sent to the members or delivered to the Registrar of Companies (RoC) or laid before the general meeting, the revisions should be confined to The correction in respect of which the previous FS or report do not comply with Section 129 or Section 134 of the Act and ; The making of necessary consequential alternation. CNK & Associates LLP Page 5 of 6
DISCLAIMER AND STATUTORY NOTICE This e-publication is published by CNK & Associates LLP, India, solely for the purposes of providing necessary information to employees, clients and other business associates. This publication summarises the important provisions of the Companies Act 2013 pertaining to Accounts of Companies and Rules for Chapter IX Companies (Accounts) Rules, 2014. Whilst every care has been taken in the preparation of this publication, it may contain inadvertent errors for which we shall not be held responsible. This document is a proprietary material created and compiled by CNK & Associates LLP. All rights reserved. This newsletter or any portion thereof may not be reproduced or sold in any manner whatsoever without the consent of the publisher. This publication is not intended for advertisement and/or for solicitation of work. CNK & Associates LLP Page 6 of 6