Financial Statements Under the Companies Act: Preparation, Signing, Circulation and Filing

A company's annual accounts pass through four sections of the Companies Act, 2013 before the year is closed: s.129 says what the statements must be, s.134 says who approves and signs them and what travels with them, s.136 says who must receive them before the AGM, and s.137 says when they reach the Registrar. This guide follows that order.

Legal basis: Companies Act, 2013, ss.129, 134, 136 and 137, as currently in force.

What the statements must be (s.129)

"The financial statements shall give a true and fair view of the state of affairs of the company or companies, comply with the accounting standards notified under section 133 and shall be in the form or forms as may be provided for different class or classes of companies in Schedule III" (s.129(1), Companies Act 2013). All three tests apply every year: true-and-fair, notified standards, Schedule III form.

Two provisos qualify this. The items in the statements must follow the accounting standards. And s.129(1) does not apply to an insurance or banking company, a company generating or supplying electricity, or any other class of company whose form of financial statement is specified in or under the Act governing it. A third proviso says statements are not treated as lacking a true and fair view merely because they do not disclose matters that the sector law (Insurance Act, Banking Regulation Act, Electricity Act, or another law) does not require to be disclosed.

Laying. "At every annual general meeting of a company, the Board of Directors of the company shall lay before such meeting financial statements for the financial year" (s.129(2)).

Notes count. The Explanation to s.129 says a reference to the financial statement includes "any notes annexed to or forming part of such financial statement, giving information required to be given and allowed to be given in the form of such notes under this Act".

Departures from standards. Where statements do not comply with the accounting standards, "the company shall disclose in its financial statements, the deviation from the accounting standards, the reasons for such deviation and the financial effects, if any, arising out of such deviation" (s.129(5)). The disclosure sits inside the statements, and covers three things: what deviated, why, and the financial effect if any.

Exemptions. The Central Government may, by notification and in the public interest, exempt a class of companies from the requirements of s.129 or its rules, unconditionally or on conditions (s.129(6)). An exemption has to come from a notification; a company cannot grant it to itself.

Groups: consolidated statements (s.129(3) and (4))

A company with one or more subsidiaries or associate companies must, in addition to its own statements, "prepare a consolidated financial statement of the company and of all the subsidiaries and associate companies in the same form and manner as that of its own and in accordance with applicable accounting standards", laid before the AGM along with its own statements (s.129(3)). Two provisos follow. The company must attach "a separate statement containing the salient features of the financial statement of its subsidiary or subsidiaries and associate company or companies in such form as may be prescribed"; and the Central Government may provide for consolidation of accounts in the manner prescribed.

The provisions of the Act on preparation, adoption and audit of a holding company's financial statements apply, with necessary changes, to the consolidated statements (s.129(4)).

Worked example: a private holding company with two subsidiaries lays three things at its AGM: its own statements, consolidated statements covering itself and both subsidiaries, and the separate salient-features statement for the two subsidiaries. A holding company that lays only its own statements has not met s.129(3).

Approval and signing (s.134(1) and (2))

The financial statement, including any consolidated statement, "shall be approved by the Board of Directors before they are signed on behalf of the Board". The signatories are the chairperson, if the Board has authorised him, or two directors of whom one is the managing director (if any), together with the Chief Executive Officer, the Chief Financial Officer and the company secretary, wherever they are appointed. A One Person Company needs only one director to sign. Signing is "for submission to the auditor for his report thereon" (s.134(1)), and the auditor's report is attached to every financial statement (s.134(2)).

The Board's report (s.134(3) to (7))

The statements laid before the members must carry a Board's report. Among its required contents (s.134(3)) are the number of Board meetings, the Directors' Responsibility Statement, a statement on declarations by independent directors, "explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer" made by the auditor or by the company secretary in practice in the secretarial audit report, particulars of loans, guarantees and investments under s.186, related-party contracts under s.188, the state of the company's affairs, proposed transfers to reserves and any recommended dividend, material changes after the year end, and the CSR policy details. Where a disclosure is already in the financial statements, the report may refer to it instead of repeating it (s.134(3), first proviso).

The Directors' Responsibility Statement must say, among other things, that applicable accounting standards were followed with proper explanation of material departures, that accounting policies were applied consistently with reasonable and prudent judgements, that proper accounting records were maintained, and that the annual accounts were prepared on a going-concern basis (s.134(5)(a) to (d)).

A One Person Company's Board report means only the Board's explanations of the auditor's qualifications (s.134(4)), and the Central Government may prescribe an abridged report for a One Person Company or small company (s.134(3A)). The report is signed by the authorised chairperson, or by at least two directors including a managing director, or by the sole director where there is one (s.134(6)). A signed copy of every financial statement issued, circulated or published must go with the notes, the auditor's report and the Board's report (s.134(7)).

Penalty. For default in complying with s.134 the company is liable to a penalty of ₹3,00,000 and every officer in default to a penalty of ₹50,000 (s.134(8)).

Sending the accounts to members (s.136)

A copy of the financial statements, including consolidated statements, the auditor's report and every other document required to be annexed, "shall be sent to every member of the company, to every trustee for the debenture-holder of any debentures issued by the company, and to all persons other than such member or trustee, being the person so entitled, not less than twenty-one days before the date of the meeting" (s.136(1)).

A shorter period is allowed only by consent. Copies sent less than 21 days before the meeting are deemed duly sent if agreed by members who, in a company with share capital, are a majority in number entitled to vote and represent not less than 95 per cent of the voting paid-up capital, or, in a company without share capital, hold not less than 95 per cent of the total voting power (s.136(1), first proviso).

Members and debenture trustees may inspect these documents at the registered office during business hours (s.136(2)). A company with subsidiaries must give any member who asks a copy of each subsidiary's separate audited or unaudited statements (s.136(2) proviso).

Penalty. Default under s.136 attracts a penalty of ₹25,000 on the company and ₹5,000 on every officer in default (s.136(3)).

Filing with the Registrar (s.137)

The financial statements, including consolidated statements, with all documents required to be attached and "duly adopted at the annual general meeting", must be filed with the Registrar "within thirty days of the date of annual general meeting", in the manner and with the fees or additional fees prescribed (s.137(1)).

• If the statements are not adopted at the AGM or adjourned AGM, the unadopted statements are still filed within thirty days of the AGM and the Registrar treats them as provisional; statements adopted at the adjourned AGM are filed within thirty days of that meeting (s.137(1), first and second provisos).
• A One Person Company files within one hundred eighty days from the close of the financial year (s.137(1), third proviso).
• Accounts of subsidiaries incorporated outside India that have no place of business in India are attached (s.137(1), fourth proviso); a foreign subsidiary not required to be audited locally may be covered by unaudited statements with a declaration and an English translation if needed (s.137(1), fifth proviso).
• If no AGM has been held for the year, the signed statements go with a statement of the facts and reasons for not holding it, within thirty days of the last date by which the AGM should have been held (s.137(2)).

Penalty. For failure to file in time, the company is liable to a penalty of ₹10,000 and, for continuing failure, a further ₹100 for each day, up to a maximum of ₹2,00,000. The managing director and the CFO (or, failing them, the director charged by the Board, or failing that all directors) are each liable to ₹10,000 plus ₹100 per day after the first, up to ₹50,000 (s.137(3)).

What happens if s.129 itself is breached

If a company contravenes s.129, "the managing director, the whole-time director in charge of finance, the Chief Financial Officer or any other person charged by the Board with the duty of complying with the requirements of this section and in the absence of any of the officers mentioned above, all the directors" are punishable with imprisonment for a term which may extend to one year or with fine of not less than ₹50,000 and up to ₹5,00,000, or with both (s.129(7)). The liability runs in that order; all directors answer only when none of the named officers is in place. Giving the duty to a named officer by Board resolution identifies who is responsible.

What to do now

• Next step: have the Board approve the statements (and any consolidated statement), sign them under s.134(1), and send them to the auditor (s.134(1)). Prepare the Board's report with replies to every auditor qualification (s.134(3)(f)).
• Deadline for members: documents must reach members and debenture trustees at least 21 days before the AGM unless the 95 per cent consent route is used (s.136(1)).
• Deadline for the Registrar: file within thirty days of the AGM (s.137(1)); a One Person Company within 180 days of year end (s.137(1) third proviso).
• Consequence of default: penalties of ₹3,00,000 / ₹50,000 (s.134(8)), ₹25,000 / ₹5,000 (s.136(3)) and daily penalties up to ₹2,00,000 (s.137(3)); s.129(7) applies to contraventions of s.129.

Have a CA review your facts before you act or file.

FAQ

What three things must financial statements satisfy?
A true and fair view, the accounting standards notified under s.133, and the Schedule III form, with sector companies using the form of their own governing law (s.129(1)).

Must a holding company present group accounts?
Yes. A company with subsidiaries or associate companies prepares consolidated statements in the same form and manner as its own, lays them at the same AGM and attaches the salient-features statement (s.129(3)).

Who signs the financial statements?
The authorised chairperson or two directors (one the managing director, if any), with the CEO, CFO and company secretary where appointed; one director in a One Person Company (s.134(1)).

How early must members get the accounts?
At least 21 days before the AGM, unless members holding 95 per cent of the voting capital agree to shorter notice (s.136(1)).

By when are the statements filed with the Registrar?
Within thirty days of the AGM (s.137(1)).

Do the notes form part of the statements?
Yes, notes annexed to or forming part of the statement and giving information required or allowed under the Act are included (s.129, Explanation).

---

See Also

• Shareholders did not adopt the accounts: what the company still files with the ROC
• Board's Report Under Section 134: Contents, Signing and Penalty
• Secretarial Audit Under Section 204: Who Needs It, What the Board Must Answer, and What Non-Compliance Costs