However, the financial statement with respect to one Person Company, small company and dormant company, may not include the cash flow statement.
Financial statement should be prepared for financial year and as per the requirements of Schedule III.
Provided that the items contained in such financial statements shall be in accordance with the accounting standards:
Provided also that the financial statements shall not be treated as not disclosing a true and fair view of the state of affairs of the company, merely by reason of the fact that they do not disclose—
|Type of company
|Insurance of company
||Matters which are not required to be disclosed by the Insurance Act, 1938, or the Insurance Regulatory and Development Authority Act,1999
||Matters which are not required to be disclosed by the Banking Regulation Act,1949
|Company engaged in the generation or of electricity supply
||Matters which are not required to be disclosed by the Electricity Act,2003
|Company governed by any other law
||Matters which are not required to be disclosed by that law
Note: The proviso to section 129(1) with respect to non-applicability states that merely because of the matters which are not required to be disclosed under the above given acts, in the financial statements of the above given companies, the financial statements of such companies shall not be treated as not disclosing a true and fair view of the state of affairs of the company.
Laying of financial Statements [Section 129(2)]
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.
Consolidation of financial statements [Section 129(3)]
(1) Where a company has one or more subsidiaries or associate companies, it shall, in addition to financial statements provided under sub-section (2), prepare a consolidated financial statement (CFS) 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, which shall also be laid before the annual general meeting of the company along with the laying of its financial statement under sub-section (2).
The company shall also attach along with its financial statement, a separate statement containing the salient features of the financial statement of its subsidiary or subsidiaries and associate company or companies in Form AOC- 1 as per Rule 5 of the Companies (Accounts) Rules, 2014.
Provided further that the Central Government may provide for the consolidation of accounts of companies in such manner as may be prescribed under Rule 6 of the Companies (Accounts) Rules, 2014.
Explanation - For the purposes of this sub-section, the word “subsidiary” shall include associate company and joint venture.
Rule 6 of the Companies (Accounts) Rules, 2014 provides for the consolidation of accounts of companies in the following manner
Manner of consolidation of Accounts: 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.
In case where company is not required to prepare CFS: A company covered under sub-section (3) of section 129 which is not required to prepare consolidated financial statements under the Accounting Standards, it shall be sufficient if the company complies with provisions of consolidated financial statements provided in Schedule III of the Act.
Exemptions from preparation of CFS: As per Companies (Accounts) Amendment Rules, 2016, preparation of consolidated financial statements by a company is not required if it meets the following conditions:
- it is a wholly-owned subsidiary, or is a partially-owned subsidiary of another company and all its other members, including those not otherwise entitled to vote, having been intimated in writing and for which the proof of delivery of such intimation is available with the company, do not object to the company not presenting consolidated financial statements;
- it is a company whose securities are not listed or are not in the process of listing on any stock exchange, whether in or outside India; and
- its ultimate or any intermediate holding company files consolidated financial statements with the Registrar which are in compliance with the applicable Accounting Standards.
Provided also that nothing contained in this rule shall subject to any other law or regulation, apply for the financial year commencing from the 1st day of April, 2014 and ending on the 31st March, 2015, in case of a company which does not have a subsidiary or subsidiaries but has one or more associate companies or Joint ventures or both, for the consolidation of financial statement in respect of associate companies or joint ventures or both, as the case may be.
Explanation: The above proviso states that for a company which does not have a subsidiary or subsidiaries but has one or more associate companies or Joint Ventures or both will not be required to comply with this rule of consolidation of financial statements in respect of associate companies or joint ventures or both, as the case may be, only for the financial year commencing from the 1st day of April, 2014 and ending on the 31st day of March, 2015.
Provided also that nothing in this rule shall apply in respect of consolidation of financial statement by a company having subsidiary or subsidiaries incorporated outside India commencing on or after 1st April 2014.
(2) The provisions applicable to the preparation, adoption and audit of the financial statements of a holding company shall, mutatis mutandis, also apply to the consolidated financial statements [Section 129(4)].
(3) Without prejudice to sub-section (1), where the financial statements of a company do not comply with the accounting standards referred to in sub- section (1), 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 [Section 129(5)].
(4) The Central Government may, on its own or on an application by a class or classes of companies, by notification, exempt any class or classes of companies from complying with any of the requirements of this section or the rules made thereunder, if it is considered necessary to grant such exemption in the public interest and any such exemption may be granted either unconditionally or subject to such conditions as may be specified in the notification [Section 129(6)].
Penal provisions [Section 129(7)]
If a company contravenes the provisions of this section, 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 shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees, or with both.
For the purposes of section 129, any reference to the financial statement shall include 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.
4. RE-OPENING OF ACCOUNTS ON COURT’S OR TRIBUNAL ORDERS [SECTION 130]
This section seeks to provide for the re-opening of books of accounts and recasting of financial statements.
(1) Apply to court for re-opening of accounts—A company shall not re-open its books of account and not recast its financial statements, unless an application in this regard is made by-
(a) the Central Government,
(b) the Income-tax authorities,
(c) the Securities and Exchange Board of India (SEBI),
(d) any other statutory regulatory body or authority or any person concerned and an order is made by a court of competent jurisdiction or the Tribunal to the effect that—
- the relevant earlier accounts were prepared in a fraudulent manner; or
- the affairs of the company were mismanaged during the relevant period, casting a doubt on the reliability of financial statements:
Serving of notice: Provided that the Court or the Tribunal, as the case may be, shall give notice to the Central Government, the Income-tax authorities, the Securities and Exchange Board or any other statutory regulatory body or authority concerned or any other person concerned and shall take into consideration the representations, if any, made by that Government or the authorities, SEBI or the body or authority concerned or the other person concerned before passing any order under this section [Sub- section (1)].
(2) Revised accounts shall be final: The accounts so revised or re-casted, shall be final.
(3) Time Limit in respect of re-opening of books of account: No order shall be made under sub-section (1) in respect of re-opening of books of account relating to a period earlier than eight financial years immediately preceding the current financial year:
Provided that where a direction has been issued by the Central Government under the proviso to sub-section (5) of section 128 for keeping of books of account for a period longer than eight years, the books of account may be ordered to be re- opened within such longer period.
5. VOLUNTARY REVISION OF FINANCIAL STATEMENTS OR BOARD’S REPORT [SECTION 131]
(1) Preparation of revised financial statement or revised report on the approval of Tribunal: If it appears to the directors of a company that—
- the financial statement of the company; or
- the report of the Board,
do not comply with the provisions of section 129 or section 134, they may prepare revised financial statement or a revised report in respect of any of the three preceding financial years after obtaining approval of the Tribunal on an application made by the company in such form and manner as may be prescribed and a copy of the order passed by the Tribunal shall be filed with the Registrar.
Explanation: Section 131 deals with the revision of financial statement or boards report, as the case may be, on a voluntary basis in the opinion of the board of directors unlike section 130.
Tribunal to serve the notice:
Provided that 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 that Government or the authorities before passing any order under this section.
Number of times of revision and recast:
Provided further that such revised financial statement or report shall not be prepared or filed more than once in a financial year.
Explanation: The above provision states that when a company has revised its financial statement or boards report pertaining to any of the three preceding financial years than such revised financial statement or boards report, as the case may be, shall not be revised again for the period it has been so revised.
Reason for revision to be disclosed:
Provided also that 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 revision is being made.
(2) Limits of revisions: Where copies of the previous financial statement or report have been sent out to members or delivered to the Registrar or laid before the company in general meeting, the revisions must be confined to—
- the correction in respect of which the previous financial statement or report do not comply with the provisions of section 129 or section 134; and
- the making of any necessary consequential alternation.
(3) Framing of rules by the Central Government in relation to revised financial statement or director’s report: The Central Government may make rules as to the application of the provisions of this Act in relation to revised financial
statement or a revised director’s report and such rules may, in particular—
- make different provisions according to which the previous financial statement or report are replaced or are supplemented by a document indicating the corrections to be made;
- make provisions with respect to the functions of the company’s auditor in relation to the revised financial statement or report;
- require the directors to take such steps as may be prescribed.
6. CONSTITUTION OF NATIONAL FINANCIAL REPORTING AUTHORITY [SECTION 132]
(1) The Central Government may, by notification, constitute the National Financial Reporting Authority (NFRA) to provide for matters relating to accounting and auditing standards under this Act.
(1A) The National Financial Reporting Authority shall perform its functions through such divisions as may be prescribed.
(2) Not withstanding anything contained in any other law for the time being in force, the NFRA shall—
- make recommendations to the Central Government on the formulation and laying down of accounting and auditing policies and standards for adoption by companies or class of companies or their auditors, as the case may be;
- monitor and enforce the compliance with accounting standards and auditing standards in such manner as may be prescribed;
- oversee the quality of service of the professions associated with ensuring compliance with such standards, and suggest measures required for improvement in quality of service and such other related matters as may be prescribed; and
- perform such other functions relating to clauses (a), (b) and (c) as may be prescribed.
(3) The NFRA shall consist of a chairperson, who shall be a person of eminence and having expertise in accountancy, auditing, finance or law to be appointed by the Central Government and such other members not exceeding fifteen consisting of part- time and full-time members as may be prescribed:
(3A) Each division of the National Financial Reporting Authority shall be presided over by the Chairperson or a full-time Member authorised by the Chairperson.
(3B) There shall be an executive body of the National Financial Reporting Authority consisting of the Chairperson and full-time Members of such Authority for efficient discharge of its functions under sub-section (2) [other than clause (a)] and sub- section (4).
Provided that the terms and conditions and the manner of appointment of the chairperson and members shall be such as may be prescribed.
Provided further that the chairperson and members shall make a declaration to the Central Government in the prescribed form regarding no conflict of interest or lack of independence in respect of his or their appointment.
Provided also that the chairperson and members, who are in full-time employment with NFRA shall not be associated with any audit firm (including related consultancy firms) during the course of their appointment and two years after ceasing to hold such appointment.
(4) Not withstanding anything contained in any other law for the time being in force, the NFRA shall—
(a) have the power to investigate, either suo moto or on a reference made to it by the Central Government, for such class of bodies corporate or persons, in such manner as may be prescribed into the matters of professional or other misconduct committed by any member or firm of chartered accountants, registered under the Chartered Accountants Act, 1949.
Provided that no other institute or body shall initiate or continue any proceedings in such matters of misconduct where the NFRA has initiated an investigation under this section;
(b) have the same powers as are vested in a civil court under the Code of Civil Procedure, 1908, while trying a suit, in respect of the following matters, namely:—
- discovery and production of books of account and other documents, at such place and at such time as may be specified by the NFRA;
- summoning and enforcing the attendance of persons and examining them on oath;
- inspection of any books, registers and other documents of any person referred to in clause (b) at any place;
- issuing commissions for examination of witnesses or documents;
(c) where professional or other misconduct is proved, the NFRA shall have the power to make order for—
(A) imposing penalty of—
- not less than one lakh rupees, but which may extend to five times of the fees received, in case of individuals; and
- not less than five lakh rupees, but which may extend to ten times of the fees received, in case of firms;
(B) debarring the member or the firm from-
- being appointed as an auditor or internal auditor or undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate; or
- performing any valuation as provided under section 247,
for a minimum period of six months or such higher period not exceeding tenyears as may be determined by the National Financial Reporting Authority.
Explanation — For the purposes of this sub-section, the expression "professional or other misconduct" shall have the same meaning assigned to it as given under section 22 of the Chartered Accountants Act, 1949.
Appeal against orders of NFRA
Any person aggrieved by any order of the National Financial Reporting Authority issued under clause (c) of sub-section (4), may prefer an appeal before the Appellate Tribunal in such manner and on payment of such fee as may be prescribed.
Meetings of NFRA
The National Financial Reporting Authority shall meet at such times and places and shall observe such rules of procedure in regard to the transaction of business at its meetings in such manner as may be prescribed.
Secretary and other employees
The Central Government may appoint a secretary and such other employees as it may consider necessary for the efficient performance of functions by the National Financial Reporting Authority under this Act and the terms and conditions of service of the secretary and employees shall be such as may be prescribed.
Head office of NFRA
The head office of the National Financial Reporting Authority shall be at New Delhi and the National Financial Reporting Authority may, meet at such other places in India as it deems fit.
Maintenance of books by NFRA
The National Financial Reporting Authority shall cause to be maintained such books of account and other books in relation to its accounts in such form and in such manner as the Central Government may, in consultation with the Comptroller and Auditor-General of India prescribe.
Audit of account of NFRA
The accounts of the National Financial Reporting Authority shall be audited by the Comptroller and Auditor-General of India at such intervals as may be specified by him and such accounts as certified by the Comptroller and Auditor-General of India together with the audit report thereon shall be forwarded annually to the Central Government by the National Financial Reporting Authority.
Annual Report on working of NFRA
The National Financial Reporting Authority shall prepare in such form and at such time for each financial year as may be prescribed its annual report giving a full account of its activities during the financial year and forward a copy thereof to the Central Government and the Central Government shall cause the annual report and the audit report given by the Comptroller and Auditor-General of India to be laid before each House of Parliament.
In exercise of the powers conferred under sub-sections (2) and (4) of section 132, the Central Government made the National Financial Reporting Authority Rules, 2018 (NFRA Rules).
As per NFRA rules, NFRA shall have power to monitor and enforce compliance with accounting standards and auditing standards, oversee the quality of service under sub-section (2) of section 132 or undertake investigation under sub-section (4) of such section of the auditors. Rule 3 provides for the classes of companies and bodies corporate governed by the NFRA. These include:
- companies whose securities are listed on any stock exchange in India or outside India;
- unlisted public companies having paid-up capital of not less than rupees five hundred crores or having annual turnover of not less than rupees one thousand crores or having, in aggregate, outstanding loans, debentures and deposits of not less than rupees five hundred crores as on the 31st March of immediately preceding financial year;
- insurance companies, banking companies, companies engaged in the generation or supply of electricity, companies governed by any special Act for the time being in force or bodies corporate incorporated by an Act in accordance with clauses (b), (c), (d), (e) and (f) of section 1 (4) of the Companies Act, 2013;
Explanation.- For the purpose of this clause, “banking company” includes ‘corresponding new bank’ as defined in section 2 (d) of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and section 2(b) of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 and ‘subsidiary bank’ as defined in section 2(k) of the State Bank of India (Subsidiary Bank) Act, 1959.
- any body corporate or company or person, or any class of bodies corporate or companies or persons, on a reference made to the NFRA by the Central Government in public interest; and
- a body corporate incorporated or registered outside India, which is a subsidiary or associate company of any company or body corporate incorporated or registered in India as referred to in clauses (a) to (d) above, if the income or networth of such subsidiary or associate company exceeds 20% of the consolidated income or consolidated networth of such company or the body corporate, as the case may be, referred to in clauses (a) to (d) above.
Every existing body corporate other than a company governed by these rules, shall inform the NFRA within 30 days of the commencement of NFRA rules, in Form NFRA-1, the particulars of the auditor as on the date of commencement of these rules.
A company or a body corporate other than a company governed under NFRA Rules shall continue to be governed by the NFRA for a period of 3 years after it ceases to be listed or its paid-up capital or turnover or aggregate of loans, debentures and deposits falls below the limit stated therein[i.e. mentioned in points (a) to (e) above].
Punishment in case of non-compliance - If a company or any officer of a company or an auditor or any other person contravenes any of the provisions of NFRA Rules, the company and every officer of the company who is in default or the auditor or such other person shall be punishable as per the provisions of section 450 of the Act.
7. CENTRAL GOVERNMENT TO PRESCRIBE ACCOUNTING STANDARDS [SECTION 133]
Section 133 of the Companies Act, 2013 deals with the power of the Central Government to prescribe the accounting standards.
The Central Government may prescribe the standards of accounting or any addendum thereto, as recommended by the ICAI in consultation with and after examination of the recommendations made by the NFRA.
Provided that until the NFRA is constituted under section 132 of the Companies Act, 2013, the Central Government may prescribe the standards of accounting or any addendum thereto, as recommended by the ICAI in consultation with and after examination of the recommendations made by the National Advisory Committee on Accounting Standards (NACAS) constituted under the previous company law.
8. FINANCIAL STATEMENT, BOARD’S REPORT, ETC. [SECTION 134]
Section 134 provides that the financial statement including consolidated financial statements should be approved by the Board of Directors before they are signed and submitted to auditors for their report. The auditor’s report is to be attached to every financial statement. A report by the Board of Directors containing details on the matters specified including Director’s responsibility statement shall be attached to every financial statement laid before the company. The Board’s report and every annexure has to be duly signed. A signed copy of every financial statement shall be circulated, issued or published along with all notes or documents, the auditor’s report and Board’s report. The clause also provides for penal provisions for the company and every officer of the company in case of any contravention.
(i) Authentication of Financial statements [Section 134(1), (2) & (7)]:
- The financial statement, including consolidated financial statement, if any, shall be approved by the Board of Directors before they are signed on behalf of the Board 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, if any, and the Chief Executive Officer, the Chief Financial Officer and the company secretary of the company, wherever they are appointed, or in the case of One person company, only by one director, for submission to the auditor for his report thereon.
- The auditors’ report shall be attached to every financial statement [Sub- section (2)].
- A signed copy of every financial statement, including consolidated financial statement, if any, shall be issued, circulated or published along with a copy of [Section 134(7)] —
(1) Any notes annexed to or forming part of such financial statement;
(2) The auditor’s report; and
(3) The Board’s report referred to in sub section 3.
Example 3: The Board of Directors of ABC Ltd. wants to circulate unaudited accounts before the Annual General Meeting of the shareholders of the Company. Whether such an act of ABC Ltd. is tenable?
Answer: Section 129(2) of the Companies Act, 2013 provides that 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. Further section 134(7) provides that signed copy of every financial statement, including consolidated financial statement, if any, shall be issued, circulated or published along with a copy each of:
- any notes annexed to or forming part of such financial statement;
- the auditor’s report; and
- the Board’s report.
It, therefore, follows that unaudited accounts cannot be sent to members or unaudited accounts cannot be filed with the Registrar of Companies. So, such an act of ABC Ltd, is not tenable.
(ii) Board’s report [Section 134(3) & (4) read with Rule 8 of the Companies (Accounts) Rules, 2014]:
(1) According to Rule 8 of the Companies (Accounts) Rules, 2014, the Board’s Report shall be prepared based on the standalone financial statement of the company and shall report on the highlights of performance of subsidiaries, associates and joint venture companies and their contribution to the overall performance of the company during the period under report.
(2) Sub-section (3) of section 134 read with rule 8 prescribes the following contents of the board’s report:
- the web address, if any, where annual return referred to in sub-section (3) of section 92 (Annual Return) has been placed;
- number of meetings of the Board;
- directors’ responsibility statement;
(ca) details in respect of frauds reported by auditors under sub-section (12) of section 143 (Powers and duties of auditors and auditing standards) other than those which are reportable to the Central Government;
- a statement on declaration given by independent directors under sub- section (6) of section 149 (Company to have board of board of Directors in relation to independent director);
- in case of a company covered under sub-section (1) of section 178 (Nomination and Remuneration Committee and Stakeholders Relationship Committee), 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;
Note: The above clause (e) shall not apply in the case of a government company.
- 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;
- particulars of loans, guarantees or investments under section 186;
- particulars of contracts or arrangements with related parties referred to in sub-section (1) of section 188 in the form AOC-2;
- the state of the company’s affairs;
- the amounts, if any, which it proposes to carry to any reserves;
- the amount, if any, which it recommends should be paid by way of dividend;
- 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;
- the conservation of energy, technology absorption, foreign exchange earnings and outgo, in such manner as may be prescribed; However, the Govt. companies engaged in producing defence equipment is exempted from disclosure under this clause.
- 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;
- the details about the policy developed and implemented by the company on corporate social responsibility initiatives taken during the year;
- in case of a listed company and every other public company having such paid-up share capital as may be prescribed, a statement indicating the manner in which formal annual evaluation of the performance of the Board, its Committees and of individual directors has been made;
According to Rule 8(4), every listed company and every other public company having a paid up share capital of twenty five crore rupees or more calculated at the end of the preceding financial year shall include, in the report by its Board of directors, a statement indicating the manner in which formal annual evaluation has been made by the Board of its own performance and that of its committees and individual directors.
Exemption to Government company- The above clause (p) of Sub- section (3) of Section 134 shall not apply, in case the directors are evaluated by the Ministry or Department of the Central Government which is administratively in charge of the company, or, as the case may be, the State Government, as per its own evaluation methodology [vide Notification dated 5 June 2015].
Provided that where disclosures referred to in this sub-section have been included in the financial statements, such disclosures shall be referred to instead of being repeated in the Board's report.
Provided further that where the policy referred to in clause (e) or clause (o) is made available on company's website, if any, it shall be sufficient compliance of the requirements under such clauses if the salient features of the policy and any change therein are specified in brief in the Board's report and the web-address is indicated therein at which the complete policy is available.
According to Rule 8 of the Companies (Accounts) Rules, 2014, the report of the Board shall also contain–
(i) the financial summary or highlights;
(ii) the change in the nature of business, if any;
(iii) the details of directors or key managerial personnel who were appointed or have resigned during the year;
(iiia) a statement regarding opinion of the Board with regard to integrity, expertise and experience (including the proficiency) of the independent directors appointed during the year.
Explanation.-For the purposes of this clause, the expression “proficiency” means the proficiency of the independent director as ascertained from the online proficiency self-assessment test conducted by the institute notified under sub-section (1) of section 150 (Manner of selection of Independent Directors and maintenance of databank of independent directors).
(iv) the names of companies which have become or ceased to be its subsidiaries, joint ventures or associate companies during the year;
(v) the details relating to deposits like-
(a) accepted during the year;
(b) remained unpaid or unclaimed as at the end of the year;
(c) whether there has been any default in repayment of deposits or payment of interest thereon during the year and if so, number of such cases and the total amount involved-
(1) at the beginning of the year;
(2) maximum during the year;
(3) at the end of the year;
(vi) the details of deposits which are not in compliance with the requirements of Chapter V (Acceptance of Deposits by Companies) of the Act;
(vii) the details of significant and material orders passed by the regulators or courts or tribunals impacting the going concern status and company’s operations in future;
(viii) the details in respect of adequacy of internal financial controls with reference to the Financial Statements.
(ix) a disclosure, as to whether maintenance of cost records as specified by the Central Government under sub-section (1) of section 148 of the Companies Act, 2013, is required by the Company and accordingly such accounts and records are made and maintained,
(x) a statement that the company has complied with provisions relating to the constitution of Internal Complaints Committee under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013.
Non - applicability of Rule 8 of Companies (Accounts) Rules, 2014: This rule shall not apply to One Person Company or Small Company.
(3) Abridged Board's report [Section 134(3A)]: The Central Government may prescribe an abridged Board's report, for the purpose of compliance with this section by One Person Company or small company.
(4) Board’s Report in case of OPC [Section 134(4)]: In case of a One Person Company, the report of the Board of Directors to be attached to the financial statement under this section shall, 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.
(iii) Directors’ Responsibility Statement [Section 134(5)]: The Directors’ Responsibility Statement referred to in 134(3)(c) shall state that—
- in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures;
- 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;
- 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;
- the directors had prepared the annual accounts on a going concern basis; and
- 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.
Here, 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;
- 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.
(iv) Signing of Board’s Report [Section 134(6)]:
The Board’s report and any annexures thereto under sub-section (3) 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.
(v) Contravention [Section 134(8)]: