India: Reporting Of The Financial Statement

Introduction

The Companies Act 2013 (hereinafter referred to as "2013 Act"), was notified in the official gazette on the 30.08.2013. The 2013 Act passed by the Parliament has received the assent of the President of India on 29th August, 2013. The 2013 Act has been passed to consolidate and amend the law relating to the Companies. Pursuant to this about 60 years old Companies Act 1956 has been replaced with the 2013 Act.

The 2013 Act has been divided into 29 chapters against the 1956 Act which was divided into XIII Parts and various Chapters. For the purpose of this article provision of Chapter IX of the 2013 Act and its corresponding provision in the 1956 Act are relevant. In the present article we have tried to briefly deal with the provisions of Part VI of the Companies Act, 1956 dealing with the accounts of the company and the development thereto under the newly passed 2013 Act and the rules appended thereto.

Chapter IX of the Companies Act : Accounts of the Company

Reporting and benefit of the stakeholders has always been an integral part of the provisions of the Companies Act. The Companies Act 2013 also provides for reporting the stakeholders so as to conceive the overall view of the affairs of the company undertaken around the year in the company as well as any of its other offices, including the branch office. It is through such reporting the Company provides information to the stakeholders about the financial position, performance and changes in financial position of an enterprise which is useful to a wide range of users in making economic decisions.

The provisions contained in Section 209 to 220 of the Companies Act 1956 (hereinafter referred to as "1956 Act") were required to be followed for the preparation, laying down, approval and adoption of the Balance Sheet, Profit and Loss Account etc of the company. Since, the 1956 Act has been replaced by the 2013 Act, the relevant provisions, interalia, for the reporting of the accounts of the companies are contained in Section 128 to 137 of 2013 Act along with the Companies (Audit and Auditors) Rules, 2014 which are also required to be complied with.

This article focuses on the financial reporting requirements of the company and for the said purpose the relevant provisions of Section 129 is required to be followed. The said section deals with the reporting through financial statement which was earlier not defined under the provisions of the 1956 Act. However, according to the Section 2 (40) of the 2013 Act, a financial statement means

(i) a balance sheet as at the end of the financial year;

(ii) a 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 financial year;

(iii) cash flow statement for the financial year;

(iv) a statement of changes in equity, if applicable; and

(v) any explanatory note annexed to, or forming part of, any document referred to in sub-clause (i) to sub-clause (iv)"

The 1956 Act did not use the term financial statement for reporting to the stakeholders rather it used the term Balance Sheet, Profit and Loss Account etc as against the 2013 Act which defines the term "financial statement.

Further, any reference to 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 as provided in the explanation of Section 129.

Furthermore, Section 129 (3) of the 2013 act requires the company to prepare a consolidated financial statement of all its subsidiaries and lay it before the Annual General Meeting and file with the Registrar copies of the same. In addition to it, the companies shall also attach salient features of the financial statements of all its subsidiaries.

The explanation to this sub-section also clarifies that for the intents and purposes of this sub-section the word "subsidiary" shall include joint ventures and associate companies.

All these reporting requirements have not only increased the cost to the company but also duplicated the matters to be reported to the stakeholders.

Rule 6 of the Companies (Audit and Auditors) Rules, 2014 provides that the consolidation of financial statements are applicable to those companies which are required to consolidate its accounts as per the Accounting Standards.

Section 129(1) requires the Financial Statements to be complying with the accounting standards and be prepared as per the format prescribed in the Schedule III as against Schedule VI of the 1956 Act. Further, deviations from the accounting standards must also be disclosed with reasons for such deviation and its impact on profit in the financial statements, as prescribed in S. 129(5).

The 2013 Act has widen the reporting requirements by mandating Companies to lay before the Annual General Meeting and file with the Registrar copies of, inter alia, Cash flow statements, as well. The 1956 act did not provide for mandatory filing of Cash Flow statement and statement of change in equity.

In case of any violation in the compliance of the provisions of this section the Managing Director, Whole time Director in charge of Finance, CFO or any other officer charged with the duty and in the absence of any of the officers mentioned above, all directors shall be punishable with imprisonment for a term up to 1 year or with fine ranging from Rs. 50,000 to Rs. 5,00,000 or with both as stated under section 129(7). Although the 1956 Act also provided for the penalty, the Companies did not abide to the same due to the meager penalty provided. The 1956 act provided for the penalty of Rs 10,000 or with imprisonment of upto 6 months or both.

Conclusion

Undoubtedly the immediate compliance of the provisions of Section 129 only would have been burdensome upon the corporate. In this light, Ministry of Corporate Affairs vide its Circular no 8/2014 dated 04.04.2014, has allowed the companies to follow the provision of 1956 act for the preparation, laying down and adoption of the Balance Sheet, Profit and Loss Account etc to be prepared for the financial year ending 31.03.2014. The provision of 2013 Act regarding the preparation, laying down and adoption of the financial Statements is required to be followed by the companies for the financial year commencing on or after 01.04.2014.

Priya Dhankhar - III yr BA. LLb. Student at New Law College, Bharti Vidyapeeth Deemed University

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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