Financial Statement, Board’s report, etc (Section 134 of the Companies Act, 2013)

Financial Statement, Board’s report, etc (Section 134 of the Companies Act, 2013) :

Section 134 of the Companies Act, 2013 came into force from 1st April, 2014 which provides for financial statement, Board‘s report, etc. According to this section:

(i) Authentication of Financial statements [Section 134(1), (2) & (7)]:

(a) The financial statements, 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 following:

(1) The chairperson of the company where he is authorised by the Board; or

(2) By two directors out of which one shall be managing director and other the Chief Executive Officer, if he is a director in the company,

(3) The Chief Financial Officer, wherever he is appointed; and

(4) The company secretary of the company, wherever he is appointed.

(b) In the case of a One Person Company, the financial statement shall be signed by only one director, for submission to the auditor for his report thereon.

(d) A signed copy of every financial statement, including consolidated financial statement, if any, shall be issued, circulated or published along with a copy each of—

(1) Any notes annexed to or forming part of such financial statement;

(2) The auditor‘s report; and

(3) The Board‘s report.

(ii) Board’s report [Section 134(3) & (4)]:

(1) According to Companies (Accounts) Rules, 2014, the Board‘s Report shall be prepared based on the stand alone financial statements of the company and the report shall contain a separate section wherein a report on the performance and financial position of each of the subsidiaries, associates and joint venture companies included in the consolidated financial statement is presented.

As per Rule 12(1) of the Companies( Accounts) Rules, 2014, every company shall file the financial statements with Registrar together with Form AOC-4 and the Consolidated Financial statements, if any with Form AOC-4 CFS.[The Companies( Accounts) Second Amendment Rules, 2015]

(2) There shall be attached to statements laid before a company in general meeting, a report by its Board of Directors, which shall include —

(a) The extract of the annual return as provided under sub-section (3) of section 92;

(b) Number of meetings of the Board;

(ca) By the Companies (Amendment) Act, 2015, this is a new clause added under the Section 134(3), whereby details in respect of frauds reported by auditors under section 143(12) other than those which are reportable to the Central Government.

(d) a statement on declaration given by independent directors under sub-section (6) of section 149;

(e) in case of a company covered under sub-section (1) of section 178, 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;

(f) 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;

(g) particulars of loans, guarantees or investments under section 186;

(h) particulars of contracts or arrangements with related parties referred to in subsection (1) of section 188 in Form AOC-2;

(i) the state of the company‘s affairs;

(j) the amounts, if any, which it proposes to carry to any reserves;

(k) the amount, if any, which it recommends should be paid by way of dividend;

(l) 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;

(m) the conservation of energy, technology absorption, foreign exchange earnings and outgo, in such manner as prescribed under the Rule 8(3) of the Companies (Accounts) Rules, 2014 which provides for:

(A) Conservation of energy-

(i) the steps taken or impact on conservation of energy;

(ii) the steps taken by the company for utilising alternate sources of energy;

(iii) the capital investment on energy conservation equipments;

(B) Technology absorption-

(i) the efforts made towards technology absorption;

(ii) the benefits derived like product improvement, cost reduction, product development or import substitution;

(iii) in case of imported technology (imported during the last three years reckoned from the beginning of the financial year)-

(a) the details of technology imported;

(b) the year of import;

(d) if not fully absorbed, areas where absorption has not taken place, and the reasons thereof; and

(iv) the expenditure incurred on Research and Development.

The Foreign Exchange earned in terms of actual inflows during the year and the Foreign Exchange outgo during the year in terms of actual outflows.

By the Companies (Accounts) Second Amendments Rules, 2015, vide Notification dated 4th September 2015, a proviso has been inserted saying that the requirement of furnishing information and details under this subrule shall not apply to a Government Company engaged in producing defence equipment.

(n) 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;

(o) the details about the policy developed and implemented by the company on corporate social responsibility initiatives taken during the year;

(p) Every listed company and every other public company having a paid up share capital of 25 crore rupees or more calculated at the end of the preceding financial year shall include (as prescribed under the Companies (Accounts) Rules, 2014), 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.

This clause shall not apply to the Government Company 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.[ Inserted vide Notification dated 5th June 2015]

(q) Such other matters as contain as prescribed under the Companies (Accounts) Rules, 2014. According to which 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;

(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 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.

(3) 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)]:

(a) The Directors’ Responsibility Statement referred to in 134(3) (c) shall state that—

(1) in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures;

(2) 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;

(3) 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;

(4) the directors had prepared the annual accounts on a going concern basis; and

(5) 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;

(6) 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 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)]:

(a) If a company contravenes any provisions of this section, the company shall be punishable with fine which shall not be less than `50,000 but which may extend to `25 Lacs.

(b) Every officer of the company who is in default shall be punishable with:

(1) Imprisonment for a term which may extend to 3 years; or

(2) fine which shall not be less than `50,000 but which may extend to ` 5 Lacs; or

(3) Both with imprisonment and fine

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