Books of Account to be kept by a Company Books of Account to be kept by a Company Every company must maintain proper books
Every company must maintain proper books of accounts of its affairs. The following transactions must beof accounts of its affairs. The following transactions must be entered in the books of accounts of the company which must be kept at
entered in the books of accounts of the company which must be kept at its registered office :-its registered office
:-a.
a. all sumall sums of mons of money receiey received and exved and expended by pended by the comthe company and tpany and the matthe matters in resers in respect of wpect of whichhich the respect of which the receipt and expenditure took place;
the respect of which the receipt and expenditure took place;
b.
b. all all sales sales and puand purchasrchases of es of goods goods by tby the cohe companympany; an; andd
c.
c. the athe assessets ants and liad liabilbilitiities of tes of the comhe companypany..
d.
d. in the case of a company engin the case of a company engaged in produaged in productionction, process, processing, manuing, manufactufacturing or minring or mining activing activitieities,s, such particulars relating to utilisation of material or other items of
such particulars relating to utilisation of material or other items of cost as may be cost as may be prescribedprescribed relating to certain class of companies
relating to certain class of companies as the entral !overnment may re"uire.as the entral !overnment may re"uire. The books of accounts
The books of accounts must comply with the following conditions :-must comply with the following conditions
:-#.
#. The booThe books must gks must give a trive a true and faiue and fair view or view of the staf the state of afte of affairfairs of the cos of the company or tmpany or the branche branchh office, if any, and explain its transaction.
office, if any, and explain its transaction.
$.
$. The bookThe books must be kept on acs must be kept on accrual bacrual basis and accsis and accordiording to double enng to double entry systry system of accotem of accountiunting.ng. Every company must keep its
Every company must keep its books of account at books of account at its registered office. %oweverits registered office. %owever, some of the books , some of the books ofof account may be kept at such other place in &ndia as
account may be kept at such other place in &ndia as the 'oard of (irectors may decide, provided a noticethe 'oard of (irectors may decide, provided a notice in writing giving full address of that
in writing giving full address of that other place alongwith re"uisite filing fee is filed with the other place alongwith re"uisite filing fee is filed with the )egistrar of)egistrar of ompanies within seven of such decision.
ompanies within seven of such decision.
&f the company has a branch office, the books of account relating to transactions at the branch office may &f the company has a branch office, the books of account relating to transactions at the branch office may be kept at that branch office, but proper summarised reports and statements must be sent to the
be kept at that branch office, but proper summarised reports and statements must be sent to the
registered office or such other place where the books are kept, at intervals of not more than three months. registered office or such other place where the books are kept, at intervals of not more than three months. The books of account of the branch must give a
The books of account of the branch must give a true and fair view of the affairs of the branch and clearlytrue and fair view of the affairs of the branch and clearly explain its transactions.
explain its transactions. They must not conceal any
They must not conceal any transaction and also not disclose any transaction and also not disclose any transaction which is fictitious. The bookstransaction which is fictitious. The books of accounts and other documents and records are open to inspection by any
of accounts and other documents and records are open to inspection by any director during businessdirector during business hours. *imilarly
hours. *imilarly, they are open to , they are open to inspection by the )egistrar of ompanies or inspection by the )egistrar of ompanies or an officer authorised by thean officer authorised by the entral !overnment.
entral !overnment.
These books and papers together with the vouchers pertaining to entries made must be maintained for at These books and papers together with the vouchers pertaining to entries made must be maintained for at least + years. &t has
least + years. &t has been clarified by the (epartment of been clarified by the (epartment of ompany fompany ffairs in their ircular o. $+/ datedfairs in their ircular o. $+/ dated $/#0+/ that the books of account should be prepared and maintained in indelible ink 1and not in pencil2. $/#0+/ that the books of account should be prepared and maintained in indelible ink 1and not in pencil2. The following persons are responsible for maintaini
The following persons are responsible for maintaining the books of accounts of a ng the books of accounts of a company :-company
:-#.
#. The The manmanagiaging dng direirectoctor or r or manmanageager;r;
$.
/. Every officer and other employee who has been authorised and to whom responsibility to maintain the books has been alloted by the 'oard of (irectors.
&f any of the persons referred to above fails to take all reasonable steps to maintain proper books of accounts or has by his own willful act been the cause of any default by the company in this respect, he is punishable with imprisonment up to six months or with fine which may extend to )s. #,333 or with both. %owever, no person can be sentenced to imprisonment unless it is proved that the contravention was committed by him wilfully.
Preparation of Balance Sheet and Profit and Loss Account
The company has to prepare its balance sheet and profit 4 loss account from the books of account maintained by it. Every 'alance *heet of a company must give a true and fair view of the state of affairs of the company as at the end of the financial year and must be in the prescribed format.
&f the responsible for maintaining proper books of account fails to take all reasonable steps to secure compliance by the company with the re"uirement of law relating to the form and contents of the balance sheet, he is liable for each offence to imprisonment for a term extending up to six months or to fine up to )s.#,333- or to both.
Form of Balance Sheet,
5art # to *chedule 6& of the ompanies ct, #078 gives the format in which the balance sheet is to be prepared. The schedule specifies $ types of formats, the hori9ontal format and the vertical format. company can prepare its balance sheet in either of the $ formats. &n the hori9ontal format, the liabilities including the share capital are placed on the left side and assets of all types on the right. The main heads in this form are arranged as under:
1a2 *hare apital 1a2 ixed assets
1b2 )eserves and surplus 1b2 &nvestments
1c2 oans 1c2 urrent assets, loans and advances
1d2 urrent liabilities and 1d2 <iscellaneous e xpenditure to the provisions extent not written off or ad=usted
1e2 5rofit 4 oss ccount
- ---Total
&n the vertical format, the various heads of liabilities and assets are arranged vertically and current
liabilities are shown as deduction, from current assets. >hatever information which is re"uired to be given in the hori9ontal format must also be given in the vertical format. *ummarised prescribed vertical form of balance sheet is given below:
I. Sources of Funds 1#2 *hareholders? funds 1$2 oan funds ---Total II Application of Funds
1#2 ixedassets 1$2 &nvestments
1/2 urrent assets, loans and advances ess: urrent liabilities 4 provisions
1@2 1a2 <iscellaneous expenditure to the extent not written off or ad=usted
1b2 5rofit 4 oss ccount Total
The entral !overnment may, on the application or with the consent of the 'oard of (irectors of the company, by order, modify in relation to that company, any of the re"uirements as to matters to be stated in the company?s balance sheet or profit and loss account for adapting them to the circumstances of the company.
Contents of Profit and Loss Account
Though no format has been prescribed for the profit and loss account, 5art && to *chedule 6& of the ompanies ct, #078 gives a list of items which must be disclosed in every profit 4 loss account. Every profit and loss account of a company must give a true and fair view of the company?s profit or loss for the financial year for which it is drawn up.
Adoption of Balance Sheet and Profit Loss Account
The 'oard of directors must present to the shareholders of the company, the balance sheet and a profit and loss account for the financial year at every annual general meeting. &n the case of companies which are not commercial organisations such as *ection $7 companies, instead if the profit 4 loss account, an income 4 expenditure account may be prepared. The profit and loss account to be placed in the &)*T annual general meeting should relate to a period beginning with the incorporation of the company and ending with a day, the interval between which and the date of the meeting does not exceed nine months. &n case of subse"uent annual general meetings, the profit and loss account should relate to a period beginning with a day immediately after the p eriod for which the preceding profit 4 loss account was made and ending with a day, the interval between which and the date of the meeting should not exceed six months. The financial year may be more or less than a calendar year, but it must not exceed #7 months or with the special permission of the )egistrar, #+ months.
&f any director fails to take all reasonable steps to comply with the aforesaid re"uirements he is, in respect of each offence liable to be punished with imprisonment up to six months or with fine up to )s.#,333- or with both.
Authentication of Balance Sheet and Profit Loss Account
The balance sheet and profit 4 loss account of a company must be signed on behalf of the 'oard of directors by two directors out of whom one must be the managing director, where there is one and the manager, or secretary, if any. The balance sheet and profit and loss account must be approved by the 'oard of directors before they are submitted to the auditors for the purpose of audit. The report of the auditors must be attached to the balance sheet and profit 4 loss account.
The company and every officer of the company who is in default with the above provisions shall be punishable with the fine which may extend to )s.733-, if:
a. any copy of balance sheet and profit and loss account is issued, circulated or published, without being signed as re"uired ; or
b. any copy of balance sheet is issued, circulated or published, without there being annexed or attached thereto, a copy each of the following
:-#. the profit and loss account;
$. any accounts, reports or statements pertaining to subsidiary companies which are re"uired to be attached to the balance sheet,
/. the auditors? report; and
@. the )eport of the 'oard of (irectors Circulation of Balance Sheet and Auditors! "eport
copy of every balance sheet, profit and loss account, auditors? report and every other document re"uired to be annexed or attached to the balance sheet must be sent not less than twenty-one days before the general meeting to every member, to every trustee for debenture holders, and to all other persons who are entitled to have a notice of general meetings. &n the case of a company not having a share capital, the above documents need not be sent to a member, or debenture holder who is not entitled to have notice of gene ral meetings.
&n case of listed companies, the company may keep the aforesaid documents available for inspection at its registered office during working hours for a period of twenty-one days before the meeting and send to every member and trustee for d ebentureholders only a summarised statement containing the salient features of these documents in the prescribed format.
Filin# of Annual Accounts $ith the "e#istrar
Every company must file with the )egistrar within /3 days from the day on which the annual accounts, auditorAs report and the d irectorAs report were presented at the annual general meeting, three certified copies of these documents signed by the managing director, manager or secretary of the company or if there be none of these by a director of the company.
These accounts may be inspected and copies thereof may be obtained by any member of the public at the )egistrar of ompanies on payment of the re"uisite fee. %owever, no person other than a member of the company is entitled to inspect, or obtain copies, of the profit and loss account in the case of the
following types of companies
:-#. a private company which is not a subsidiary of public company;
$. a private company whose entire paid-up capital is held only by one or more bodies corporate incorporated outside &ndia; or
/. a private company which is deemed to be a public company by virtue of *ection @/, if the entral !overnment directs that it is not in the public interest that any person other than a member of the company should be entitled to inspect or obtain copies of the profit and loss account of the company.
&n case the annual general meeting of a company for any year has not been held, , / copies of the balance sheet and profit and loss account, duly signed, within thiry days from the latest day on or before
which that meeting should have been held in accordance with the provisions of the ct must be filed with the )egistrar of ompanies. &f for any reason, the annual general meeting before which a balance sheet is laid does not adopt it, or is ad=ourned without adopting the balance sheet or if the annual general meeting of a company for any year has not been held, a statement of the fact and reasons thereof must also be annexed to the balance sheet and to the copies thereof to be filed with the )egistrar.
&f default is made in complying with the above provisions, then the company and every officer of the company who is in default shall be punishable with fine which may extend to )s.73 for every day during the period the default continues.
%irectors! "eport
The report of the 'oard of (irectors must be attached to every balance sheet prsented at the annual general meeting. The report must contain information regarding the following matters
:-#. The state of affairs of the company
$. The amount, if any, which it proposes to carry to any reserves in such balance sheet
/. The amount of dividend recommended
@. (etails of any 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 balance sheet relates and the date of the report
7. onservation of energy, technology absorption, foreign exchange earnings and outgo.
8. ames, designations and other particulars of all employees d rawing more than )s. 73333- p.m. in the company
B. (etails necessary for a proper understanding of the state of the company?s affairs and which are not, in the 'oard?s opinion, harmful to the business of the company or of any of its subsidiaries, in respect of changes which have occured during the financial year
:-i. in the nature of company?s business;
ii. in the company?s subsidiaries or in the nature of the business carried on by them; and
iii. generally in the classes of business in which the company has an interest Auditors of Company
Auditors of &o'ernment Companies
The auditor of a !overnment company is appointed or re-appointed by the entral !overnment on the advice of the omptroller and uditor-!eneral of &ndia provided that the audit would be within the number of acceptable audits available to each auditor.
:-a. to direct the manner in which the company?s accounts are to be be audited by the auditor so appointed and to give such auditor instructions in regard to an y matter relating to the performance of his functions as such
b. to conduct supplementary or test audit of the company?s accounts by such person or persons or persons as he may authorise in this behalf; and for the purpose of such audit, to re"uire
additional information to be furnished to any person or persons so authorised, on such matters, by such person or persons, and in such form, as the omptroller and uditor-!eneral may, by general or special order, direct.
The auditor must submit a copy of his audit report to the omptroller and uditor-!eneral of &ndia who shall have the right to comment upon or supplement, the audit report in such manner as he may think fit. ny such comments upon, or supplement to, the audit report must be placed before the annual general
meeting of the company at the same time and in the same manner as the auditors? report. Auditors of (ther Companies
&t is the duty of the auditor conduct the audit of the books of accounts of the company and to make his report to the members of the company on the accounts examined by him, and on every balance sheet, every profit and loss account and on every other document declared by the ct to be part of or annexed to the balance-sheet or profit and loss account and laid before the company in general meeting during his tenure of office. The auditorAs report, besides other things necessary in any particular case, must
expressly
state-#. whether, in his opinion and to the best of his information and according to explanation given to him, the accounts give the information re"uired by the ct and in the manner as re"uired;
$. whether the balance-sheet gives a true and fair view of the company?s affairs as at the end of the financial year and the profit and loss account gives a true and fair view of the profit or loss for the financial year;
/. whether he has obtained all the information and explanations re"uired by him for the purposes of his audit;
@. whether in his opinion, the profit 4 loss account and balance sheet refered to in his report comply with the accounting standards recommended by the &nstitute of hartered ccountants of &ndia;
7. whether, in his opinion, proper books of account as re"uired by law have been kept by the
company, and proper returns for the purposes of his audit have been received from the branches not visited by him;
8. whether the company?s balance sheet and profit and loss account dealt with by the report are in agreement with the books of account and returns.
&n case any of the above matters is answered in the negative or with a "ualification, the auditor?s report must state the reason for the same. >here the auditor is unable to express any opinion in answer to a particular "uestion, his report shall indicate such fact together with the reasons why it is not possible for him to give an answer to such "uestion.
The entral !overnment is empowered to issue orders re"uiring the auditor to include in his report a statement on such matters as may be specified. &n exercise of this power the entral !overnment has issued an order called CThe <anufacturing and other ompanies 1uditor?s )eport2 Drder, #0B7. &t is the duty of the auditor to comply with this order when making his report to the shareholders.
Dnly the person appointed as auditor of the company or where a firm of auditors is so appointed, only a partner of that the firm practising in &ndia, can sign the auditor?s report or sign or authenticate any other document of the company re"uired by law to be signed or authenticated by the auditor.
Inter Corporate Loans and In'estments company cannot
:-i. make any loan to any other body corporate
ii. give guarantee or security in connection with any loan made by any person to another body corporate
iii. ac"uire, by subscription, purchase or in any other manner, securities in any other body corporate exceeding 83 of its paid up share capital and free reserves or #33 of its free reserves, whichever is more, unless approved by a special resolution passed at a general meeting of members.
The 'oard of the company may give a guarantee without being previously authorised by a special resolution of members if all the following conditions are satisfied
:-i. a 'oard resolution is passed to this effect
ii. there exist exceptional circumstances which prevent the company from obtaining previous authorisation by special resolution
iii. the 'oard resolution is confirmed within #$ months in a general meeting or its next nnual general meeting, whichever is earlier.
otice of such resolution must clearly indicate the specific limits, the particulars of the body corporate in which the investment loan guarantee security is proposed, the purpose of the investment loan guarantee security, sources of funding, etc.
o investment loan guarantee security may be made or given unless the 'oard resolution sanctioning it is with the consent of all directors present at the meeting and prior approval of the public financial
institution 1 if any term loan is outstanding 2 is obtained.
pproval of the public financial institution is not re"uired if the investment loan guarantee security is with the 83 limit as mentioned above and there has been no default in repaying the term loan and or interest thereon.
o loan can be made at a rate of interest lower than the bank rate prescribed by the )eserve 'ank of &ndia.
company which has defaulted in repaying public fixed deposits cannot make or give any investment loan guarantee security unless the fixed deposit is fully repaid along with interest due as per the terms and conditions of the fixed deposit.
register of such inter-corporate loans and investments must be maintained giving the relevant details. The above provisions do not apply to
:-i. ny loan guarantee security made or given by
:-a. a banking company or an insurance company or a housing finance company in the ordinary course of its business or a company established with the ob=ect of financing industrial enterprises or providing infrastructural facilities
b. a company whose principal business is the ac"uisition of shares, stocks, debentures or other securities
c. a private company unless it is a subsidiary of a public company
ii. &nvestment made under )ights issue of securities
iii. oan made by holding company to its wholly subsidiary company
iv. !uarantee or security given by a holding company for loan to its wholly owned subsidiary