Financial Statements of Companies Act 2013
Updated: Mar 10
Meaning of Financial Statement –
"A financial statement in relation to a company, according to S. 2(40), includes—
(i) a balance sheet as of 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) 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
(iv) any explanatory note appended to, or forming part of, any document referred to in sub-clause I to sub-clause (ii)to sub-clause I (iv).
However, in the case of a one-person corporation or a tiny business, the financial statement is important. Cash flow statement may not be included in the case of an inactive corporation (S. 455).
Financial Year –
According to S. 2(41), a financial year is defined as the period ending on March 31st of each year for any corporation or body corporate. The first financial year of a firm that was formed on or after January 1st of the year will expire on March 31st of the following year.
If a holding company, subsidiary, or associate company of a company incorporated outside India is required to use a different financial year for consolidation of its accounts outside India, the Tribunal may, if satisfied, allow any period to be used as its financial year, whether or not that period is a year.
Types of Financial Statements –
1. Annual financial statements: Once a year, these are prepared.
2. Quarterly financial statements: These are prepared on a quarterly basis by listed firms in accordance with SEBI rules.
Section 129 of Companies Act 2013 –
Financial statements must -
(i)give a true and fair view of the state of affairs of the company or companies,
(ii) comply with the accounting standards notified under S. 133,
(iii) be in the form or forms as may be provided for different classes or classes of companies in Schedule III, and
(iv) the items contained in such financial statements must be in accordance with the accounting standards, according to Section 129(1) of the Companies Act, 2013.
The terms of S. 129(1), however, do not apply to any insurance or banking firm, any company engaged in the generation or supply of electricity, or any other class of company for whom a specific form of financial statement has been prescribed in or under the Act.
According to Section 129(2), the Board of Directors of a corporation must present financial accounts for the previous fiscal year at each general meeting of the corporation.
Section 129(3) states that if a company has one or more subsidiaries or associate companies, it must compile a consolidated financial statement for the firm and all subsidiaries and affiliated companies in addition to the standalone financial statement required by section 129(2). The company must prepare the consolidated financial statement in the same format and manner as its own and in compliance with applicable requirements. Along with the solo financial statement, the consolidated financial statement must be presented at the company's annual general meeting.
Section 129(4) specifies that the Act's regulations governing the production, adoption, and audit of a holding company's financial statements apply mutatis mutandis to the consolidated financial statements referred to in S. 129. (3).
Section 129(5) states that if a company's financial statements do not comply with the accounting standards referred to in S. 129(1), the company must disclose the deviation from the accounting standards, the reasons for the deviation, and the financial effects, if any, arising from the deviation in its financial statements. If it is deemed necessary to grant an exemption, Section 129(6) authorises the Central Government to exempt any class or classes of corporations from complying with any of the requirements of S. 129 or rules made thereunder. The Central Government may establish a National Financial Reporting Council by issuing a notification.
Authority to make provisions for accounting and auditing standards under Section 132 of the Companies Act of 2013. The central government has the authority to impose accounting rules or addendums. in accordance with the Institute of Chartered Accountants of India's recommendation, in consultation with and after a review of the National Financial Advisory Council's proposals Authority for Reporting [S. 133].
Schedule III - The Companies Act of 2013, Schedule III, specifies how every company registered under the Act must prepare its Statement of Profit and Loss, Balance Sheet, and Financial Statement Notes. There was a need to improve the disclosure obligations under the Companies Act, 1956's Old Schedule VI in order to align them with notified accounting standards. As a result, on February 28, 2011, the Ministry of Corporate Affairs published Notification No. S.O. 447(E), which included a new form of Schedule VI.
For financial statements to be prepared for the financial year beginning on or after April 1, 2011, the Revised Schedule VI to the Companies Act, 1956 was applicable. This has been made illegal by the new Companies Act of 2013.
Preparation of Financial Statements –
· Schedule III of the Companies Act, 2013 Act provides that where compliance with the Act's requirements, including Accounting Standards as they apply to companies, necessitates any change in treatment or disclosure, including addition, amendment, substitution, or deletion in the head/sub-head or any changes inter se, in the Financial Statements or statements forming part thereof, the same shall be made and the requirements of Schedule III will be adjusted accordingly. As a result, Schedule III of the Corporations Act, 2013 gives the other provisions of the Companies Act, 2013 and the Accounting Standards as they apply to companies precedence. Into put it another way, the Accounting Standards and other sections of The Companies Act would take precedence over the Schedule.
· The disclosure requirements set forth in Part I (Form of Balance Sheet) and Part II (Form of Statement of Profit and Loss Account) of the Schedule are in addition to, not in place of, the disclosure requirements set forth in the Accounting Standards promulgated under the Companies Act of 2013. Unless required to be declared on the face of the Financial Statements, additional disclosures stipulated in the Accounting Standards must be made in the Notes to Accounts or by way of an additional statement. In addition to the requirements set out in the Schedule, all other disclosures required by the Companies Act must be included in the Notes to Accounts.
· The Notes to Accounts must provide information not included in the Financial Statements, such as (a) narrative descriptions or disaggregations of things recognized in those statements, and (b) information about items that do not qualify for recognition in those statements. Normally, these items include contingent liabilities and commitments that aren't disclosed on the balance sheet's face. It also states that each line item on the Balance Sheet and Statement of Profit and Loss must be cross-referenced to any relevant information in the Notes to Accounts. When compiling the Financial Statements, including the Notes to Accounts, a balance must be struck between providing excessive detail that may not be helpful to readers of the Financial Statements and not offering excessive detail that may not be helpful to users of the Financial Statements.