|Legal Service India - Accounts and Audit & Auditors of Company Inter Corporate Loans and Investments|
|Legal Advice | Find a lawyer | Constitutional law | Judgments | forms | PIL | family law | Cyber Law | Law Forum | Income-Tax | Consumer laws | ROC laws|
Account to be kept by a Company
Every company must maintain proper books of accounts of its affairs. The following transactions must be entered in the books of accounts of the company which must be kept at its registered office :-
If 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 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 true and fair view of the affairs of the branch and clearly explain its transactions.
They must not conceal any transaction and also not disclose any transaction which is fictitious. The books of accounts and other documents and records are open to inspection by any director during business hours. Similarly, they are open to inspection by the Registrar of Companies or an officer authorised by the Central Government.
These books and papers together with the vouchers pertaining to entries made must be maintained for at least 8 years. It has been clarified by the Department of Company Affairs in their Circular No. 2/83 dated 2/3/1983 that the books of account should be prepared and maintained in indelible ink (and not in pencil).
The following persons are responsible for maintaining the books of accounts of a company :-
Preparation of Balance Sheet and Profit and Loss Account
The company has to prepare its balance sheet and profit & loss account from the books of account maintained by it. Every Balance Sheet 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.
If the responsible for maintaining proper books of account fails to take all reasonable steps to secure compliance by the company with the requirement 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 Rs.1,000/- or to both.
Form of Balance Sheet,
Part 1 to Schedule VI of the Companies Act, 1956 gives the format in which the balance sheet is to be prepared. The schedule specifies 2 types of formats, the horizontal format and the vertical format. A company can prepare its balance sheet in either of the 2 formats. In the horizontal 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:
In the vertical format, the various heads of liabilities and assets are arranged vertically and current liabilities are shown as deduction, from current assets. Whatever information which is required to be given in the horizontal format must also be given in the vertical format. Summarised prescribed vertical form of balance sheet is given below:
I. Sources of Funds
II Application of Funds
The Central Government may, on the application or with the consent of the Board of Directors of the company, by order, modify in relation to that company, any of the requirements 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, Part II to Schedule VI of the Companies Act, 1956 gives a list of items which must be disclosed in every profit & 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 Board 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. In the case of companies which are not commercial organisations such as Section 25 companies, instead if the profit & loss account, an income & expenditure account may be prepared. The profit and loss account to be placed in the FIRST 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. In case of subsequent annual general meetings, the profit and loss account should relate to a period beginning with a day immediately after the period for which the preceding profit & 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 15 months or with the special permission of the Registrar, 18 months.
If any director fails to take all reasonable steps to comply with the aforesaid requirements he is, in respect of each offence liable to be punished with imprisonment up to six months or with fine up to Rs.1,000/- or with both.
Authentication of Balance Sheet and Profit & Loss Account
The balance sheet and profit & loss account of a company must be signed on behalf of the Board 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 Board 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 & 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 Rs.500/-, if:
Circulation of Balance Sheet and Auditors' Report
A copy of every balance sheet, profit and loss account, auditors' report and every other document required 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. In 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 general meetings.
In 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 debentureholders only a summarised statement containing the salient features of these documents in the prescribed format.
Filing of Annual Accounts with the Registrar
Every company must file with the Registrar within 30 days from the day on which the annual accounts, auditor’s report and the director’s 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 Registrar of Companies on payment of the requisite fee. However, 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 :-
If 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 Rs.50 for every day during the period the default continues.
The report of the Board of Directors must be attached to every balance sheet prsented at the annual general meeting. The report must contain information regarding the following matters :-
Auditors of Company Auditors of Government Companies
The auditor of a Government company is appointed or re-appointed by the Central Government on the advice of the Comptroller and Auditor-General of India provided that the audit would be within the number of acceptable audits available to each auditor.
The Comptroller & Auditor General of India has the power :-
Any 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 Other Companies
It 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 Act 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 auditor’s report, besides other things necessary in any particular case, must expressly state-
The Central Government is empowered to issue orders requiring the auditor to include in his report a statement on such matters as may be specified. In exercise of this power the Central Government has issued an order called "The Manufacturing and other Companies (Auditor's Report) Order, 1975. It is the duty of the auditor to comply with this order when making his report to the shareholders.
Only 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 India, can sign the auditor's report or sign or authenticate any other document of the company required by law to be signed or authenticated by the auditor.
Inter Corporate Loans and Investments A company cannot :-
The Board of the company may give a guarantee without being previously authorised by a special resolution of members if all the following conditions are satisfied :-
No investment / loan / guarantee / security may be made or given unless the Board resolution sanctioning it is with the consent of all directors present at the meeting and prior approval of the public financial institution ( if any term loan is outstanding ) is obtained.
Approval of the public financial institution is not required if the investment / loan / guarantee / security is with the 60 % limit as mentioned above and there has been no default in repaying the term loan and / or interest thereon.
No loan can be made at a rate of interest lower than the bank rate prescribed by the Reserve Bank of India.
A 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.
A register of such inter-corporate loans and investments must be maintained giving the relevant details.
The above provisions do not apply to :-
Mortgagees Right To Sell
Stopped Payment Of Cheque
• Know your legal options
• Information about your legal issues
Call us at Ph no: 9650499965
We offer Copyright Registration Services
Right from your Desktop...
*Call us at Ph no: 9891244487
Legal AdviceGet legal advice from Highly qualified lawyers within 48hrs.
with complete solution.
lawyers in Delhi
lawyers in Chandigarh
lawyers in Allahabad
lawyers in Lucknow
lawyers in Jodhpur
lawyers in Jaipur
lawyers in New Delhi
lawyers in Nashik
lawyers in Mumbai
lawyers in Pune
lawyers in Nagpur
lawyers in Ahmedabad
lawyers in Surat
lawyers in Kolkata
lawyers in Janjgir
lawyers in Rajkot
lawyers in Indore
lawyers in Ludhiana
|Lawyers in India - Search by City|
lawyers in Chennai
lawyers in Bangalore
lawyers in Hyderabad
lawyers in Cochin
lawyers in Pondicherry
lawyers in Agra
lawyers in Dhaka
lawyers in Dubai
lawyers in Toronto
lawyers in Sydney
lawyers in London
lawyers in Los Angeles
lawyers in New York
About Us |
Divorce by mutual consent |
| Submit article |
legal Service India.com is Copyrighted under the Registrar of Copyright Act ( Govt of India) © 2000-2016
ISBN No: 978-81-928510-0-6