CA.

Adithya Kiran Aluru FCA, CFA(USA), CCO(IIBF), DHLA(IIBF), MA (Econ)

CHAPTER-IX: ACCOUNTS OF COMPANIES

(Sec.128 to Sec.138 and Accounts Rules, 2014)

1. BOOKS AND PAPERS VS BOOKS OF ACCOUNTS

Books and Paper Books of Accounts Financial Statements Financial Year (Sec.2(41))
(Sec.2(12)) (Sec.2(13)) (Sec.2(40))
Include: Includes records in (i) BLS as at the end » If Incorporated after 01st
» books of respect of of the FY; January - FFY shall be
account, (i) money received (ii) P&L A/c or I&E 31st March of the
» deeds, and expended and A/c for FY; following FY;
» vouchers, related matter; (iii) CFS for the FY; » Otherwise: 31st March of
» writings, (iv) Stmtt of changes same FY
(ii) all sales and
» documents, in equity; » Holding, Subsidiary,
purchases of goods
» minutes (v) Explanatory Associate to a Co
and services by the
» registers notes. incorporated o/s India
co;
FS of OPC, Small » Required to follow
(iii) the assets & Company, Dormant different FY for
liabilities; Company, Start-up consolidation,
(iv) Cost items u/s Co, may not include » Application to CG
148. the CFS; » CG may allow any
period as FY whether or
not such period is a year

Accrual Basis:
(1) It is an accounting assumption or an accounting concept followed in preparation of the
financial statements.
(2) It is one of the 4 principles of accounting concepts.
(3) It involves recording income and expenses as they accrue; distinct from when they are
received or paid.

Double entry book-keeping:

(1) It is a method of recording any transaction of a business in a set of accounts.
(2) In it every transaction has a dual aspect of debit and credit.
(3) Double aspect enables effective control of business because all the accounts must balance.

2. BOOKS OF ACCOUNTS & FINANCIAL STATEMENTS

Books of Accounts Financial Statements
 True and Fair View. » True & Fair View.
 Accrual Basis. » Accounting Standards (Disclose deviation, reasons
 Double Entry System and financial effects, if any).
» Schedule III (Division I: AS, Division II: Ind AS)
» At every AGM, Board shall lay FS for that year.

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Who Contravened? MD - Who Contravened? - Co contravenes the provisions

WTD in charge of finance – CFO - Any of Sec.129,
other person of a Co charged by the Who is punishable? MD - WTD in charge of finance
Board, contravenes such provisions, – CFO - Any other person charged by the Board;
Who is punishable? and In the absence of any of the officers mentioned
MD, WTD, CFO or other charged person above, all the Directors shall be punishable with
shall be punishable with What is punishment: Imprisonment up to 1 year; or
What is the punishment : Fine ranging Fine from ₹ 50,000 to ₹ 5 Lakhs; or Both. (Sec.129(7))
from ₹ 50,000 to ₹ 5 Lakhs. (Sec.128(6))
Books of Accounts:
» Any director (Nominee/Independent/Promoter//Whole-Time) can inspect BoA during BH.
» Financial Information maintained outside India can be requested by a director only
individually and not by or through his attorney holder or agent or representative.
» Co shall produce such FI within 15 days.
» BoA of Subsidiary can be inspected by a person only on authorization of Board.
» Normally kept at RO. If Board decided to keep other place, AOC-5 to be filed in 7 days.
» Branch Books at Branch Place
» Foreign Branch: Summarized returns to Registered office Quarterly.
» Normally kept for – 8 Years.
» Incorporated less than 8 years – Entire period
» Investigation – More than 8 years.

3. TRUE AND FAIR VIEW for REGULATED ENTITIES

If the FS of Banking Co, Insurance Co, and Electricity Co does not disclose the information
which they are not required to disclose as per their respective Acts, then the FS of such
companies shall not be treated as not disclosing true and fair view

4. CONSOLIDATION OF FINANCIAL STATEMENTS

Required Not Required
If a Co has: (A) If a Co has only subsidiaries incorporated o/s India
» Subsidiaries incorporated in but does not have a subsidiary incorporated in India
India only; (B) Unlisted Co.
» Subsidiaries incorporated in  Subsidiary to some other Co.
India and O/s India.  Notice given to all members (with or w/o Voting
» Subsidiaries and Associate Rights).
Companies.  Co shall retain Proof of delivery of notice.
» Only Associates but does not  Members do not object for not preparing CFS.
have subsidiaries.  Intermediate or Ultimate H/co Filed CFS with RoC

5. PERIODICAL FINANCIAL RESULTS (Sec.129A)

CG may prescribe class of unlisted companies to (i) Prepare (ii) Obtain the approval of Board (iii)
Get complete audit or limited review (iv) Filing with Registrar - of financial statements on
periodical basis.

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6. RE-OPENING OF ACCOUNTS - REVISION OF FINANCIAL STATEMENTS

Re-opening of Accounts (Sec.130) Revision of Financial Statements (Sec.131)
1. Accounts has been prepared in a 1. FS/BR do not comply with Sec.129/Sec.134
fraudulent manner or affairs of Co has been respectively.
mis-managed 2. Application may be filed by the Co to the
2. Application is filed by CG/ITA/SEBI/Any tribunal
Statutory body/Any person concerned, to the 3. Tribunal may give notice to CG and ITA
Court or Tribunal (C/T) 4. CG and ITA may make representations to the
3. C/T shall give notice to the above tribunal.
authorities 5. Tribunal may pass an order
4. Authorities may make representations to 6. Co can revise the FS.
the C/T. a) FS/BR of only 3 PFY’s can be revised and not
5. C/T may pass an order before that.
6. Co shall revise the A/c’s b) FS/BR shall not be revised more than once
Accounts for the past 8 years can only be re- for a FY.
opened unless maintained for longer period If the FS/BR has been sent out to members/ laid
due to CG investigation. out in GM/ or filed with RoC, then revisions must
be confined to corrections in Sec.129 / Sec.134.

7. NATIONAL FINANCIAL REPORTING AUTHORITY (Sec.132)

(Read the below table simultaneously with NFRA role discussed in Chapter-10: Audit and Auditors)
Role Powers
1. Recommendations to CG on 1. Investigation into Professional/ other misconduct of CA’s.
A/ctg and Auditing Standards. 2. Penalty: 5 times the fee (individuals) and 10 times (firms).
2. Monitoring & enforcing 3. Debarring from Audit/Internal Audit/ Valuation - 6M to
compliance AS/SA’s. 10Y
3. Overseeing quality of service of Any person aggrieved by an order of NFRA may file appeal to
professionals. National Company Law Appellate Tribunal (NCLAT)
Companies and Body Corporates governed by NFRA Rules
(a) Companies whose securities are listed on any stock exchange in India or outside India;
(b) Unlisted public companies having:
(i) Paid-up capital of not less than ₹ 500 crores; or
(ii) Annual turnover of not less than ₹ 1000 crores; or
(iii) Aggregate, outstanding loans, debentures and deposits of not less than ₹ 500 crores
as on the 31st March of PFY
(c) Insurance companies, banking companies, companies engaged in the generation or supply
of electricity, companies governed by any special Act.
(d) Anybody corporate or company or person, or any class of bodies corporate or companies
or persons, on a reference made to the NFRA by the Central Government in public interest.
(e) A body corporate incorporated outside India, which is a subsidiary or associate company
of above companies or body corporates, if the income or net-worth of such subsidiary or
associate company exceeds 20% of the consolidated income or consolidated net-worth of
companies or body corporates referred above (a) to (d).

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8. BOARD REPORT vs DIRECTOR RESPONISIBILITY STATEMENT

Board Report u/s 134 shall Board Report u/r 8 shall Director’s
include include Responsibility
Statement shall include
 Directors Responsibility  Financial Highlights.  Preparation of
Statement.  Changes in Business. accounts as per AS
 Frauds reported by Auditor.  Directors/KMP appointed and Going Concern
 Explanation of Board on or resigned. Basis.
auditors’ remarks.  New Subsidiaries, Joint  Application of
 Loans to other co’s u/s 186. ventures, or Associates. Accounting policies
 Contracts with related party’s  Deposits accepted, consistently.
u/s 188. unclaimed, unpaid, or  Reasonable and
 Material changes affecting the defaulted. prudent judgements
Financial Position occurred  Orders passed by and estimates.
after the end of FY but before regulators, courts, or  Safe Guarding assets
the date of the report. tribunals.  Preventing and
 CSR initiatives.  Adequacy of internal detecting fraud.
 Evaluation of performance of financial controls.  Internal Financial
Board/Committee/Board  Applications if any made Controls.
under IBC, 2016.  Systems to ensure
 Valuation done at the time compliance with
of loan and at the time of applicable laws.
One Time Settlement

9. AUTHENTICATION OF FINANCIAL STATEMENTS OR BOARD REPORT

Authentication of Financial Statements Authentication of Board Report
(Sec.134(1)) (Sec.134(6))
FS/CFS shall be signed on behalf of Board by: Chairperson of the co if he is authorised by
» Chairperson of the co - if he is authorised the Board or by 2 Directors including 1 MD
by the Board or by 2 Directors including 1
MD, and
» CEO/CFO/CS of the company,
In the case of OPC, only by 1 director

10. CORPORATE SOCIAL RESPONSIBILITY

Includes Excludes
1. CSR means activities undertaken by a co due to its 1. CSR shall not include the activities
obligation u/s 135 and in a manner specified in the carried out for complying with any
CSR Rules. other statutory obligations
2. R&D related to Covid-19 vaccine development, in 2. Activities undertaken in pursuance
collaboration with organizations specified in of a Co’s normal course of business

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Schedule VII. 3. Activities undertaken outside India

(A) CSR Funds for creating health infrastructure 4. Contribution to political party
for COVID care, establishment of medical oxygen 5. Activities benefitting employees
generation and storage plants, manufacturing and 6. Sponsorship activities for deriving
supply of Oxygen Concentrators, ventilators, marketing benefits
cylinders and other medical equipment for One-time events such as Marathons –
countering COVID-19 or similar activities are Awards - Advertisement/ sponsorships
eligible for CSR of TV programmes etc, would not be
Under item nos. (i) and (xii) of Schedule VII of the treated CSR
CA, 2013 relating to promotion of health care, Charitable contribution would not be
including preventive health care, and, disaster treated as CSR
management

(B) Spending of CSR funds of COVID- 19

vaccination for persons other than the employees
and their families, is an eligible CSR activity under
item no. (i) of Schedule VII relating to promotion of
health care including preventive health care and
item no. (xii) relating to disaster management.

(C) Spending of CSR funds for the activities related

to ‘Har Ghar Tiranga’ campaign, such as mass scale
production and supply of the National Flag,
outreach and amplification efforts and other related
activities, are eligible CSR activities under item no.
(ii) of Schedule VII pertaining to promotion of
education relating to culture.

3. Training of sports personnel representing any

State or UT at national level or representing India at
international level
4. CSR activities should be undertaken only in
project/ programme mode.
5. Contribution to Corpus of a Trust/ society/ Sec. 8
companies etc. will qualify as CSR expenditure if: (a)
The Trust/ society/ Sec.8 Co’s etc. is created
exclusively for undertaking CSR activities or
(b) The corpus is created exclusively for a purpose
directly relatable to a subject covered in Schedule
VII of the Act.
6. Expenditure incurred by Foreign H/Co for CSR
activities in India will qualify as CSR spending of the
Indian subsidiary if, the CSR expenditures are routed
through Indian subsidiaries and if the Indian Sub is
required to do so as per Sec.135 of CA,2013.

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CSR POLICY
1. It is a statement containing the approach & direction given by the board after considering the
recommendations of the committee
2. It includes principles to guide the selection, implementation and monitoring of CSR
activities.
3. It involves formulation of the annual action plan.

ACTIVITIES SPECIFIED UNDER SCHEDULE VII

(a) Eradicating hunger, poverty and malnutrition
(b) Promoting health care including preventive health care.
(c) promoting education, and employment enhancing vocation skills.
(d) Promoting gender equality.
(e) setting up homes and hostels for women and orphans; setting up old age homes.
(f) ensuring environmental sustainability, ecological balance.
(g) protection of national heritage, art and culture.
(h) protection of national heritage, art and culture.
(i) contribution to the Prime Minister’s National Relief Fund and PM CARES Fund.
(j) Contribution to incubators or research development projects.
(k) contributions to public funded Universities.
(l) rural development projects. Slum area development.
(m) disaster management, including relief, rehabilitation and reconstruction activities.

ADMINISTRATIVE OVERHEADS
Includes: Expenses incurred for managing the CSR Functions
Does not include: Expenses incurred for designing, implementation, monitoring and
evaluation of a CSR project or programme

NET PROFIT
Indian Company Foreign Company
Net profit as per the FS prepared under CA, 2013 In case of foreign company net profit
NP does not include: means profit as per profit and loss account
a) Profits of foreign branches prepared u/s 381(1)(a) and Sec.198
b) Profits of Indian Companies which has
already complied with Sec.135

ONGOING PROJECT
1. It is a multi-year project undertaken by a co to fulfill its CSR obligations.
2. It should have maximum timeline of 3 years excluding the FY in which such project was
commenced.

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3. Projects which are not initially approved as multi-year projects but subsequently duration has
been extend beyond 1 year are treated as ongoing project.

COMPANIES WHICH ARE NOT REQUIRED TO CONSTITUTE CSR

(i) If the amount of CSR expenditure does not exceed ₹ 50 Lakhs, then the CSR Committee is not
required. In such a case, the functions of CSR Committee shall be discharged by Board of Directors.
(ii) If the company does not satisfy the above criteria for 3 consecutive years, then it need not constitute
CSR Committee and need not comply with Sec.135 (2) to (6). Such exemption is given only till the co
fulfills the criteria.
A company having any amount in its Unspent Corporate Social Responsibility Account shall constitute
a CSR Committee and comply with the provisions contained in Sec.135 (2) to (6) of the.

COMPOSITION OF CSR COMMITTEE

1. CSR committee shall consist of 3 or more directors including 1 Independent Director (ID).
2. If a co does not have an ID, then the co can have CSR Committee with 2 or more directors.
3. If a private co is having only 2 directors, then it can have CSR Committee with 2 directors.
4. In case of a foreign co, (a) A person specified u/s 380(1)(d) i.e., Indian Representative; & (b)
Any other person

ROLE OF CSR COMMITTEE VS ROLE OF BOARD

Duties of CSR Committee Duties of Board

1. To formulate CSR policy. 1. Considering the recommendation made by CSR Committee.
2. To recommend CSR policy 2. Approving CSR Policy.
to the Board. 3. Disclose the composition of CSR Committee, on the website.
3. To formulate and 4. Disclose the contents of CSR Policy, on the website.
recommend an Annual 5. Ensure that activities included in CSR Policy has been
Action Plan. undertaken.
4. To monitor the CSR policy 6. Disclose the contents of CSR policy in Board report.
from time to time.

ANNUAL ACTION PLAN

AAP shall include the following: (a) List of projects or programmes approved by the board for
being undertaken by the Co (b) Manner of execution of such P&P (c) Mode of utilization of funds
(d) Implementation schedules for P&P. (e) Details of Impact Assessment, if any.

Alteration of AAP
» At any time during the FY, the board may alter the annual plan:
» As per the recommendations of the CSR Committee; and
» Based on the reasonable justifications for alteration.

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AMOUNT OF CONTRIBUTION TOWARDS CSR

1. Every co which is required to constitute CSR Committee shall spent, in every FY, at least
2% of the average net profits of the 3 preceding FY’s or years since its incorporation,
whichever is less.

2. If the Co fails to spend such amount:

(a) Reasons for not spending the amount shall be disclosed in the BR; &
(b) Unspent amount shall be transferred to the fund specified in Sch-VII, within 6 months
from the end of FY.

Unspent amount relating to ongoing project

3. if the unspent amount relates to ongoing project, then the amount shall be transferred to a
special A/c (to be opened in scheduled bank) within 30 days from the end of FY.

4. Amount transferred to such special A/c shall be spent within 3 FYs from the date of transfer.
5. If the Co is unable to spend within the said 3 years, then within 30 days from the expiry of 3
years, the unspent amount shall be transferred to fund specified in Sch-VII
6. If the Co spends more than 2%, then the excess may be set off in subsequent 3 FY’s.

Administrative overheads - shall not exceed 5% of total CSR for the FY.
Capital Asset (CA): CSR amount may be spent for creation or acquisition of Capital Asset.
Such Capital Asset shall be held by:
(a) Sec.8 Co / Registered Public Trust / Registered Society, having CSR Registration.
(b) Beneficiaries of the CSR project in the form of Self-Help Groups etc.
(c) Public Authority.

IMPLEMENTATION OF CSR - CSR activities may be undertaken:

a) By the company itself; or
b) Through a Sec.8 Co/RPT/RS/Society exempted u/s 10(23C)(iv), (v), (vi) or (via) or registered
u/s 12A and approved u/s 80G of IT Act, 1961, which is established by the Co singly or along
with another Co.
c) Through a Sec.8 Co/RPT/RS, which is established by CG or SG.
d) Through any statutory entity; or
e) Through a Sec.8 Co/RPT/RS/Society exempted u/s 10(23C)(iv), (v), (vi) or (via) or registered
u/s 12A and approved u/s 80G of Income Tax Act, 1961, which is having an established track
record of at least 3 years in undertaking similar projects.
International Organizations: A company may engage international organizations:

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(a) For designing, monitoring and evaluation of CSR Projects. (b) For capacity building of
Co’s personnel.
Collaboration: A Co may collaborate with another Co’s for undertaking CSR P&P. However,
CSR Committees of collaborated Co’s shall be able to report separately.

CSR REGISTRATION
1. Every Co which intends to undertake any CSR activity shall register with CG by filing
Form CSR-1 electronically.
2. Form CSR-1 shall be verified by a Practicing CA/CS/CMA.
3. On submission of Form CSR-1, a unique CSR Registration Number shall be generated by the
system automatically.

CSR REPORTING
1. Board report shall include an annual report on CSR activities.
2. In case of a foreign Co, balance sheet shall contain an annual report on CSR activities.
3. Every Co covered under Sec.135(1) shall furnish a report on CSR in Form CSR-2 to the
Registrar for the preceding FY (2020-2021) and onwards as an addendum to Form AOC-4
or AOC-4 XBRL or AOC-4 NBFC (Ind AS).
For the preceding FY (2020-2021), Form CSR-2 shall be filed separately on or before
30thJune 2022, after filing Form AOC-4 or AOC-4 XBRL or AOC-4 NBFC.
Impact Assessment (IA)
a) Every Co having CSR Obligation of ₹ 10 crores or more in 3 PFYs shall undertake IA.
b) IA shall be undertaken through an independent agency.
c) IA shall be undertaken for projects on which ₹ 1 crore or more has been spent and has
completed at least 1 year.
d) IA report shall be placed before the Board.
e) IA report shall be given as annexure to the annual report on CSR.
Expenditure on IA shall not exceed 2% of total CSR expenditure for a FY or ₹ 50 Lakhs,
whichever is higher.

11. RIGHT OF MEMBERS TO COPIES OF AUDITED FS (Sec.136)

A. Unlisted Company
(a) What to send: Stand Alone FS – CFS - Audit Report - Other annexures.
(b) To whom to send: Members - Debenture Trustee - Every person entitled to notice of GM.
(c) When to send: At least 21 days before the meeting. If sent less than 21 days before then:
(i) majority of the members having voting rights and representing 95% of the capital having
voting rights.
(ii) Co not having share capital shall take consent of members holding 95% of the total
voting power.

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B. Listed Company
1. Salient features of the above documents shall be sent to members at least 21 days before
the meeting; and If any shareholder asks for full FS, then the Listed Co shall send full FS
2. At least 21 days before the meeting, the above documents shall be kept available for
inspection at the registered office: and
3. Above documents shall be placed on the website.

FS of subsidiaries of a Listed Co
1. Separate audited FS of each subsidiary shall be placed on the website.
2. Separate FS of each subsidiary shall be sent to shd’s who asks for it.
3. If audit is not required for a foreign subsidiary as per the laws of that country, then un-
audited FS of such subsidiary can be placed on the website along with a copy of FS
translated in English

C. Manner of Circulation of FS in certain cases

Applicability: Listed Co’s - Public Co’s having (a) Net worth of more than ₹ 1 Crore; & (b)
Turnover of more than ₹ 10 Crores.
Mode of circulation:

To the Members holding shares in Notice shall be sent in e- Mode.

D-Mat form
Members holding shares in physical Notice shall be sent in e-mode
form but gave consent
Other Members As per the modes specified u/s 20
(Refer Chapter-2)

12. STATUTORY AUDIT VS INTERNAL AUDIT

Statutory Audit Internal Audit (IA)
1. Mandatory for all Co’s 1. Mandatory only for prescribed Co’s
2. Individual, Firm or LLP can be 2. Individual, Firm or Body Corporate can be
appointed as an Auditor appointed as Auditor
3. Only CA in Practice can be appointed 3. CA/CMA/ Other professional decided by Board.
as Statutory Auditor 4. Co Employee may be appointed as Internal
4. Employee of the Co cannot be Auditor
appointed as Auditor of the Co 5. Scope of work formulated by AC/Board in
5. Scope of work is specified in the CA, consultation with IA.
2013
Prescribed Companies for which Internal Audit is Mandatory:
(a) every listed company
(b) every unlisted public company having PSC of ₹ 50 Crores or more during the PFY.
(c) every unlisted public company having turnover of ₹ 200 Crores or more during the PFY.

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(d) every unlisted public co having outstanding loans or borrowings from banks or public
financial institutions exceeding ₹ 100 crore or more at any point of time during the PFY.
(e) Unlisted public co having outstanding deposits of ₹ 25 crores or more at any point of
time during the PFY.
(f) every private company having turnover of ₹ 200 crores or more during the PFY.
(g) every private company having outstanding loans or borrowings from banks or public
financial institutions exceeding ₹ 100 crore or more at any point of time during the PFY.

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