Companies Act Section 134 — Financial statement, Board’s report, etc

CHAPTER IX ACCOUNTS OF COMPANIES

Commercial / Corporate

Summary

Sub-section (1) requires that the financial statement, including any consolidated financial statement, be approved by the Board of Directors before it is signed. The signing is done on behalf of the Board by the chairperson if the Board has authorised them, or by two directors (one of whom must be the managing director, if there is one), along with the Chief Executive Officer, Chief Financial Officer, and company secretary, wherever these officers are appointed. In the case of a One Person Company, only one director needs to sign. This signed statement is then submitted to the auditor for their report.

Sub-section (2) states that the auditor's report must be attached to every financial statement.

Sub-section (3) lists what must be attached to the statements laid before a company in a general meeting, which is a report by the Board of Directors. This report must include the following items: clause (a) covers the web address, if any, where the annual return referred to in sub-section (3) of section 92 has been placed. Clause (b) covers the number of meetings of the Board. Clause (c) covers the Directors' Responsibility Statement. Clause (ca) covers details of frauds reported by auditors under sub-section (12) of section 143, except for those that are reportable to the Central Government. Clause (d) covers a statement on the declaration given by independent directors under sub-section (6) of section 149. Clause (e) covers, for a company covered under sub-section (1) of section 178, the 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. Clause (f) covers explanations or comments by the Board on every qualification, reservation, adverse remark, or disclaimer made by the auditor in their report, and by the company secretary in practice in their secretarial audit report. Clause (g) covers particulars of loans, guarantees, or investments under section 186. Clause (h) covers particulars of contracts or arrangements with related parties referred to in sub-section (1) of section 188, in the prescribed form. Clause (i) covers the state of the company's affairs. Clause (j) covers the amounts, if any, that the company proposes to carry to any reserves. Clause (k) covers the amount, if any, that the company recommends should be paid as dividend. Clause (l) covers material changes and commitments, if any, affecting the financial position of the company that occurred between the end of the financial year to which the financial statements relate and the date of the report. Clause (m) covers the conservation of energy, technology absorption, foreign exchange earnings and outgo, in the manner prescribed. Clause (n) covers a statement indicating the development and implementation of a risk management policy for the company, including identification of elements of risk that, in the Board's opinion, may threaten the company's existence. Clause (o) covers details about the policy developed and implemented by the company for corporate social responsibility initiatives taken during the year. Clause (p) covers, for a listed company and every other public company with such paid-up share capital as may be prescribed, a statement indicating the manner in which formal annual evaluation of the performance of the Board, its Committees, and individual directors has been made. Clause (q) covers such other matters as may be prescribed. The first proviso to this sub-section states that if any disclosures required here have already been included in the financial statements, those disclosures should be referred to instead of being repeated in the Board's report. The second proviso states that if the policy referred to in clause (e) or clause (o) is made available on the company's website, it is sufficient compliance if the salient features of the policy and any changes are specified briefly in the Board's report, along with the web address where the complete policy is available.

Sub-section (3A) allows the Central Government to prescribe an abridged Board's report for the purpose of compliance with this section by a One Person Company or a small company.

Sub-section (4) specifies that, in the case of a One Person Company, the report of the Board of Directors to be attached to the financial statement means a report containing explanations or comments by the Board on every qualification, reservation, adverse remark, or disclaimer made by the auditor in their report.

Sub-section (5) sets out what the Directors' Responsibility Statement referred to in clause (c) of sub-section (3) must state. Under clause (a), it must state that in preparing the annual accounts, the applicable accounting standards had been followed, along with proper explanation relating to material departures. Under clause (b), it must state that 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 for that period. Under clause (c), it must state that 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. Under clause (d), it must state that the directors had prepared the annual accounts on a going concern basis. Under clause (e), it must state that, in the case of a listed company, the directors had laid down internal financial controls to be followed by the company, and that such controls are adequate and were operating effectively. The Explanation to this clause defines internal financial controls as the policies and procedures adopted by the company for ensuring the orderly and efficient conduct of its business, including adherence to company policies, safeguarding assets, prevention and detection of frauds and errors, accuracy and completeness of accounting records

Official Text

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(1) The financial statement, including consolidated financial statement, if any, shall be approved by the Board of Directors before they are signed on behalf of the Board by the chairperson of the company where he is authorised by the Board or by two directors out of which one shall be managing director, if any, and the Chief Executive Officer, the Chief Financial Officer and the company secretary of the company, wherever they are appointed, or in the case of One Person Company, only by one director, for submission to the auditor for his report thereon.]

(2) The auditors’ report shall be attached to every financial statement.

(3) There shall be attached to statements laid before a company in general meeting, a report by its Board of Directors, which shall include— 3[

(a) the web address, if any, where annual return referred to in sub-section (3) of section 92 has been placed;]

(b) number of meetings of the Board;

(c) Directors’ Responsibility Statement; 4[

(ca) details in respect of frauds reported by auditors under sub-section (12) of section 143 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 sub-section (1) of section 188 in the prescribed form;

(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 may be prescribed;

(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 incorporate social responsibility initiatives taken during the year;

(p) in case of a listed company and every other public company having such paid-up share capital as may be prescribed, a statement indicating the manner in which formal 1[annual evaluation of the performance of the Board, its Committees and of individual directors has been made];

(q) such other matters as may be prescribed: 2[Provided that where disclosures referred to in this sub-section have been included in the financial statements, such disclosures shall be referred to instead of being repeated in the Board's report:

Provided further that where the policy referred to in clause (e) or clause (o) is made available on company's website, if any, it shall be sufficient compliance of the requirements under such clauses if the salient features of the policy and any change therein are specified in brief in the Board's report and the web-address is indicated therein at which the complete policy is available.] 3[

(3A) The Central Government may prescribe an abridged Board's report, for the purpose of compliance with this section by One Person Company or small company.]

(4) The report of the Board of Directors to be attached to the financial statement under this section shall, in case of a One Person Company, 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.

(5) The Directors’ Responsibility Statement referred to in clause (c) of sub-section (3) shall state that—

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

(b) 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;

(c) 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 another irregularities;

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

(e) 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.

Explanation.—For the purposes of this clause, 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;

(f) 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.

(6) The Board’s report and any annexures thereto under sub-section (3) 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.

(7) 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—

(a) any notes annexed to or forming part of such financial statement;

(b) the auditor’s report; and

(c) the Board’s report referred to in sub-section (3). 1[

(8) If a company is in default in complying with the provisions of this section, the company shall be liable to a penalty of three lakh rupees and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees.]