Amended and updated notes on section 134 of Companies Act 2013. Detail discussion on provisions and rules related to financial statement, Board’s report, etc.
Chapter IX (Sections 128–138) of the Companies Act, 2013 (CA 2013) deals with the provisions related to accounts of companies. Section 134 of CA 2013 provides for financial statement, Board’s report, etc.
Recently, we have discussed in detail section 133 (Central Government to prescribe accounting standards) of CA 2013. Today, we learn the provisions of section 134 of Companies Act 2013 read with the Companies (Accounts) Rules, 2014.
Section 134 of the Companies Act, 2013 has been notified by the Ministry of Corporate Affairs (MCA) vide Notification No. S.O. 902(E) issued dated 27.03.2014. This notification shall come into force from 1st April, 2014 i.e. the commencement date of section 134 is 01-04-2014.
| Name of Act | The Companies Act 2013 |
|---|---|
| Enacted by | Parliament of India |
| Administered by | Ministry of Corporate Affairs (MCA) |
| Number of Chapters | 29 |
| Number of Sections | 484 (470-43+57) |
| Number of Schedules | 7 |
| You are reading: | |
| Chapter No. | IX |
| Chapter Name | Accounts of Companies |
| Section No. | 134 |
| Section Name | Financial statement, Board’s report, etc. |
| Monthly Updated Edition | Company Law PDF |
Authentication of Financial Statements of a Company
Section 134(1) of the Companies Act, 2013 requires both Separate Financial Statement (SFS) and Consolidated Financial Statement (CFS) of all companies (including banking companies) to be signed at least by the following:
- The Chairperson of the company if he is authorised by the Board; or
- Two Directors out of which One shall be Managing Director (MD); and
- The Chief Executive Officer (CEO), if he is a director in the company;
- The Chief Financial Officer (CFO); and
- The Company Secretary (CS), if appointed.
However, in the case of a One Person Company (OPC), the financial statement shall be signed by only one director, for submission to the auditor for his report thereon.
Circulation or Publication of Financial Statement of a Company
In accordance with the provision of section 134(7) of CA 2013, a signed copy of every financial statement, including CFS 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.
Matters to be included in a Report by Board of Directors
As per Rule 8(1) of the Companies (Accounts) Rules, 2014, the Board’s Report shall be prepared based on the stand alone financial statements. However, the Board’s Report shall contain a separate section to present a report on the performance and financial position of each of the subsidiaries, associates and joint venture companies as included in the CFS.
Board’s Report shall be attached to statements laid before shareholders in General Meeting (GM) of a company in compliance with the provisions of Section 134(3) of CA 2013. Such report by the Board of Directors (BOD) shall contain the following matters:
- Extract of Annual Return as provided u/s 92(3);
- No. of Board Meetings (BM);
- Directors’ Responsibility Statement (DRS);
- Details in respect of frauds reported by auditors under section 143(12) other than those which are reportable to CG. [Inserted by the Companies (Amendment) Act, 2015 w.e.f. 29-05-2015]
- A statement on declaration given by Independent Directors under section 149(6);
- In case of a company covered u/s 178(1), 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;
- 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 Company Secretary (CS) in practice in his secretarial audit report;
- Particulars of loans, guarantees or investments u/s 186;
- Particulars of contracts or arrangements with related parties referred to u/s 188(1) in Form AOC-2;
- State of the company’s affairs;
- The amounts, if any, which it proposes to carry to any reserves;
- The amount, if any, which it recommends should be paid by way of dividend;
- 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;
- The conservation of energy, technology absorption, foreign exchange earnings and outgo, in such manner as may be prescribed.
Such manner has now been prescribed in sub-rule (3) of Rule 8 of the Companies (Accounts) Rules, 2014 as under:
(A) Conservation of Energy-
- (i) the steps taken or impact on conservation of energy;
- (ii) the steps taken by the company for utilising alternate sources of energy;
- (iii) the capital investment on energy conservation equipments;
(B) Technology Absorption-
- (i) the efforts made towards technology absorption;
- (ii) the benefits derived like product improvement, cost reduction, product development or import substitution;
- (iii) in case of imported technology (imported during the last 3 years reckoned from the beginning of the financial year):
- (a) the details of technology imported;
- (b) the year of import;
- (c) whether the technology been fully absorbed;
- (d) if not fully absorbed, areas where absorption has not taken place, and the reasons thereof; and
- (iv) the expenditure incurred on Research and Development.
(C) Foreign exchange earnings and Outgo
The Foreign Exchange earned in terms of actual inflows during the year and the Foreign Exchange outgo during the year in terms of actual outflows.
However, the requirement of furnishing information and details under sub-rule (3) of Rule 8 as discussed above shall not apply to a Government company engaged in producing defence equipments.
- 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;
- The details about the policy developed and implemented by the company on Corporate Social Responsibility (CSR) initiatives taken during the year;
- 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 annual evaluation has been made by the Board of its own performance and that of its committees and individual directors;
- Such other matters as may be prescribed.
Section 134(4) prescribed that in case of a One Person Company, such Board’s Report 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.
As per section 204, Every listed company and other public companies having paid-up share capital of ₹50 crore or turnover of ₹250 crores shall annex with its Board’s report, a Secretarial Audit Report, given by a company secretary in practice, in Form No. MR-3. Note that the auditors’ report shall also be attached to every financial statement as required by sub-section (2) of section 134.
The Board’s report shall disclose the composition of the Corporate Social Responsibility Committee as required by section 135. As per section 177, the Board’s report shall disclose the composition of an Audit Committee and where the Board had not accepted any recommendation of the Audit Committee, the same shall be disclosed in such report along with the reasons therefor.
Directors’ Responsibility Statement of a Company
According to Section 134(5), the Directors’ Responsibility Statement (DRS) shall state that:
a) Accounting Standards:
In the preparation of the annual accounts, the applicable Accounting Standards (AS) had been followed along with proper explanation relating to material departures;
(b) Accounting Policies:
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) Accounting Records:
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;
(d) Annual Accounts:
The directors had prepared the annual accounts on a going concern basis;
(e) Internal Financial Controls:
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.
The term “Internal Financial Controls” means the policies and procedures adopted by the company for:
- i) Ensuring the orderly and efficient conduct of business;
- ii) Adherence to company’s policies;
- iii) Safeguarding of its assets;
- iv) Prevention and detection of frauds and errors;
- v) Accuracy and completeness of the accounting records; and
- vi) Timely preparation of reliable financial information.
(f) Proper System:
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.
Signing of Report by Board of Directors of a Company
The Board’s report and any annexures thereto shall be signed by its:
- a) Chairperson of the company if he is authorised by the Board; and
- b) If chairperson is not so authorised, shall be signed by at least two directors, one of whom shall be a managing director; or
- c) The director where there is one director.
Punishment for Non-Compliance of Section 134 of Companies Act, 2013
If a company contravenes the provisions of section 134 of the Companies Act, 2013, the following shall be punishable:
- Company shall be punishable with fine of Minimum ₹50,000 and Maximum ₹25,00,000; and
- Every Officer of the company who is in default shall be punishable with:
- i) Imprisonment for a term which may extend to 3 years; or
- ii) Fine of Minimum ₹50,000 and Maximum ₹5,00,000; or
- iii) Both – Imprisonment and Fine.
Did you know? Voluntary revision of financial statements or Board’s report is possible u/s 131 if the provisions of section 134 is not complied with and the revisions must be confined to the correction in respect of which the previous financial statement or report do not comply with the provisions of section 129 or section 134.
Section 134 of Companies Act 2013: Financial statement, Board’s report, etc.
Section 134 shall come into force on 1st April, 2014 vide Notification No. S.O. 902(E) issued dated 27.03.2014.
(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—
- (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;
- (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 on corporate 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 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.
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.
(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 and other 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).
(8) If a company contravenes the provisions of this section, the company shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to twenty-five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees, or with both.
Exception/ Modification/ Adaptation:
1) In case of Government company, clause (e) of sub-section (3) of section 134 shall not apply. – Notification No. G.S.R. 463(E) dated 5th June, 2015.
2) In case of Government company, clause (p) of sub-section (3) of section 134 shall not apply in case the directors are evaluated by the Ministry or Department of the Central Government which is administratively in charge of the company, or, as the case may be, the State Government, as per its own evaluation methodology. – Notification No. G.S.R. 463(E) dated 5th June, 2015.
3) In sub-section (3) of section 134, following proviso shall be inserted, namely: –
“Provided that in case of a Specified IFSC public company, if any information listed in this sub-section is provided in the financial statement, the company may not include such information in the report of the Board of Directors.”. –Notification No. G.S.R. 08(E) dated 4th January, 2017.
4) In sub-section (3) of section 134, the following proviso shall be inserted, namely: –
“Provided that in case of a Specified IFSC private company, if any information listed in this sub-section is provided in the financial statement, the company may not include such information in the report of the Board of Directors.”. –Notification No. G.S.R. 09(E) dated 4th January, 2017.