Chp 12 Books, Ac, Audit

12. Statutory Books, Accounts & Audit What you should know : 1. Statutory Registers / Books to be maintained by a company. 2. Divisible Profits and Dividend 3. Accounts and audit 4. Investigation of the affairs of a company [1]

Dr. V.K. Jain

49(7)

Statutory Registers / Books to be maintained by a Register of investments - where investments of the company in company shares or securities are not held in its own name.

58A 136 #143(1) #150(1) #151(1) #152(1) #152(2) 157-158

Register of Deposits (Read with rule 6 of the Companies (Acceptance of Deposits) Rules, 1975. Copy of every instrument creating any charge requiring Registration. Register of charges. Register of members. Index of Members, where their number is more than fifty. Register of Debenture holders. Index of Debenture holders where their number is more than fifty. Foreign Register of members and debenture holders.

# To be open for public inspection. [2]

Dr. V.K. Jain

#159-160 Copies of Annual Return. 193-196 Minutes Books of Proceedings of General Meetings and of meetings of the Board of Directors of Committees of the Board. 209(1) Books of account and Cost Records 301 Register of contracts, Companies and Firms in which the Directors of the Company are interested. 302 (6) All contracts entered into by the Company for the appointment of a Manager or Managing Director. #303(1) Register of directors, manager and secretary. 307 Register of shareholding or debenture holdings of Directors and Manager. 370(IC) Register of loans made and guarantees given or securities provided to Companies under the same management. 372(6) Register of all investments made by the Company in the shares of any other body corporate or bodies corporate [3]

Dr. V.K. Jain

Register of members [sec.150] • The name and address, and the occupation, if any, of each member, • Number of shares and their distinctive numbers except where such shares are held with a depository and the amount paid • The date at which the name of each person was entered in the Register as a member, & • The date at which any person ceased to be a member. [4]

Dr. V.K. Jain

Closing of Register [sec.154] The Register of members of a company can be closed after giving not less than 7 clear day’s previous notice, by advertisement in some newspaper circulating in the district in which the registered office of the company is situated,

But in no case the register be closed for more than 30 days at a stretch and for an aggregate period of 45 days in a year.

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Record date for bonus/ rights.

Dr. V.K. Jain

Place of keeping the register Under section 163, the Register of members is required to be kept at the registered office of the company or any other place in the same city.

Inspection of register of members Register of members must be kept open during

The business hours for inspection of any member or debenture holder without fee, and for any other person, on payment of the prescribed tee.

The Register must be kept open for at least two hours on every working during business hours [6]

Index of members – If there are more than 50 members

Dr. V.K. Jain

Register of debenture- holders Same contents as register of members. [sec.152] Index of debenture-holders Company having more than 50 debenture[sec.152] holders. Register & Index of beneficial owners [sec. owners 152A] The register and index of beneficial maintained by a depository under section 11 of the Depositories Act, 1996, shall be deemed to be an index of member s and register and index of debenture- holders as the case may [7] be, for the purpose of this Act. Dr. V.K. Jain

Books of Account Section 209 of the Companies Act requires every company to maintain proper books of account with respect to a) receipts and payments, b) sales and purchases, c) assets and liabilities, d) Cost accounting records if applicable. Books of account to be kept at the Registered office. [8]

Dr. V.K. Jain

What do you mean by Proper Books of Accounts?

  Books which give true and fair view of the state of affairs of the company    The books of account explain the transactions; &

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    The books of account are kept on accrual basis and according to the double-entry system of accounting. Dr. V.K. Jain

Inspection of books of account (section 209A)

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i) any director during business hours, ii) the Registrar of Companies, iii) such officer of Government, as may be authorised by the Central Government in this behalf, Although a director has a right of inspection of books of iv) the Bankthis of right India. account duringReserve business hours, does not extend a shareholder except where such right is v) toSEBI in respect of alisted specifically given in the Articles. companies Dr. V.K. Jain

Persons responsible for keeping proper books of account - Section 209(6) Section 209(6) primarily makes the managing director or manager, if there is one, liable for keeping proper books of account. In case the company does not have a managing director or a manager, every director of the company shall be liable. Besides the liability extends to every officer, employee, agent and any other person who has been made responsible to ensure that the requirements of section 209 are complied with [11]

Dr. V.K. Jain

Preparation and presentation of Financial Statements Format of balance sheet - Part I of Schedule VI Format of profit & loss a/c - Part II of Schedule VI Accounting standards and accounts: According to section 211 every profit and loss account and balance sheet of the company shall comply with the accounting standards. If the accounts do not comply with the accounting standards, such company should disclose in its profit & loss account and balance sheet, the following namely:

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a) the deviation from the accounting standard; b) the reasons for such deviations; and c) the financial effect, if any, arising due to such deviation. Dr. V.K. Jain

Authentication of Accounts Every B/S and P&L a/c is required to be signed, on behalf of the Board of directors, by its manager or secretary, if any, and by not less than two directors of a company one of whom must be the managing director where there is one.

Board’s Report At the Annual General Meeting one of the matters to be considered is the report of the Board of Directors. Section 217(1) requires that a report of Board of Directors should be attached to the balance sheet laid before the AGM. While drafting the Directors’ report the provisions of Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 and Companies (Particulars of Employees) Rules, 1975 should be complied with. [13] Dr. V.K. Jain

Contents of Report of Board of Directors – (A) According to section 217(1) the report of Board of Directors shall report the following:– (i) (ii)

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State of the company's affairs Amount proposed to be carried to any reserves in the balance sheet. (iii) Amount recommended to be paid to share holders as dividend. (iv) Material changes and comments, if any, affecting the financial position of the company occurred after the close of financial year and the date of report of Board of Directors (called 'events after balance sheet') (v) Conservation of energy, technology absorption, foreign exchange earnings and outgo. These details should be Dr. V.K. Jain submitted in prescribed form.

…….Contents of Report of Board of Directors – B. Statement giving details of employees whose salaries are beyond prescribed limit. [Section 217(2A)] (presently Rs. 24 lakhs p.a.) C. If company had entered into 'buy back' of shares as per approval of members, and if buy-back was not completed within specified time, Board should specify reasons for the failure. (section 77A). D. Fullest information and explanations about every reservation, qualification or adverse remarks in the auditors' report. E. Director's Responsibility Statement [section 217(2AA)] F. Secretarial Compliance Certificate if required should be attached to the report of Board. [proviso to section 383A(1)] [15] Dr. V.K. Jain

Circulation of Annual Accounts Section 219(1) requires that a • copy of every balance sheet (including the profit and loss account, • auditors’ report and • every other document required to be annexed or attached thereto) which is to be laid before the annual general meeting of the company shall be sent, • not less than 21 clear days before the meeting, to every member of the company and to all other persons so [16]

entitled.

Dr. V.K. Jain

Adoption of Accounts One of the business to be transacted at an annual general meeting is adoption of the accounts including the balance sheet, profit and loss account and the directors’ report thereon. The annual accounts must be presented within six months from close of financial year. This period can be extended by further three months by RoC. In case of the first AGM, the annual general meeting should be held within nine months from close of financial year.(section 210) [17]

Dr. V.K. Jain

Filing of Accounts

Every company is required to file with the Registrar three copies of its balance sheet and profit and loss account duly authenticated together with three copies of all documents required to be annexed to the or attached thereto. Section 220 requires these documents to be filed with the Registrar within thirty days from the date on which the balance sheet and profit and loss account were laid before the AGM of the company. [18]

Dr. V.K. Jain

Disclosure of accounts of subsidiary companies Balance sheet of a holding company should include following details of each subsidiary company [section 212]-

(a)

Balance sheet, P&L account

(b)

Report of Board of Directors

(c)

Report of Auditors of the subsidiary company.

(d) Statement of holding company’s interest in the subsidiary at the end of financial year.

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Dr. V.K. Jain

Annual Return [sec.159 to 162] Every company having a share capital shall file with the Registrar of companies an annual return within 60 days from the date of holding of the Annual General Meeting. Contents: • Name and registered office address • Capital structure of the company • Directors/ Secretary Information (Past and Present) • Details of shares/debentures held at date of AGM • Details of shares transfers since last date of AGM • Indebtedness of the company • Equity share capital breakup [20]

Dr. V.K. Jain

Divisible Profits & Dividend (Sections 205 - 208) • Final dividend – It is declared by the shareholders at the annual general meeting. • Interim dividend – Interim dividend is declared by the board of directors if authorised by the articles. It is declared between two annual general meetings. • According to section 205, dividends may be declared only out of  current profits;  past reserves created out of profit or  out of moneys provided by the Central or State Govt. for this [21]

purpose in pursuance of a guarantee given by such Government. Dr. V.K. Jain

Dividend should be declared only - after providing for depreciation for the current year and arrears of depreciation if any. - after transferring a prescribed percentage of its profits to its reserves. It may be noted that no transfer to reserves is required if the rate of dividend proposed is 10% or less. Normally amount transferred to reserves should not exceed 10% of current profits. Companies (Transfer of Profits to Reserves) Rules, 1975. [22]

Dr. V.K. Jain

Sectio Checklist n To pass a resolution in the Board meeting and also in the AGM by an ordinary resolution by simple majority. 205 The amount of dividend to be deposited in (1A) a separate bank account within five days of AGM in which it is approved. 205 The interim dividend should be deposited (1A) in a separate bank account within five days of the Board Meeting. the interim dividend declared by a company should be confirmed in the nextbe AGM. 205 The dividend should paid to the (5)(b shareholders by cheque of warrant within ) 30 days of declaration. The amount of dividend should be rounded off to the 206A Pending registration of transfer of shares, nearest rupee. dividend amount should be held in abeyance. The company must transfer such dividend amounts to the special [23] V.K. Jain account referred to in section 205ADr. unless

Secti Checklist on I. Tax The dividend tax under the Income-tax Act Act 205A (1)

205A (5)

205 (1)(C )

should be deposited on time as introduced by Finance Act, 2003. Dividend remaining unpaid or unclaimed should be transferred to a special account called "Unpaid dividend account of ……….. Ltd." within 7 days from the date of expiry of thirty days from the date of declaration. The above account may be with any scheduled bank and can be either a current Unclaimed or unpaid dividend for a period account or fixed deposit account. of 7 years should be transferred to Investor Education and Protection Fund. If the company wants to declare dividend before providing depreciation, the approval of central Government should be obtained.

Likewise, central Government's permission will be required if the company wants to declare dividend [24]out of reserves of the company. Dr. V.K. Jain

Audit •

• • • •

Audit is the systematic check of books of accounts. The main purpose of audit is detection and prevention of errors and detection and prevention of fraud. It is to ensure that the statement of accounts of the relevant financial year truly and fairly reflect the state of affairs of the company. Qualifications of an auditor Appointment of first auditors Appointment of subsequent auditors Appointment by special resolution

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Dr. V.K. Jain

…Audit •

Appointment by Central Government

•

Casual vacancy

•

Ceiling on audits

•

Appointment of Auditors of Govt. Companies

•

Removal of an Auditor

•

Remuneration of Auditors

•

Special audit

•

Cost audit

•

Audit Committee

•

Constitution of National Advisory Committee on

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Accounting Standards

Dr. V.K. Jain