Books of Accounts & Financial Statements

Every company shall prepare and keep its books of accounts and financial statement for every financial year which give a true and fair view of the state of the affairs of the company and explain the transactions and the accounts shall be kept on accrual basis on double entry system of accounting.

“Financial Statement” of a company must include:

• Balance sheet as at the end of the financial year;
• Profit and loss account, or in the case of a company carrying on any activity not for profit, an income and expenditure account for the financial year;
• Cash flow statement for the financial year;
• Statement of changes in equity, if applicable; and
• Explanatory note forming part of any document mentioned in above clauses.

As per Section 2(13) of Companies Act, "books of account" includes records maintained in relation to:

• all sums of money received and expended by a company and matters in relation to which the receipts and expenditure take place;
• all sales and purchases of goods and services by the company;
• the assets and liabilities of the company; and
• the items of cost as may be prescribed under section 148 in the case of a company which belongs to any class of companies specified under that section;

The term "book and paper" and "book or paper" include books of account, vouchers, deeds, minutes, documents, writings, and registers maintained on paper or in electronic form.

The Board of Directors has to also prepare a Directors Report in the prescribed format and has to forward the same to the shareholders along with audited accounts.

The aforesaid financial statements shall have to be placed before the Annual General Meeting (AGM) of the Company and has to be adopted by the meeting.

Accounts to be maintained at registered office

The books of accounts including necessary paper shall be maintained at the registered office of the company for every financial year. However, the board of directors may keep the books of accounts at any other place in India after filing a notice with the Registrar. 

Maintenance of books of accounts at different Place

Board of directors can decide to keep the books of accounts of the company at any place in India to keep its books of accounts. The Board shall pass a resolution to give effect to such a decision and within 7 days file a notice with the Registrar of Companies in Form AOC-5.

Books of Accounts in Electronic Form

Company can maintain its books of accounts and other relevant papers in electronic if it satisfies all the following:

• The records maintain in electronic mode is accessible in India
• The records are retained completely in its original format and is unaltered
• The information received from branch office shall be kept unaltered and portray how it was originally received from the branches
• The records maintained shall be in a readable form.
• A proper system for storage, retrieval, display or printout of the electronic records is in place and such records shall not be disposed unless permitted by law
• The back-up of records shall be kept in servers physically located in India on a periodic basis.
• An intimation to the Registrar by the company shall be given on an annual basis at the time of filing of financial statement regarding the name of the service provider, the internet protocol address of service provider, the location of the service provider, address of records maintained on cloud, wherever applicable.

Company Annual Filing

Every Company registered under Companies Act is required to file their returns with the Registrar of Companies annually.

Company Annual Filings refers to the filing of Audited Annual Financial Accounts of the Company along with Directors Report and Annual Return of Company with Registrar of Companies. These yearly filings are mandatory for every registered Company whether the Company carries on business or not.

Financial Year of a Company

The financial year of a company shall be the period starting from 1^st April of a year to 31st day of March of following year.

However, the financial year of company incorporated on or after the 1st January of a year will be 31st day of March of the following year where the accounts made up to that particular year since incorporation shall be taken into accounts. For eg.

• A company registered on or before 31^st December 2018 has to close its books on 31.03.2019 and has to file its Returns with Registrar of Companies and Income Tax for the year 2018-19.
• A company registered on or after 1^st January 2019 has to close its books on 31.03.2020 and has to file its Returns with Registrar of Companies and Income Tax for the year 2019-20.

Different Financial Year than April - March 

If the company is a holding or subsidiary or associate of company incorporated outside India, the company can follow a different financial year for consolidation of its accounts outside India after obtaining an approval from the Central Government.

Accounts of Branch Office

Every company which has a branch office in India or outside India has to keep at its office the proper books of accounts relating to the transactions effected at the branch. Further, the branch office has to send the summarized returns periodically to its registered office or such office where the books of accounts are maintained.

Inspection of Books of accounts

The company has to keep ready all its books of account and other books and papers open for inspection at the registered office of the company or at such other place in India during business hours including financial information maintained outside India. Further, the inspection of subsidiary of the company can be only done by a person authorized by the Board of Directors through a resolution.

Preservation of Books of Accounts

The company has to preserve its books of account of 8 financial years immediately preceding a financial year and in case the company had been in existence for less than 8 years, the records of all the preceding years shall be preserved.

Penalty for Default

As per Section 128 of the Companies Act, the officer who is in default shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than Rs.50,000.00 but which may extend to Rs.5,00,000 or with both.

The officer who is in default means the Managing Director, the whole-time director in charge of finance, the Chief Financial Officer or any other person of a company charged by the Board with the duty of complying with the provisions of this section, contravenes such provisions, such managing director, whole-time director in charge of finance, Chief Financial officer or such other person of the company)