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

 Statutory Registers / Books
to be maintained by a
49(7) company
Register of investments - where investments of the company in
shares or securities are not held in its own name.
58A Register of Deposits (Read with rule 6 of the Companies
(Acceptance of Deposits) Rules, 1975.
136 Copy of every instrument creating any charge requiring
Registration.
#143(1) Register of charges.
#150(1) Register of members.
#151(1) Index of Members, where their number is more than fifty.
#152(1) Register of Debenture holders.
#152(2) Index of Debenture holders where their number is more
than fifty.
157-158 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.

Record date for bonus/ rights.

[5] 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
The
members
Register of members must be kept open during
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

Index of members – If there are more than 50 members

[6] Dr. V.K. Jain
 Register of debenture- holders
[sec.152]
Same contents as register of members.

Index of debenture-holders
holders.
[sec.152]
Company having more than 50 debenture-

Register & Index of beneficial owners

[sec. owners
The register and index of beneficial 152A]
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; &

    The books of account are kept

on accrual basis and according to
the double-entry system of
accounting.
[9] Dr. V.K. Jain
 Inspection of books of account (section 209A)

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
account duringReserve Bankthis
business hours, of right
India.does not
v) toSEBI
extend in respect
a shareholder of alisted
except where such right is
specifically given in the Articles.
companies
[10] 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:

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.
[12] 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) State of the company's affairs

(ii) 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
[14] submitted in prescribed form. Dr. V.K. Jain
 …….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
[15]
383A(1)] 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
entitled.
[16] 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.

[19] 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
purpose in pursuance of a guarantee given by such Government.
[21] 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
205 confirmed in the
The dividend nextbe
should AGM.
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] account referred to in section 205ADr.
unless
V.K. Jain
 Secti Checklist
on
I. Tax The dividend tax under the Income-tax Act
Act should be deposited on time as introduced
by Finance Act, 2003.
205A Dividend remaining unpaid or unclaimed
(1) 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
205A Unclaimed or unpaid dividend for a period
account or fixed deposit account.
(5) of 7 years should be transferred to Investor
Education and Protection Fund.
205 If the company wants to declare dividend
(1)(C 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
[25] 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
Accounting Standards
[26] Dr. V.K. Jain