Companies Act Section 134

Companies Act Section 134 - Financial Statements, Board’s Report, and Related Requirements

Section 134 of the Companies Act, 2013 outlines the statutory obligations of companies concerning the preparation, approval, and presentation of financial statements, as well as the mandatory contents and approval process for the Board’s Report.

This section plays a pivotal role in ensuring corporate transparency and accountability, ensuring that shareholders and other stakeholders have access to accurate, reliable, and complete information about a company’s financial health, governance practices, and regulatory compliance.

Approval and Signing of Financial Statements

Board Approval

The financial statement, which includes the consolidated financial statement, if applicable, must first be approved by the Board of Directors. Only after obtaining this approval can the financial statement be signed.

Who Signs the Financial Statement?

The approved financial statement must be signed on behalf of the Board by:

The Chairperson, if the Board has specifically authorized the chairperson to sign, or

Two directors, of which one shall be the Managing Director, if there is one.

Additionally, where applicable, the Chief Executive Officer (CEO), the Chief Financial Officer (CFO), and the Company Secretary must also sign the financial statement.

Special Case: One Person Company (OPC)

For a One Person Company, the financial statement requires the signature of only the sole director.

Attachment of Auditor’s Report

Every financial statement must have the auditor’s report attached to it. This ensures that shareholders have access to the auditor’s independent opinion on the fairness and compliance of the financial statements.

Mandatory Board’s Report - Overview

Every company must attach a Board’s Report to the financial statements that are laid before the shareholders at the Annual General Meeting (AGM).

Contents of the Board’s Report

The Board’s Report must cover a wide range of matters to ensure comprehensive disclosures to stakeholders. These include:

1. Web Address for Annual Return:
The Board’s Report must specify the website address where the annual return (as required under Section 92(3)) is made available.
2. Number of Board Meetings:
The report must include details of the total number of Board meetings held during the year.
3. Directors’ Responsibility Statement:
This is a formal declaration by the Board of Directors confirming the directors’ accountability in relation to the preparation and accuracy of financial statements.
4. Fraud Reporting:
Details of frauds reported by the auditors under Section 143(12), excluding those that must be reported to the Central Government.
5. Declaration by Independent Directors:
A statement confirming that independent directors have provided their declaration of independence, as required under Section 149(6).
6. Policy on Directors’ Appointment and Remuneration:
If the company falls under Section 178(1), the report must disclose the policy on appointment and remuneration of directors, including:
Criteria for qualifications.

Positive attributes.

Independence standards.

Other criteria set under Section 178(3).

7. Explanations on Auditor and Secretarial Audit Reports:
The Board must provide explanations or comments on any qualifications, reservations, adverse remarks, or disclaimers made:
By the statutory auditor in the audit report.

By the practicing company secretary in the secretarial audit report.

8. Loans, Guarantees, and Investments:
Disclosure of all loans, guarantees, and investments covered under Section 186.
9. Related Party Transactions:
A summary of contracts or arrangements with related parties, as required under Section 188(1), in the prescribed format.
10. State of Company Affairs:
A narrative summary of the overall business performance and financial condition during the year.
11. Transfer to Reserves:
The amounts the company proposes to transfer to reserves, if any.
12. Dividend Recommendation:
The amount recommended by the Board to be paid as dividends, if applicable.
13. Material Changes and Commitments:
Disclosure of any significant changes or commitments affecting financial position that occurred between the end of the financial year and the date of the report.
14. Conservation of Energy, Technology Absorption, and Foreign Exchange Earnings/Outgo:
Details must be disclosed in the prescribed format.
15. Risk Management Policy:
A statement describing the company’s risk management policy, including identification of risks that may threaten the company’s existence.
16. Corporate Social Responsibility (CSR):
Information on the CSR policy and initiatives undertaken during the year.
17. Board and Director Performance Evaluation:
In the case of listed companies and other prescribed public companies, the report must describe the evaluation process for:
The Board’s performance.

Committees’ performance.

Individual directors’ performance.

18. Other Prescribed Matters:
Any other matters that may be prescribed under the law.
Avoiding Duplication of Disclosures

If any of the above disclosures are already contained within the financial statements, the Board’s Report can simply reference those disclosures rather than repeating them.

Online Availability of Policies

For policies disclosed under clause (e) (Directors’ Appointment and Remuneration) or clause (o) (CSR Policy), if these policies are available on the company’s website, the Board’s Report can include only a brief summary along with the web address where the full policy can be accessed.

Abridged Board’s Report for Small Companies and OPCs

The Central Government may prescribe a simplified or abridged format of the Board’s Report for:

One Person Companies (OPCs).

Small companies.

Special Case for One Person Companies

For OPCs, the Board’s Report may simply contain explanations or comments on qualifications, reservations, or adverse remarks made by the auditor in the audit report.

Directors’ Responsibility Statement - Detailed Requirements

This mandatory statement of accountability from directors must affirm that:

1. Accounting Standards Compliance:
The annual accounts were prepared following applicable accounting standards, with explanations for material departures, if any.
2. Accounting Policies:
Policies were selected and applied consistently, and reasonable and prudent judgments and estimates were made to provide a true and fair view of the company’s affairs.
3. Adequate Accounting Records:
Proper care was taken for maintaining adequate accounting records to safeguard assets and prevent fraud.
4. Going Concern:
The financial statements were prepared on a going concern basis.
5. Internal Financial Controls (for listed companies):
The company has adequate internal financial controls, which were operating effectively.
6. Legal Compliance Systems:
Proper systems were devised to ensure compliance with all applicable laws, and such systems were adequate and effective.
Shortened:

Board’s Report Signing:

Chairperson (if authorized), or

Two directors (incl. MD, if any), or

Sole director (OPC)

Financial Statement Circulation:
With: Notes, Auditor’s Report, Board’s Report

Penalties:

Company: ?3 lakh

Officers: ?50,000