VOLUNTARY REVISION OF FINANCIAL STATEMENTS OR BOARD’S REPORT

[Mr. M. GOVINDARAJAN]

Financial Statement

Section 2(40) of the Companies Act, 2013 (‘Act’ for short) defines the expression ‘financial statement’ in relation to a company, includes-

• a balance sheet as at the end of the financial year;
• a 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;
• a statement of changes in equity, if applicable; and
• any explanatory note annexed to, or forming part of, any document referred to above.

Financial statements are the basic and formal annual reports through which the corporate management communicates financial information to its owners and various other external parties which include investors, tax authorities, government, employees, etc. The American Institute of Certified Public Accountants states the nature of financial statements as, ‘the statements prepared for the purpose of presenting a periodical review of report on progress by the management and deal with the status of investment in the business and the results achieved during the period under review. They reflect a combination of recorded facts, accounting principles and personal judgments’.

The following are the specific objectives in preparing the financial statements-

• To provide information about economic resources and obligations of a business;
• To provide information about the earning capacity of the business;
• To provide information about cash flows;
• To judge effectiveness of management;
• Information about activities of business affecting the society;
• Disclosing accounting policies.

At every annual general meeting of a company, the Board of Directors of the company shall lay before such meeting financial statements for the financial year.

Board’s report

A Board’s report shall be attached to every financial statement.  The Board’s report shall contain the following-

• number of meetings of the Board;
• Directors' Responsibility Statement;
• details in respect of frauds reported by auditors other than those which are reportable to the Central Government;
• a statement on declaration given by independent directors;
• 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;
• explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made-

• by the auditor in his report; and
• by the company secretary in practice in his secretarial audit report;

• particulars of loans, guarantees or investments;
• particulars of contracts or arrangements with related parties;
• the 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;
• 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 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 of the performance of the Board, its Committees and of individual directors has been made;
• such other matters as may be prescribed.

Voluntary Financial Statement

What is voluntary financial statement? The company, after the receipt of an order of Tribunal, can file a revised statement along with the copy of such order to Registrar of Companies, provided that the Company can revise the financial statements of any of the preceding three financial years.

Section 131 of the Act provides the procedure for voluntary revision of financial statements or Board’s report. Section 131(1) of the Act provides that if it appears to the directors of a company that the financial statement of the company or the report of the Board, do not comply with the provisions of section 129 (Financial Statement) or section 134 (Financial Statement, Board’s report etc.) they may prepare revised financial statement or a revised report in respect of any of the three preceding financial years after obtaining approval of the Tribunal on an application made by the company.  The Board shall take decision as to the voluntary revision of the financial statement or Board’s report.  The application shall be in Form NCLT - 1 before the National Company Law Tribunal within 14 days from the date of the decision of the Board.  In the said application if the majority of the directors of company or the auditor of the company has been changed immediately before the decision is taken to apply under section 131, the company shall disclose such facts. 

The said application shall contain the following-

• financial year or period to which such accounts relates;
• the name and contact details of the Managing Director, Chief Financial Officer, directors, Company Secretary and officer of the company responsible for making and maintaining such books of accounts and financial statement;
• where such accounts are audited, the name and contact details of the auditor or any former auditor who audited such accounts;
•  copy of the Board resolution passed by the Board of Directors;
• grounds for seeking revision of financial statement or Board's Report.

The company shall at least fourteen days before the date of hearing advertise the application.  The Tribunal shall issue notice to the Auditor who audited the original financial statement.  The Tribunal shall give notice to the Central Government and the Income-tax authorities and shall take into consideration the representations, if any, made by that Government or the authorities before passing any order under this section.  After hearing the auditor and any other person as the Tribunal may deem fit, may pass appropriate order in the matter.  The company shall file the certified copy of the order of the Tribunal within thirty days of the receipt of the certified copy. 

The company is to conduct a general meeting on receipt of approval from Tribunal by giving a notice of such general meeting along with reasons for change in financial statements may be published in newspaper in English and in vernacular language.  In the general meeting the revised financial statement, Statement of Directors and Statement of auditors the company may put up for consideration before a decision is taken on adoption of the revised financial statements.  

The detailed reasons for revision of such financial statement or report shall also be disclosed in the Board's report in the relevant financial year in which such revision is being made.  Where copies of the previous financial statement or report have been submitted  to the members of the company  or delivered to the Registrar of Companies or laid before the company in general meeting, 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; and
• the making of any necessary consequential alternation.

The revised financial statements along with the statement of auditors or revised report of the Board, as the case may be, shall be filed with the Registrar of Companies within 30 days of the date of approval by the general meeting.         

The revised financial statement or report shall not be prepared or filed more than once in a financial year.  The revised financial statement will not affect any creditors either secured or unsecured and public interest. 

In M/S. PREMIER LOOMS MANUFACTURERS PVT. LTD. VERSUS SECRETARY, MINISTRY OF CORPORATE AFFAIRS, NEW DELHI AND REGISTRAR OF COMPANIES, GUJARAT - 2022 (11) TMI 1453 - NATIONAL COMPANY LAW TRIBUNAL AHMEDABAD, the Tribunal held that the Applicant has proposed the rectification in the Financial Statement ending as at 31.03.2019, which has been proposed to be rectified by revised financial tax audit report prepared and issued by Rakesh Choksi and Company, Chartered Accountant on 10.09.2020. The same has been duly approved by the Board of the Company on 10.09.2020. It is noted that notices have been issued to the Regional Director, the Registrar of Company and the Income Tax Department and the observations of Regional Director has been duly replied by the Applicant Company. It is also noted that there are no pending dues of Income Tax Department with respect of the Applicant Company. Hence, the present Application is complied with sub-section 1 and 2 of Section 131 of Companies Act, 2013.  The Tribunal allowed the application.  The Tribunal also directed that the revised financial statement shall be filed with the concerned Registrar of Companies, Gujarat within 30 days and who shall take the same on record for the financial year ending on 31.03.2019.  If any, non-compliance apart from the subject matter of this application are done by the Applicant Company, this order will not come in the way of proceeding initiated by the concerned Authorities.