Companies Act- Accounts of Company (Section 128 and Companies Account Rules 2014)


Introduction

In this post we will be covering below things.
  • What is the need to maintain accounts?
  • What are the provisions related to accounts in Company Act,2013?
    • General Provision
    • Books of Accounts meaning
    • Relevant books and Paper Meaning
    • Place of books of account
    • Who will maintain the books of accounts?
    • Penalty provision
  • Companies Account Rules, 2014

What is the need to maintain accounts

Ooh. Largest corporate scandals from Lehman Brothers, to Satyam to ILFS, ALL of them involved manipulation of accounts.

Transparent account is crucial for better corporate governance.

In Company, ownership and management is different. Management runs the company therefore there should be something that should help ownership to know about current position or other information about company. That something is books of accounts, reports, document etc.

In short, to inform ownership about current affairs of company, accounts should be maintained.

Provision in Companies Act, 2013 (Section 128)

Section 128 of the Companies Act provides details about books of account.

Clause 1 states that company has to maintain below things
  • Books of Accounts
  • Other relevant Books and Papers.
  • Financial Statements (Such as P/L, quarterly reports etc)
Document should be maintained for 8 years minimum(Preceding financial years). If company is in existence in less than 8 years, then for all preceding years they have to maintain for all previous years.

Such books of accounting should be kept on accrual basis(Income, Expense, Losses,Gains recorded as they accrued) and follow double entry system of accounting.

Such books of accounting should be available for inspections by director. Of course, inspection has to be done at business hours. (Section 128(3)). Directors may be
  • Independent Directors
  • Nominee of directors
  • Promoter Directors
  • Whole time directors

For non compliance of provision, company or officers in default may be fined or may be imprisonment.

Such books of accounting should give true and fair view of company's affair and it's financial standing. No fudging of data..!!

Ok, we have been talking about "Books of accounting". What is it exactly?

Books of Account

Section 2(13) in Companies Act explains what the book of account is.

It's kind of inclusive definition which states what all things are included in Books of Account. Below are those things:
  • All sums of money received and matter in relation to which such money is received.
  • All sums of money spent and matter in relation to which such money is spent.
  • All sales of goods and services
  • All purchase of goods and services
  • Assets and liabilities of companies
  • The items of  cost as prescribed by Section 148, if company belongs to any class under that section
Earlier we also talked of Account includes relevant books and papers.

Relevant Books and Papers

Section 2(12) states books and papers includes
Books of accounts
deeds
Voucher
Writings
Documents
Minutes and register

Above things could be in paper format or electronic format.

Place of Books of Accounts

Books of accounts, relevant papers and financial statements and reports had to be kept at registered office.

If Board of Directors don't like registered office, they may keep some or any documents in different places, but they have to inform Registrar about such other place and they have to inform within 7 days.

If place is changed full address details should be given to registrar.

Now it may be possible that Company have different branch offices. Should all documents/books of accounts/reports to be stored in registered office ?

There are two outcomes
  1. Branch can store their own information.
  2. Branch can send the summarized reports to registered/head offices and registered offices stores the books of accounts.

Who will maintain books of accounts

Section 128(6) states about the person who will be responsible for maintaining books of accounts. It cast responsibility on below persons
  1. MD (Managing Director)
  2. Whole time director who is in charge of finance
  3. Chief Financial Officer
  4. Any other person appointed by Board of Directors

Penalty provision related to Books of Accounts

Those who are responsible for compliance found negligent, they will punished for each offence. Such punishment could be imprisonment which extends up to 1 year or minimum fine of 50000 Rs which could extends up to 500000 Rs.

Companies Accounts Rule,2014

We will consider important rules as to maintenance of books of accounts.

Rule 3-Electronic form maintenance

Rule 3 gives details about maintenance of Books of Accounts. Below are some important points regarding maintenance of books , documents and report in electronic format
  • Such information should be accessible from India when kept in electronic form
  • Such information should be retained in original format or in format accurately presenting the information in documents, papers, reports etc.(Complete and unaltered form)
  • Information received from Branches should be stored in unaltered format. Information received from branches should not be changed before storing them on computer disk.
  • Such information stored in electronic form should be displayed in legible form so that the one who access the information able to read it.
  • Such information must have backup. If somebody pours water in computer in which such information is stored, from where do you get such information then. Backups comes to rescue in such scenario.
  • Backup should be stored in servers in India
  • Companies have to inform about below details when financial statements are submitted.
    • Name of the service provider (TCS/Infosys/Wipro or other software service firms provide these services of backup and access)
    • IP address of server
    • Location of service provider
    • If data is stored on cloud the address of service provider

Rule 4(4)

Director of company can access the information in branch outside the India. But he can sought such information individually. He cannot access such information through attorney, agent or representatives.

Rule 13

It states that companies have to appoint internal auditors. It also list down who all need to appoint auditor

below class of companies needs to appoint the auditor
  • Every listed company
  • Below unlisted companies
    • having more than 50 Crore Paid up capital
    • More than 200 Core Rs turnover
    • Having borrowed more than 100 Crore Rs
    • Having more than 25 Crore Rs of deposits
  • Below private Companies
    • Having more than 200 Rs turnover
    • Having borrowed more than 100 Crore Rs from Banks or Financial institution or market

Conclusion

From Lehaman Brother collapse in 2008 to ILFS scam, most of them involved manipulating accounts. Transparent accounting is crucial for better corporate governance. Figure out where are other provisions relating to accounting in businesses.































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