According to the Indian Companies Act, 2013, the financial statements include:
- Balance Sheet: A statement showing the company’s assets, liabilities, and shareholders’ equity at the end of a financial year.
- Profit & Loss Account: A statement summarizing the revenue, expenses, and profits (or losses) for the financial year.
- Cash Flow Statement: A statement showing the inflows and outflows of cash and cash equivalents over a period (for all companies except small companies and one-person companies).
- Statement of Changes in Equity: If applicable, companies need to present changes in shareholders’ equity during the reporting period.
- Notes to Accounts: These provide explanatory details and additional insights into financial statement items.
2. General Requirements
- True and Fair View: The financial statements must reflect the true and fair financial position of the company (Section 129).
- Compliance with Accounting Standards: Companies must adhere to Indian Accounting Standards (Ind AS), as notified under Section 133 of the Act.
- Consolidated Financial Statements (CFS): Holding companies must prepare consolidated financial statements that include the financial information of subsidiaries, joint ventures, and associates.
3. Mandatory Disclosures
Financial statements must disclose the following:
- Related Party Transactions (Section 188): Details of transactions with related parties (e.g., subsidiaries, joint ventures, directors) must be disclosed.
- Depreciation (Schedule II): Depreciation on fixed assets is calculated as per the useful life of the asset.
- Corporate Social Responsibility (CSR) Expenditure (Section 135): Companies above a certain threshold must disclose their CSR activities and expenditures.
- Managerial Remuneration (Section 197): Disclosure of remuneration paid to directors and key managerial personnel.
4. Auditing and Reporting Requirements
- Statutory Audit (Section 139): Every company is required to have its financial statements audited by a statutory auditor.
- Director’s Report (Section 134): The directors must attach a report to the financial statements providing insights into the company’s operations, risk management, dividend, CSR activities, etc.
- Audit Report: The auditor must submit a report on whether the financial statements give a true and fair view.
5. Filing of Financial Statements (Section 137)
- Filing with Registrar of Companies (RoC): The financial statements, along with the auditor’s report, must be filed with the Registrar of Companies within 30 days of the Annual General Meeting (AGM).
- Penalties: Failure to comply with the provisions regarding preparation, filing, or audit of financial statements can result in penalties.
6. Formats and Forms (Schedule III)
The Act specifies the format for the preparation of financial statements in Schedule III. It has two parts:
- Division I: For companies that follow Accounting Standards (AS) for preparing financial statements.
- Division II: For companies that follow Indian Accounting Standards (Ind AS).