(12.12.1 )ACCOUNTS, AUDIT AND DIVIDENDS

Maintenance of Accounts by Companies. Every company must keep at its registered office proper books of accounts which shall give a true and fair view of the financial affairs of the company. Section 209 lays down the books of Accounts to be maintained by a company. These books are open to inspection by any director during business hours, as also by the Registrar of companies or an officer authorised by the Central Government Also the books of accounts should be retained for a period of eight years. It is obligatory on companies to maintain accounts on accrual basis.

It is the responsibility of the Managing Director or manager of the company to comply with legal requirements relating to accounts, but they may engage a competent Person and make him responsible for the accounts. On the default of compliance, every person charged with the maintenance of accounts would be liable to be punished for imprisonment up to six months, or fine up to Rs 10,000 or with both.

Section 210 requires that at every AGM, the Board of Directors must lay before the company a balance Sheet and Profit Loss account; and in the case of non-profit companies, an Income and Expenditure Account should be submitted.

Section 211 talks about form and contents of the Balance Sheet and Profit and Loss

Account. The form of the Balance Sheet and the details to be given in the profit and

Loss Account are set out in Schedule VI of the Act. The Balance Sheet and profit and Loss Account must be signed on behalf of the Board by two directors and countersigned by manager or secretary. If the company has a managing director, he should be one of the signing directors. The Balance Sheet and Profit and Loss Account must be approved by the Board before they are submitted to the auditors who must in turn attach their own report thereto. The report of Board shall describe the company’s state of affairs, the amount proposed to be carried to reserves, the amount recommended for dividend and also any change which occurred during the financial year in regard to the nature of the business of the company (s.217).The report should also explain adverse remarks of the auditor, if any .The report must also include a list showing the names of all employees of the company who are in receipt of more  remuneration of Rs 1,44,000 per annum or Rs 12,000 per month or more (inclusive of the value of perquisites) The report must also state whether any such employee is a relative of any director or manager of the company and if so, the name of such director.

The companies (Amendment) Act, 2000 has inserted sub-section to s. 217. It

provides that every company shall include in its directors report a statement of its

director's resonsibility which shall indicate that (i) in preparation of the annual accounts, the applicable accounting standas had been followed along with proper explanation relating to material departure there from; (ii) the directors had followed such policies consistently so as to give a true and fair view of the state of affairs of the company; (iii) the directors had taken proper and sufficient care for the maintenance of adequate accounting records so as to safeguard the company’ s assets and to detect frauds and irregularities; and (iv) the directors had prepared the  annual accounts on a going concern basis.

Section 212 provides that the Balance Sheet of a holding company should have annexed to it certain documents relating to its subsidiary. Some of them are: (i) a copy of the Balance Sheet of the subsidiary; (ii) a copy of its Directors' report; (iii) a copy of its Profit and Loss Account.

Section 219 provides that not less than 21 days before the date of the meeting a copy of the Balance Sheet together with Profit and Loss Account, Auditor's and Board's reports, must be sent to every member, debentureholder trustee for the debentureholder, legal representative of deceased member, official Receiver or Assignee of an insolvent member, and auditor of the company. However the Act, gives a choice to the listed companies either to send detailed accounts to its shareholders or a statement containing the salient features only. Where a company has sent only the salient features of accounts to its shareholders, it must send a copy of the detailed accounts free of cost to a shareholder, who demands the same. Further accounts and documents need not be sent to debentureholders. However, these shall be required to be sent to the trustee of the debentureholders.

Section 220 requires every company) in file with the Registrar three copies of the Balance Sheet and the Profit and Loss Account within thirty days from the date of the AGM, and where it is not held, then within 30 days from the last day on or before which that should have been held. If the accounts are not adopted in the A.G.M, or the meeting is adjourned without adopting the accounts, it is obligatory on the part of the company to report to the Registrar the reason for the same. The penalty for failure to file in time the annual accounts would be a continuing offence within meaning of s.472 of Code of Criminal Procedure, 1973.