REOPENING OF ACCOUNTS & VOLUNTARY REVISION OF FINANCIAL STATEMENTS / BOARD’S REPORT

[dhanapal sreepathi]

Companies Act 2013 (Act) has brought enormous changes in the provisions relating to accounts and financial statements. These changes are aimed at fostering transparency and disclosure and minimizing the eventualities of frauds and misfeasance. Companies Act, 2013 for the first time introduces the concept of re-opening of books of accounts and recasting of financial statements on an order passed by the Tribunal and also makes provision for voluntary revision of financial statements and Board’s report with the approval of Tribunal. The rules detailing these provisions have also been released for public information which is open to comments till 8^th of October.

In the present write up we have consolidated the provisions relating to re-opening of books of accounts and voluntary revision of financial statements/Board’s report as contained in the Companies Act, 2013 and as proposed in the Draft Rules so as to give a consolidated over view to the readers regarding these new concepts.

Definition of Financial Statements

The term financial statements has been defined for the first time in the Companies Act, 2013 and the definition as contained in Section 2(40) reads as under

“Financial Statement” in relation to a company, includes -

     (i)  a balance sheet as at the end of the financial year;

     (ii) 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;

     (iii) cash flow statement for the financial year;

     (iv) a statement of changes in equity, if applicable; and

     (v) any explanatory note annexed to, or forming part of, any document referred to in sub-clause (i) to sub-clause (iv)

Provided that the financial statement, with respect to One Person Company, small company and dormant company, may not include the cash flow statement;

The above definition has been notified by the Ministry of Corporate Affairs to become applicable w.e.f 12th September 2013 vide their notification dated 12.09.2013.

RE-OPENING OF ACCOUNTS ON COURT’S OR TRIBUNALS’ ORDERS (SECTION 130)

Section 130 of the Act contains that a company shall not re-open its books of accounts and recast its financial statements unless an application in this regard is made by the Central Government, the Income-tax authorities, the Securities and Exchange Board, any other statutory regulatory body or authority or any person concerned and an order is made by a court of competent jurisdiction or the Tribunal to the effect that -

(i) the relevant earlier accounts were prepared in a fraudulent manner; or

(ii) the affairs of the company were mismanaged during the relevant period, casting a doubt on the reliability of financial statements

The Section further contains that the court or the Tribunal, as the case may be, shall before passing an order under this section, give notice to the Central Government, the Income-tax authorities, the Securities and Exchange Board or any other statutory regulatory body or authority concerned and shall take into consideration the representations, if any, made by that Government or the authorities, Securities and Exchange Board or the body or authority concerned.

The accounts re-opened and revised pursuant to an order as above shall be deemed to be the final accounts.

Voluntary revision of financial statements or Board’s report (Section 131)

Section 131 contains provisions regarding revision of financial statements and/or board’s report pursuant to an application made by the board of directors of the company and approved by the Tribunal. Where the Board of Directors of a company are of the opinion that the Financial Statements and/or Board’s Report for any of the three preceding financial years not in conformity with the requirements of Section 129 or 134 of the Act, they may prepare revised financial statement or a revised report after obtaining approval of the Tribunal on an application made by the company.   

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.

Importantly, the Section contains that such revised financial statement or report shall not be prepared or filed more than once in a financial year.

STEPS INVOLVED IN REVISION

• Proposed revision to be placed before the Board and auditor who signed the earlier statements and their opinion to be sought.

• Revision to be reported upon by current auditor and his consent to be obtained in case the current auditor is different from original auditor.

• Management has to necessarily revise the financial statements for all the relevant period, subsequent to the financial year for which the revision of financial statement is sought to be made by the Board of Directors.

• Application to be made by company to Tribunal within 2 weeks of Board decision in Form 9.2.

• Change in majority of directors or auditor immediately before Board’s decision to be disclosed in application.

• Tribunal to issue notice and hear the auditor of the original financial statement, if the present auditor is different.

• Copy of order to be filed with ROC within 30 days in Form 9.3.

• General meeting to be called and convened for the purpose of approval of revised financial statements, Board’s report and Auditor’s report.
• Revised statements/reports to be sent to all members, and stock exchanges and other regulatory authorities in case of listed companies.

• Reasons justifying the proposed revision to be accompanied along with revised financial statements/reports.

• Members to approve the revised statements/reports in general meeting.

• Revised Financial Statements to be filed with ROC within 30 days of general meeting in Form 9.4.

• Revised financial statements to be signed as per the provisions applicable to original statements.

manner of revision

• The previous financial statement or report may be replaced by revised financial statement or revised report of the board, and supplemented by:

• A summarised statement of revisions effected
• The copy of the Order of the Tribunal
• The revised auditor’s report on the revised financial statement, if applicable

• The word “revised” to be prefixed prominently on all the documents forming part of the revised financial statements / revised board report

FUNCTIONS OF AUDITOR IN CASE OF REVISION

Companies Act, 2013 has opened up the doors for re-opening and revision of accounts and financial statements, requirement for which was long felt. These provisions will become applicable once the Rules are finalized and relevant sections are notified by the MCA. However, the utility and implications of these provisions will be best known and realized only with passage of time.