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Company Law Unit 4 Dividends, Accounts and Audit
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Dividends, Accounts and Audit
COMPANY LAW
| VERY SHORT QUESTION & ANSWERS |
1. A company may, before the declaration of any dividend in any financial year, transfer _____________ percentage of its profits to the reserves of the company.
Ans: Any.
2. Dividend shall be declared or paid by a company from its _____________.
Ans: Free reserves.
3. A company which fails to comply with the provisions of Sections 73 and 74 shall not, so long as such failure continues, declare any dividend on its _____________.
Ans: Equity shares.
| SHORT QUESTIONS AND ANSWERS |
1. Define the term dividend.
Ans: The term ‘dividend’ has been defined under Section 2(35) of the Companies Act, 2013. The term “dividend” includes any interim dividend.
2. State the sources of dividend.
Ans: Dividend can be paid out of:
(i) Profits for current financial year or previous financial year or both.
(ii) Monies provided by central government or state governments in pursuance of a guarantee given by it.
3. State the manner of computing profits for payment of dividend.
Ans: The manner of computing profits for payment of dividend is stated as:
(i) Depreciation shall be provided for as per Schedule II so as to compute profits.
(ii) In computing profits any amount representing unrealised gains, notional gains or revaluation of assets and any change in carrying amount of an asset or of a liability shall be excluded.
4. State the mode of payment of dividend.
Ans: Dividends are payable in cash (i.e. it cannot be paid in kind). Dividends that are payable to the shareholder in cash may be paid by cheque or warrant or in any electronic mode.
5. State the penalty provisions regarding distribution of dividend.
Ans: As per Section 127, where a dividend has been declared by a company but has not been paid or the warrant in respect there of has not been posted within thirty days from the date of declaration to any shareholder entitled to the payment of the dividend, every director of the company shall, if he is knowingly a party to the default, be punishable with imprisonment which may extend to two years and with fine which shall not be less than one thousand rupees for every day during which such default continues and the company shall be liable to pay simple interest at the rate of eighteen per cent per annum during the period for which such default continues.
6. State the circumstances in which failure to distribute dividend would not constitute an offence under Section 127.
Ans: The circumstances in which failure to distribute dividend would not constitute an offence under Section 127 are:
No offence under this section shall be deemed to have been committed:
(a) Where the dividend could not be paid by reason of the operation of any law.
(b) Where a shareholder has given directions to the company regarding the payment of the dividend and those directions cannot be complied with and the same has been communicated to him.
(c) Where there is a dispute regarding the right to receive the dividend.
(d) Where the dividend has been lawfully adjusted by the company against any sum due to it from the shareholder. or
(e) Where, for any other reason, the failure to pay the dividend or to post the warrant within the period under this section was not due to any default on the part of the company.
7. State the circumstances in which dividend has to be kept in abeyance by company declaring dividend.
Ans: Dividend and any other offer of right share or bonus share shall remain in abeyance where a transfer deed is delivered to company for registration but transfer of such shares is not registered by company.
8. Write a short note on inspection of books of accounts.
Ans: The books of account and other books and papers maintained by the company within India shall be open for inspection at the registered office of the company or at such other place in India by any director during business hours.
Where an inspection is made, the officers and other employees of the company shall give to the person making such inspection all assistance in connection with the inspection which the company may reasonably be expected to give.
9. Who shall sign financial statements of a company?
Ans: The financial statements shall be signed by the Chairperson of the company where he is authorised by the Board or by two directors out of which one shall be managing director, if any, and the Chief Executive Officer, the Chief Financial Officer and the Company Secretary of the company, wherever they are appointed.
10. Who shall sign the Board Report of a company?
Ans: The Board report and any annexures thereto shall be signed by the chairperson of the company if he is authorised by the Board and where he is not so authorised, shall be signed by at least two directors, one of whom shall be a managing director, or by the director where there is one director.
11. State provisions relating to appointment of first auditors in any Company other than Government Company.
Ans: The first auditor of a company, other than a Government company, shall be appointed by the Board of Directors within thirty days from the date of registration of the company and in the case of failure of the Board to appoint such auditor, it shall inform the members of the company, who shall within ninety days at an extraordinary general meeting appoint such auditor and such auditor shall hold office till the conclusion of the first annual general meeting.
12. State provision relating to appointment of subsequent auditors in case of Government Companies.
Ans: The Comptroller and Auditor-General of India shall, in respect of a financial year, appoint an auditor, within a period of one hundred and eighty days from the commencement of the financial year, who shall hold office till the conclusion of the annual general meeting.
13. State provision relating to appointment of subsequent auditors in case of companies other than Government Companies.
Ans: The Comptroller and Auditor-General of India shall, in respect of a financial year, appoint an auditor duly qualified to be appointed as an auditor of companies under this Act, within a period of one hundred and eighty days from the commencement of the financial year, who shall hold office till the conclusion of the annual general meeting.
14. Can an auditor be removed before expiry of his term?
Ans: An auditor may be removed from his office before the expiry of his term only by a special resolution of the company, after obtaining the previous approval of the Central Government in that behalf in the prescribed manner. However, an auditor shall be given an opportunity of being heard.
15. Can an auditor resign from the company? State the procedure to be followed.
Ans: Yes, as per Section 140 of Companies Act, an auditor can resign from a company by filing a statement in e-form ADT-3 giving reasons and other facts with regards to resignation. The statement shall be filed with:
(i) The Company.
(ii) The Registrar.
(iii) Comptroller and Auditor-General of India (in case of Government company).
16. Can a retiring auditor be reappointed?
Ans: A retiring auditor may be reappointed at an annual general meeting, if:
(i) He is not disqualified for reappointment.
(ii) He has not given the company a notice in writing of his unwillingness to be reappointed. and
(iii) A special resolution has not been passed at that meeting appointing some other auditor or providing expressly that he shall not be reappointed.
17. State the power of the Tribunal to order change of Auditor.
Ans: The Tribunal either suo motu or on an application made to it by the Central Government or by any person concerned, if it is satisfied that the auditor of a company has, whether directly or indirectly, acted in a fraudulent manner or abetted or colluded in any fraud by, or in relation to, the company or its directors or officers, it may, by order, direct the company to change its auditors.
| LONG QUESTIONS AND ANSWERS |
1. What is the dividend? How is divisible profit calculated for the purpose of dividend?
Or
What is the dividend?
Or
Define the term dividend?
Or
Discuss the source from which dividends may be paid.
Ans: Dividend is the return on the share capital subscribed for and paid to a company by its shareholders. The dictionary meaning of the term ‘dividend’ is “sum payable as interest on loan or as profit of a company to the creditors of an insolvent estate or an individual’s share of it.” However, in commercial parlance, dividend is the share of the company’s profit distributed among the members.
It has been observed in CIT Vs-Girdhardas & Co. that,
(i) As applied to a company which is a going concern, dividend ordinarily means the portion of the profits of the company which is allocated to the holders of shares in the company.
(ii) In case of a winding up, it means a division of the realised assets among the creditors and contributories according to their respective rights.
The term dividend has been defined by the Institute of Chartered Accountants of India as ” a distribution to shareholders out of profits or reserves available for this purpose.”
‘Divisible profit’ means the profits which the law allows the company to distribute to the shareholders by way of dividend. The question that would arise is as to how profits are calculated for this purpose. Under Section 205 (1) of the Companies Act, 1956, dividend can be paid by a company:
(i) Out of the profits of the company for that year arrived at after providing for depreciation in accordance with the provisions of Section 205 (2). or
(ii) Out of the profits of the company for any previous financial year or years arrived at after providing for depreciation and remaining undistributed profits. or
(iii) Out of moneys provided by the Central Government or a State Government for the payment of dividend in pursuance to a guarantee given by that Government.
According to Section 211(2), every profit and loss account of a company shall give a true and fair view of the profit or loss of the company for the financial year and shall, subject as aforesaid, comply with the requirements of Part II of Schedule VI, so far as they are applicable thereto. Therefore, it should be assumed that profit and loss account should be prepared in accordance with these provisions.
2. Write a short note on interim dividend.
Ans: According to Section 123 (3) of the companies Act, 2013, the Board of Directors of a company may declare interim dividend during any financial year or at any time during the period from closure of financial year till holding of the annual general meeting out of:
(i) The surplus in the profit and loss account. or
(ii) Profits of the financial year for which such interim dividend is sought to be declared. or
(iii) Profits generated in the financial year till the quarter preceding the date of declaration of the interim dividend.
Provided that in case the company has incurred loss during the current financial year up to the end of the quarter immediately preceding the date of declaration of interim dividend, such interim dividend shall not be declared at a rate higher than the average dividends declared by the company during immediately preceding three financial years.
3. State the procedure for payment of dividend.
Ans: The procedure for payment of dividend are:
(i)The amount of the dividend, including interim dividend, shall be deposited in a scheduled bank in a separate account within five days from the date of declaration of such dividend [Section 123(4)].
(ii) Where a dividend has been declared by a company but has not been paid or claimed within thirty days from the date of the declaration to any shareholder entitled to the payment of the dividend, the company shall, within seven days from the date of expiry of the said period of thirty days, transfer the total amount of dividend which remains unpaid or unclaimed to a special account to be opened by the company in that behalf in any Scheduled Bank to be called the Unpaid Dividend Account [Section 124(1)].
(iii) The company shall, within a period of ninety days of making any transfer of an amount under sub-section (1) to the Unpaid Dividend Account, prepare a statement containing the names, their last known addresses and the unpaid dividend to be paid to each person and place it on the website of the company, if any, and also on any other website approved by the Central Government for this purpose, in such form, manner and other particulars as may be prescribed [Section 124(2)].
(iv) If any default is made in transferring the total amount referred to in subsection (1) or any part thereof to the Unpaid Dividend Account of the company, it shall pay, from the date of such default, interest on so much of the amount as has not been transferred to the said account, at the rate of twelve percent per annum and the interest accruing on such amount shall ensure to the benefit of the members of the company in proportion to the amount remaining unpaid to them [Section 124(3)].
(v) Any person claiming to be entitled to any money transferred under sub-section (1) to the Unpaid Dividend Account of the company may apply to the company for payment of the money claimed [Section 124(4)].
4. State procedure for transfer of unpaid or unclaimed dividend to the investor education and protection fund.
Ans: Section 124(5) of the Act provides that any money transferred to the unpaid dividend account of a company which remains unpaid or unclaimed for a period of seven years from the date of such transfer is required to be transferred by the company along with interest accrued, if any, thereon to the Investor Education and Protection Fund (IEPF) established under Section 125.
The company shall send a statement of amount credited to Investor Education and Protection Fund in Form DIV 5 to the authority which administers the fund and the authority shall issue a receipt to the company as evidence of such transfer.
Claiming of Unpaid/Unclaimed Dividend:
The claimant shall make an application in prescribed form under his own signature or through a person holding a valid power of attorney granted by him.
The application shall be accompanied by the following documents:
(i) Indemnity Bond in prescribed format (not required in case applicant is Central/State Government, a Government Company or a public financial institution within the meaning of Companies Act, 2013.
(ii) Authority may on its satisfaction about the title to the money, allow the claim upto Rupees 5000/- without indemnity bond;
(iii) Documents in support of the claim, i.e. dividend warrant/letter issued by the company, etc.
(iv) Proof of Identity & Proof of Address.
Any money transferred to the unpaid dividend account of a company in pursuance of Section 124 which remains unpaid or unclaimed for a period of seven years from the date of such transfer shall be transferred by the company to the Investor Education and Protection Fund and the company shall file a statement in “Form Divas” to the Authority constituted under the Act to administer the fund and such authority shall issue a receipt to the company as evidence of such transfer. [Section 124(5)].
If the company delays the transfer of the unpaid/unclaimed dividend amount to the unpaid dividend account, it shall pay interest @ 12% p.a. till it transfers the same and the interest accruing on such amount shall ensure to the benefit of the members of the company in proportion to the amount remaining unpaid to them. [Section 124(3)].
5. Discuss the provisions relating to transfer of profits to reserve and declaration of dividend out of reserves.
Or
What are the provisions of the Companies Act, 1956 regarding transfer of profit to reserve before declaring dividend?
Ans: No dividend shall be declared or paid by a company for any financial year out of the profits of the company for that year arrived at after providing for depreciation in accordance with the provisions of Section 205 (2) of the Companies Act, 1956, except after the transfer to the reserves of the company of a percentage of its profits for that year as specified below:
| SI.No. | Rate of Dividend | Amount to be transferred to reserves. |
| (i) | If the proposed dividend exceeds 10% but does not exceed 12.5% of the paid-up capital. | Not less than 2.5% of the current profits. |
| (ii) | If the proposed dividend exceeds 12.5% but does not exceed 15% of the paid-up capital. | Not less than 5% of the current profits. |
| (iii) | If the proposed dividend exceeds 15% but does not exceed 20% of the paid-up capital. | Not less than 7.5% of the current profits. |
| (iv) | If the proposed dividend exceeds 20% of the paid-up capital. | Not less than 10% of the current profits. |
6. Discuss the legal provisions relating to declaration and payment of dividends.
Or
What are the statutory provisions relating to declaration and payment of dividend?
Or
Explain the provisions relating to unpaid and unclaimed dividends and its payment.
Or
State the provisions relating to unclaimed dividends.
Ans: The legal provisions relating to declaration and payment of dividends are as follows:
(i) Resolution at a general meeting: The declaration of dividend can be done only at a general meeting at the recommendation of the directors in accordance with the Articles of Association. Section 217 (1) (c) lays down that, “there shall be attached to every balance-sheet laid before a company in general meeting, a report of its Board of Directors, with respect to the amount, if any, which it recommends should be paid by way of dividend.”
(ii) Payment of dividend in proportion to amount paid-up [Section 93]: A company may, if so authorised by its articles, pay dividends in proportion to the amount paid-up on each share where a larger amount is paid up on some shares than on others.
(iii) Dividend to be paid only out of profits: Section 123(1) of the Act inter-alia states that “no dividend shall be declared or paid by a company for any financial year except out of the profits of the companyA dividend is simply a share of the company’s profits. Profit is what is left over after the company has settled all its liabilities, including taxes.
(iv) Dividend to include interim dividend: Section 14 (A) provides that dividend includes any interim dividend. The provisions contained in Sections 205, 205A, 205C, 206, 206A and 207 shall, as far as may be, also apply to any interim dividend.
(v) Dividend to be deposited in a bank: Section 205 (1A) provides that the Board of directors may declare interim dividend and the amount of dividend including interim dividend shall be deposited in a separate bank account within five days from the date of declaration of such dividend.
(vi) Transfer to Reserves: Transfers to reserves are something that a company wanted to keep for the future.A company may, before the declaration of any dividend in any financial year, transfer such percentage of its profits for that financial year as it may consider appropriate to the reserves of the company.
(vii) Declaration of dividend out of profits transferred to reserves [Section 205-(A) (3)]: Where owing to inadequacy or absence of profits in any year, any company proposes to declare dividend out of the accumulated profits earned by the company in previous years and transferred by it to the reserves, such declaration of dividend shall not be made except in accordance with such rules as may be made by the Central Government in this behalf or by the previous approval of the Central Government.
(viii) Compliance with provisions of Section 80-A (relating to redemption of irredeemable preference shares): If a company fails to comply with the provisions of Section 80(A), it shall not declare any dividend on its equity shares so long as such failure continues.
(ix) Dividend payable only in cash [Section 205(3)]: No dividend shall be payable except in cash, but it does not prohibit the capitalisation of profits or reserves of a company for the purpose of issuing fully paid-up bonus shares or paying up any amount for the time being unpaid or any shares held by the members of the company.
(x) Time within which dividend to be paid [Section 207]: The company must pay the dividend declared within 30 days and a simple interest @ 18% p.a. during the period for which such default continues.
(xi) Unpaid dividends to be transferred to the special dividend account [Section 205 (A)(1)]: Where, a dividend has been declared by a company but has not been paid (or claimed) within thirty days from the date of the declaration, to any shareholder entitled to the payment of the dividend, the company shall, within seven days from the date of expiry of the said period of thirty days, transfer the total amount of unpaid or unclaimed dividend to a special account to be opened by the company on that behalf in any scheduled bank, to be called “Unpaid Dividend Account of.. Company Limited/Company (Private) Limited.”
If default is made in complying with the above provision, the company shall pay, from the date of such default interest on so much of the amount as has not been transferred to the said account, at the rate of 12% p.a. [Section 205(4)].
(xii) Transfer of unpaid/unclaimed dividend to Investor Education and Protection Fund [Section 205A(5)]: Any money transferred to the unpaid dividend account which remains unpaid or unclaimed for a period of seven years from the date of such transfer shall be transferred by the company to the investor Education and Protection Fund established under Section 205C.
(xiii) Statement to be furnished: The company shall furnish in this behalf a statement in the prescribed form setting forth in respect of all sum included in such transfer:
(a) The nature of the sums.
(b) The names and last known addresses of the person entitled to receive the sum.
(c) The amount to which each person is entitled. and
(d) The nature of his claim thereto and such other particulars as may be prescribed.
(xiv) Payment of unpaid or unclaimed dividend [Section 205B]: Any person claiming to be entitled to any money transferred under Section 205 (A)(5), to the general revenue account of the Central Government, may apply to the Central Government for an order for payment of the money claimed and if it is satisfied, whether on a certificate by the company, or otherwise, that such person is entitled to the whole or any part of the money claimed, make an order for the payment of that person of the sum due to him after taking such security from him as it may think fit.
(xv) Payment of dividend to registered shareholder [Section 206]: No dividend shall be paid by a company in respect of any share therein, except:
(a) To the registered holder of such share or to his order or to his bankers. or
(b) In case a share warrant has been issued in respect of the share in pursuance of Section 114, to the bearer of such warrant or to his bankers.
(xvi) Right to dividend, right shares and bonus shares to be held in pending registration of transfer of shares [Section 206(A)]: Where any instrument of transfer of shares has been delivered to any company for registration and the transfer of such shares has not been registered by the company, it shall:
(a) Transfer the dividend to the special dividend account unless the company is authorised by the registered holder of such share in writing to pay such dividend to the transferee specified in such instrument of transfer.
(b) Keep in abeyance in relation to such shares any offer of rights shares and any issue of fully paid-up bonus shares.
(xvii) Penalty for failure to distribute dividend within 30 days: [Section 207]: Where a declared dividend has not been paid or the warrant in respect thereof has not been posted within 30 days from the date of declaration, to any shareholder entitled to the payment of the dividend, every director of the company shall, if he is knowingly a party to the default, be punishable with simple imprisonment for a term which may extend to three years and shall also be liable to a fine of one thousand rupees for every day during which the default continues.
7. Distinguish between interim and final dividend.
Ans: The following are the differences between interim and final dividend:
| SI.No. | Basis of distinction | Interim Dividend | Final Dividend |
| (i) | Meaning | The dividend which is declared between two annual general meetings of the shareholders is called interim dividend. | The dividend whichis declared at annual the general meeting of the shareholders is called the final dividend. |
| (ii) | Liability | The company becomes liable for the payment of interim dividend once it is declared. | The company is not liable for the payment of final dividend even after its declaration. |
| (iii) | Withdrawn | Interim dividend can be withdrawn or changed at any time before its payment. | Final dividend cannot be withdrawn or changed after declaration. |
| (iv) | When Declared | The declaration of interim dividend is done during the current financial year. | Final dividend is declared after the end of the financial year. |
| (v) | Declared by whom | The board of directors declared the interim dividend. | The shareholders declare the final dividend. |
8. Difference between dividend and interest.
Ans: The distinctions between dividend and interest are as follows:
| SI. No. | Basic of distinction | Dividend | Interest |
| (i) | Meaning | Dividend is paid out of the distributable profits of the company only. | Interest may be paid out of profit as well as out of capital. |
| (ii) | Rate of interest | The rate of dividend may be fixed as in case of preference shares as well as variable as in case of equity shares. | The rate of interest is always fixed. |
| (iii) | Debt | Dividend is not a debt except when it is declared in a general meeting. | However, interest is considered as a debt. |
| (iv) | Breach of contract | The non-payment of dividend does not result in a breach of contract. | Non-payment of interest results in a breach of contract. |
| (v) | Payable to whom | Dividend is paid to the members or shareholders of the company. | Interest is paid to the debenture holders of the company |
| (vi) | Payment | Payment of dividend is dependent upon the decision of the directors. | Interest is a liability and must be paid under all circumstances. |
9. Write a note on Investor Education and Protection Fund [Epfo].
Ans: The Central Government shall establish a Fund to be called the Investor Education and Protection Fund.
Following funds shall be credited to this fund:
(a) The amount given by the Central Government by way of grants after due appropriation made by Parliament by law in this behalf for being utilised for the purposes of the Fund.
(b) Donations given to the Fund by the Central Government, State Governments, companies or any other institution for the purposes of the Fund.
(c) The amount in the Unpaid Dividend Account of companies transferred to the Fund.
(d) The interest or other income received out of investments made from the Fund.
(e) The application money received by companies for allotment of any securities and due for refund.
(f) Matured deposits with companies other than banking companies.
(g) Matured debentures with companies.
(h) Interest accrued on the amounts referred to in clauses (h) to (j).
(i) Redemption amount of preference shares remaining unpaid or unclaimed for seven or more years. and
(j) Such other amounts may be prescribed.
The fund shall be utilised for the following purposes:
(a) Refund in respect of unclaimed dividends, matured deposits, matured debentures, the application money due for refund and interest thereon.
(b) Promotion of investors’ education, awareness and protection.
(c) Distribution of any disgorged amount among eligible and identifiable applicants for shares or debentures, shareholders, debenture-holders or depositors who have suffered losses due to wrong actions by any person, in accordance with the orders made by the Court which had ordered disgorgement.
(d) Reimbursement of legal expenses incurred in pursuing class action suits under Sections 37 and 245 by members, debenture holders or depositors as may be sanctioned by the Tribunal. and
(e) Any other purpose incidental thereto.
The provisions relating to IEPF are stated as:
(a) The Central Government shall constitute, by notification, an authority for administration of the Fund consisting of a chairperson and such other members, not exceeding seven and a chief executive officer, as the Central Government may appoint.
(b) The authority shall administer the Fund and maintain separate accounts and other relevant records in relation to the Fund in such form as may be prescribed.
10. State the requirements for keeping books of accounts as per Companies Act 2013.
Ans: Section 128(1) requires every company to prepare and keep the books of account and other relevant books and papers and financial statements at its registered office. However, all or any of the books of accounts may be kept at such other places in India as the Board of directors may decide. When the Board so decides the company is required within seven days of such decision to file with the Registrar a notice in writing giving full address of that other place.
The maintenance of books of account and other books and papers in electronic mode is permitted and is optional. Such books of accounts or other relevant books or papers maintained in electronic mode shall remain accessible in India.
11. Discuss the provisions applicable to Financial Statements under Companies Act 2013.
Ans: The legal requirement with respect to Financial Statements is stated under Section 129.
As per Section 129:
(i) The financial statements shall give a true and fair view of the state of affairs of the company.
(ii) The financial statements should comply with the accounting standards notified.
(iii) Where the financial statements of a company do not comply with the accounting standards, the company shall disclose in its financial statements, the deviation from the accounting standards, the reasons for such deviation and the financial effects, if any, arising out of such deviation.
(iv) 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.
12. Discuss the provisions relating to internal audit of the company.
Ans: The following class of companies shall be required to appoint an internal auditor which may be either an individual or a partnership firm or a body corporate namely:
(i) Every listed company.
(ii) Every unlisted public company having-
(a) Paid up share capital of fifty crore rupees or more during the preceding financial year. or
(b) Turnover of two hundred crore rupees or more during the preceding financial year. or
(c) Outstanding loans or borrowings from banks or public financial institutions exceeding one hundred crore rupees or more at any point of time during the preceding financial year. or
(d) Outstanding deposits of twenty five crore rupees or more at any point of time during the preceding financial year.
(iii) Every private company having:
(a) Turnover of two hundred crore rupees or more during the preceding financial year. or
(b) Outstanding loans or borrowings from banks or public financial institutions exceeding one hundred crore rupees or more at any point of time during the preceding financial year.
The internal auditor shall either be a chartered accountant or a cost accountant, or such other professional as may be decided by the Board to conduct internal audit of the functions and activities of the company.
13. State the procedure for reopening and recasting of books of accounts as per Companies Act 2013.
Ans: The provisions for reopening and recasting of books of accounts are stated in Section 130.
The books of accounts of a company can be reopened and roasted in following manner:
(i) Through an application to Tribunal or Court by:
(a) Central Government.
(b) Income-tax authorities,
(c) Securities and Exchange Board.
(d) Any other statutory regulatory body or authority or any person concerned.
(ii) Through a notary to the Court or the Tribunal by:
(a) Central Government.
(b) Income-tax authorities.
(c) Securities and Exchange Board.
(d) Any other statutory regulatory body or authority or any person concerned.
(iii) The Court or Tribunal shall take into consideration the representations so made.
(iv) On basis of application and representation, if Court or Tribunal is of opinion that.
(a) The relevant earlier accounts were prepared in a fraudulent manner. or
(b) The affairs of the company were mismanaged during the relevant period, casting a doubt on the reliability of financial statements.
No order shall be made in respect of re-opening of books of account relating to a period earlier than eight financial years immediately preceding the current financial year.
14. Can the financial statements or books of account of company be revised voluntarily?
Ans: If it appears to the directors of a company that-
(a) The financial statement of the company. or
(b) The report of the Board.
Do not comply with the provisions of Companies Act 2013, 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 in such form and manner as may be prescribed and a copy of the order passed by the Tribunal shall be filed with the Registrar. Such revised financial statement or report shall not be prepared or filed more than once in a financial year:
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.
The detailed reasons for revision of such a 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 sent out to members or delivered to the Registrar or laid before the company in general meeting, the revisions must be confined to –
(a) The correction in respect of which the previous financial statement or report does not comply with the applicable provisions of Companies Act 2013. and
(b) The making of any necessary consequential alternation.
15. State the contents of the Board Report as per Section 134.
Ans: The board report shall include:
(i) The web address, if any, where annual return referred to in subsection (3) of section 92 has been placed.
(ii) Number of meetings of the Board.
(iii) Directors’ Responsibility Statement.
(iv) Details in respect of frauds reported by auditors other than those which are reportable to the Central Government.
(v) A statement on declaration given by independent directors under sub-section (6) of section 149.
(vi) Explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made-
(a) By the auditor in his report. and
(b) By the company secretary in practice in his secretarial audit report.
(c) Particulars of loans, guarantees or investments under Section 186.
(vii) The state of the company’s affairs.
(viii) The amounts, if any, which it proposes to carry to any reserves.
(ix) The amount, if any, which it recommends should be paid by way of dividend.
(x) 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.
(xi) The conservation of energy, technology absorption, foreign exchange earnings and outgo.
(xii) 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.
(xiii) The details about the policy developed and implemented by the company on corporate social responsibility initiatives taken during the year.
(xiv) Such other matters as may be prescribed.
16. State provisions relating to appointment of first auditors in Government Company.
Ans: In the case of a Government company, the first auditor shall be appointed by the CAG (Comptroller and Auditor-General of India) within sixty days from the date of registration of the company and in case CAG does not appoint such auditor within the said period, the Board of Directors of the company shall appoint such auditor within the next thirty days; and in the case of failure of the Board to appoint such auditor within the next thirty days, it shall inform the members of the company who shall appoint such auditor within sixty days at an extraordinary general meeting, who shall hold office till the conclusion of the first annual general meeting.
17. How is the auditor of a company appointed in case an existing auditor vacates the office thereby leading to casual vacancy (due to death, resignation, etc.)?
Ans: In case of Government company a casual vacancy is filled by Comptroller and Auditor-General of India within thirty days. In case the Comptroller and Auditor-General of India does not fill the vacancy within the said period, the Board of Directors shall fill the vacancy within the next thirty days.
In case of companies other than government companies, the vacancy shall be filled by the Board of Directors within thirty days. But if such casual vacancy is due to the resignation of an auditor, such appointment shall also be approved by the company at a general meeting convened within three months of the recommendation of the Board.
18. State provisions relating to rotation of auditors in a company.
Ans: As per Section 139(2) and Rules of the Companies (Audit and Auditors) Rules 2014, the provisions relating to rotation of auditors are as follows:
(i) Applicability:
(a) Listed companies.
(b) All unlisted public companies having paid-up share capital of rupees ten crore or more.
(c) All private limited companies having paid-up share capital of rupees fifty crore or more.
(d) All companies having public borrowings from financial institutions, banks or public deposits of rupees fifty crores or more.
(ii) The companies specified above shall not appoint:
(a) An individual as auditor for more than one term of five consecutive years.
(b) An audit firm as auditor for more than two terms of five consecutive years.
(c) The abovementioned individual/auditor firm shall not be eligible for reappointment.
19. State the services that cannot be provided by an auditor.
Ans: According to Section 144 of Companies Act, 2013, an auditor appointed under this Act shall provide to the company only such other services as approved by the Board of Directors/ the audit committee, but which shall not include any of the following services namely:
(a) Accounting and bookkeeping services.
(b) Internal audit.
(c) Design and implementation of any financial information system.
(d) Actuarial services.
(e) Investment advisory services.
(f) Investment banking services.
(g) Rendering of outsourced financial services.
(h) Management services. and
(i) Any other kind of services as may be prescribed.
20. Enumerate the cases wherein a person shall not be eligible for appointment as an Auditor of a company.
Ans: The following persons shall not be eligible for appointment as an auditor of a company, under Section 164 of companies Act, 2013:
(a) A body corporate other than a limited liability partnership registered under the Limited Liability Partnership Act, 2008 (6 of 2009).
(b) An officer or employee of the company.
(c) A person who is a partner, or who is in the employment, of an officer or employee of the company.
(d) A person who, or his relative or partner-
(i) Is holding any security of or interest in the company or its subsidiary, or of its holding or associate company or a subsidiary of such holding company:
However a person shall not be disqualified if his relative holds security or interest in the company of face value not exceeding
Rs 1 lakh.
(ii) Is indebted to the company, or its subsidiary, or its holding or associate company or a subsidiary of such holding company, in excess of Rs 5 lakh. or
(iii) Has given a guarantee or provided any security in connection with the indebtedness of any third person to the company, or its subsidiary, or its holding or associate company or a subsidiary of such holding company, for an amount exceeding Rs 1 lakh.
(e) A person or a firm who, has business relationship with the company, or its subsidiary, or its holding or associate company or subsidiary of such holding company or associate company of such nature as may be prescribed.
(f) A person whose relative is a director or is in the employment of the company as a director or key managerial personnel.
(g) A person who is in full time employment elsewhere or a person or a partner of a firm holding appointment as its auditor, if such persons or partner is at the date of such appointment or reappointment holding appointment as auditor of more than twenty companies.
(h) A person who has been convicted by a court of an offence involving fraud and a period of ten years has not elapsed from the date of such conviction.
(i) A person who, directly or indirectly, renders any service referred to in section 144 to the company or its holding company or its subsidiary company.
21. List down rights and duties of an auditor while conducting audit and making of audit report.
Ans: Every auditor of a company shall have a right to:
(a) Access at all times to the books of account and vouchers of the company.
(b) His rights extend to all books whether kept at the registered office of the company or at any other place. and
(c) He shall be entitled to require from the officers of the company such information and explanation as he may consider necessary for the performance of his duties as auditor.
Duty to make inquiries [Section 143(1)]:
(a) Whether loans and advances made by the company on the basis of security have been properly secured and whether the terms on which they have been made are prejudicial to the interests of the company or its members.
(b) Whether transactions of the company which are represented merely by book entries are prejudicial to the interests of the company.
(c) Where the company not being an investment company or a banking company, whether so much of the assets of the company as consist of shares, debentures and other securities have been sold at a price less than that at which they were purchased by the company.
(d) Whether loans and advances made by the company have been shown as deposits.
(e) Whether personal expenses have been charged to revenue account.
(f) Where it is stated in the books and documents of the company that any shares have been allotted for cash, whether cash has actually been received in respect of such allotment, and if no cash has actually been so received, whether the position as stated in the account books and the balance sheet is correct, regular and not misleading.
Contents of Audit Report [Section 143(3)]:
(a) Whether he has sought and obtained all the information and explanations which to the best of his knowledge and belief were necessary for the purpose of his audit and if not, the details thereof and the effect of such information on the financial statements.
(b) Whether, in his opinion, proper books of account as required by law have been kept by the company so far as appears from his examination of those books and proper returns adequate for the purposes of his audit have been received from branches not visited by him.
(c) whether the report on the accounts of any branch office of the company audited by a person other than the company’s auditor has been sent to him.
(d) Whether the company’s balance sheet and profit and loss account dealt with in the report are in agreement with the books of account and returns.
(e) Whether, in his opinion, the financial statements comply with the accounting standards.
(f) The observations or comments of the auditors on financial transactions or matters which have any adverse effect on the functioning of the company.
(g) Whether any director is disqualified from being appointed as a director.
(h) Any qualification, reservation or adverse remark relating to the maintenance of accounts and other matters connected therewith.
(i) Whether the company has adequate internal financial controls with reference to financial statements in place and the operating effectiveness of such controls.
(j) Such other matters as may be prescribed.
22. Enumerate the provisions relating to secretarial audit of company as per Companies Act 2013.
Ans: As per Section 204 of Companies Act, 2013, the following companies shall annex with its Board’s report, a secretarial audit report, given by a company secretary in practice:
(a) Listed Companies.
(b) Every public company having a paid-up share capital of fifty crore rupees or more. or
(c) Every public company having a turnover of two hundred fifty crore rupees or more.
The format of the Audit Report shall be in MR 3. It shall be the duty of the company to give all assistance and facilities to the company secretary in practice, for auditing the secretarial and related records of the company.
The Board of Directors, in their report made in terms of sub-section (3) of section 134, shall explain in full any qualification or observation or other remarks made by the company secretary in practice in his report.
If a company or any officer of the company or the company secretary in practice, contravenes the provisions of this section, the company, every officer of the company or the company secretary in practice, who is in default, shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.
