The Story Of The Financial Statements - From Preparation To Their Approval In The AGM
Relevant sections
- Section 129 - financial statement.
- Section 134 - Financial statements, Board's report etc.,
- Section 173 - Meetings of the board.
- Section 174 - Quorum for meetings of Board.
- Section 96 - Annual general meeting.
- Section 101 - Notice of meeting.
Relevant rules
- Secretarial standard - 1
- Secretarial standard - 2
1. First step in finalization of accounts starts with the preparation and finalization of accounts by the internal accounts department. After finalization of accounts by the internal accounts dept. the same will be presented before the board of directors for their approval.
2. The board of directors shall be given notice by an officer/director of the company to attend the meeting for approval of draft financial statements and the send the same to the statutory auditor of the company. In case of no director is given authorization, any of the director can give the notice. The notice shall be given at least 7 days in advance (excluding the day of the sending the mail and the date of proposed meeting). Therefore, it is better to give at least 10 days in advance. The quorum for a meeting of the Board of Directors of a company shall be one third of its total strength or two directors, whichever is higher, and the participation of the directors by video conferencing or by other audio visual means shall also be counted for the purposes of quorum. Provided that the quorum shall not be less than two members. the notice shall be accompanied by the clear agenda as to what is the business that the directors are going to deal. in this case it is the approval of financial statements.
3. At the board meeting, the directors after reviewing the draft financial statements shall approve the same by passing the following the resolution:
"RESOLVED THAT in accordance with the provisions of section 134 and any other applicable provisions of the companies act, 2013 and the rules made thereunder, including any amendments thereto for the time being in force, the draft annual financial statements for the financial year 2020 - 2021 including the balance sheet as at 31.03.2021, the statement of profit and loss and cash flow statement for the year ending 31.03.2021 is placed before the board and initialed by the chairman for the purpose of identification, be and are hereby approved".
"RESOLVED FURTHER THAT that two directors (names of the directors who have been authorized) of the company is authorized to sign the above mentioned financial statements and send the same to the auditors for their approval".
4. After the audit is done by the auditor the same will be sent back to the directors along with the detailed audit report containing the observations and comments of the auditor.
5. After receipt of the audit report on the financial statements of the company, one more board meeting is to be called to take note of the financials, approve the draft of board of director's report (directors report is a comprehensive document which provides information on various aspects of the company like financial performance, impact of the external factors on the business, related party transactionsetc.,) and call for an annual general meeting of the shareholders. The resolution is as follows:
"RESOLVED THAT in accordance with the provisions of section 134 and any other applicable provisions of the companies' act, 2013 and the rules made thereunder, including any amendments thereto for the time being in force, the board hereby takes note of the audited financial statements and approves the same."
"Resolved that the Boards' Report for the year ended 31.03.2021 placed before the Board and authenticated by the Chairperson be and is hereby approved for circulation among the shareholders and the same be signed by Mr./ Ms and Mr. /Ms, Directors of the Company for and on behalf of the Board.
Resolved further that the Directors of the Company be and are hereby authorized severally to file necessary e-Forms with Registrar of Companies."
6. In the same meeting itself the board will approve a resolution calling for an annual general meeting of the shareholders. It is to be noted that the AGM should be held on only on a normal working day between regular business from 9AM to 6PM. It should not be held on public holiday at any cost. The resolution will be as follows:
"Resolved that the (1st or 2nd or 3rd……….) Annual General Meeting of the Company be held on Wednesday on 30th day of September, at the registered office of the company at 9 a.m. to 6pm to transact the business mentioned in the Notice of AGM tabled before the meeting and initialed by the Chairman for the purposes of identification.
Resolved further that the Notice of AGM be and is hereby approved and Mr./ Ms. , Director/Company Secretary be and is hereby authorized to issue the same to all persons entitled to receive the same.
Resolved further that the Directors of the Company be and are hereby authorized severally to file necessary e-Forms with the Registrar of Companies."
7. At the AGM the shareholders will adapt the audited financial statements. If there is any discrepancy in the accounts, the shareholders may not adopt the audited financial statements, the form AOC-4should be filed with the ROC within 30 days of date of AGM, explaining the reasons for the non-adaption of the financial statements. The ROC may take financials on provisional basis and till they are adopted in the adjourned meeting. However, if the shareholders are convinced about the authenticity of the accounts at the first instance they may adapt the accounts by passing an ordinary resolution which requires just more than half of the members present and voted in the AGM. Here the following points are to be kept in mind at the AGM.
The significant differences between resolution passed and special resolution is described as follows:
Ordinary Resolution is one in which the general meeting requires a simple majority to move the resolution. Special resolution means a resolution that needs a clear majority to approve the resolution at the general meeting.
Only in certain situations, it is mandatory to file a copy of the ordinary resolution with the Registrar signed by the organization's offices. A printed or handwritten copy of a special resolution, which includes the company official's signature, must be sent to the Company Registrar (ROC) within 30 days.
The ordinary resolution requires the approval of at least 51 percent of members to accept the resolution. On the other hand, the special resolution needs at least 75% support for the resolution.
Conclusion
At the outset it can be concluded that there are many steps involved in preparation and finalization of the accounts. Care must be exercised with respect to the relevant provisions of the companies act, secretarial standards 1 and 2, the date of happening of the events in particular and the forms that are to be filed with ROC.
The author is a qualified company secretary, an MBA finance graduate, and a law graduate. He is also a Govt. of India - certified GST practitioner. He is a mentor for start-ups and corporate law consultant for small and medium enterprises.
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