My query is: Whether annual accounts can be changed after adoption of the same in the Board Meeting but before presenting it before AGM. Pl give relevent case laws/guidence notes etc. Thanks in advance
28 April 2009
Under the Companies Act, 1956 (the Act), the annual financial statements (balance sheet and profit and loss account) of a company, after they are approved/signed by the Board of Directors, and the auditors report thereon are placed before the shareholders/members for their adoption at the Annual General Meeting (AGM). However, in exceptional cases, the financial statements may need to be revised/rectified. As per the Guidance Note (GN) on Auditor’s Report on Revised Accounts of Companies before circulation to Shareholders issued by the Institute of Chartered Accountants of India (ICAI) in December 1979, a company’s financial statements, duly approved/authenticated by the Board of Directors and the statutory auditors can be amended before they are circulated to the shareholders. In such a case, the revised/rectified financial statements are re-approved by the Board of Directors and the auditor would be required to make another audit report thereon. However, in certain cases it would be difficult to fulfill this condition e.g. in Government Companies, defined under section 617 of the Act, getting back all copies of the original financial statements may not be possible, and hence, an auditor shouldn’t issue a revised audit report. Further, where a revised audit report is issued, an adequate disclosure of the fact of the revision of the financial statements needs to made in the “Notes on Accounts” in the absence of which or where the note so put is considered inadequate, the auditor will have to include the fact of the revision in the revised audit report. The financial statements adopted by the members at the AGM are considered to be conclusive and normally, they cannot be reopened. In the opinion of the Department of Company Affairs and as per the GN on Revision/Rectification of Financial Statements issued by the ICAI in August 1983, after the financial statements and audit report have been adopted by the members, the financial statements should not be re-opened/rectified under any circumstances. However, if the financial statements are still re-opened/revised by the Board of Directors and the auditor is called upon to issue a revised audit report, then the ICAI has laid down a format of qualified audit report on such revised accounts in February 1985. The Recent Guidance issued by the ICAI Recently, the ICAI issued a GN on Revision of Audit Report in December 2002. This GN recognizes that subsequent to the date of the audit report on the financial statements of an enterprise, an auditor may become aware of certain facts as they may have existed at that date which might have affected the audit report had these facts been known at the time of issuance of the audit report. For instance, certain material facts may come to the auditor’s attention in December 2002 as they might have existed till June 2002, when the audit report was issued, for the accounting year ended in March 2002. Thus, if deemed appropriate, a revised audit report may be issued in December 2002 relating to the accounting year ended in March 2002. This GN is applicable whenever an audit or related services are carried out and an audit report is issued relating thereto. However, it doesn’t apply to the following cases: Situations arising from developments after the date of the audit report The final determination or resolution or crystallization of contingencies Other matters which had resulted in a qualification/adverse opinion/disclaimer in the original audit report itself. Barring the above cases where the audit report needs revision, there may be other cases also where such revision might become necessary like apparent mistakes, incorrect/wrong information/facts and subsequent discovery of facts that existed on the date of the audit report. However, as per this GN, an auditor isn’t allowed to withdraw in any manner the audit report under any circumstances. But, an auditor may take steps to prevent reliance thereon as discussed hereinafter. When the auditor learns of certain facts that existed at the time of the audit report either from the management or otherwise, he/she should discuss the matter with the management and advise them to revise the financial statements. If the management agrees to the revision, then while issuing the revised audit report, the auditor should bear in mind the above referrd two GNs issued prior to the current GN. When the auditor considers either of the following: An amendment to the financial statements isn’t warranted; or The management doesn’t deem it necessary to amend the financial statements; or Where the management agrees on a revision but is unable to do so and agrees to ensure that the recipients of the original financial statements and audit report are duly informed and would be issued the revised audit report; then the auditor may issue a revised audit report referring to the original audit report and also clearly state the reasons for revising the audit report.
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