TULSIRAMJI GAIKWAD-PATIL College of Engineering and Technology

Wardha Road, Nagpur - 441108

Accredited with NAAC A+ Grade
Approved by AICTE, New Delhi, Govt. of Maharashtra
(An Autonomous Institution Affiliated to RTM Nagpur University, Nagpur)
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Session 2022-23
First Semester
Subject:- Fundamentals Of Accounting
Topic:- Financial Statement Reporting
Module 2
Subject In-Charge:- Prof. Ankita Bawane

Introduction
The Companies Act, 2013 is comprehensive legislation governing the
incorporation, dissolution, and functioning of the company. The companies
Act aims at facilitating the ease of doing business.it focuses on providing
transparency by way of enhanced disclosures.

The Act requires certain disclosures to be made by the board of directors.

Disclosures regarding annual returns, risk management, finances, evaluations,
disclosures relating to corporate social responsibility,and many other similar
discourses are to be made.

These disclosures are made in the Board report, therefore the board of
directors report is an important means of communication. The report covers
both financial and non-financial information.

Provisions pertaining to financial statements and board of directors report are

under the Companies Act are set forth under Section 134 of the companies act,
2013. Rule 8 to rule 12 of the Companies (Accounts) Rules 2014.

Furthermore, the Board report of those companies that are listed under the
stock exchange must include further information as per the SEBI (Listing
Obligations and Disclosure Requirements) Regulations, 2015.

Financial statement
According to section 2 (40) of the companies Act 2013, a financial statement
in relation to a company is a combination of:

 Balance sheet;
 Profit or loss statement (in case of non-profit income and expenditure
sheet);
 Cash flow statement;
 A statement showing changes in equity (if applicable); and
 Annexed explanatory notes relating to the above-mentioned
documents.

Financial year
Financial year under the Companies Act of 2013 means a year ending on 31st
of March of every year as provided under section 2 (41).

The companies Act 2013 mandates the board of directors to attach the board
report along with the financial statements and it is to be put before the
shareholders at the annual general meeting in accordance with section 129 of
the Companies Act.

Preparation of a Financial statement

A financial statement providing for true and fair information regarding the
state of affairs of the company. The financial statement is to be prepared in
accordance with Schedule III and is to be presented before the shareholders at
the Annual general meeting.

Furthermore, section 129 deals with the preparation of financial statements.

The signing of the financial statement

According to Section 134(1) of the companies Act 2013, the financial
statement is to be approved by the board of directors. The financial statement
includes the consolidated financial statement.

The statement is then signed on behalf of the board by:

  Where a Chairperson of the company has been authorized by the
board or by two directors one of which shall be a managing director,
 the Chief Executive Officer,
 the Chief Financial Officer,
 the company secretary of the company, and
 In the case of a one person company, only by one director.
The financial statement is then submitted to the auditor. The auditor shall
prepare a report for the same. As per section 134 (2) the auditors’ report shall
be attached to the financial statement.

What are provisions relating to financial statements under the New companies
act 2013 1. Section 129 of companies act 2013, provides for preparation of
financial statements.

2. 2(40) to include balance sheet, profit and loss account/income and

expenditure account, cash flow statement, statement of changes in equity and
any explanatory note annexed to the above.

3. New section 129 corresponds to existing section 210. It provides that the
financial statements shall give a true and fair view of the state of affairs of the
company and shall comply with the accounting standards notified under new
section 133

4. It is also provided that the financial statements shall be prepared in the form
provided in new schedule III of Companies Act, 2013.

5. It may be noted that in the new schedule III the provisions for preparation
of balance sheet and statement of profit and loss have been given which are on
the same lines as in the existing schedule VI.

6. Further, in the new Schedule III detailed instructions have been given for
preparation of consolidated financial statements as consolidation of accounts
of subsidiary companies is now made mandatory in section 129.

7. It may be noted that for the first time a provision has been made in the new
section 129(3)that if a company has one or more subsidiaries it will have to
prepare a consolidated financial statement of the company and of all the
subsidiaries in the form provided in the new schedule III of Companies Act,
2013.
 8. The company has also to attack along with its financial statement, a
separate statement containing the salient features of the financials of the
subsidiary companies in such form as may prescribed by the rules.

9. It is also provided that if the company has interest in any associate company
or a joint venture the accounts of that company as well as joint venture shall
be consolidated.

10. For this purpose associate company has been definedinnewsection2(6)

company has significant influence i.e. it has. 20% of the total share capital of
the company or has control on the business decision under an agreement.

11 .The Central Government has power to exempt any companies from

complying with any of the requirements made under the section.

Schedule III (See section 129) GENERAL INSTRUCTION FOR

PREPARATION OF BALANCE SHEET AND STATEMENT OF
PROFIT AND LOSS OF A COMPANY GENERAL INSTRUCTIONS

(1) Where compliance with the requirements of the Act including

Accounting Standards as applicable to the companies require any
change in treatment or disclosure including addition, amendment,
substitution or deletion in the head or sub-head or any changes, in the
financial statements or statements forming part thereof, the same shall
be made and the requirements of this Schedule shall stand modified
accordingly.

(2) The disclosure requirements specified in this Schedule are in addition

to and not in substitution of the disclosure requirements specified in
the Accounting Standards prescribed under the Companies Act, 2013.
Additional disclosures specified in the Accounting Standards shall be
made in the notes to accounts or by way of additional statement
unless required to be disclosed on the face of the Financial
Statements. Similarly, all other disclosures as required by the
Companies Act shall be made in the notes to accounts in addition to
the requirements set out in this Schedule.

(3) (i) Notes to accounts shall contain information in addition to that

presented in the Financial Statements and shall provide where
required a) narrative descriptions or disaggregation’s of items
recognised in those statements; and b) Information about items that
 do not qualify for recognition in those statements. (ii) Each item on
the face of the Balance Sheet and Statement of Profit and Loss shall
be cross-referenced to any related information in the notes to
accounts. In preparing the Financial Statements including the notes to
accounts, a balance shall be maintained between providing excessive
detail that may not assist users of financial statements and not
providing important information as a result of too much aggregation

(4) (i) Depending upon the turnover of the company, the figures
appearing in the Financial Statements maybe rounded off as given
below:— Turnover Rounding off (a) less than one hundred’ crore
rupees To the nearest hundreds, thousands, lakhs or millions, or
decimals thereof (b) one hundred crore rupees or more To the nearest
lakhs, millions or crores, or decimals thereof. (ii) Once a unit of
measurement is used, it shall be used uniformly in the Financial
Statements.

(5) Except in the case of the first Financial Statements laid before the
Company (after its incorporation) the corresponding amounts
(comparatives) for the immediately preceding reporting period for all
items shown in the Financial Statements including notes shall also be
given.

(6) For the purpose of this Schedule, the terms used herein shall be as per
the applicable Accounting Standards. Note: —this part of Schedule
sets out the minimum requirements for on the face of the Balance
Sheet, and the Statement of Profit and Loss (hereinafter referred to as
—Financial Statements || for the purpose of this Schedule) and Notes.
Line items, sub-line items and sub-totals shall be presented as an
addition or substitution on the face of the Financial Statements when
such presentation is relevant to an understanding of the company’s
financial position or performance or to cater to industry/sector-
specific disclosure requirements or when required for compliance
with the amendments to the Companies Act or under the Accounting
Standards.

Proforma of Balance Sheet

Introduction
The Companies Act, 2013 is comprehensive legislation governing the
incorporation, dissolution, and functioning of the company. The companies
Act aims at facilitating the ease of doing business.it focuses on providing
transparency by way of enhanced disclosures.

The Act requires certain disclosures to be made by the board of directors.

Disclosures regarding annual returns, risk management, finances, evaluations,
disclosures relating to corporate social responsibility,and many other similar
discourses are to be made.

These disclosures are made in the Board report, therefore the board of
directors report is an important means of communication. The report covers
both financial and non-financial information.

Provisions pertaining to financial statements and board of directors report are

under the Companies Act are set forth under Section 134 of the companies act,
2013. Rule 8 to rule 12 of the Companies (Accounts) Rules 2014.

Furthermore, the Board report of those companies that are listed under the
stock exchange must include further information as per the SEBI (Listing
Obligations and Disclosure Requirements) Regulations, 2015.

Financial statement
According to section 2 (40) of the companies Act 2013, a financial statement
in relation to a company is a combination of:

 Balance sheet;
 Profit or loss statement (in case of non-profit income and expenditure
sheet);
 Cash flow statement;
 A statement showing changes in equity (if applicable); and
 Annexed explanatory notes relating to the above-mentioned
documents.

Financial year
Financial year under the Companies Act of 2013 means a year ending on 31st
of March of every year as provided under section 2 (41).

The companies Act 2013 mandates the board of directors to attach the board
report along with the financial statements and it is to be put before the
shareholders at the annual general meeting in accordance with section 129 of
the Companies Act.

Preparation of a Financial statement

A financial statement providing for true and fair information regarding the
state of affairs of the company. The financial statement is to be prepared in
accordance with Schedule III and is to be presented before the shareholders at
the Annual general meeting.

Furthermore, section 129 deals with the preparation of financial statements.

The signing of the financial statement

According to Section 134(1) of the companies Act 2013, the financial
statement is to be approved by the board of directors. The financial statement
includes the consolidated financial statement.

The statement is then signed on behalf of the board by:

 Where a Chairperson of the company has been authorized by the

board or by two directors one of which shall be a managing director,
 the Chief Executive Officer,
 the Chief Financial Officer,
 the company secretary of the company, and
 In the case of a one person company, only by one director.
The financial statement is then submitted to the auditor. The auditor shall
prepare a report for the same. As per section 134 (2) the auditors’ report shall
be attached to the financial statement.

What are provisions relating to financial statements under the New companies
act 2013 1. Section 129 of companies act 2013, provides for preparation of
financial statements.
 2. 2(40) to include balance sheet, profit and loss account/income and
expenditure account, cash flow statement, statement of changes in equity and
any explanatory note annexed to the above.

3. New section 129 corresponds to existing section 210. It provides that the
financial statements shall give a true and fair view of the state of affairs of the
company and shall comply with the accounting standards notified under new
section 133

4. It is also provided that the financial statements shall be prepared in the form
provided in new schedule III of Companies Act, 2013.

5. It may be noted that in the new schedule III the provisions for preparation
of balance sheet and statement of profit and loss have been given which are on
the same lines as in the existing schedule VI.

6. Further, in the new Schedule III detailed instructions have been given for
preparation of consolidated financial statements as consolidation of accounts
of subsidiary companies is now made mandatory in section 129.

7. It may be noted that for the first time a provision has been made in the new
section 129(3)that if a company has one or more subsidiaries it will have to
prepare a consolidated financial statement of the company and of all the
subsidiaries in the form provided in the new schedule III of Companies Act,
2013.

8. The company has also to attack along with its financial statement, a
separate statement containing the salient features of the financials of the
subsidiary companies in such form as may prescribed by the rules.

9. It is also provided that if the company has interest in any associate company
or a joint venture the accounts of that company as well as joint venture shall
be consolidated.

10. For this purpose associate company has been definedinnewsection2(6)

company has significant influence i.e. it has. 20% of the total share capital of
the company or has control on the business decision under an agreement.

11 .The Central Government has power to exempt any companies from

complying with any of the requirements made under the section.
Schedule III (See section 129) GENERAL INSTRUCTION FOR
PREPARATION OF BALANCE SHEET AND STATEMENT OF
PROFIT AND LOSS OF A COMPANY GENERAL INSTRUCTIONS

(7) Where compliance with the requirements of the Act including

Accounting Standards as applicable to the companies require any
change in treatment or disclosure including addition, amendment,
substitution or deletion in the head or sub-head or any changes, in the
financial statements or statements forming part thereof, the same shall
be made and the requirements of this Schedule shall stand modified
accordingly.

(8) The disclosure requirements specified in this Schedule are in addition

to and not in substitution of the disclosure requirements specified in
the Accounting Standards prescribed under the Companies Act, 2013.
Additional disclosures specified in the Accounting Standards shall be
made in the notes to accounts or by way of additional statement
unless required to be disclosed on the face of the Financial
Statements. Similarly, all other disclosures as required by the
Companies Act shall be made in the notes to accounts in addition to
the requirements set out in this Schedule.

(9) (i) Notes to accounts shall contain information in addition to that

presented in the Financial Statements and shall provide where
required a) narrative descriptions or disaggregation’s of items
recognised in those statements; and b) Information about items that
do not qualify for recognition in those statements. (ii) Each item on
the face of the Balance Sheet and Statement of Profit and Loss shall
be cross-referenced to any related information in the notes to
accounts. In preparing the Financial Statements including the notes to
accounts, a balance shall be maintained between providing excessive
detail that may not assist users of financial statements and not
providing important information as a result of too much aggregation

(10) (i) Depending upon the turnover of the company, the figures
appearing in the Financial Statements maybe rounded off as given
below:— Turnover Rounding off (a) less than one hundred’ crore
rupees To the nearest hundreds, thousands, lakhs or millions, or
decimals thereof (b) one hundred crore rupees or more To the nearest
lakhs, millions or crores, or decimals thereof. (ii) Once a unit of
measurement is used, it shall be used uniformly in the Financial
 Statements.

(11) Except in the case of the first Financial Statements laid before the
Company (after its incorporation) the corresponding amounts
(comparatives) for the immediately preceding reporting period for all
items shown in the Financial Statements including notes shall also be
given.

(12) For the purpose of this Schedule, the terms used herein shall be as per
the applicable Accounting Standards. Note: —this part of Schedule
sets out the minimum requirements for on the face of the Balance
Sheet, and the Statement of Profit and Loss (hereinafter referred to as
—Financial Statements || for the purpose of this Schedule) and Notes.
Line items, sub-line items and sub-totals shall be presented as an
addition or substitution on the face of the Financial Statements when
such presentation is relevant to an understanding of the company’s
financial position or performance or to cater to industry/sector-
specific disclosure requirements or when required for compliance
with the amendments to the Companies Act or under the Accounting
Standards.

Proforma of Balance Sheet

Proforma of P & L Statement