ACCOUNTS OF COMPANIES - Changes as per Companies Act 2017

1.        Preparation of Financial Statements (Section 129)

       The Act has come up with a clarificatory addition of the word associate companies with the subsidiary companies while preparation of consolidated financial statements(CFS) in accordance with the applicable AS. Earlier due to absence of this term there was confusion whether to include associate companies or not while preparation of CFS.

       Also, the company should prepare AOC-1, containing the salient features of the subsidiary as well as associate companies.

2.        Reopening of Accounts of Companies

       The section 130(3) has been added to keep in consonance with Section 128(5) of the Companies Act, 2013. It has been clarified that the books of accounts shall not be re-opened for financial year preceding 8 financial years.

        Further, if any direction under Section 128(5) is received by Central Government, the books may be opened for a longer period.

3.        Board Report (Section 134)

Section 134(1) has been modified stating out few changes that CEO whether appointed as Director or not in the company has to sign the Board Report, where earlier CEO could sign only if he was appointed as Director. Also a clarificatory change has been done by insertion of words ‘if any’ after the words Managing Director as it is not compulsory for a company to have Managing Director.

Section 134(3)(a) has been revised by omitting the requirement of attaching the extract of annual return i.e. MGT-9 with Board Report with the insertion of revised proviso by placing the copy of annual return on website of the company (if any) and disclosure of the web address/ link in the Board‘s Report.

A new proviso has been inserted in the Section giving out the relaxations. It states where disclosures like loans and investments, contracts with related parties and various other disclosures if provided in the financial statements, may be referred with salient features in the Board Report instead of detailed description.

It has also been mentioned to highlight the features and any other major changes in the CSR and Nomination and Remuneration Policy in the Board Report doing away with the detailed explanation by placing the same on the weblink of the company.

Section 134(3A) has been inserted empowering the Central government to prescribe an abridged Board Report in case of OPC and small companies. This is a welcoming change which will reduce the compliance work and let them focus on growth perspectives.

4.        Corporate Social Responsibility (Section 135)

There were many differing views related to the applicability of the CSR due to the phrase used ‘during any financial year’. There was a confusion whether the current year or previous year has to be taken for its application. The amendment act has come out the clarification by replacing it with ‘immediate preceding financial year’. With this change, it has been clarified that CSR Requirement will be decided based on the net worth/turnover/net profit for the ‘immediate preceding financial year’.

A new proviso has been added which describes the composition of CSR Committee for the companies who does not come in the ambit of Section 149(4) i.e. companies who are not required to appoint independent directors can form a CSR committee with two or more directors. This change has been harmonised with the CSR rules and relaxation for private companies.

Further it is also clarified by modifying Section 135(3)(a), specifying the activities to be undertaken by a company for CSR spending should be in areas or subject specified in Schedule VII. This is a clarificatory change to the earlier interpretation.

To bring out the harmony with the CSR Section and Rules, it has been specified that for calculation of CSR spending, the net profit as per Section 198 has to be considered after deducting the sums as may be prescribed.

5.        Right of members to copies of Audited Financial Statements (Section 136)

The changes pertain to the manner in which financial statements have to be circulated to the members. MCA already issued a circular for the same earlier in 2015, but the same has now been inserted in the act. It says that the copies of the financials can be sent to the members at a shorter notice (less than 21 days) if 95% members entitled to vote at the meeting agrees to same.

Earlier every company having subsidiary had to publish separate financials of the subsidiaries on its website, but now the same has been revised and only listed companies have to comply with this requirement. Provided if listed company has any foreign subsidiary, these requirements are to be met.

The revision has also been made in Section 136(2), mandating every company having subsidiary to provide a copy of separate audited/unaudited financials to the members who asks for it.

6.        Copy of Financials to be filed with Registrar (Section 137)

Reference of Section 403 has been removed from this section, whereby due to this amendment the Companies shall be required to file the financials within 30 days of AGM/adjourned AGM. Now the additional time period of 270 days for filing the forms with the payment of additional fee has been removed from all the sub sections.

Further a new proviso has been added stating that if the foreign subsidiaries does not get its financials audited, then the holding Indian Company shall file such unaudited accounts along with a declaration to this effect.