Elements & sign of Financial Statements of company

Elements & sign of Financial Statements of company

What is Financial Statement?

Financial elements of a financial statement are broadly classified into five categories. These are grouped according to the monetary characteristics they possess.

As per Section 2 (40) of the companies Act 2013 states that the financial statement includes the below:

• Profit and loss account, or in the case of a nonprofit organization, an income and expenditure account for the financial year
• Annexure forming part of the Financial Statement
• Balance sheet;
• Statement of changes in equity, if any; and
• Cash flow statement

How to Prepare a Financial Statement?

Financial statement of company shall be prepared in accordance with section 129 (Schedule III )of the Companies Act, 2013 and such FS laid before shareholders at the AGM of the company.

Let’s have a brief understanding of all five.

Assets

An asset is a resource (either tangible or intangible) which is in control of the enterprise to derive monetary benefits from the use of it. Some of the points to be remembered are:

• Asset should not necessarily have a physical existence.
• An asset need not necessarily be owned. It should only be in control of the enterprise. An asset taken on lease from its owner will not be mentioned in the books of the owner but to whom it is in control of or leased to.
• In order for an asset to be recognized, there should be sufficient control over it. For example copyrights, patents, trademarks etc.
• An asset in order to be called an asset should be able to reap future financial benefits. An asset that ceases to have any value in a current accounting period cannot be termed as an asset.
• Asset’s value or cost should be easily calculable or measurable.

Liabilities

Liability is defined as an obligation of an enterprise that arose as a result of past events. Some of the important points to be remembered in its context are:

• A liability is recognized with the evidence shown in the balance sheet date.
• Certain provisions like provision for depreciation, provision for bad and doubtful debts and other provisions are not considered aliability but rather as a reduction in the value of theasset.

Equity

Equity can be defined as the remaining interest of an enterprise over its assets after deduction of liabilities from it. In short, equity is the excess of aggregate assets over aggregate liabilities.

Income

Income can be:

• any increase in the economic benefit as a result of inflow or encashment of asset
• Increase in equity with the decrease in liability.

Income also includes revenues and gains. Revenue is an income that arises during the ordinary course of business whereas, a gain is an income that may or may not arise during the normal course of business.

Expense

The expense is an antonym of income. Following are considered as an expense:

• Any decrease in the economic benefit as a result of outflow
• Deterioration of assets

The expense is defined as the charges incurred in the ordinary course of business like wages paid, rent paid etc., whereas losses may or may not incur in the ordinary course of business. For example loss on the sale of fixed assets. Expenses are shown on the debit side of profit and loss A/C.

Who can sign the financial statements as per the Companies Act 2013?

The following individuals will sign the 2013 Financial Statement in accordance with Section 134 of the Companies Act:

• Company’s CEO/CS/CFO (on the basis of their appointment in Company) OR
• There are 2 directors (out of which 1 shall be Managing Director)
• Chairman of the Board of Directors (if he has been authorized by the BOD)

Note: Irrespective of whether he chaired the meeting or not, the company’s chairperson can sign financial statements after being authorized by the Board of Directors.

When the auditor receives the signed financial statement, the auditor will prepare an auditor’s report, which will be appended to the financial statement.

Is it possible to sign financial statements digitally?

The Directors, Chief Executive Officer/ Company Secretary/ Chief Financial Officer, and the Company’s Statutory Auditors can also sign the Financial Statements online with their Digital Signatures.

Date On Which The Financial Statement Was Signed

The date on which the Financial Statements, including the Balance Sheet, Profit, and Loss Statement, Cash Flow Statement, and other supporting documents, are signed can be either before or after the date on which the audit report is signed.

Is it possible to have separate signing dates for financial statements?

The financial statements of the company are sent to the Auditors for signature after they have been signed by the Directors. Auditors and directors can sign the financial statement from separate locations and on different dates, i.e. the date on which the auditors sign the financial statement may differ from the date on which the directors sign it.

When both the Directors and the Auditor sign the Financial Statement of the Company, it is approved by the shareholders at the Annual General Meeting of the Company.

Financial Statement Approval

According to Section 134(1), the Company’s financial statements must be approved by the board of directors in a meeting and signed on behalf of the board.

Signed of Financial Statement Adoption and Circulation

A financial Statement must be adopted by the firm at the Annual General Meeting. The company’s Annual General Meeting might be convened within six months of the financial year’s end, on September 30th.

The financial statement including any consolidated financial statements shall be circulated after signing, together with a copy of each of—

• Board’s report
• Auditor’s report; and
• any notes or annexure

Board’s Report Content:

• No of Board Meetings.
• Declaration by Independent Directors.
• CSR Policy& initiatives
• Address of Website of the company.
• Statement of the Company’s affairs.
• Details of Contracts or Arrangements with Related party ( Form No. AOC-2 )
• Director’s Responsibility statement.
• Conservation of energy, technology absorption, and foreign exchange.
• Policy on Remuneration & Director’s Appointment.
• Any adverse remarks received from the Secretarial Auditor in his Report (MR-3) or by the Internal auditor and comment on that remark by the Board of directors of the
• Details of fraud Reported by the auditor.
• Statement of Annual Evaluation
• Details of guarantees, loans or Investments.
• Amount carrying reserves or paid by Dividend.

Conclusion

According to Section 134 of the Companies Act, the company’s 2013 financial statement must be signed in compliance with the Act’s laws and provisions.

Every company is required to comply with the Act’s provisions. If the company fails to comply with the Act’s provisions regarding the signing of financial statements, the company will be fined 3 lakhs Rupees, and each officer of the company who is in default will be fined 50,000/- Rupees, and all of the company’s directors and officers will be subject to fines, imprisonment, or both.

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