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off or adjusted
(b) Profit & Loss Account
Total
The Central Government may, on the application or with the consent of the Board of Directors of the
company, by order, modify in relation to that company, any of the requirements as to matters to be stated
in the company's balance sheet or profit and loss account for adapting them to the circumstances of the
company.
Contents of Profit and Loss Account
Though no format has been prescribed for the profit and loss account, Part II to Schedule VI of the
Companies Act, 1956 gives a list of items which must be disclosed in every profit & loss account. Every
profit and loss account of a company must give a true and fair view of the company's profit or loss for the
financial year for which it is drawn up.
Adoption of Balance Sheet and Profit & Loss Account
The Board of directors must present to the shareholders of the company, the balance sheet and a profit
and loss account for the financial year at every annual general meeting. In the case of companies which
are not commercial organisations such as Section 25 companies, instead if the profit & loss account, an
income & expenditure account may be prepared. The profit and loss account to be placed in the FIRST
annual general meeting should relate to a period beginning with the incorporation of the company and
ending with a day, the interval between which and the date of the meeting does not exceed nine months.
In case of subsequent annual general meetings, the profit and loss account should relate to a period
beginning with a day immediately after the period for which the preceding profit & loss account was made
and ending with a day, the interval between which and the date of the meeting should not exceed six
months. The financial year may be more or less than a calendar year, but it must not exceed 15 months
or with the special permission of the Registrar, 18 months.
If any director fails to take all reasonable steps to comply with the aforesaid requirements he is, in respect
of each offence liable to be punished with imprisonment up to six months or with fine up to Rs.1,000/- or
with both.
Authentication of Balance Sheet and Profit & Loss Account
The balance sheet and profit & loss account of a company must be signed on behalf of the Board of
directors by two directors out of whom one must be the managing director, where there is one and the
manager, or secretary, if any. The balance sheet and profit and loss account must be approved by the
Board of directors before they are submitted to the auditors for the purpose of audit. The report of the
auditors must be attached to the balance sheet and profit & loss account.
The company and every officer of the company who is in default with the above provisions shall be
punishable with the fine which may extend to Rs.500/-, if:
a. any copy of balance sheet and profit and loss account is issued, circulated or published, without
being signed as required ; or
b. any copy of balance sheet is issued, circulated or published, without there being annexed or
attached thereto, a copy each of the following :1. the profit and loss account;
If default is made in complying with the above provisions, then the company and every officer of the
company who is in default shall be punishable with fine which may extend to Rs.50 for every day during
the period the default continues.
Directors' Report
The report of the Board of Directors must be attached to every balance sheet prsented at the annual
general meeting. The report must contain information regarding the following matters :1. The state of affairs of the company
2. The amount, if any, which it proposes to carry to any reserves in such balance sheet
3. The amount of dividend recommended
4. Details of any material changes and commitments, if any, affecting the financial position of the
company which have occurred between the end of the financial year of the company to which the
balance sheet relates and the date of the report
5. Conservation of energy, technology absorption, foreign exchange earnings and outgo.
6. Names, designations and other particulars of all employees drawing more than Rs. 50000/- p.m.
in the company
7. Details necessary for a proper understanding of the state of the company's affairs and which are
not, in the Board's opinion, harmful to the business of the company or of any of its subsidiaries, in
respect of changes which have occured during the financial year :i.
ii.
in the company's subsidiaries or in the nature of the business carried on by them; and
iii.
Auditors of Company
Auditors of Government Companies
The auditor of a Government company is appointed or re-appointed by the Central Government on the
advice of the Comptroller and Auditor-General of India provided that the audit would be within the number
of acceptable audits available to each auditor.
The Comptroller & Auditor General of India has the power :a. to direct the manner in which the company's accounts are to be be audited by the auditor so
appointed and to give such auditor instructions in regard to any matter relating to the performance
of his functions as such
b. to conduct supplementary or test audit of the company's accounts by such person or persons or
persons as he may authorise in this behalf; and for the purpose of such audit, to require
additional information to be furnished to any person or persons so authorised, on such matters,
by such person or persons, and in such form, as the Comptroller and Auditor-General may, by
general or special order, direct.
The auditor must submit a copy of his audit report to the Comptroller and Auditor-General of India who
shall have the right to comment upon or supplement, the audit report in such manner as he may think fit.
Any such comments upon, or supplement to, the audit report must be placed before the annual general
meeting of the company at the same time and in the same manner as the auditors' report.
Auditors of Other Companies
It is the duty of the auditor conduct the audit of the books of accounts of the company and to make his
report to the members of the company on the accounts examined by him, and on every balance sheet,
every profit and loss account and on every other document declared by the Act to be part of or annexed to
the balance-sheet or profit and loss account and laid before the company in general meeting during his
tenure of office. The auditors report, besides other things necessary in any particular case, must
expressly state1. whether, in his opinion and to the best of his information and according to explanation given to
him, the accounts give the information required by the Act and in the manner as required;
2. whether the balance-sheet gives a true and fair view of the company's affairs as at the end of the
financial year and the profit and loss account gives a true and fair view of the profit or loss for the
financial year;
3. whether he has obtained all the information and explanations required by him for the purposes of
his audit;
4. whether in his opinion, the profit & loss account and balance sheet refered to in his report comply
with the accounting standards recommended by the Institute of Chartered Accountants of India;
5. whether, in his opinion, proper books of account as required by law have been kept by the
company, and proper returns for the purposes of his audit have been received from the branches
not visited by him;
6. whether the company's balance sheet and profit and loss account dealt with by the report are in
agreement with the books of account and returns.
In case any of the above matters is answered in the negative or with a qualification, the auditor's report
must state the reason for the same. Where the auditor is unable to express any opinion in answer to a
particular question, his report shall indicate such fact together with the reasons why it is not possible for
him to give an answer to such question.
The Central Government is empowered to issue orders requiring the auditor to include in his report a
statement on such matters as may be specified. In exercise of this power the Central Government has
issued an order called "The Manufacturing and other Companies (Auditor's Report) Order, 1975. It is the
duty of the auditor to comply with this order when making his report to the shareholders.
Only the person appointed as auditor of the company or where a firm of auditors is so appointed, only a
partner of that the firm practising in India, can sign the auditor's report or sign or authenticate any other
document of the company required by law to be signed or authenticated by the auditor.
Inter Corporate Loans and Investments
A company cannot :i.
ii.
give guarantee or security in connection with any loan made by any person to another body
corporate
iii.
acquire, by subscription, purchase or in any other manner, securities in any other body corporate
exceeding 60 % of its paid up share capital and free reserves or 100 % of its free reserves, whichever is
more, unless approved by a special resolution passed at a general meeting of members.
The Board of the company may give a guarantee without being previously authorised by a special
resolution of members if all the following conditions are satisfied :i.
ii.
there exist exceptional circumstances which prevent the company from obtaining previous
authorisation by special resolution
iii.
the Board resolution is confirmed within 12 months in a general meeting or its next Annual
general meeting, whichever is earlier.
Notice of such resolution must clearly indicate the specific limits, the particulars of the body corporate in
which the investment / loan / guarantee / security is proposed, the purpose of the investment / loan /
guarantee / security, sources of funding, etc.
No investment / loan / guarantee / security may be made or given unless the Board resolution sanctioning
it is with the consent of all directors present at the meeting and prior approval of the public financial
institution ( if any term loan is outstanding ) is obtained.
Approval of the public financial institution is not required if the investment / loan / guarantee / security is
with the 60 % limit as mentioned above and there has been no default in repaying the term loan and / or
interest thereon.
No loan can be made at a rate of interest lower than the bank rate prescribed by the Reserve Bank of
India.
A company which has defaulted in repaying public fixed deposits cannot make or give any investment /
loan / guarantee / security unless the fixed deposit is fully repaid along with interest due as per the terms
and conditions of the fixed deposit.
A register of such inter-corporate loans and investments must be maintained giving the relevant details.
The above provisions do not apply to :i.
Any loan / guarantee / security made or given by :a. a banking company or an insurance company or a housing finance company in the
ordinary course of its business or a company established with the object of financing
industrial enterprises or providing infrastructural facilities
b. a company whose principal business is the acquisition of shares, stocks, debentures or
other securities
c.
ii.
iii.
iv.
Guarantee or security given by a holding company for loan to its wholly owned subsidiary
v.