Section 129 of the Companies Act, 2013 (“the Act”) requires the financial statements to be prepared in the form specified in Schedule III and to give a true and fair view of the state of affairs of the company. The financial statements must comply with the accounting standards notified under Section 133, and they must be audited by the auditor appointed under Section 139.
The Form and Content
The financial statements include the balance sheet, the profit and loss account (or the income and expenditure account for a not-for-profit company), the cash flow statement, the statement of changes in equity, and the explanatory notes. Schedule III prescribes the format, and the company must apply the format that is applicable to its class—Division I for companies complying with the Accounting Standards, Division II for companies complying with Ind AS, and Division III for NBFCs.
The true and fair requirement is the overriding principle. A company that complies with the format but does not give a true and fair view has not complied with Section 129. The auditor's report is the mechanism by which the true and fair view is certified.
The Consolidation Obligation
Section 129(3) requires a company that has one or more subsidiaries to prepare consolidated financial statements (“CFS”) in addition to its separate financial statements. The CFS must be prepared in the same form and manner as the separate financial statements, and it must be audited by the company's auditor.
The CFS is mandatory for all companies with subsidiaries, including unlisted companies. The consolidation must include all subsidiaries, associates, and joint ventures, and it must eliminate the intra-group transactions and balances.
The Exemptions
Rule 6 of the Companies (Accounts) Rules, 2014 exempts certain companies from the CFS requirement. The exemption is available where the company is a wholly owned subsidiary or a partially owned subsidiary of another company and all its other members have been intimated in writing that the company will not present consolidated financial statements, no securities of the company are listed or proposed to be listed, and its ultimate or intermediate holding company files consolidated financial statements with the Registrar.
The exemption is conditional, and a company that avails it must ensure that the conditions continue to be satisfied. The interaction between the CFS exemption and the related party transaction approval under Section 188 is a complex issue: an intermediate holding company that avails the CFS exemption may face a question whether it can claim the exemption from shareholder approval for transactions with its wholly owned subsidiary.
The Penalty
The failure to comply with Section 129 is an offence. The company, the managing director, the whole-time director, the chief financial officer, and the statutory auditor are liable to penalty. The penalty is imposed by the adjudicating officer, and it can be appealed.
Call to Action
Anuj Desai & Associates advises companies on the Section 129 financial statement requirements—from the Schedule III format and the accounting standards compliance to the consolidation obligation and the Rule 6 exemption. If your company is part of a group, we can help you determine whether the CFS exemption applies and how to structure the reporting.
📧 office@anujdesaiassociates.com
📞 9619456656
🌐 https://anujdesaiassociates.com
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