Financial statements are important to provide a snapshot of the financial performance and position of a company. They are important for stakeholders, shareholders, and investors to make decisions about the company. This article discusses the process of signing company financial statements under the Companies Act 2013. To maintain transparency and compliance, understand the legal obligations concerning the signing of financial statements and processes thereunto.
Overview of Financial Statement
In accordance with Section 2(40) of the Companies Act, 2013, Financial statements include different sections:
- A Profit and Loss Account: This section shows the company’s earnings, the costs and expenses it has, and whether it ends up with a loss or profit over a specific period. It helps understand how well the company is doing financially.
- A Balance Sheet: portraying the financial standing of the company at a point in time through a synopsis of its assets, liabilities, and equity.
- Statement of Changes in Equity: Overview of company’s equity changes over a particular period.
- Cash Flow Statement: This statement offers insights into a company’s cash outflows and inflows over a fixed time frame.
- Annexure: Any extra information of schedules that forms a key constituent of the financial statement.
Preparation of a Financial Statement
Financial statements must be formulated according to Schedule III of Section 129 of the Companies Act 2013. This schedule furnishes the essential formats and guidelines for the presentation of financial statements. Once prepared, the financial statement must be presented at the Annual General Meeting of the company, shareholders are provided with key information.
Who Can Sign the Financial Statements?
As per Section 134 of the Companies Act 2013, the financial statements should be signed by the following:
- Chairperson of the Company: If endorsed by the board of directors.
- Chief Executive Officer/ Chief Financial Officer/ Company Secretary: This depends on their appointment with the company.
- Two Directors: Minimum two directors, out of which one should be a Managing Director.
It’s vital to note that the chairperson can sign the financial statements solely if approved by the board, regardless of whether they presided over the meeting or not. The signed financial statements are then presented to the auditor, who prepares an auditor’s report to be attached to them.
Number of Directors Needed to Sign Financial Statements
If the company has more than one director, the financial statements must be signed by a minimum of two directors, one of whom must be a Managing Director. Nevertheless, if a company has just one director, that sole director can sign the financial statements.
Company Secretary’s Role in Signing Financial Statements
Where the company appoints a full-time Company Secretary, the financial statements must bear the signature of the full-time Company Secretary. Further, if the company has appointed a Chief Financial Officer or Chief Executive Officer, they, too, must sign the financial statements. Suppose the company is deficient in both a chairperson and approval by the board. In that case, the financial statements should bear the signatures of 2 directors, of which one should be the managing director, together with the CFO if they are also a director.
Signing of Financial Statements in Case of One Person Company (OPC)
In the case of one-person companies (OPCs), the financial statements can be signed by the company’s sole director.
Signing of Financial Statements Electronically
The Companies Act allows for electronic signing of financial statements using the digital signatures of the Chief Executive Officer (CEO), Company Secretary (CS), directors, and the company’s Statutory Auditors. The digital signing provides efficiency and convenience in the signing process.
Date of Signature of Financial Statements
Signatory date of the financial statements such as the profit and loss account, balance sheet, cash flow statement, and different supporting documents, can either be prior to the date of signing the audit report or on the very date as the audit report.
Separate Signing Dates for Financial Statements
The auditors and directors are likely to sign the financial statements on separate dates and from separate locations. This implies that the date the directors sign the financial statements may vary from the date the auditors sign them. After the financial statements are signed by both the auditors and the directors, they are adopted by the shareholders at the Annual General Meeting of the company.
Acceptance and Circulation of Signed Financial Statements
As per the terms of Section 134(1) of the Companies Act 2013, the company’s financial statements are required to bear the approval of the board of directors in a meeting and signed on behalf of the board. Following the signing, the financial statements, along with any consolidated financial statements, are required to be circulated together with a copy of the board’s report and the auditor’s report. The board’s report should include different details, containing the company’s website address, a declaration by independent directors, a director’s responsibility statement, details of arrangements or contracts with associated parties, the number of board meetings, a statement of the company’s affairs, details of guarantees, investments, or loans, details of fraud recorded by the auditor, besides others.
Suppose the company fails to comply with the Act’s provisions concerning the signing of financial statements. In that case, it will be penalized three lakh rupees, every officer who is in default will be fined fifty thousand rupees, and all of the company’s officers and directors will be subject to imprisonment, fines, or both.
Final Thoughts
It’s very important for all companies to follow the rules in the Companies Act 2013 when signing their financial statements. Doing this helps companies show they are credible and are following the law. If a company doesn’t follow these rules, it may incur penalties or fines. Therefore, the. importance of signing of financial statement by business is to win the trust and confidence of investors, shareholders, and stakeholders.
In admittance, signing the financial statement comes with a number of signers like chairpersons, CSs, directors, auditors, and CEOs. This process can be conducted electronically using digital signatures. Thereafter, after the signing, the financial statements should be accepted by the board as well as adopted in the Annual General Meeting. By following the set procedures, transparency, accuracy, and compliance in their financial reporting are ensured by companies.
