Signing of Financial Statements of Companies under the Companies Act 2013

Financial statements play a pivotal role in providing an overview of a company's financial position and performance. They are essential for shareholders, investors, and stakeholders to make informed decisions about the company. In this article, we will delve into the process of signing financial statements of companies under the Companies Act 2013. Understanding the legal requirements and procedures involved in signing financial statements is crucial to ensure compliance and transparency.

What is a Financial Statement?

A financial statement, as defined by Section 2(40) of the Companies Act 2013, encompasses several key components:

1. Balance Sheet: It presents a snapshot of a company's financial position, including its assets, liabilities, and shareholders' equity.
2. Profit and Loss Account: This statement outlines a company's revenues, expenses, and net profit or loss for a specific period.
3. Cash Flow Statement: It provides insights into a company's inflows and outflows of cash during a given time frame.
4. Statement of Changes in Equity: This statement highlights the changes in a company's equity during a particular period.
5. Annexure: Any additional information or schedules that form an integral part of the financial statement.

How to Prepare a Financial Statement?

Financial statements must be prepared in accordance with Schedule III of Section 129 of the Companies Act, 2013. This schedule provides the necessary guidelines and formats for the presentation of financial statements. Once prepared, the financial statement needs to be laid before the shareholders at the Annual General Meeting of the company.

Who Can Sign the Financial Statements?

According to Section 134 of the Companies Act, 2013, the financial statements should be signed by the following:

1. Chairperson of the Company: If authorized by the board of directors.
2. Two Directors: At least two directors, out of which one should be a Managing Director.
3. Chief Executive Officer/Company Secretary/Chief Financial Officer: Based on their appointment in the company.

It's important to note that the chairperson can sign the financial statements only if authorized by the board, irrespective of whether they chaired the meeting or not. The signed financial statements are then submitted to the auditor, who prepares an auditors' report to be attached to the financial statements.

Number of Directors Required to Sign Financial Statements

In the case of companies having more than one director, the financial statements must be signed by at least two directors, with one of them being a Managing Director. However, if a company has only one director, that single director can sign the financial statements.

Role of Company Secretary in Signing Financial Statements

If a Whole-time Company Secretary is appointed in the company, it is mandatory for the financial statements to be signed by the Whole-time Company Secretary. Additionally, if the company has appointed a Chief Executive Officer or Chief Financial Officer, they must also sign the financial statements. In cases where the company does not have a CFO or CS, the chairman can sign the financial statements. If the company lacks both a chairperson and authorization by the board, the financial statements should be signed by two directors, one of whom should be the managing director, along with the CFO if they are also a director.

Signing of Financial Statements for One Person Company (OPC)

For One Person Companies (OPCs), the financial statements can be signed by the sole director of the company.

Electronic Signing of Financial Statements

The Companies Act allows for electronic signing of financial statements using the digital signatures of the directors, Chief Executive Officer (CEO), Company Secretary (CS), and the Statutory Auditors of the Company. This digital signing provides convenience and efficiency in the signing process.

Date of Signing of Financial Statements

The date of signing of financial statements, including the balance sheet, profit and loss account, cash flow statement, and other supporting documents, can either be before the date of signing the audit report or on the same date as the audit report.

Different Signing Dates for Financial Statements

It is possible for the directors and auditors to sign the financial statements on different dates and from different locations. This means that the date of signing the financial statements by the auditors may differ from the date of signing by the directors. Once the financial statements are signed by both the directors and the auditor, they are adopted by the shareholders in the Annual General Meeting of the Company.

Approval and Circulation of Signed Financial Statements

As per the provisions of Section 134(1) of the Companies Act, 2013, the financial statements of the company must be approved by the board of directors in a meeting and signed on behalf of the board. After signing, the financial statements, including any consolidated financial statements, need to be circulated along with a copy of the auditor's report and the board's report. The board's report should contain various details, including the company's website address, director's responsibility statement, number of board meetings, declaration by independent directors, statement of the company's affairs, details of contracts or arrangements with related parties, details of loans, guarantees, or investments, details of fraud reported by the auditor, and more.

Conclusion

Adherence to the provisions of the Companies Act, 2013, regarding the signing of financial statements is crucial for every company. By ensuring proper signing procedures, companies can portray transparency and compliance with regulatory requirements. Failure to comply with these provisions may result in penalties and legal consequences. It is essential for companies to prioritize the signing of financial statements to maintain the trust and confidence of shareholders, investors, and stakeholders.

In summary, the signing of financial statements involves multiple signatories, including directors, chairpersons, CEOs, CSs, and auditors. The process can be carried out electronically using digital signatures. The financial statements, once signed, need to be approved by the board and adopted in the Annual General Meeting. By following the prescribed procedures, companies can ensure accuracy, transparency, and compliance in their financial reporting.