Background

Section 134 of the Companies Act, 2013 read with Rule 8 and Rule 8A of the Companies (Accounts) Rules, 2014 prescribes comprehensive requirements for preparation, approval, and content of financial statements and the Board’s report.

Applicability

All Private Limited Companies, Public Limited Companies & Listed Companies are required to make financial statements and board reports under Companies Act

Compliance Requirements

Approval and Signing of Financial Statements

Approval Process (Section 134(1))

Financial statements, including consolidated financial statements, must be approved by the Board of Directors before signing. The signing authority varies:

For Regular Companies:

• • Chairperson (if authorized by Board), OR
  • Two Directors (one being MD, if any) AND
  • CEO, CFO, and Company Secretary (wherever appointed)

For One Person Companies: Only one Director

Auditor’s Report (Section 134(2))

The auditor’s report must be attached to every financial statement.

Board’s Report

Preparation Basis (Rule 8(1))

The Board’s report shall be prepared based on standalone financial statements and must report on:

• • Highlights of performance of subsidiaries, associates, and joint ventures
  • Their contribution to overall company performance

Mandatory Attachments (Section 134(3))

Every Board’s report shall include:

1. Web Address (Section 134(3)(a))

• • Location where annual return (Section 92(3)) is placed

2. Board Meeting Details (Section 134(3)(b))

• • Number of Board meetings held during the year

3. Directors’ Responsibility Statement (Section 134(3)(c)) As per Section 134(5), directors must state that:

• • Applicable accounting standards followed with explanations for material departures
  • Accounting policies selected and applied consistently with reasonable judgments
  • Adequate accounting records maintained for asset safeguarding and fraud prevention
  • Annual accounts prepared on going concern basis
  • Internal financial controls established (for listed companies) and operating effectively
  • Proper systems devised to ensure compliance with all applicable laws

4. Fraud Reporting (Section 134(3)(ca))

• • Details of frauds reported by auditors under Section 143(12), excluding those reportable to Central Government

5. Independent Directors’ Declaration (Section 134(3)(d))

• • Statement on declarations given by independent directors under Section 149(6)

6. Directors’ Appointment and Remuneration Policy (Section 134(3)(e)) For companies covered under Section 178(1):

• • Policy on directors’ appointment and remuneration
  • Criteria for qualifications, positive attributes, independence
  • Other matters under Section 178(3)

7. Auditor’s Qualifications – Response (Section 134(3)(f)) Explanations/comments on every qualification, reservation, adverse remark, or disclaimer by:

• • Auditor in audit report
  • Company Secretary in practice in secretarial audit report

8. Loans, Guarantees, and Investments (Section 134(3)(g))

• • Particulars under Section 186

9. Related Party Transactions (Section 134(3)(h) and Rule 8(2))

• • Particulars of contracts/arrangements under Section 188(1) in Form AOC-2

10. Company’s Affairs (Section 134(3)(i))

• • State of the company’s affairs

11. Reserves (Section 134(3)(j))

• • Amounts proposed to be carried to reserves

12. Dividend Recommendation (Section 134(3)(k))

• • Amount recommended for dividend payment

13. Material Changes (Section 134(3)(l))

• • Material changes and commitments affecting financial position between end of financial year and date of report

Specific Disclosures under Rule 8

1. Conservation of Energy (Rule 8(3)(A) and Section 134(3)(m))

• • Steps taken or impact on energy conservation
  • Steps for utilizing alternate energy sources
  • Capital investment on energy conservation equipment

Exception: Not applicable to government companies producing defence equipment (Rule 8(3) proviso)

    2. Technology Absorption (Rule 8(3)(B))

• • Efforts towards technology absorption
  • Benefits: product improvement, cost reduction, product development, import substitution
  • For imported technology (last 3 years):
    • Details and year of import
    • Whether fully absorbed
    • Areas and reasons for non-absorption
  • R&D expenditure incurred

    3. Foreign Exchange (Rule 8(3)(C))

• • Foreign exchange earnings (actual inflows)
  • Foreign exchange outgo (actual outflows)

Board Performance Evaluation (Rule 8(4) and Section 134(3)(p))

Applicability: Listed companies and public companies with paid-up share capital ≥ ₹25 crore (as of preceding financial year end)

Statement indicating manner of formal annual evaluation of:

• • Board’s own performance
  • Board committees’ performance
  • Individual directors’ performance

1. Additional Information (Rule 8(5))

(i) Financial Summary/Highlights

(ii) Change in Nature of Business

(iii) Directors and KMP Appointments/Resignations

• • Details of directors/KMP appointed or resigned during the year

(iiia) Independent Directors – Board Opinion (Rule 8(5)(iiia)) Statement on Board’s opinion regarding independent directors appointed during the year:

• • Integrity
  • Expertise
  • Experience
  • Proficiency (from online self-assessment test under Section 150(1))

(iv)  Subsidiaries, JVs, and Associates

• • Names of companies becoming or ceasing to be subsidiaries/JVs/associates

(v) Deposit Details (Rule 8(5)(v)) Under Chapter V of the Act:

• • Deposits accepted during the year
  • Unpaid/unclaimed deposits at year-end
  • Defaults in repayment/interest:
    • Number of cases and total amount
    • At beginning, maximum during, and at end of year

(vi) Non-Compliant Deposits (Rule 8(5)(vi))

• • Details of deposits not complying with Chapter V requirements

(vii) Regulatory/Court Orders (Rule 8(5)(vii))

• • Significant and material orders by regulators/courts/tribunals impacting going concern status and future operations

(viii) Internal Financial Controls (Rule 8(5)(viii))

• • Details on adequacy of internal financial controls for financial statements

(ix) Cost Records Maintenance (Rule 8(5)(ix))

• • Disclosure whether cost records maintenance required under Section 148(1) and whether maintained

(x) Internal Complaints Committee (Rule 8(5)(x))

• • Statement confirming compliance with Sexual Harassment of Women at Workplace Act, 2013

(xi) Insolvency Proceedings (Rule 8(5)(xi))

• • Details of applications/proceedings under Insolvency and Bankruptcy Code, 2016 with status

(xii) One-Time Settlement Valuation (Rule 8(5)(xii))

• • Difference between valuation at one-time settlement and loan valuation from banks/financial institutions with reasons

Risk Management Policy (Section 134(3)(n))

Statement indicating:

• Development and implementation of risk management policy
• Identification of risk elements threatening company’s existence

Corporate Social Responsibility (Section 134(3)(o) and Rule 9)

• Details of CSR policy developed and implemented
• CSR initiatives taken during the year
• Disclosures as per annexure to Companies (CSR Policy) Rules, 2014

Abridged Board’s Report: One Person Company and Small Company

Legal Basis

Section 134(3A) and Rule 8A of the Companies (Accounts) Rules, 2014

Applicability (Rule 8(6))

Rule 8 does NOT apply to:

• • One Person Companies (OPC)
  • Small Companies

These entities follow Rule 8A for abridged reporting.

Contents of Abridged Report (Rule 8A(1))

(a) Annual Return Web Address

• • Location where Section 92(3) annual return is placed

(b) Board Meetings

• • Number of Board meetings

(c) Directors’ Responsibility Statement

• • As per Section 134(5)

(d) Fraud Reporting

• • Details under Section 143(12) (excluding Central Government reportable frauds)

(e) Auditor’s Qualifications – Response

• • Explanations/comments on qualifications, reservations, adverse remarks, disclaimers

(f) Company’s Affairs

• • State of company’s affairs

(g) Financial Summary/Highlights

(h) Material Changes in Business Nature

• • Changes from financial year closure date
  • Effect on financial position

(i) Directors’ Appointment/Resignation

• • Details of directors appointed or resigned

(j) Regulatory/Court Orders

• • Significant orders impacting going concern and future operations

Related Party Transactions (Rule 8A(2))

Even for OPC/Small Companies:

• • RPT particulars under Section 188(1) must be disclosed in Form AOC-2

Disclosure Simplification (Section 134(3) – First Proviso)

Where disclosures are already included in financial statements, the Board’s report may refer to them instead of repeating.

Policy Placement (Section 134(3) – Second Proviso)

For policies under Section 134(3)(e) or (o):

• • If available on company website, compliance achieved by:
    • Specifying salient features and changes in Board’s report
    • Indicating web address for complete policy

Signing of Board’s Report (Section 134(6))

Signed by:

• • Chairperson (if authorized by Board), OR
  • At least two Directors (one being MD, if any), OR
  • Director (if only one director exists)

Circulation Requirements (Section 134(7))

Every signed financial statement copy (including consolidated) must be issued/circulated/published with:

• • Notes annexed or forming part of financial statements
  • Auditor’s report
  • Board’s report (Section 134(3))

Penalties (Section 134(8))

For Non-Compliance:

• • Company: ₹3,00,000
  • Every Officer in Default: ₹50,000