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Financial statement, Board’s report, etc.

This query is : Resolved 

As per Section 134(5)(b) of the Companies Act, 2013, the Directors’ Responsibility Statement referred to in clause (c) of sub-section (3) shall state that the directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year and of the profit and loss of the company for that period.

In this regard, following are queries:

1. Is there any guideline or guidance issued by the ICAI with respect to this aspect? If so please advise.

2. At what time of the financial year, the Directors have to select accounting policies for applying them for that financial year. To make the query more clear, such accounting policies as will be applied to the Accounts for the year 2021-22 should be selected by the Directors at what time

A) in the beginning financial year 2021-22 or
B) can be selected at any time but before the close of 2021-22

3. Whether for Accounts of the Company for the financial year 2021-22, such accounting policies can be selected by the directors after close of the financial year on 31.3.2022 but before the approval of the financial statements by the Board for 2021-22. For example, for the year 2021-22, approval of financial statements shall be done after 31.3.2022, so can such accounting policies as will be applied to the accounts for the financial year 2021-22 can be selected in June, 2022.

4. Suppose, the Directors selected accounting policies in the year 2019-20, which are being applied to the Accounts of the financial year 2021-22. Now, a need arises for modification of some accounting policies to be applied to the accounts for the year 2021-22. Please advise can such a modifications in policies be done after 31st March, 2022, say in June, 2022 for being applied to the Accounts 2021-22.




1 No Idea.
2 and 3 Earlier year accounting policies will be continued with changes if any required during the year.
4 yes, such a modifications in policies be done after 31st March, 2022, say in June, 2022 for being applied to the Accounts 2021-22.


THANKS SIR,

It is not understood when accounting entries are made on day to day basis, how modification in accounting policies be done after close of the year. Directors are specifically required to select policies for applying the same. If, as opined by you, modification of policies are to be done after the close of the year, it will mean that selection of accounting policies is to be done after same have already been applied.

MAY BE MY QUERY IS CONFUSING.

BUT CRUX OF THE QUERY IS AT WHAT STAGE ACCOUNTING POLICIES ARE TO BE SELECTED BY THE DIRECTORS (WHETHER IS CONTINUANCE OF LAST YEAR'S POLICIES OR ANY MODIFICATION IN THEM) FOR WHICH THEY ARE REQUIRED TO GIVE A STATEMENT IN THE DIRECTORS' REPORT UNDER THE HEADING DIRECTORS' RESPONSIBILITY STATEMENT.

It's like this last year accounting policies will be continued and entries are made based on it. It will be reviewed at the year end while finalising accounts, any changes required will be made and correction entries will be made.

But Sir, in Directors' Responsibility Statement directoys are giving statement

"that the directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent"

It means directors are giving wrong statement because they had NOT SELECTED such policies in case any modification is made in accounting policies after end of the year.

Moreover, will approval of the Board be required for any modification after the end of the year?

Yes, approval of board is required for any modifications.


SIR YOU AGREE WITH THIS AS YOU HAVE NOT GIVEN ANY REACTION

It means directors are giving wrong statement because they had NOT SELECTED such policies in case any modification is made in accounting policies after end of the year.



I don't agree with you. With the approval directors only change in accounting policies implemented.

SIR, THERE IS CONFUSION.

YOU SAID

QUOTE
It's like this last year accounting policies will be continued and entries are made based on it. It will be reviewed at the year end while finalising accounts, any changes required will be made and correction entries will be made.
UNQUOTE

MY RESPONSE TO THIS WAS

QUOTE

But Sir, in Directors' Responsibility Statement directors are giving statement "that the directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent"
It means directors are giving wrong statement because they had NOT SELECTED such policies in case any modification is made in accounting policies after end of the year.

UNQUOTE

I AM UNABLE TO UNDERSTAND WHY IN STRICT LEGAL SENSE, WHERE MODIFICATION OF POLICIES IS MADE BY THE DIRECTORS AFTER THE CLOSE OF THE FINANCIAL YEAR THE, STATEMENT OF DIRECTORS THAT " directors had selected such accounting policies and applied them consistently" WILL NOT BE TREATED AS WRONG STATEMENT because modified policies were not selected during the financial for which that statement is being made.








You are confused. Accounting policies are consistently followed every year. After the year end during finalisation of audited financial statement some policy changes may be required which will be considered after approval of the board and the same accounting policies will be continued next year.

SIR, I MAY BE CONFUSED.

BUT I STILL WANT TO UNDERSTAND THE WORDING "the directors had selected such accounting policies and applied them consistently", PROVIDED IN THE COMPANIES ACT, 2013, IN THE SITUATION WHEN DIRECTORS MODIFY ACCOUNTING POLICIES AFTER CLOSE OF THE FINANCIAL YEAR.

TO MAKE IT MORE CLEAR, I WANT TO KNOW WHETHER SAME LANGUAGE "the directors had selected such accounting policies and applied them consistently", SHALL BE USED IN SUCH A SITUATION (WHEN DIRECTORS MODIFY ACCOUNTING POLICIES AFTER CLOSE OF THE FINANCIAL YEAR) UNDER THE DIRECTORS' RESPONSIBILITY STATEMENT IN THE DIRECTORS' REPORT OF A COMPANY OR SOME APPROPRIATE CHANGES WILL BE MADE IN THIS STATEMENT.

ANY WAY, SIR, THANKS VERY MUCH,


SAME LANGUAGE "the directors had selected such accounting policies and applied them consistently", SHALL BE USED IN SUCH A SITUATION.
Only minor modifications if required will be done and will be continued in future.



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