Accounts approval- an analysis

Procedure for approval of Annual Accounts

Section 215 of the Companies Act, 1956 deals with the authentication of balance sheet and profit and loss account of the Company. Accordingly, every balance sheet and profit and loss account of the Company shall be signed on behalf of the Board of Directors by its Manager or Secretary, if any, and by not less than 2 directors of the Company one of whom shall be the managing director where there is one.

Therefore, the balance sheet must be signed by the following persons:

1. Atleast two directors one of whom must be MD, if there is MD in the Company;
2. Manager or Company Secretary, if any;
3. Auditors.

However, in case of a Company not being a Banking Company, when only one of its Directors is for the time being in India, the Balance Sheet and Profit and Loss Account shall be signed by such Director, but in such a case there shall be attached to the Balance Sheet and Profit and Loss Account a statement signed by him explaining the reason for non-compliance with the provision of authentication of the Balance Sheet, as above.

The Balance Sheet and the Profit & Loss account shall be approved by the Board of Directors before they are signed on behalf of the Board and before they are submitted to the Auditors for their report thereon.

First the Directors and Secretary has to sign the Annual Accounts on behalf of the Company, and then the Auditors sign on the same.

Now, the procedure for the approval of Annual Accounts and their signing are as under:

1. First the Directors approve the Annual Accounts and submit them to the Auditors for Audit and their Audit Report thereon;

2. On receipt of Audited Annual Accounts along with the Auditors’ Report thereon, the Board take on record the Auditors’ Report and provide explanations for the qualifications of the Auditors, if any, and approve Audited Annual Accounts;

3. Then Directors’ Report is to be approved and signed and at last notice of AGM approved, signed and then accordingly issued.

Now the above may be done in the following two ways:

First one is the detailed procedure:

1. Hold Board Meeting approve the Annual Accounts and submit it to the auditors for audit and audit report thereon;

2. On receipt of Audited Annual Accounts, hold another Board Meeting take on note the Auditors Report and provide justification for the , if any and approve the Audited Annual Accounts;

3. Thereafter, Directors' Report is to be approved;

4. And at last notice is to be approved and issued.

5. Point nos. 2, 3 & 4 may be done in a single board meeting or separate Board Meeting may be called for each, respectively.

Second way is short and Practical Procedure:

1. Hold Board meeting approve the accounts and submit it to the Auditors and adjourn the meeting for an hour to reassemble and take on record Auditors Report.

2. Reassemble the meeting and take on record Auditors’ Report, and approve Audited Annual Accounts then approve Directors' Report and Notice in the same Board Meeting. Below statement would be noted in the minutes of the Board Meeting:

THE MEETING WAS ADJOURNED FOR ONE HOUR TO REASSEMBLE TO TAKE NOTE OF AUDITORS’ REPORT ON THE ANNUAL ACCOUNTS FOR THE FINANCIAL YEAR ENDED 31^ST MARCH ………. AND TO TRANSACT REMAINING ITEMS OF AGENDA.

3. In this case all Auditors’ Report, Balance Sheet, Directors’ Report and Notice shall be signed on the same date.