VERY SMART ANALYSIS OF SEC 227 and 210 of companies act 1956

Hello Friends,

Today i'm going to share here with you a very interesting and explored finding/thought based on "COMPANY LAW".

Friends during pursuing CA (in PE-II as well as in CA FINAL) Company Law was my one of the most favourite subject and i had read this subject almost three to four times at both level very deeply, but most of the things was remains untouched.

Generally what happens Even after making a depth study of these type of technical subjects, we have come to now a lots of new things later during reading professional magazines or others, which we never thought during study times.

The same is also happen with me on the matter highlighted and described below.......

QUESTION

"CAN A COMPANY REGISTERED UNDER SECTION 25 OF COMPANIES ACT 1956IS EXEMPT FROM PREPAIRING PROFIT & LOSS A/C IF THEY ALREADY PREPAIRING INCOME & EXPENDITURE"

AND

"CAN AUDITOR OF THE SAID COMPANY EXPRESS HIS OPPINION ON INCOME & EXPENDITURE  IN TERMS ON SECTION 227 “

To resolve the above question we need to make a systematic analysis of various section of Companies Act 1956 as follows

"ANALYSIS  AND  CONCLUSION"

First we need to make deep analysis of Section 227 to know what exactly the said section lays down the duty of auditor

The abstract of Sub-Section (2) of Section 227 is follow

“(2) The auditor shall make a report to the members of the company on the accounts examined by him, and on every balance sheet and profit and loss account and on every other document declared by this Act to be part of or annexed to the balance sheet or profit and loss account, which are laid before the company in general meeting during his tenure of office, and the report shall state whether, in his opinion and to the best of his information and according to the explanations given to him, the said accounts give the information required by this Act in the manner so required and give a true and fair view-

(i) in the case of the balance sheet, of the state of the company' s affairs as at the end of its financial year; and

(ii) in the case of the profit and loss account, of the profit or loss for its financial year.

Hence after reading the only above section once we can says that auditor can’t express their opinion on Income & Expenditure account.

To bring the more clearance on this topic, we need to examine the words of Section 210 and the abstract of the said section is as follows

210. Annual accounts and balance sheet

(2) In the case of a company not carrying on business for profit, an income and expenditure account shall be laid before the company at its annual general meeting instead of a profit and loss account, and all references to "profit and loss account", "profit" and "loss" in this section and elsewhere in this Act, shall be construed, in relation to such a company, as references respectively to the "income and expenditure account", "the excess of income over expenditure", and "the excess of expenditure over income".

Now after making a careful reading of the section 210(2) it is clear that the word “profit and loss account” referred in section 227(2) above shall be construed as, in relation to such a company, as the "income and expenditure account"

FINAL  CONCLUSION

Hence now it is clear that what such companies are required to repair is that Income & Expenditure account not the profit and loss Account as lay down by sub-section(2) of Section 210.

Further no such question is arises that whether the auditor of such companies can express their opinion on income & Expenditure account or not in terms of Sub-section (2) of Section 227 being it is clear by Section 210(2).