Financial statement, board’s report, etc.

abhimanyu (Querist) 23 June 2021 This query is : Resolved
THIS QUERY WAS RAISED IN FORUM BUT NO ADVICE CAME AS SUCH THIS IS BEING POSTED HERE

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.

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Quick Summary

This discussion clarifies the timing and consistency requirements for selecting accounting policies as per Section 134(5)(b) of the Companies Act, 2013. It addresses whether policies can be selected or modified after the financial year-end but before board approval, and the implications for the Directors' Responsibility Statement. The consensus suggests that while policies are often finalised during financial statement preparation, the statement regarding consistent selection may need careful wording if modifications occur post-year-end.

J K Agrawal (Expert) 23 June 2021
There may be accounting policies of so many types and the purpose of each module is different.
It depends on which policy you want to adopt or change and why? The time of adopting policies and its impact and its duration also depend upon the motive and purpose of management. It depends upon which Accounting conventions you want to follow. How you want to Value fixed assets, Depreciation, inventory, investments etc. It depends that how you want to value foreign currency items, Costs incurred for research and development, long term investment, valuation of leases, and goodwill and contingent liabilities, It is a practical paper and you can not a question paper to answer it. Each circumstance will be answered differently as per situation and motive you have. Please post a practical problem only.

abhimanyu (Querist) 23 June 2021
THIS IS A LEGAL PROBLEM .

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:

PRACTICAL PROBLEM AS DESIRED BY YOU, SIR IS GIVEN BELOW

The accounts of a particular financial year are prepared on the basis of last year accounting policies. But after close of the financial year, modification is made in some of the accounting policies after close of the financial year.

QUERY

WILL THE STATEMENT IN THE DIRECTORS' REPORT. by Directors that "the directors had selected such accounting policies and applied them consistently" WILL BE CORRECT FROM STRICT LEGAL POINT OF VIEW WHEN DIRECTORS MODIFY ACCOUNTING POLICIES ONLY AFTER CLOSE OF THE FINANCIAL and had never selected such modified accounting policies during the financial year for which they are making the statement.

J K Agrawal (Expert) 23 June 2021
The word 'consistently' is suggestive only and not appears mandatory because when a policy is changed no body can say that it is consistent.
There is no mandate that you are to make policy before starting of financial year. In fact policies are made at the time of preparing balance sheet only. For example the question is at which rate the stock should be valued? is a question of policy. It will be decided at the time of preparing P n L account only. The valuation may be at purchase rate, or at market rate or at purchase rate plus expenses plus interest cost or it may be average of current and cost rate or it may be probable rate after Covid 19. Only condition is that it should be representing true financial position.

abhimanyu (Querist) 23 June 2021
QUERY WAS

QUOTE

WILL THE STATEMENT IN THE DIRECTORS' REPORT. by Directors that "the directors had selected such accounting policies and applied them consistently" WILL BE CORRECT FROM STRICT LEGAL POINT OF VIEW WHEN DIRECTORS MODIFY ACCOUNTING POLICIES ONLY AFTER CLOSE OF THE FINANCIAL and had never selected such modified accounting policies during the financial year for which they are making the state

UNQUOTE

SIR, AS PER YOUR INTERPRETATION, EVEN IF ACCOUNTING POLICIES ARE MODIFIED AFTER CLOSE OF THE FINANCIAL YEAR, THE STATEMENT OF DIRECTORS IN THE DIRECTORS' REPORT THAT "the directors had selected such accounting policies and applied them consistently" WILL BE CORRECT FROM STRICT LEGAL POINT OF VIEW

J K Agrawal (Expert) 23 June 2021
Replied already to you in detail that what is effect of this sentence. Please go through previous reply and try to understand.

abhimanyu (Querist) 23 June 2021
SIR, WHATEVER I UNDERSTOOD FROM YOUR WORTHY INTERPRETATION, I STATED CLEARLY.

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,

J K Agrawal (Expert) 24 June 2021
Delete word "consistently" rest is ok.

T. Kalaiselvan, Advocate (Expert) 25 June 2021
Hope the expert lawyer Mr. J.K. Agrawal has elaborately explained you on the subject matter.
If you still are not satisfied with the opinions, you may consult a lawyer in the local or any lawyer of this forum personally to clarify the details on the terms of the consultant

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