business law
REKHA SHINDE
(Querist) 13 March 2010
This query is : Resolved
It is up to the directors and auditors to decide which books of accounts would be kept by a company. is it true?
A V Vishal
(Expert) 13 March 2010
Every company is statutorily required under the Companies Act, 1956 to keep and maintain such books as are necessary to give a true and fair view of the state of affairs of the company. The Act provides that a company shall keep proper book of accounts in respect of the following:-
All sales and purchases of goods by the company
All sums of money received and expended by the company and the matters in respect of which these have taken place
The assets and liabilities of the company
In case of companies which are engaged in production,manufacturing,mining or processing activities, particulars related to utilisation of material or labour or other items of cost as prescribed by Central Government.
Provisions relating to Books of Accounts under the Companies Act (Section 209)
All books of accounts shall be kept at the registered office of the company. But if they are kept at any other place in India as decided by the Board of Directors, the company shall send a notice in writing ( Form 23AA) to the Registrar of that place, mentioning the full address of the place. Such notice shall be filed within seven days of choosing that place. If a company has a branch office, proper books of accounts related to the branch business must be maintained at that office. But, summarized returns of these books shall be sent by the branch to the registered office every three months.
The books of accounts together with the vouchers, invoices and other connected documents or records shall be preserved in good order for a period of 8 years (or the entire period, if the company is less than 8 years old).
The books of accounts must be maintained on accrual basis and according to the double-entry system of accounting. The books cannot be maintained on the cash basis.
The primary responsibility for making proper books of accounts of a company is that of the managing director or finance manager and all officers and other employees who have been authorised to maintain the books by the Board of Directors. But,if the company has neither a managing director nor manager,then every director of the company shall have the responsibility.
If any company or any person who is responsible for maintaining proper books of accounts fails to take the required steps, it is liable to penalty of imprisonment or fine.
The Act provides for the inspection of the books of accounts by the Registrar or by any officer authorised by Government to do so. The inspection may be conducted without giving prior notice to the company. It is the duty of the directors or officers of the company to provide all necessary support to the inspection officers in terms of books of accounts, other books, papers of the company and any other matter. Any default in this regard is a punishable offence. Broadly, the inspections are undertaken to serve one or more of the following objectives:-
To ensure compliance of various provisions of the Companies Act, 1956 and also to keep a watch on the performance/efficiency of the companies
To ensure that the company has not falsified its books of accounts or the company’s funds have not been misappropriated or the management has not misused its fiduciary position for any personal advantage
To see whether any unfair practices prejudicial to the public interest are being resorted to by any company
To examine whether the companies are managed on sound business principles or whether there are acts of mismanagement which may ultimately affect the interests of shareholders, creditors, employees, consumers and the general public and
To see whether statutory auditors have carried out their duties properly while certifying true and fair view of the State of affairs of the company
Raj Kumar Makkad
(Expert) 13 March 2010
No. It is not their mercy rather they have to follow companies act, 1956 wherein it is clearly mentioned how the books of accounts shall be maintained.
