Introduction to Corporate Accounting: formula sheet

Key formulas

True and fair view requirement

Financial statements = true and fair view + compliance with standards notified under Section 133 + Schedule III form

This is Section 129(1). Cite it when asked about the legal basis of company reporting.

Laying before the AGM

Board lays financial statements before every annual general meeting

Section 129(2). The duty is on the Board of Directors.

Consolidated statements

Company with one or more subsidiaries = own statements + consolidated financial statement of company and all subsidiaries

Section 129(3). Both are laid before the AGM. A separate statement of salient features of subsidiaries' statements is attached.

Deviation disclosure

Non-compliance with standards = disclose deviation + reasons + financial effect, if any

Section 129(5).

Penalty for contravention

Imprisonment up to 1 year, or fine ₹50,000 to ₹5,00,000, or both

Section 129(7). Applies to the managing director, the whole-time director in charge of finance, the CFO or any person charged by the Board; if none, all directors.

Going concern assumption (Ind AS 1, para 25)

Prepare on going concern basis unless management intends to liquidate or cease trading, or has no realistic alternative

Assess at least twelve months from the end of the reporting period (para 26). Disclose material uncertainties. If not going concern, disclose that fact, the basis used and the reason.

Accrual basis (Ind AS 1, para 27)

Income and expenses are recognised when earned or incurred, not when cash is received or paid

The exception is cash flow information.

Accrued vs prepaid expense

Expense for the year = Cash paid + Outstanding at end − Prepaid at end (adjusting for opening balances)

A working form of the accrual and matching ideas. Adjust for opening balances when they exist.

Prudence

Provide for all expected losses; do not anticipate profits

Example: stock valued at lower of cost and net realisable value.

Directors' Responsibility Statement (s. 134(5))

Standards followed; consistent policies; reasonable and prudent judgments; going concern basis

Clauses (a), (b) and (d) of section 134(5) link directly to these concepts.

Legal source of standards

Section 133: Central Government prescribes standards, as recommended by ICAI, in consultation with and after examination of NFRA's recommendations

Write this chain of ICAI, NFRA and Central Government in any answer on legal backing.

NFRA constitution

Section 132(1): Central Government may constitute NFRA by notification

The word is 'may'. NFRA is a statutory body for accounting and auditing standards matters.

NFRA functions

Section 132(2): recommend standards; monitor and enforce compliance; oversee quality of service of the professions

Section 132(4) adds the investigation power over chartered accountants and firms.

NFRA penalty on proven misconduct

Individuals: not less than ₹1,00,000, up to 5 times the fees received. Firms: not less than ₹5,00,000, up to 10 times the fees received

Section 132(4)(c)(A). Debarment is for a minimum of six months and up to ten years.

Appeal against NFRA order

Section 132(5): appeal to the Appellate Tribunal against an order under section 132(4)(c)

The Appellate Tribunal is NCLAT, as taught in the study material.

Basis and system of books (s.128(1))

Books of account = accrual basis + double entry system

Kept at the registered office, or another place in India with notice to the Registrar within 7 days.

Retention period (s.128(5))

Keep books for not less than 8 financial years immediately preceding, with vouchers

For a company under 8 years old, keep all preceding years. The Central Government can direct longer if an investigation is ordered under Chapter XIV.

Penalty for s.128 default (s.128(6))

Fine: minimum ₹50,000, maximum ₹5,00,000

Applies to the MD, whole-time director in charge of finance, CFO or other person charged by the Board. No imprisonment now.

Standard of financial statements (s.129(1))

True and fair view + notified accounting standards (s.133) + Schedule III form

Insurance, banking and electricity companies, and others with a form under their own Act, are excluded from this sub-section.

Penalty for s.129 default (s.129(7))

Imprisonment up to 1 year, or fine ₹50,000 to ₹5,00,000, or both

Falls on the MD, whole-time director in charge of finance, CFO or other person charged by the Board; if none, all directors.

Reopening of accounts (s.130)

Only on a court/Tribunal order for fraud or mismanagement; not earlier than 8 financial years back

Application may come from the Central Government, Income-tax authorities, SEBI, other regulators or a person concerned.

Quick revision

• Corporate accounting records and reports a company's transactions as required by company law and standards.
• Concepts are basic assumptions; conventions are customary practices; principles are the rules built on them.
• Going concern assumes the business will continue for the foreseeable future.
• Accrual basis records income and expense when they arise, not when cash moves.
• Consistency means using the same accounting policies from year to year unless there is a good reason to change.
• Prudence means providing for likely losses but not anticipating gains.
• Accounting Standards and Ind AS aim for uniform, comparable and reliable financial reporting.
• Know which class of companies follows Ind AS and which follows the Accounting Standards, as in the study material.
• The National Financial Reporting Authority under section 132 makes recommendations to the Central Government on accounting and auditing standards.
• NFRAs head office is at New Delhi, and its accounts are audited by the Comptroller and Auditor-General of India.
• Financial statements must give a true and fair view and follow the standards and Schedule III.
• Learn the components of financial statements and the books-of-account rules in the Companies Act.

Common mistakes

• Treating corporate accounting as a different method from financial accounting. Fix: Say it applies the same double-entry method, but under statutory rules on format, standards and disclosure.
• Quoting the wrong section for standards or formats. Fix: Remember: 129 is the financial statement, 132 is NFRA, 133 is the power to prescribe standards.
• Treating accrual as the same as cash basis Fix: Record income when earned and expenses when incurred. Cash timing only affects receivables, payables, prepayments and accruals.
• Saying going concern means the company will never close Fix: It is an assumption that the entity will continue, unless management intends to liquidate or cease trading or has no realistic alternative. Assessment covers at least twelve months after the reporting period.
• Saying Ind AS are the same as IFRS. Fix: Write that Ind AS are converged with IFRS with carve-outs and changes to suit Indian conditions and law.
• Writing that ICAI itself makes the standards legally binding. Fix: ICAI recommends. The Central Government prescribes under section 133. That is what gives them legal force for companies.
• Saying books must be kept only at the registered office. Fix: Add that the Board may decide on another place in India and must file a notice with the Registrar within seven days.
• Writing that books must be kept for 8 years from the date of the entry. Fix: Say not less than eight financial years immediately preceding a financial year, with the relevant vouchers.

Exam tips

• Always cite Section 129, 132 or 133 by number for the legal point; it earns marks in ICSI-style answers.
• In 'distinguish' questions, use at least four points on set bases and keep each point to one line per side.
• Use the phrase 'true and fair view' exactly; examiners look for it.
• Know the penalty range and who is liable under Section 129(7); it is a common short-note point.
• Link scope to the rest of the paper: shares, debentures, consolidation, ratios and cash flow.
• Write definition, example and consequence for each concept. This pattern suits short-note questions.
• In distinction questions, give at least three points of difference in a clear two-column style using plain lines.
• Quote Ind AS 1 paragraph 25 for going concern and paragraph 27 for accrual. Link to section 134(5) when the question touches directors' reporting.