Business Finance · Regulation of financial reporting of incorporated entities

Companies Act 2013 Financial Reporting Framework Explained

Updated 11 October 2026 · Fact-checked

The Companies Act 2013 requires every company to keep books of account, prepare financial statements each year, have them approved and signed by the board, audited, laid before shareholders at the AGM and filed with the Registrar. Schedule III sets the format of the balance sheet and statement of profit and loss.

Understand Companies Act 2013 Financial Reporting Framework

A company is a separate legal person, and shareholders usually do not run it. So the law forces directors to report on how they used the owners' money. The Companies Act 2013 is the main Indian law that sets out this duty. This topic is about what must be recorded, what must be produced, who must approve it and where it must be filed.

The first layer is books of account. A company must keep proper books at its registered office (or another place the board decides, with notice to the Registrar). They must give a true and fair view of its affairs and explain its transactions. They are kept on the accrual basis and by the double entry system. Section 128 deals with books of account.

The second layer is the financial statements, dealt with in section 129. These must give a true and fair view of the state of affairs and comply with the notified accounting standards. They include the balance sheet, the statement of profit and loss, the cash flow statement (for companies other than certain exempt ones), the statement of changes in equity where applicable, and explanatory notes. Their form follows Schedule III, which has a Division for companies following Accounting Standards and a Division for companies following Ind AS. Where a company has subsidiaries, associates or joint ventures, it also prepares consolidated statements.

The third layer is approval and reporting. The board approves the statements, and authorised persons sign them (section 134). The board also prepares a board's report that explains the year's performance and matters the Act requires, such as the directors' responsibility statement. The statements are audited, sent to members before the AGM, and laid before the AGM. The company then files them with the Registrar of Companies, with the filing due within a fixed period after the AGM (section 137).

For the IAI exam, you are tested on the logic of this chain and the principles behind it. Learn who does what and why. Do not memorise section numbers at the cost of understanding. Where you are unsure of a section number, describe the rule in words.

Key rules to remember

Core reporting chain: Books of account → financial statements → board approval and signing → audit → AGM → filing with Registrar; Use this order as the skeleton for any descriptive answer on the framework.
Overriding objective: Financial statements must give a true and fair view and comply with notified accounting standards; This is the central test in section 129. Schedule III format applies alongside it.
Books of account: Accrual basis + double entry + kept at registered office (or other place notified to Registrar); Section 128. Books must explain transactions and show the true position.
Components of financial statements: Balance sheet + statement of profit and loss + cash flow statement + statement of changes in equity (where applicable) + notes; Certain small or exempt companies may not need a cash flow statement. State this as an exemption, not the general rule.
Schedule III structure: Division I: Accounting Standards; Division II: Ind AS; Division III: NBFCs following Ind AS; Balance sheet items are split into equity and liabilities, and assets, each into current and non-current.
Group accounts: Consolidated financial statements are prepared in addition to standalone ones when the company has subsidiaries, associates or joint ventures; Stated in plain terms. The exact conditions and exemptions are in the Act and rules.

How to solve Companies Act 2013 Financial Reporting Framework questions

Use this method for any question on the Companies Act reporting framework, whether it is a short MCQ or a written answer.

1Identify what the question asks: books, statements, format, approval, board's report, or filing.
2Name the legal duty in plain words and, only if certain, the section number.
3State the purpose: true and fair view, accountability to members, and public record.
4List the required components or steps in their correct order.
5Link to Schedule III if format or classification is asked: current versus non-current, notes, and the choice of Division.
6Say who is responsible: the board approves, authorised signatories sign, the auditor reports, the Registrar receives filings.
7Add a short exception or condition if relevant, such as exemptions for certain companies, and write it carefully.
8Close with one line on why the rule matters to shareholders or other users.

Quickest way: Chain and checklist

When to use it: Use this in MCQs and in the first two minutes of a written question when time is short.

Write the chain: books, statements, board, audit, AGM, filing.
Mark which link the question is about.
Recall the one rule for that link: for example, true and fair view for statements, or the board signs for approval.
Eliminate options that give the wrong party, such as the auditor approving the statements.
Check the answer for words like always or never, and prefer conditions stated correctly.

Common mistakes in Companies Act 2013 Financial Reporting Framework

Saying the auditor prepares or approves the financial statements.
Students mix up the audit report with the statements themselves.
Fix: Remember: management and the board prepare and approve. The auditor only reports an opinion on them.
Treating Schedule III as a set of accounting rules for recognition and measurement.
The word schedule suggests detailed rules.
Fix: Schedule III sets presentation and disclosure format. Recognition and measurement come from accounting standards.
Leaving out the true and fair view requirement.
Students focus on formats and filing deadlines.
Fix: Open any descriptive answer with the true and fair view and compliance with notified standards.
Confusing the board's report with the auditor's report.
Both are attached to the statements and both are read at the AGM.
Fix: The board's report is by directors and explains operations and statutory matters. The auditor's report gives an opinion on the statements.
Stating exemptions as general rules, for example that no company needs a cash flow statement.
Students remember an exemption and forget its conditions.
Fix: Write that the general rule applies, and that specified companies may be exempt under the Act and rules.
Quoting section numbers or filing time limits from memory without certainty.
Students try to gain marks with detail.
Fix: Use the section number only when sure. Otherwise describe the rule in words, which still earns the marks.

Worked examples

Example 1

Explain the sequence of steps a company must follow under the Companies Act 2013 from keeping books to making its financial statements public. (6 marks)

Show the solution

State the starting point: the company keeps proper books of account on the accrual basis using double entry, which explain its transactions.
Next, at the end of the financial year, it prepares financial statements that give a true and fair view and follow notified accounting standards, in the format of Schedule III.
The statements include the balance sheet, the statement of profit and loss, the cash flow statement where required, the statement of changes in equity where applicable, and notes.
The board approves the statements, and authorised persons sign them. The board also prepares its report.
The statements are audited, and the auditor reports to members.
The statements and reports go to members and are laid before the AGM. The company then files them with the Registrar, which makes them available as a public record.

Answer: Books of account, then financial statements in Schedule III format giving a true and fair view, board approval and signing with the board's report, audit, laying before the AGM, and filing with the Registrar.

Example 2

A student says: "Schedule III tells a company how to value its assets, and the auditor signs the balance sheet for the company." Identify the errors and give the correct position. (4 marks)

Show the solution

First claim: Schedule III does not give valuation rules. It prescribes the form and content of the balance sheet and statement of profit and loss, including how items are grouped and what is disclosed in notes.
Valuation and recognition come from the notified accounting standards, such as Ind AS or the Accounting Standards, which the statements must follow.
Second claim: the auditor does not sign the balance sheet on the company's behalf. The board approves it and authorised persons sign it for the company.
The auditor gives a separate report with an opinion on whether the statements give a true and fair view.

Answer: Both claims are wrong. Schedule III governs presentation, while accounting standards govern measurement. The board approves and signs the statements, and the auditor reports an opinion separately.

Exam tips

For descriptive questions, write the chain of steps in order. Examiners give marks for sequence and for naming the responsible party.
In MCQs, watch for options that assign the wrong role, such as auditor versus board, or presentation versus measurement.
Use section numbers only when sure. A correct plain-words rule is safer than a wrong number.
Link the topic to the user of accounts. Say why shareholders, lenders and regulators need the information.
Write exemptions with their condition, for example certain companies may be exempt, not all companies.

Practice questions from Regulation of financial reporting of incorporated entities

Companies Act 2013 Financial Reporting Framework in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Companies Act 2013 Financial Reporting Framework: frequently asked questions

What does section 129 of the Companies Act 2013 say about financial statements?

Section 129 requires financial statements to give a true and fair view of the company's state of affairs and to comply with the notified accounting standards. They must follow the format in Schedule III. Where a company has subsidiaries, associates or joint ventures, it also prepares consolidated statements.

What is Schedule III of the Companies Act 2013?

Schedule III sets out the form and content of the balance sheet and the statement of profit and loss. It has separate Divisions for companies following Accounting Standards and those following Ind AS. It deals with presentation and disclosure, not with valuation rules.

Who approves a company's financial statements?

The board of directors approves the financial statements, and authorised persons sign them on its behalf. The auditor does not approve them. The auditor gives an independent report on whether they give a true and fair view.

Do I need to memorise section numbers for the IAI exam?

Focus on the rules and their purpose first. Quote a section number only if you are sure of it. Marks are mostly for explaining what the company must do, who is responsible and why.