Corporate and Other Laws · Accounts of Companies

Financial Statements: Meaning, Form and True and Fair View

Updated 4 October 2026 · Fact-checked

Under Section 129, a company's financial statements must give a true and fair view of its state of affairs, comply with the accounting standards notified under Section 133, and follow the Schedule III form. They include notes annexed to them. Holding companies also prepare consolidated statements. Deviations from standards must be disclosed with reasons and financial effect.

Understand Financial Statements: Meaning, Form and True and Fair View

Financial statements are the formal accounts a company lays before its members every year. Section 129 is the core provision. Its Explanation says any reference to the financial statement includes the notes annexed to or forming part of it, giving information required or allowed to be given in the form of notes under the Act. So notes are part of the statements, not an extra.

Section 129(1) sets three requirements. The statements must (1) give a true and fair view of the state of affairs of the company, (2) comply with the accounting standards notified under Section 133, and (3) be in the form provided in Schedule III for the relevant class of company. A proviso adds that the items in the statements must be in accordance with the accounting standards.

The Central Government prescribes the accounting standards under Section 133. It does so as recommended by ICAI, in consultation with and after examination of the recommendations of the National Financial Reporting Authority. This is why a company cannot choose its own accounting treatment freely.

Schedule III does not apply to every company. The second proviso to Section 129(1) says the sub-section does not apply to an insurance or banking company, or a company engaged in generation or supply of electricity, or any other class of company for which a form is specified in or under the Act governing that class. The third proviso protects these companies: their statements are not treated as lacking a true and fair view merely because they omit matters their own governing law (Insurance Act, 1938, IRDA Act, 1999, Banking Regulation Act, 1949, Electricity Act, 2003, or other law) does not require.

Two more duties follow. The Board lays the financial statements before every annual general meeting (Section 129(2)). If a company has one or more subsidiaries, it must also prepare a consolidated financial statement of the company and all its subsidiaries, in the same form and manner as its own, and lay it before the AGM along with its own statements (Section 129(3)). A separate statement of salient features of the subsidiaries' statements is attached in the prescribed form.

Key rules to remember

Section 129(1): three tests: True and fair view + compliance with AS notified under Section 133 + Schedule III form; All three must be met. The items must also be in accordance with the accounting standards. Insurance, banking, electricity companies and others with a form under their own Act are outside this sub-section.
Section 129(2): laying: Board lays financial statements for the financial year at every AGM; The duty rests on the Board of Directors.
Section 129(3): consolidation: Company with one or more subsidiaries = standalone statements + consolidated statements (company and all subsidiaries), same form and manner; Both are laid before the AGM. A separate statement of salient features of subsidiaries' statements is attached in the prescribed form.
Section 129(4): Provisions on preparation, adoption and audit of holding company's statements apply mutatis mutandis to consolidated statements; So consolidated statements are also adopted and audited.
Section 129(5): deviation: Disclose: (1) the deviation, (2) the reasons, (3) the financial effects, if any; Applies where the statements do not comply with the accounting standards.
Section 129(7): penalty: 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 of them, all directors.
Section 129(6): exemption: Central Government may exempt any class of companies by notification, in public interest; Unconditionally or subject to conditions.

How to solve Financial Statements: Meaning, Form and True and Fair View questions

Use this method for any theory or case question on Section 129 and related provisions. Write in provision, facts, conclusion order.

1Identify what is asked: meaning of financial statements, true and fair view, Schedule III, non-compliance with AS, or consolidation.
2State the provision first, naming Section 129 and the relevant sub-section. Add Section 133 if standards are involved.
3List the three tests in Section 129(1): true and fair view, compliance with notified AS, Schedule III form.
4Check whether the company is excluded: insurance, banking, electricity, or a class with a form under its own Act. If yes, its own law applies for the form.
5For a deviation from AS, apply Section 129(5): disclose the deviation, the reasons and the financial effect.
6For a company with subsidiaries, apply Section 129(3): consolidated statements as well, with the salient features statement.
7If default is asked, apply Section 129(7) and name the persons liable.
8Close with a one-line conclusion that answers the exact question.

Quickest way: Three tests, then exceptions, then consequences

When to use it: Use it for MCQs and for short 3 to 5 mark written answers when time is tight.

MCQs: look for the exact phrase. 'Accounting standards notified under Section 133' and 'Schedule III' are the anchors. Eliminate options that say 'Schedule 3 applies to banks' or 'only standalone accounts needed'.
For deviation questions, remember the three words: deviation, reasons, financial effects.
For consolidation, remember: any subsidiary triggers it, same form and manner, laid at the AGM along with standalone statements.
For penalty MCQs, match the numbers: up to one year, fine ₹50,000 to ₹5,00,000.
Written format: Provision (section and rule) then Application (link to facts) then Conclusion. Each part earns step marks.

Common mistakes in Financial Statements: Meaning, Form and True and Fair View

Treating notes as separate from financial statements.
Students think only the balance sheet and profit and loss statement count.
Fix: Quote the Explanation to Section 129: references to the financial statement include notes annexed to or forming part of it.
Saying Schedule III applies to all companies including banks and insurers.
Students remember Schedule III as the universal format.
Fix: State the second proviso to Section 129(1): insurance, banking, electricity companies and classes with a form under their own Act are excluded from that sub-section.
Saying non-compliance with AS makes the accounts illegal with no disclosure route.
Students overlook Section 129(5).
Fix: Write that the company must disclose the deviation, the reasons and the financial effects, if any. Also note the Directors' Responsibility Statement requires proper explanation of material departures.
Mixing up Section 129 and Section 133.
Both deal with accounting standards.
Fix: Section 133 is the power of the Central Government to prescribe standards as recommended by ICAI. Section 129 is the company's duty to comply and give a true and fair view.
Forgetting that consolidation is in addition to standalone statements.
Students read it as a replacement.
Fix: Section 129(3) says 'in addition to' the Section 129(2) statements. Both are laid before the AGM.
Naming the wrong persons for the penalty.
Students write 'all directors' by default.
Fix: First the MD, whole-time director in charge of finance, CFO or other person charged by the Board. All directors only in the absence of those officers.

Worked examples

Example 1

Alpha Ltd. has prepared its financial statements, but one item is treated in a way that does not comply with a notified accounting standard. The Board asks what Alpha Ltd. must do under the Companies Act, 2013.

Show the solution

Provision: Section 129(1) requires financial statements to comply with accounting standards notified under Section 133.
Section 129(5) says that where the statements do not comply, the company shall disclose in its financial statements the deviation, the reasons for it and the financial effects, if any.
Application: Alpha Ltd. must disclose the deviation in the statements (notes form part of them), explain why it deviated and state the financial effect.
The Board's Directors' Responsibility Statement must also state that applicable standards were followed along with proper explanation of material departures (Section 134(5)(a)).
Default: under Section 129(7) the MD, whole-time director in charge of finance, CFO or other person charged by the Board is punishable with imprisonment up to one year or fine of ₹50,000 to ₹5,00,000, or both.

Answer: Alpha Ltd. must disclose the deviation, the reasons and the financial effects, if any, in its financial statements under Section 129(5). Failing compliance with Section 129, the responsible officers face penalty under Section 129(7).

Example 2

Beta Ltd. holds shares in two subsidiaries. Its Board proposes to lay only Beta Ltd.'s own financial statements at the AGM. Advise.

Show the solution

Provision: Section 129(2) requires the Board to lay financial statements at every AGM.
Section 129(3) says that where a company has one or more subsidiaries, it shall, in addition, prepare a consolidated financial statement of the company and all its subsidiaries in the same form and manner as its own.
The consolidated statement must also be laid before the AGM along with the standalone statements.
A separate statement containing the salient features of the subsidiaries' financial statements must be attached in the prescribed form.
Under Section 129(4), provisions on preparation, adoption and audit apply mutatis mutandis to the consolidated statements.

Answer: The proposal is not correct. Beta Ltd. must also prepare consolidated financial statements covering itself and both subsidiaries, lay them at the AGM along with its own statements, and attach the salient features statement.

Exam tips

Quote section numbers in written answers: 129(1), 129(3), 129(5), 129(7) and 133. Markers look for them.
Learn the second proviso to Section 129(1) as a list: insurance, banking, electricity, and classes with a form under their own Act.
In case studies, ask first: is there a subsidiary, and is there a deviation from AS? These trigger 129(3) and 129(5).
In MCQs, watch for the penalty figures: up to one year, ₹50,000 to ₹5,00,000.
Link to Section 134: financial statements are approved by the Board and signed before going to the auditor, and the auditor's report is attached.

Practice questions from Accounts of Companies

Financial Statements: Meaning, Form and True and Fair View: frequently asked questions

What does a true and fair view mean under Section 129?

Section 129(1) requires the statements to give a true and fair view of the state of affairs of the company. The Act does not define it in this section. In practice it means the statements comply with the accounting standards and Schedule III and are not materially misleading.

Does Schedule III apply to banking and insurance companies?

No, the form under Section 129(1) does not apply to them. The second proviso excludes insurance, banking and electricity companies and any class for which a form is specified in or under its own Act. Their statements follow their own laws.

Is a consolidated financial statement needed for every company?

No. Section 129(3) applies where a company has one or more subsidiaries. In that case it prepares consolidated statements in addition to its own.

Who is punished if Section 129 is contravened?

Under Section 129(7), the managing director, the whole-time director in charge of finance, the CFO or any other person charged by the Board with the duty. If none of these is present, all directors are punishable. The punishment is up to one year imprisonment or fine of ₹50,000 to ₹5,00,000, or both.