SIGNING OF FINANCIAL STATEMENT OF COMPANY
The financial statement is a critical document for any corporate entity, providing a comprehensive overview of its financial health. These statements, audited by either an individual auditor or an audit firm, serve as a formal record of the company’s financial activities and position.
Financial statements are not just compliance documents; they are vital tools for stakeholders to assess the financial health and operational efficiency of a company. The involvement of auditors in the process ensures that these statements are accurate and trustworthy, reinforcing the company’s commitment to transparency and accountability.
Statutory Requirements for Signing Financial Statements
The Companies Act, 2013, outlines specific requirements regarding who must sign the financial statements:
- Directors and Officers: The financial statements must be signed by the Chairperson, two directors (including the Managing Director), and the CEO, CFO, and Company Secretary, if appointed. This step confirms that the accounts have been prepared in accordance with applicable standards and accurately reflect the company’s financial status.
- Auditor’s Role: After the financial statements are signed by the company’s authorized officers, they must be audited. The Auditor’s Report, attached to the financial statements, provides an independent opinion on whether the financial statements present a true and fair view of the company’s financial position and performance. The auditor’s signature is crucial as it lends credibility to the financial statements.
- Filing and Publication: Companies are required to file their financial statements with the Registrar of Companies (ROC) and ensure they are published according to prescribed regulations. For companies that are subsidiaries, consolidated financial statements must also be prepared, which include the financials of the parent company and its subsidiaries.
FAQ’s on signing of financial statement
1. Who Should Sign the Financial Statements
Standard Requirement: As per Section 134(1) of the Companies Act, 2013, the financial statement of a company must be signed by:
- The Chairperson of the company if authorized by the Board, regardless of whether they chaired the meeting.
- Two directors, one of whom must be the Managing Director.
- The Chief Executive Officer (CEO), Chief Financial Officer (CFO), and Company Secretary (CS), if these officers are appointed.
For One Person Companies: Only one director’s signature is required.
2. Date of Signing
The financial statements must be approved by the Board before they are signed.
The signing date should be after the date of the Board Meeting in which the financial statements were approved.
3. Board Meeting for Approval of Financial Statements
The Board Meeting for approving the financial statements should be held before the Annual General Meeting (AGM) to allow sufficient time for audit and other formalities.
4. Can One Director Sign the Financial Statements?
General Rule: The Companies Act, 2013 generally does not permit signing by only one director (except in the case of a One Person Company). Financial statements should be signed by two directors, one of whom must be the Managing Director.
Exception: In the case of a One Person Company, only one director’s signature is required.
5. Is Shareholder Approval Necessary?
Yes: After the Board’s approval, the audited financial statements must be presented to the shareholders at the AGM for their approval through a resolution.
6. Mandatory Signing by the Company Secretary
If a Whole-time Company Secretary is appointed, it is mandatory for them to sign the financial statements, along with the CFO.
7. Components of Financial Statements
As defined under Section 2(40) of the Companies Act, 2013, financial statements include:
- Balance Sheet as at the end of the financial year.
- Profit & Loss Account (or Income & Expenditure Statement for non-profit entities).
- Cash Flow Statement.
- Statement of Changes in Equity.
- Notes to Accounts.
Exceptions: One Person Companies, Small Companies, Dormant Companies, and Private Companies are not required to include a Cash Flow Statement.
Conclusion
The signing of financial statements by the authorized personnel (such as the Chairperson, Managing Director, CEO, CFO, and Company Secretary) is not just a statutory obligation but a key element of good corporate governance. It ensures transparency, accountability, and adherence to accounting standards, which in turn helps maintain investor confidence.
By signing, these officers confirm the accuracy and fairness of the financial statements, ensuring that they provide a true and fair view of the company’s financial position and performance. Non-compliance with these requirements can result in penalties and legal consequences, underscoring the importance of this practice in maintaining the integrity and trustworthiness of the company.
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