Chapter 9: Accounts of Companies and CSR - Test 3: answer key

Question 1 · 2 marks · Chapter 9: Accounts of Companies and CSR · hard

Scenario. Triveni Engineering Ltd. is an unlisted public company manufacturing industrial machinery. At the end of FY 2025-26, its financial particulars were as follows: Particulars | Amount Paid-up share capital | ₹490 crore Annual turnover | ₹980 crore Outstanding bank loans | ₹210 crore Outstanding debentures | ₹190 crore Outstanding deposits | ₹100 crore The outstanding balances shown above existed on 31 March 2026. The company secretary believes that the company is outside the jurisdiction of the National Financial Reporting Authority (NFRA), because neither its paid-up capital nor its turnover has reached the prescribed threshold. The CFO argues that outstanding loans, debentures and deposits must be considered separately and cannot be aggregated for this purpose. Another company, Meridian Technologies Ltd., is a listed public company with paid-up capital of ₹20 crore, turnover of ₹40 crore and aggregate outstanding borrowings of ₹15 crore. Its directors argue that NFRA jurisdiction should depend on financial size rather than listing status. A third company, Stellar Infrastructure Ltd., was previously listed but its securities were delisted on 31 March 2024. It has since fallen below all the financial thresholds applicable to unlisted public companies. The current management believes that its auditors immediately cease to be governed by NFRA requirements once the company falls below those limits. Triveni also has a foreign subsidiary incorporated in Singapore. Its income represents 22% of the consolidated income of the Indian parent group, although its net worth represents only 16% of consolidated net worth. The Board seeks clarification regarding NFRA's jurisdiction over these entities and the relevant financial thresholds.

Determine whether Triveni Engineering Ltd. falls within NFRA jurisdiction for FY 2026-27, considering the financial particulars as at 31 March 2026.

1. No, because neither its paid-up capital nor its annual turnover reaches the prescribed threshold.
2. No, because bank loans, debentures and deposits must individually reach ₹500 crore.
3. Yes, because its outstanding bank loans alone exceed ₹500 crore.
4. Yes, because its aggregate outstanding loans, debentures and deposits equal ₹500 crore. (correct answer)

Answer: D — Yes, because its aggregate outstanding loans, debentures and deposits equal ₹500 crore.

Explanation. Rule 3(1)(b) covers an unlisted public company having paid-up capital of at least ₹500 crore, annual turnover of at least ₹1,000 crore, or aggregate outstanding loans, debentures and deposits of at least ₹500 crore as on 31 March of the immediately preceding financial year. Triveni's aggregate is ₹210 crore + ₹190 crore + ₹100 crore = ₹500 crore. The three debt components must be aggregated, and exactly ₹500 crore satisfies the 'not less than' condition.

Where it goes wrong. Treating the three financial amounts separately or interpreting 'not less than' as requiring an amount exceeding ₹500 crore.

Authority. Section 132(2), Companies Act, 2013; Rule 3(1)(b), National Financial Reporting Authority Rules, 2018

Question 2 · 2 marks · Chapter 9: Accounts of Companies and CSR · medium

Meridian Technologies Ltd. is a listed public company whose paid-up capital, turnover and outstanding borrowings are all substantially below the thresholds applicable to unlisted public companies. Which statement correctly determines whether it falls within NFRA jurisdiction?

1. It falls within NFRA jurisdiction because its securities are listed on a recognised stock exchange. (correct answer)
2. It falls outside NFRA jurisdiction because its paid-up capital is below ₹500 crore.
3. It falls outside NFRA jurisdiction unless its aggregate borrowings reach ₹500 crore.
4. It falls within NFRA jurisdiction only when the Central Government makes a separate reference.

Answer: A — It falls within NFRA jurisdiction because its securities are listed on a recognised stock exchange.

Explanation. Rule 3(1)(a) covers companies whose securities are listed on any stock exchange in India or outside India. The financial thresholds prescribed for unlisted public companies do not apply to this category. Therefore, Meridian remains within NFRA jurisdiction despite its relatively small paid-up capital, turnover and borrowings. The separate Central Government reference category is not required when a company independently falls within the listed-company category.

Where it goes wrong. Applying the financial thresholds prescribed for unlisted public companies to listed companies.

Authority. Section 132(2), Companies Act, 2013; Rule 3(1)(a), National Financial Reporting Authority Rules, 2018

Question 3 · 2 marks · Chapter 9: Accounts of Companies and CSR · hard

Stellar Infrastructure Ltd. was delisted on 31 March 2024 and subsequently fell below all applicable financial thresholds. During which period does it continue to remain governed by NFRA under the applicable continuation provision?

1. It ceases to be governed immediately upon delisting.
2. It remains governed only until the end of the financial year in which delisting occurs.
3. It continues to be governed for three years after ceasing to be listed or falling below the applicable threshold. (correct answer)
4. It remains governed permanently because it was once a listed company.

Answer: C — It continues to be governed for three years after ceasing to be listed or falling below the applicable threshold.

Explanation. The study material states that a company or body corporate governed by the NFRA Rules continues to be governed for a period of three years after it ceases to be listed or its paid-up capital, turnover or aggregate loans, debentures and deposits fall below the prescribed limits. Consequently, immediate cessation upon delisting is incorrect. The applicable continuation period must be recognised even after the original jurisdictional criterion is no longer satisfied.

Where it goes wrong. Assuming that NFRA jurisdiction automatically ends on the date of delisting or the date on which financial thresholds are crossed downward.

Authority. Rule 3, National Financial Reporting Authority Rules, 2018

Question 4 · 2 marks · Chapter 9: Accounts of Companies and CSR · hard

Triveni's Singapore subsidiary has income equal to 22% of consolidated group income but net worth equal to only 16% of consolidated group net worth. Which conclusion follows under the foreign subsidiary/associate category of NFRA jurisdiction?

1. The subsidiary is excluded because both income and net worth must exceed 20%.
2. The subsidiary is covered because either income or net worth exceeding 20% is sufficient. (correct answer)
3. The subsidiary is excluded because foreign entities can never fall within NFRA jurisdiction.
4. The subsidiary is covered only when both income and net worth exceed 25%.

Answer: B — The subsidiary is covered because either income or net worth exceeding 20% is sufficient.

Explanation. Rule 3(1)(e) covers a body corporate incorporated or registered outside India that is a subsidiary or associate of an Indian company or body corporate referred to in the preceding categories, where its income or net worth exceeds 20% of consolidated income or consolidated net worth respectively. The alternatives are disjunctive. Triveni's foreign subsidiary satisfies the income test because 22% exceeds 20%, even though its net-worth proportion is below the threshold.

Where it goes wrong. Incorrectly treating the income and net-worth tests as cumulative rather than alternative conditions.

Authority. Section 132(2), Companies Act, 2013; Rule 3(1)(e), National Financial Reporting Authority Rules, 2018

Question 5 · 2 marks · Chapter 9: Accounts of Companies and CSR · hard

Scenario. Aarav Financial Services Ltd. is a listed public company whose statutory auditor is Crest Audit LLP. During the review of its financial statements for FY 2025-26, NFRA noticed significant inconsistencies in the audit documentation and suspected professional misconduct by the engagement partner, Mr. Raghav Mehta, a member of the Institute of Chartered Accountants of India. NFRA initiated an investigation on its own motion. The ICAI disciplinary authority had already received a complaint relating to the same audit engagement and had commenced preliminary proceedings. Crest Audit LLP contends that NFRA cannot independently investigate the matter without a reference from the Central Government. The engagement partner further argues that only the ICAI disciplinary authority can examine the conduct of a practising chartered accountant. During its investigation, NFRA directed the firm to produce audit working papers and supporting documents, summoned the engagement partner to appear before it, and required him to answer questions on oath. Following the investigation, NFRA established professional misconduct. The audit firm had received fees of ₹18 lakh for the relevant engagement, while the individual partner had received professional fees of ₹6 lakh. The NFRA order also debars the firm from undertaking audits for a specified period. Crest Audit LLP wishes to challenge the order and argues that an appeal should be filed before the High Court. The company secretary has been asked to explain NFRA's investigative jurisdiction, its powers, the applicable penalty framework, debarment and the appropriate appellate authority.

Which statement correctly describes the composition of NFRA under the Companies Act, 2013?

1. NFRA consists of a Chairperson and exactly fifteen full-time members.
2. NFRA consists of a Chairperson with expertise in a relevant field and other members not exceeding fifteen. (correct answer)
3. NFRA consists of fifteen members in total, including a Chairperson appointed by ICAI.
4. NFRA consists exclusively of part-time members nominated by the Central Government.

Answer: B — NFRA consists of a Chairperson with expertise in a relevant field and other members not exceeding fifteen.

Explanation. Section 132(3) provides that NFRA consists of a Chairperson who is a person of eminence with expertise in accountancy, auditing, finance or law, and such other members, not exceeding fifteen, comprising full-time and part-time members. The limit of fifteen relates to the other members and is additional to the Chairperson. The Central Government appoints the Chairperson and members in the prescribed manner.

Where it goes wrong. Interpreting the maximum of fifteen members as including the Chairperson or assuming that all members must be full-time.

Authority. Section 132(3), Companies Act, 2013; Section 132(3A) and Section 132(3B), Companies Act, 2013

Question 6 · 2 marks · Chapter 9: Accounts of Companies and CSR · medium

NFRA initiated an investigation into the professional misconduct of Crest Audit LLP and its engagement partner on its own motion. The ICAI disciplinary authority had already commenced preliminary proceedings relating to the same audit. Which statement correctly describes the effect of NFRA's investigation?

1. NFRA cannot investigate unless the Central Government first makes a reference.
2. The ICAI may continue its proceedings because it has already received the complaint.
3. NFRA can investigate only firms and not individual chartered accountants.
4. NFRA may investigate suo motu, and no other institute or body may initiate or continue proceedings in that misconduct matter once NFRA has initiated its investigation. (correct answer)

Answer: D — NFRA may investigate suo motu, and no other institute or body may initiate or continue proceedings in that misconduct matter once NFRA has initiated its investigation.

Explanation. Section 132(4) authorises NFRA to investigate professional or other misconduct by a member or firm of chartered accountants either suo motu or on a reference made by the Central Government. Once NFRA initiates an investigation under this provision, no other institute or body may initiate or continue proceedings in respect of the same misconduct matter. The investigation power is not restricted to cases referred by the Central Government.

Where it goes wrong. Assuming that NFRA requires a Central Government reference or that an existing disciplinary proceeding automatically takes precedence.

Authority. Section 132(4)(a) and Section 132(4)(b), Companies Act, 2013; Rule 10, National Financial Reporting Authority Rules, 2018

Question 7 · 2 marks · Chapter 9: Accounts of Companies and CSR · hard

Following proof of professional misconduct, NFRA considers penalties against Crest Audit LLP and its engagement partner. The partner received fees of ₹6 lakh, while the firm received fees of ₹18 lakh. Which statement correctly describes the maximum monetary penalties and the permissible debarment period?

1. The individual may be penalised up to ₹30 lakh and the firm up to ₹1.80 crore, with debarment from six months to ten years. (correct answer)
2. The individual may be penalised up to ₹18 lakh and the firm up to ₹30 lakh, with debarment from one year to five years.
3. The individual may be penalised up to ₹6 lakh and the firm up to ₹18 lakh, with debarment for exactly ten years.
4. The individual may be penalised up to ₹1 crore and the firm up to ₹5 crore, with debarment for three years.

Answer: A — The individual may be penalised up to ₹30 lakh and the firm up to ₹1.80 crore, with debarment from six months to ten years.

Explanation. Under Section 132(4)(c), the maximum penalty for an individual is five times the fees received, while for a firm it is ten times the fees received. Accordingly, the partner's maximum is 5 × ₹6 lakh = ₹30 lakh, and the firm's maximum is 10 × ₹18 lakh = ₹1.80 crore. NFRA may also debar the member or firm from the specified professional activities for a minimum of six months and a maximum of ten years. The stated amounts are maximum penalties, not mandatory fixed penalties.

Where it goes wrong. Interchanging the individual and firm multipliers or treating the maximum monetary penalty as the mandatory minimum.

Authority. Section 132(4)(c), Companies Act, 2013

Question 8 · 2 marks · Chapter 9: Accounts of Companies and CSR · medium

Crest Audit LLP is aggrieved by NFRA's final order imposing a penalty and debarment under Section 132(4)(c). The firm proposes filing an appeal before the High Court. Which appellate forum is prescribed under the Companies Act, 2013?

1. The appeal must be made before the Central Government within thirty days.
2. The appeal must be made before ICAI's disciplinary committee for reconsideration.
3. The appeal may be preferred before the Appellate Tribunal in the prescribed manner and on payment of the prescribed fee. (correct answer)
4. The appeal must be made before the Registrar of Companies having jurisdiction over the firm.

Answer: C — The appeal may be preferred before the Appellate Tribunal in the prescribed manner and on payment of the prescribed fee.

Explanation. Section 132(5) provides that any person aggrieved by an NFRA order issued under Section 132(4)(c) may prefer an appeal before the Appellate Tribunal in the prescribed manner and on payment of the prescribed fee. The provision specifically addresses appeals against orders imposing penalties and other consequences under clause (c). The High Court, ICAI disciplinary committee and Registrar of Companies are not the appellate forum specified in this provision.

Where it goes wrong. Confusing the appellate authority with the original disciplinary or regulatory authority.

Authority. Section 132(5), Companies Act, 2013

Question 9 · 2 marks · Chapter 9: Accounts of Companies and CSR · hard

Scenario. Vishwas Pharmaceuticals Ltd. is a listed public company preparing its financial statements for FY 2025-26. The company has a Board consisting of five directors, including Mr. Arjun, the Managing Director, and Ms. Kavya, the Chairperson. The Chairperson has not been authorised by the Board to sign the financial statements on its behalf. The Board approved the standalone and consolidated financial statements on 20 June 2026. Subsequently, the Managing Director and one other director signed the statements. The Chief Executive Officer, Chief Financial Officer and Company Secretary also signed them. The finance department proposed sending the signed statements to the statutory auditor without attaching the relevant notes, arguing that all explanations were already available in the accounting software. During the financial year, an internal financial control over inventory approvals was overridden by a senior executive for several weeks. Although management reinstated the control, the internal audit report recorded that the control had not operated effectively throughout the relevant period. The Audit Committee discussed the matter and advised the Board to assess its implications before finalising the Directors' Responsibility Statement. The Board also discovered that the accounting policies had been changed without adequate justification and that certain estimates were not supported by reasonable assumptions. The directors are now reviewing the mandatory declarations under Section 134(5), the authentication of financial statements, and the documents that must accompany signed financial statements when issued or circulated to members.

The Chairperson of Vishwas Pharmaceuticals Ltd. has not been authorised by the Board to sign its financial statements. The Managing Director and only one other director have signed them. The CEO, CFO and Company Secretary have also signed. Is the authentication valid?

1. No, because where the Chairperson is not authorised, at least two directors must sign, one of whom shall be the Managing Director. (correct answer)
2. Yes, because the Managing Director and one other director are sufficient irrespective of Board authorisation.
3. Yes, because the signatures of the CEO, CFO and Company Secretary replace the second director's signature.
4. No, because the financial statements must be signed by the Chairperson in every company.

Answer: A — No, because where the Chairperson is not authorised, at least two directors must sign, one of whom shall be the Managing Director.

Explanation. Section 134(1) requires prior Board approval of the financial statements. They must be signed on behalf of the Board either by the Chairperson if authorised by the Board or by two directors, one of whom shall be the Managing Director, if any. The CEO, CFO and Company Secretary, wherever appointed, must also sign. Since the Chairperson is not authorised, the two-director requirement applies. The additional KMP signatures cannot replace the required second director.

Where it goes wrong. Assuming that signatures of the CEO, CFO and Company Secretary compensate for the absence of the required second director.

Authority. Section 134(1), Companies Act, 2013

Question 10 · 2 marks · Chapter 9: Accounts of Companies and CSR · medium

The internal audit report records that an important inventory approval control was overridden during part of the financial year. Although the company reinstated it later, the Audit Committee is reviewing whether the listed company can make an unqualified statement about internal financial controls in its Directors' Responsibility Statement. Which statement is correct?

1. The directors may make the statement because the control was reinstated before the financial year ended.
2. The directors may make the statement if the statutory auditor does not qualify the financial statements.
3. The directors cannot state that the controls were adequate and operating effectively throughout the relevant period merely because they were subsequently reinstated. (correct answer)
4. The directors need to disclose internal financial controls only when a financial loss has actually occurred.

Answer: C — The directors cannot state that the controls were adequate and operating effectively throughout the relevant period merely because they were subsequently reinstated.

Explanation. Section 134(5)(e) requires directors of a listed company to state that internal financial controls were laid down, were adequate and were operating effectively. The study material explains that adequacy concerns whether the control system is properly designed, while operating effectively concerns whether it produces the desired risk-mitigating effect. Both conditions must hold. A control failure during the relevant period cannot be disregarded merely because management later reinstated the control.

Where it goes wrong. Treating subsequent reinstatement of an internal control as proof that it operated effectively throughout the financial year.

Authority. Section 134(5)(e), Companies Act, 2013

Question 11 · 2 marks · Chapter 9: Accounts of Companies and CSR · hard

Which of the following statements correctly identifies the matters that must be covered in the Directors' Responsibility Statement under Section 134(5)?

1. Only that the accounts were approved by the Board and signed by the Managing Director and CFO.
2. Only that the company maintained books of account and prepared the statements on a going concern basis.
3. That all accounting policies were changed whenever necessary and that the auditor approved the changes.
4. That applicable standards were followed, accounting policies and estimates were reasonable, records were properly maintained, assets safeguarded, fraud prevented and laws complied with. (correct answer)

Answer: D — That applicable standards were followed, accounting policies and estimates were reasonable, records were properly maintained, assets safeguarded, fraud prevented and laws complied with.

Explanation. Section 134(5) requires the Directors' Responsibility Statement to address compliance with applicable Accounting Standards and material departures, consistent accounting policies and reasonable and prudent estimates, proper accounting records and asset safeguarding, prevention and detection of fraud and irregularities, and preparation of accounts on a going concern basis. It also covers internal financial controls for listed companies and systems for legal compliance. Merely stating that the Board approved the statements is insufficient.

Where it goes wrong. Reducing the Directors' Responsibility Statement to a declaration of Board approval rather than covering the complete statutory responsibilities.

Authority. Section 134(5), Companies Act, 2013

Question 12 · 2 marks · Chapter 9: Accounts of Companies and CSR · medium

Vishwas Pharmaceuticals Ltd. proposes to circulate signed financial statements without attaching the notes forming part of the statements, the auditor's report and the Board's Report. Which position correctly follows Section 134(7)?

1. Only the auditor's report is required to accompany signed financial statements.
2. The signed financial statements must be issued, circulated or published with the relevant notes, auditor's report and Board's Report. (correct answer)
3. The company may circulate the statements without attachments if the documents are available on its website.
4. The requirement applies only to consolidated financial statements and not to standalone statements.

Answer: B — The signed financial statements must be issued, circulated or published with the relevant notes, auditor's report and Board's Report.

Explanation. Section 134(7) requires a signed copy of every financial statement, including consolidated financial statements, if any, to be issued, circulated or published along with the notes annexed to or forming part of the statements, the auditor's report and the Board's Report. These are accompanying statutory documents. Their availability elsewhere on the company's website does not remove the prescribed requirement to accompany the signed financial statements.

Where it goes wrong. Assuming that online availability of accompanying documents eliminates the requirement under Section 134(7).

Authority. Section 134(7), Companies Act, 2013

Question 13 · 2 marks · Chapter 9: Accounts of Companies and CSR · hard

Scenario. Suryodaya Industrial Products Ltd. is an unlisted public company with paid-up share capital of ₹32 crore as at 31 March 2026. It has a subsidiary, an associate company and a joint venture. The Board is preparing its report for FY 2025-26, which is to be placed before the forthcoming annual general meeting. The company's annual return under Section 92 has been uploaded on its website. Its CSR policy and directors' appointment and remuneration policy are also available online. During the year, two directors were appointed and one key managerial personnel resigned. The statutory auditor made a qualification relating to the company's inventory controls, while the practising company secretary reported an adverse remark in the secretarial audit report. The company also entered into related-party arrangements requiring disclosure in the prescribed form. The Board intends to include the financial highlights, the details of subsidiaries and associates, material regulatory orders affecting future operations, adequacy of internal financial controls and its CSR initiatives. The finance head suggests omitting the web address of the annual return because shareholders can independently search the company's website. The Company Secretary disagrees. The company also maintains accounting records electronically. It has an Audit Committee, which has proposed a formal system for storage, retrieval, display and printing of electronic records. The directors are unsure whether this system must be determined exclusively by the Audit Committee or whether the Board may also determine it. The company secretary has been requested to advise on Board Report disclosures, signing, annual evaluation requirements and the electronic-record requirements.

Suryodaya Industrial Products Ltd. is an unlisted public company with paid-up share capital of ₹32 crore at the end of FY 2025-26. It is not a Government company. What must its Board's Report include regarding annual evaluation?

1. A statement concerning evaluation of individual employees only, because the company is not listed.
2. A statement regarding Board evaluation only if its paid-up capital exceeds ₹500 crore.
3. A statement indicating the manner in which formal annual evaluation of the Board, its Committees and individual directors has been made. (correct answer)
4. No evaluation disclosure is required unless the company has turnover exceeding ₹1,000 crore.

Answer: C — A statement indicating the manner in which formal annual evaluation of the Board, its Committees and individual directors has been made.

Explanation. Section 134(3)(p) requires a listed company and every other public company having paid-up share capital of ₹25 crore or more, calculated at the end of the preceding financial year, to include a statement indicating the manner in which formal annual evaluation of the Board, its Committees and individual directors has been made. Suryodaya's paid-up capital is ₹32 crore and it is not a Government company, so the disclosure applies.

Where it goes wrong. Confusing the ₹25 crore evaluation threshold with the higher financial thresholds applicable to NFRA or assuming that only listed companies are covered.

Authority. Section 134(3)(p), Companies Act, 2013

Question 14 · 2 marks · Chapter 9: Accounts of Companies and CSR · medium

Suryodaya has placed its annual return under Section 92(3) on its company website. The Company Secretary proposes mentioning the web address in the Board's Report, whereas the finance head argues that this information is unnecessary because shareholders can search for it independently. Which approach is legally correct?

1. The Board's Report must include the web address, if any, where the annual return has been placed. (correct answer)
2. The Board's Report must attach a printed copy of the complete annual return in every case.
3. The web address is required only where the company is listed on a recognised stock exchange.
4. The Board's Report need not contain the address if the annual return is already available online.

Answer: A — The Board's Report must include the web address, if any, where the annual return has been placed.

Explanation. Section 134(3)(a) requires the Board's Report to include the web address, if any, where the annual return referred to in Section 92(3) has been placed. Since Suryodaya has uploaded its annual return on its website, the relevant web address must be disclosed. The provision does not require a complete printed copy to be attached merely because the return is hosted online.

Where it goes wrong. Confusing the obligation to disclose the web address with an obligation to attach the entire annual return.

Authority. Section 134(3)(a), Companies Act, 2013

Question 15 · 2 marks · Chapter 9: Accounts of Companies and CSR · hard

Suryodaya's statutory auditor has made a qualification in the audit report and the practising company secretary has made an adverse remark in the secretarial audit report. The company also entered into related-party arrangements during the year. Which treatment is required in the Board's Report?

1. The Board may omit explanations because the auditor and practising company secretary have already explained their findings.
2. The Board must explain every qualification, reservation, adverse remark or disclaimer and disclose prescribed related-party particulars in Form AOC-2. (correct answer)
3. The Board must explain only qualifications issued by the statutory auditor and may ignore secretarial audit remarks.
4. The Board must disclose related-party particulars only when the transaction has resulted in a financial loss.

Answer: B — The Board must explain every qualification, reservation, adverse remark or disclaimer and disclose prescribed related-party particulars in Form AOC-2.

Explanation. Section 134(3)(f) requires explanations or comments by the Board on every qualification, reservation, adverse remark or disclaimer made by the auditor and the company secretary in practice in their respective reports. Section 134(3)(h), read with Rule 8, requires particulars of contracts or arrangements with related parties referred to in Section 188 in Form AOC-2. The Board cannot omit the explanations merely because the audit reports contain the original observations.

Where it goes wrong. Assuming that the Board can simply reproduce the auditor's remarks without providing its own explanations or that related-party disclosure depends on financial loss.

Authority. Section 134(3)(f), Companies Act, 2013; Section 134(3)(h), Companies Act, 2013; Rule 8, Companies (Accounts) Rules, 2014

Question 16 · 2 marks · Chapter 9: Accounts of Companies and CSR · medium

Suryodaya's electronic accounting records require a proper arrangement for storage, retrieval, display and printing. The company has an Audit Committee. Which authority may determine the system under Rule 3(5) of the Companies (Accounts) Rules, 2014?

1. Only the statutory auditor may determine the system after reviewing the books.
2. Only the Board may determine the system, even when an Audit Committee exists.
3. Only the Registrar may prescribe the company's storage and retrieval system.
4. The Audit Committee, if any, or the Board may determine the appropriate system, subject to the statutory restrictions on disposal or rendering records unusable. (correct answer)

Answer: D — The Audit Committee, if any, or the Board may determine the appropriate system, subject to the statutory restrictions on disposal or rendering records unusable.

Explanation. Rule 3(5) requires a proper system for storage, retrieval, display or printout of electronic records as the Audit Committee, if any, or the Board may deem appropriate. The records must not be disposed of or rendered unusable unless permitted by law. Therefore, the existence of an Audit Committee does not make it the exclusive authority for determining the system, as the Rule also recognises the Board's role.

Where it goes wrong. Treating the Audit Committee as the exclusive authority instead of recognising the express alternative of the Board.

Authority. Rule 3(5), Companies (Accounts) Rules, 2014

Question 17 · 2 marks · Chapter 9: Accounts of Companies and CSR · hard

Scenario. A company has a Board consisting of five directors, including a Managing Director. Its Chairperson has not been authorised by the Board to sign the Board's Report. The company secretary proposes obtaining signatures from the CFO and Company Secretary instead of directors. The Board also intends to attach several annexures to its report. Which signing arrangement is legally sufficient under Section 134(6)?

A company has a Board consisting of five directors, including a Managing Director. Its Chairperson has not been authorised by the Board to sign the Board's Report. The company secretary proposes obtaining signatures from the CFO and Company Secretary instead of directors. The Board also intends to attach several annexures to its report. Which signing arrangement is legally sufficient under Section 134(6)?

1. The CFO and Company Secretary may sign because both are key managerial personnel.
2. Any one director and the CFO may sign the report and its annexures.
3. The statutory auditor and Managing Director must jointly sign every Board's Report.
4. At least two directors, one of whom shall be the Managing Director, must sign the Board's Report and its annexures. (correct answer)

Answer: D — At least two directors, one of whom shall be the Managing Director, must sign the Board's Report and its annexures.

Explanation. Section 134(6) requires the Board's Report and its annexures to be signed by the Chairperson if authorised by the Board. Where the Chairperson is not authorised, it must be signed by at least two directors, one of whom shall be the Managing Director, or by the director where there is only one director. The CFO and Company Secretary are not substitutes for the required director signatures.

Where it goes wrong. Applying the financial statement authentication rules to the Board's Report or assuming that KMP signatures can replace director signatures.

Authority. Section 134(6), Companies Act, 2013

Question 18 · 2 marks · Chapter 9: Accounts of Companies and CSR · medium

Scenario. Ananya Technologies Ltd. is a One Person Company with only one director. Its financial statements are ready for submission to the statutory auditor. The auditor has also made a qualification in the audit report. The company secretary wants to know whether the financial statements require two director signatures and whether a normal detailed Board's Report is compulsory. Which statement correctly applies the special provisions?

Ananya Technologies Ltd. is a One Person Company with only one director. Its financial statements are ready for submission to the statutory auditor. The auditor has also made a qualification in the audit report. The company secretary wants to know whether the financial statements require two director signatures and whether a normal detailed Board's Report is compulsory. Which statement correctly applies the special provisions?

1. The financial statements may be approved by one director, and the OPC's Board's Report must contain explanations or comments on the auditor's qualifications, reservations, adverse remarks or disclaimers. (correct answer)
2. The financial statements require two director signatures, but the Board's Report may omit explanations about auditor qualifications.
3. The financial statements require the auditor's signature instead of a director's signature, and no Board's Report is required.
4. The financial statements may be signed by the CFO alone, and the Board's Report must follow the full Rule 8 format.

Answer: A — The financial statements may be approved by one director, and the OPC's Board's Report must contain explanations or comments on the auditor's qualifications, reservations, adverse remarks or disclaimers.

Explanation. Section 134(1) specifically provides that financial statements of a One Person Company shall be approved only by one director. Under Section 134(4), the Board's Report in an OPC means a report containing explanations or comments on every qualification, reservation, adverse remark or disclaimer made by the auditor. Rule 8A prescribes the abridged Board's Report for OPCs and small companies, rather than the full Rule 8 format.

Where it goes wrong. Applying the general two-director authentication rule to an OPC or confusing its abridged Board's Report with the full Rule 8 report.

Authority. Section 134(1), Companies Act, 2013; Section 134(4), Companies Act, 2013; Rule 8A, Companies (Accounts) Rules, 2014

Question 19 · 2 marks · Chapter 9: Accounts of Companies and CSR · hard

Scenario. A listed company prepared its Directors' Responsibility Statement for FY 2025-26. The directors state that applicable Accounting Standards were followed, policies were consistently applied and internal financial controls were adequate. However, a significant accounting system remained ineffective for two months and management merely introduced a replacement control afterwards. The directors also failed to maintain a proper system for compliance with applicable laws. Which assessment is correct regarding their declaration under Section 134(5)?

A listed company prepared its Directors' Responsibility Statement for FY 2025-26. The directors state that applicable Accounting Standards were followed, policies were consistently applied and internal financial controls were adequate. However, a significant accounting system remained ineffective for two months and management merely introduced a replacement control afterwards. The directors also failed to maintain a proper system for compliance with applicable laws. Which assessment is correct regarding their declaration under Section 134(5)?

1. The declaration is sufficient because the company suffered no material financial loss.
2. The declaration is insufficient because both effective internal financial controls and adequate systems for compliance with applicable laws must be addressed truthfully. (correct answer)
3. The declaration is sufficient because the directors need to disclose only deficiencies identified by the statutory auditor.
4. The declaration is sufficient because internal financial controls are not part of the Directors' Responsibility Statement.

Answer: B — The declaration is insufficient because both effective internal financial controls and adequate systems for compliance with applicable laws must be addressed truthfully.

Explanation. Section 134(5)(e) requires directors of a listed company to state that internal financial controls were laid down, adequate and operating effectively. Section 134(5)(f) separately requires proper systems to ensure compliance with applicable laws and a declaration that such systems were adequate and operating effectively. A significant control failure and absence of adequate legal-compliance systems cannot be disregarded merely because replacement controls were introduced later or no financial loss occurred.

Where it goes wrong. Assuming that a later corrective action or absence of actual loss automatically validates the Directors' Responsibility Statement.

Authority. Section 134(5)(e) and Section 134(5)(f), Companies Act, 2013

Question 20 · 2 marks · Chapter 9: Accounts of Companies and CSR · hard

Scenario. A company has failed to comply with the requirements of Section 134 relating to approval, reporting and authentication of financial statements and the Board's Report. The Registrar is considering action against the company and its officers in default. The directors argue that Section 134 prescribes only a general obligation and does not contain a separate monetary penalty. What is the applicable penalty under Section 134(8)?

A company has failed to comply with the requirements of Section 134 relating to approval, reporting and authentication of financial statements and the Board's Report. The Registrar is considering action against the company and its officers in default. The directors argue that Section 134 prescribes only a general obligation and does not contain a separate monetary penalty. What is the applicable penalty under Section 134(8)?

1. The company is liable to ₹1 lakh and every officer in default to ₹10,000.
2. The company is liable to ₹5 lakh and every officer in default to ₹1 lakh.
3. The company is liable to ₹3 lakh and every officer in default to ₹50,000. (correct answer)
4. The company is liable to ₹10 lakh and every director to ₹2 lakh.

Answer: C — The company is liable to ₹3 lakh and every officer in default to ₹50,000.

Explanation. Section 134(8) provides that where a company is in default in complying with the provisions of Section 134, the company is liable to a penalty of ₹3 lakh and every officer of the company who is in default is liable to a penalty of ₹50,000. The prescribed amounts are fixed by the section. The penalty is not calculated as a proportion of the company's share capital, turnover or financial loss.

Where it goes wrong. Using the penalty prescribed under another section or assuming that Section 134 contains no separate monetary penalty.

Authority. Section 134(8), Companies Act, 2013

Question 21 · 2 marks · Chapter 9: Accounts of Companies and CSR · medium

Scenario. While preparing its Board's Report, a company discovers that several disclosures required under Section 134(3), including certain financial information and explanations, have already been incorporated in its financial statements. The CFO proposes omitting every such disclosure without making any reference to the relevant financial statements. The Company Secretary argues that duplicate disclosure may be avoided, but the statutory cross-reference should be maintained. Which position is correct under the study material?

While preparing its Board's Report, a company discovers that several disclosures required under Section 134(3), including certain financial information and explanations, have already been incorporated in its financial statements. The CFO proposes omitting every such disclosure without making any reference to the relevant financial statements. The Company Secretary argues that duplicate disclosure may be avoided, but the statutory cross-reference should be maintained. Which position is correct under the study material?

1. Disclosures already included in the financial statements may be referred to instead of being repeated in the Board's Report. (correct answer)
2. Every disclosure must be repeated in full irrespective of whether it is already included in the financial statements.
3. The company may omit all such disclosures without reference because the auditor has signed the financial statements.
4. The company may replace the Board's Report entirely with the financial statements if all disclosures are contained therein.

Answer: A — Disclosures already included in the financial statements may be referred to instead of being repeated in the Board's Report.

Explanation. The study material explains that where disclosures referred to in Section 134(3) have been included in the financial statements, those disclosures may be referred to instead of being repeated in the Board's Report. This avoids unnecessary duplication. However, it does not permit the company to omit the information without reference or replace the entire Board's Report with the financial statements.

Where it goes wrong. Confusing permission to avoid repetitive disclosure with permission to omit the disclosure and its reference altogether.

Authority. Section 134(3), Companies Act, 2013; Rule 8, Companies (Accounts) Rules, 2014

Question 22 · 2 marks · Chapter 9: Accounts of Companies and CSR · medium

Scenario. A company covered under Section 178(1) has developed a policy concerning the appointment and remuneration of directors. The complete policy is available on the company's website. The Company Secretary proposes including a brief summary of the policy, details of changes made during the year and the web address in the Board's Report instead of reproducing the entire policy. Is this permissible under the applicable provisions?

A company covered under Section 178(1) has developed a policy concerning the appointment and remuneration of directors. The complete policy is available on the company's website. The Company Secretary proposes including a brief summary of the policy, details of changes made during the year and the web address in the Board's Report instead of reproducing the entire policy. Is this permissible under the applicable provisions?

1. No, because the complete policy must always be reproduced in the Board's Report.
2. No, because directors' appointment and remuneration policies cannot be published on the website.
3. Yes, provided the salient features and any changes are briefly stated and the web address of the complete policy is indicated. (correct answer)
4. Yes, but only if the company is listed and the policy has been approved by the statutory auditor.

Answer: C — Yes, provided the salient features and any changes are briefly stated and the web address of the complete policy is indicated.

Explanation. The study material states that where the policy referred to in Section 134(3)(e) or Section 134(3)(o) is made available on the company's website, it is sufficient to state the salient features of the policy and any changes therein briefly in the Board's Report, together with the web address where the complete policy is available. Reproducing the entire policy is therefore unnecessary when these conditions are satisfied.

Where it goes wrong. Assuming that website availability alone is sufficient without a summary and the corresponding web address in the Board's Report.

Authority. Section 134(3)(e), Companies Act, 2013

Question 23 · 2 marks · Chapter 9: Accounts of Companies and CSR · hard

Scenario. During preparation of the Board's Report, a company identifies a material regulatory order affecting its future operations, a change in the nature of its business and the appointment of a new key managerial personnel. The CFO proposes disclosing only the material regulatory order because the other matters are already reflected in the company's internal management reports. Which treatment is required under Rule 8 of the Companies (Accounts) Rules, 2014?

During preparation of the Board's Report, a company identifies a material regulatory order affecting its future operations, a change in the nature of its business and the appointment of a new key managerial personnel. The CFO proposes disclosing only the material regulatory order because the other matters are already reflected in the company's internal management reports. Which treatment is required under Rule 8 of the Companies (Accounts) Rules, 2014?

1. Only material regulatory orders need disclosure; changes in business and KMP appointments are optional.
2. The Board's Report must include the change in nature of business, director/KMP appointments or resignations, and significant and material orders affecting going concern status and future operations. (correct answer)
3. Only the appointment of directors needs disclosure; changes in KMP and business are excluded.
4. The details need not be reported unless the company is listed and the order has resulted in a financial loss.

Answer: B — The Board's Report must include the change in nature of business, director/KMP appointments or resignations, and significant and material orders affecting going concern status and future operations.

Explanation. Rule 8 requires the Board's Report to include, among other particulars, changes in the nature of business, details of directors or key managerial personnel appointed or resigned during the year, and significant and material orders passed by regulators, courts or tribunals affecting going concern status and future operations. These matters are not confined to listed companies. Internal management reporting does not replace the prescribed Board's Report disclosures.

Where it goes wrong. Assuming that Rule 8 disclosures apply only to listed companies or only where the event has caused an actual financial loss.

Authority. Rule 8, Companies (Accounts) Rules, 2014; Section 134(3), Companies Act, 2013

Question 24 · 2 marks · Chapter 9: Accounts of Companies and CSR · hard

Scenario. A holding company prepares its Board's Report for FY 2025-26. It has two subsidiaries, an associate and a joint venture. The finance head proposes preparing the Board's Report using consolidated financial statements and reporting only the consolidated group's financial highlights. The Company Secretary states that the Board's Report must follow a different statutory basis and include the performance of investee entities. Which statement is correct?

A holding company prepares its Board's Report for FY 2025-26. It has two subsidiaries, an associate and a joint venture. The finance head proposes preparing the Board's Report using consolidated financial statements and reporting only the consolidated group's financial highlights. The Company Secretary states that the Board's Report must follow a different statutory basis and include the performance of investee entities. Which statement is correct?

1. The Board's Report must be prepared solely on consolidated financial statements and need not discuss subsidiaries separately.
2. The Board's Report must be prepared from each subsidiary's standalone financial statements independently.
3. The Board's Report must be prepared using only the financial statements of the ultimate holding company.
4. The Board's Report must be based on the company's standalone financial statements and report highlights of subsidiaries, associates and joint ventures and their contribution to overall performance. (correct answer)

Answer: D — The Board's Report must be based on the company's standalone financial statements and report highlights of subsidiaries, associates and joint ventures and their contribution to overall performance.

Explanation. The study material specifically states that the Board's Report shall be prepared based on the standalone financial statements of the company. It must also report on the highlights of the performance of subsidiaries, associates and joint venture companies and their contribution to the overall performance of the company during the reporting period. Preparing the report solely on the basis of consolidated financial statements would disregard this prescribed approach.

Where it goes wrong. Confusing the basis of preparation of consolidated financial statements with the separate statutory basis prescribed for the Board's Report.

Authority. Section 134(3), Companies Act, 2013; Rule 8, Companies (Accounts) Rules, 2014

Question 25 · 2 marks · Chapter 9: Accounts of Companies and CSR · hard

Scenario. During an NFRA investigation, the Authority directs an audit firm to produce specified working papers, summons the engagement partner to appear and answer questions on oath, inspects supporting documents maintained at the firm's office and issues a commission for examination of a witness. The engagement partner contends that only an ordinary civil court can exercise these powers. Which statement correctly describes NFRA's authority under Section 132(4)(b)?

During an NFRA investigation, the Authority directs an audit firm to produce specified working papers, summons the engagement partner to appear and answer questions on oath, inspects supporting documents maintained at the firm's office and issues a commission for examination of a witness. The engagement partner contends that only an ordinary civil court can exercise these powers. Which statement correctly describes NFRA's authority under Section 132(4)(b)?

1. NFRA has specified powers of a civil court under the Code of Civil Procedure, 1908, for discovery, production, attendance, examination, inspection and commissions. (correct answer)
2. NFRA may request documents voluntarily but has no power to summon or examine persons on oath.
3. NFRA may inspect only the company's registered office and cannot inspect the auditor's records.
4. NFRA may issue commissions only after obtaining approval from the High Court in each case.

Answer: A — NFRA has specified powers of a civil court under the Code of Civil Procedure, 1908, for discovery, production, attendance, examination, inspection and commissions.

Explanation. Section 132(4)(b) gives NFRA the same powers as those vested in a civil court under the Code of Civil Procedure, 1908, while trying a suit, in specified matters. These include discovery and production of books and documents, summoning and enforcing attendance and examining persons on oath, inspection of relevant books and records, and issuing commissions for examination of witnesses or documents. These powers are statutory and do not require separate High Court approval for each exercise.

Where it goes wrong. Assuming that NFRA is merely an advisory authority and cannot exercise quasi-judicial powers comparable to those of a civil court.

Authority. Section 132(4)(b), Companies Act, 2013