Chapter 9: Accounts of Companies and CSR - Test 5: answer key

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

Scenario. Anekta Garments Ltd. is an unlisted public company having a paid-up share capital of ₹40 crore. Its Board has convened the AGM for FY 2025-26 on 30 September 2026. The company proposes to circulate its statutory financial statements, auditor's report and other documents required to be annexed to the financial statements. Due to administrative difficulties, these documents were dispatched to members on 10 September 2026, instead of allowing the normal statutory period. The company has 100 members entitled to vote, holding an aggregate of 10,00,000 equity shares carrying voting rights. Out of these members, 60 have agreed to the shorter circulation period. These 60 members collectively hold 9,40,000 shares carrying voting rights. The CFO believes that the shorter circulation is valid because a majority in number of members has consented. Anekta has three subsidiaries. One shareholder has requested separate financial statements of all subsidiaries, but the finance department proposes supplying only the consolidated financial statements of the group. A trustee representing holders of debentures issued by Anekta has also requested inspection of the documents at the registered office. The CFO believes that such inspection is restricted to equity shareholders. The Company Secretary has placed the matter before the Board. The directors must determine the statutory circulation period, the conditions for shorter circulation, the categories of recipients entitled to documents, the rights of members requesting subsidiary financial statements and the inspection rights available to members and debenture trustees.

The AGM is scheduled for 30 September 2026 and the financial statements were dispatched on 10 September 2026. Sixty out of 100 members consented, representing 94% of the paid-up share capital carrying voting rights. Is the shorter circulation legally valid under the first proviso to Section 136(1)?

1. Yes, because consent by a majority in number is sufficient for shorter circulation.
2. Yes, because the consent represents more than 90% of the voting share capital.
3. No, because both conditions must be fulfilled and the 95% share-capital requirement is not satisfied. (correct answer)
4. No, because shorter circulation is prohibited for companies having share capital.

Answer: C — No, because both conditions must be fulfilled and the 95% share-capital requirement is not satisfied.

Explanation. Section 136(1) ordinarily requires circulation at least 21 days before the meeting. For shorter circulation in a company having share capital, consent must be obtained from a majority in number of members entitled to vote, representing not less than 95% of the relevant paid-up share capital carrying voting rights. Although 60 out of 100 members constitute a majority, their 94% holding fails the second cumulative condition. Therefore, the shorter circulation is not deemed duly sent.

Where it goes wrong. Assuming that majority consent in number alone is enough and overlooking the separate 95% voting share-capital requirement.

Authority. Section 136(1), first proviso, Companies Act, 2013

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

Anekta is preparing the statutory circulation package for its AGM. The CFO proposes sending only the statutory balance sheet and statement of profit and loss to members, keeping the auditor's report and other annexures available at the registered office. Which approach complies with Section 136(1)?

1. Circulate financial statements including CFS, auditor's report and every other document required to be annexed or attached under the Act. (correct answer)
2. Circulate only the balance sheet and statement of profit and loss because other documents remain inspectable at the registered office.
3. Circulate financial statements and auditor's report only to members holding at least 10% of the voting share capital.
4. Circulate the financial statements to members but omit the auditor's report and other annexures unless specifically requested.

Answer: A — Circulate financial statements including CFS, auditor's report and every other document required to be annexed or attached under the Act.

Explanation. Section 136(1) requires circulation of a copy of the financial statements, including consolidated financial statements if any, the auditor's report and every other document required by law to be annexed or attached to those statements. The CFO cannot replace this statutory circulation package with only the primary financial statements. Inspection rights under Section 136(2) are additional rights and do not remove the circulation requirement.

Where it goes wrong. Confusing the right to inspect documents with the company's separate obligation to circulate the complete statutory package.

Authority. Section 136(1), Companies Act, 2013

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

One shareholder of Anekta requests separate financial statements prepared for each of its three subsidiaries. The CFO refuses, stating that the consolidated financial statements already contain the financial information of those subsidiaries. What is the correct legal position?

1. The company must provide separate financial statements only if the shareholder holds at least 25% of its share capital.
2. The company may refuse because the right to subsidiary financial statements applies only to listed companies.
3. The company must provide only the consolidated financial statements because individual subsidiary accounts are confidential.
4. The company must provide separate examined under statutory audit or unaudited financial statements, as prepared for each subsidiary, to any member who asks for them. (correct answer)

Answer: D — The company must provide separate examined under statutory audit or unaudited financial statements, as prepared for each subsidiary, to any member who asks for them.

Explanation. The proviso to Section 136(2) provides that every company having subsidiary or subsidiaries shall provide a copy of separate examined under statutory audit or unaudited financial statements, as the case may be, prepared in respect of each subsidiary to any member of the company who asks for it. The right is not conditional on a minimum shareholding percentage or on the company being listed. CFS does not replace this specific entitlement.

Where it goes wrong. Assuming that consolidated financial statements eliminate a member's statutory right to separate subsidiary statements.

Authority. Section 136(2), proviso, Companies Act, 2013

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

The debenture trustee requests inspection of Anekta's financial statements, auditor's report and other documents required to be circulated under Section 136(1). The CFO states that inspection is a right available exclusively to equity shareholders. Which statement is correct?

1. Only members holding voting shares may inspect the documents during business hours.
2. Every member and every trustee for holders of debentures issued by the company may inspect the specified documents at the registered office during business hours. (correct answer)
3. The trustee may inspect the documents only after obtaining a special resolution of shareholders.
4. A debenture trustee may inspect only the auditor's report and cannot inspect the financial statements.

Answer: B — Every member and every trustee for holders of debentures issued by the company may inspect the specified documents at the registered office during business hours.

Explanation. Section 136(2) requires the company to allow every member and every trustee of the holders of any debentures issued by the company to inspect the documents specified in Section 136(1) at its registered office during business hours. The provision expressly includes debenture trustees. Consequently, the CFO's argument that inspection is restricted to equity shareholders is incorrect.

Where it goes wrong. Overlooking the express inclusion of debenture trustees in the statutory inspection right.

Authority. Section 136(2), Companies Act, 2013

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

Scenario. Narmada Electronics Ltd. is finalising its statutory filings for FY 2025-26. Its AGM was held on 20 September 2026, but the shareholders did not adopt the financial statements because certain material disclosures required clarification. The meeting was adjourned to 15 October 2026, when the financial statements were finally adopted. The Company Secretary prepared two filing schedules: one for the unadopted statements and another for the adopted statements. The company also has a listed Indian subsidiary, Narmada Digital Ltd., whose paid-up share capital is ₹3 crore and turnover is ₹60 crore. The subsidiary prepares financial statements under the applicable accounting framework. Narmada Electronics itself has paid-up share capital of ₹6 crore, turnover of ₹90 crore and is not listed. It has already filed financial statements in XBRL format for an earlier financial year when its paid-up capital exceeded ₹5 crore. During FY 2025-26, its paid-up capital has remained below that earlier level. Another group company, Narmada Energy Pvt. Ltd., did not hold its AGM by the last date prescribed under the Act because of a pending corporate restructuring. Its directors are considering whether the absence of an AGM eliminates the obligation to file financial statements with the Registrar. The group CFO also wants to know the appropriate filing forms for standalone financial statements, consolidated financial statements and companies subject to CSR reporting. The Company Secretary has been instructed to prepare a consolidated filing calendar covering provisional filings, subsequent adoption, XBRL continuity, Form AOC-4 and the consequences of an AGM not being held.

Narmada Electronics Ltd. held its AGM on 20 September 2026, but the financial statements were not adopted. They were subsequently adopted at an adjourned AGM on 15 October 2026. Which filing procedure must the company follow under Section 137(1)?

1. File only the adopted statements within 30 days of 15 October 2026 because unadopted statements need not be filed.
2. File the unadopted statements within 30 days of 15 October and the adopted statements within 30 days of the original AGM.
3. File the unadopted statements within 60 days of the original AGM and the adopted statements within 60 days of the adjourned AGM.
4. File the unadopted statements within 30 days of the original AGM as provisional and the adopted statements within 30 days of the adjourned AGM. (correct answer)

Answer: D — File the unadopted statements within 30 days of the original AGM as provisional and the adopted statements within 30 days of the adjourned AGM.

Explanation. Where financial statements are not adopted at the AGM or adjourned AGM, the unadopted statements and required documents must be filed within 30 days of the AGM and are taken on record provisionally. If they are adopted at the adjourned AGM, the adopted statements must be filed separately within 30 days of that adjourned AGM. Thus, 20 September and 15 October are the respective starting dates for the two filing deadlines.

Where it goes wrong. Assuming that filing the adopted statements after the adjourned AGM removes the obligation to file unadopted statements provisionally.

Authority. Section 137(1), first and second provisos, Companies Act, 2013

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

Narmada Electronics Ltd. previously filed financial statements in XBRL format when its paid-up capital exceeded ₹5 crore. Its present paid-up capital is below ₹5 crore and turnover is only ₹90 crore. Which filing requirement applies for FY 2025-26?

1. It must continue filing in XBRL because a company that has filed under Rule 3(1) continues to do so in succeeding years even if it later falls below the prescribed criteria. (correct answer)
2. It must immediately switch to Form AOC-4 because the present paid-up capital is below ₹5 crore.
3. It may select either XBRL or ordinary filing because the turnover is below ₹100 crore.
4. It may discontinue XBRL after obtaining written approval from the statutory auditor.

Answer: A — It must continue filing in XBRL because a company that has filed under Rule 3(1) continues to do so in succeeding years even if it later falls below the prescribed criteria.

Explanation. Rule 3(1) prescribes XBRL filing for specified classes, including companies with paid-up capital of ₹5 crore or more, turnover of ₹100 crore or more, listed companies and companies preparing financial statements under Ind AS. The study material specifically states that a company which has filed under Rule 3(1) must continue filing in XBRL in succeeding years even if it no longer falls within the prescribed criteria. Narmada therefore cannot switch merely because its current figures have fallen.

Where it goes wrong. Treating the XBRL thresholds as a fresh annual entry test and overlooking the continuation requirement.

Authority. Rule 3(1), Companies (Filing of Documents and Forms in Extensible Business Reporting Language) Rules, 2015

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

Narmada Electronics Ltd. has to file its standalone financial statements and consolidated financial statements with the Registrar. It is an ordinary company that does not fall within the special NBFC filing category. Which forms are prescribed under Rule 12(1) of the Companies (Accounts) Rules, 2014?

1. AOC-2 for standalone financial statements and AOC-3 for consolidated statements.
2. AOC-4 for standalone financial statements and AOC-4 CFS for consolidated financial statements, if any. (correct answer)
3. AOC-4 XBRL for standalone statements and AOC-5 for consolidated financial statements in every case.
4. AOC-1 for standalone statements and AOC-4 for consolidated statements, if any.

Answer: B — AOC-4 for standalone financial statements and AOC-4 CFS for consolidated financial statements, if any.

Explanation. Rule 12(1) requires every company to file its financial statements with the Registrar in Form AOC-4 and its consolidated financial statements, if any, in Form AOC-4 CFS. The special NBFC forms apply to an NBFC required to comply with Ind AS, while XBRL applies to prescribed categories under the XBRL Rules. AOC-1 is the statement of salient features of subsidiary, associate and joint venture financial statements, not the ordinary filing form.

Where it goes wrong. Confusing Form AOC-1 with the prescribed Registrar filing forms or treating AOC-4 CFS as a substitute for standalone AOC-4.

Authority. Rule 12(1), Companies (Accounts) Rules, 2014

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

Narmada Energy Pvt. Ltd. did not hold its AGM by the last date prescribed under the Companies Act, 2013. Its directors argue that Section 137(1) requires filing only when an AGM is actually conducted. What must the company do under Section 137(2)?

1. No filing is required until an AGM is eventually conducted and the accounts are adopted.
2. The company must file financial statements within 30 days from the date on which the Board decides not to hold the AGM.
3. It must file duly signed financial statements and required attachments with a statement of facts and reasons within 30 days of the last date before which the AGM should have been held. (correct answer)
4. It must file the financial statements within 180 days of the end of the financial year, irrespective of its company status.

Answer: C — It must file duly signed financial statements and required attachments with a statement of facts and reasons within 30 days of the last date before which the AGM should have been held.

Explanation. Section 137(2) addresses a situation where the AGM has not been held. The company must file duly signed financial statements, documents required to be attached and a statement of facts and reasons for not holding the AGM within 30 days of the last date before which the AGM should have been held. The filing obligation does not disappear merely because the AGM was not convened. The 180-day period mentioned in the study material applies specifically to an OPC.

Where it goes wrong. Confusing the filing requirement when an AGM is not held with the special 180-day period applicable to a One Person Company.

Authority. Section 137(2), Companies Act, 2013

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

Scenario. Prerna Industrial Group is reviewing the internal audit requirements of four group companies for FY 2026-27. Their particulars for FY 2025-26 are as follows: Company | Type | Paid-up Capital | Turnover | Maximum Relevant Outstanding Amount Prerna Public Ltd. | Unlisted public | ₹48 crore | ₹185 crore | Bank/PFI loans ₹96 crore; deposits ₹25 crore Navya Infrastructure Ltd. | Unlisted public | ₹50 crore | ₹190 crore | Bank/PFI loans ₹30 crore; deposits ₹10 crore Kite Retail Pvt. Ltd. | Private | ₹60 crore | ₹195 crore | Bank/PFI loans ₹99 crore; deposits ₹35 crore Orion Components Pvt. Ltd. | Private | ₹20 crore | ₹200 crore | Bank/PFI loans ₹15 crore; deposits ₹5 crore Prerna Public's deposit balance reached ₹25 crore on 12 February 2026 but had fallen to ₹18 crore by 31 March 2026. Navya Infrastructure satisfied the paid-up capital threshold during FY 2025-26. Kite Retail's management argues that its high paid-up capital and deposits automatically trigger internal audit requirements, while Orion Components claims that its precise turnover threshold should not count because it has not exceeded ₹200 crore. The group finance director has asked the internal audit department to determine which companies are required to appoint an internal auditor. The assessment must distinguish between unlisted public companies and private companies, identify the relevant financial thresholds and recognise when outstanding loans or deposits are measured. The group also wishes to avoid appointing internal auditors in companies that do not fall within Rule 13.

Prerna Public Ltd. is an unlisted public company. Its paid-up capital and turnover are below the relevant internal audit thresholds, and its maximum bank/PFI borrowings are ₹96 crore. However, its outstanding deposits reached ₹25 crore on 12 February 2026 before falling to ₹18 crore at year-end. Is it required to appoint an internal auditor for FY 2026-27?

1. No, because its outstanding deposits were below ₹25 crore on 31 March 2026.
2. Yes, because outstanding deposits of ₹25 crore or more at any point during the preceding financial year trigger the requirement. (correct answer)
3. No, because only paid-up capital and turnover can trigger internal audit in an unlisted public company.
4. Yes, because every unlisted public company must appoint an internal auditor irrespective of its financial particulars.

Answer: B — Yes, because outstanding deposits of ₹25 crore or more at any point during the preceding financial year trigger the requirement.

Explanation. Rule 13(1)(b) requires an unlisted public company to appoint an internal auditor if any one of the specified thresholds is met. Outstanding deposits of ₹25 crore or more at any point of time during the preceding financial year constitute an independent trigger. Since Prerna reached exactly ₹25 crore during FY 2025-26, it satisfies the deposit criterion even though the year-end balance fell to ₹18 crore.

Where it goes wrong. Testing outstanding deposits only at 31 March instead of considering the maximum amount at any point during the preceding financial year.

Authority. Section 138(1), Companies Act, 2013; Rule 13(1)(b)(iv), Companies (Accounts) Rules, 2014

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

Navya Infrastructure Ltd. is an unlisted public company. Its paid-up capital during FY 2025-26 was ₹50 crore, turnover was ₹190 crore, outstanding bank/PFI borrowings were ₹30 crore and deposits were ₹10 crore. Which conclusion is correct under Rule 13(1)?

1. It is not required to appoint an internal auditor because turnover is below ₹200 crore.
2. It is not required because both loans and deposits are below their prescribed thresholds.
3. It is required only if its paid-up capital exceeds ₹50 crore rather than merely reaching that amount.
4. It is required because paid-up share capital of ₹50 crore or more during the preceding financial year is independently sufficient. (correct answer)

Answer: D — It is required because paid-up share capital of ₹50 crore or more during the preceding financial year is independently sufficient.

Explanation. Rule 13(1)(b)(i) requires an unlisted public company to appoint an internal auditor where its paid-up share capital is ₹50 crore or more during the preceding financial year. The condition is satisfied at exactly ₹50 crore. The turnover, loan and deposit thresholds are alternative triggers; failure to meet them does not cancel the obligation arising from the paid-up capital criterion.

Where it goes wrong. Reading '₹50 crore or more' as requiring capital strictly exceeding ₹50 crore.

Authority. Section 138(1), Companies Act, 2013; Rule 13(1)(b)(i), Companies (Accounts) Rules, 2014

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

Kite Retail Pvt. Ltd. has paid-up share capital of ₹60 crore, turnover of ₹195 crore, bank/PFI borrowings of ₹99 crore and deposits of ₹35 crore during the relevant period. The directors claim that the high paid-up capital and deposits require an internal auditor. Is this correct?

1. Yes, because every company with paid-up capital of ₹50 crore or more must appoint an internal auditor.
2. Yes, because deposits of ₹25 crore or more independently trigger internal audit for every private company.
3. No, because a private company is covered only on the basis of turnover of ₹200 crore or more or qualifying bank/PFI loans or borrowings of ₹100 crore or more. (correct answer)
4. No, because private companies are never required to appoint an internal auditor.

Answer: C — No, because a private company is covered only on the basis of turnover of ₹200 crore or more or qualifying bank/PFI loans or borrowings of ₹100 crore or more.

Explanation. Rule 13(1)(c) prescribes only two triggers for a private company: turnover of ₹200 crore or more during the preceding financial year, or outstanding loans or borrowings from banks or public financial institutions of ₹100 crore or more at any point during that year. Paid-up capital and deposits are not independent private-company triggers. Kite's turnover and qualifying borrowings remain below the prescribed limits, so it is not required to appoint an internal auditor on these facts.

Where it goes wrong. Applying the unlisted public company thresholds for paid-up capital and deposits to a private company.

Authority. Section 138(1), Companies Act, 2013; Rule 13(1)(c), Companies (Accounts) Rules, 2014

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

Orion Components Pvt. Ltd. has turnover of exactly ₹200 crore during FY 2025-26. Its paid-up share capital is ₹20 crore, its bank/PFI borrowings are ₹15 crore and its deposits are ₹5 crore. Its directors argue that turnover must exceed ₹200 crore before the company becomes liable. Which statement is correct?

1. The company is not covered because the turnover must be strictly more than ₹200 crore.
2. The company is not covered because private companies must satisfy both turnover and borrowing conditions.
3. The company is covered only if its paid-up capital also reaches ₹50 crore.
4. The company is required to appoint an internal auditor because turnover of ₹200 crore or more is sufficient for a private company. (correct answer)

Answer: D — The company is required to appoint an internal auditor because turnover of ₹200 crore or more is sufficient for a private company.

Explanation. Rule 13(1)(c)(i) requires every private company having turnover of ₹200 crore or more during the preceding financial year to appoint an internal auditor. Orion satisfies the turnover threshold exactly. The alternative qualifying borrowing threshold is not also required. The provisions do not use a requirement that turnover must strictly exceed ₹200 crore.

Where it goes wrong. Replacing the statutory expression '₹200 crore or more' with a strict 'greater than ₹200 crore' test.

Authority. Section 138(1), Companies Act, 2013; Rule 13(1)(c)(i), Companies (Accounts) Rules, 2014

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

Scenario. Saffron Technologies Ltd. is a listed company operating manufacturing facilities in four States. Its paid-up capital is ₹12 crore, turnover is ₹75 crore and outstanding borrowings from banks and public financial institutions are ₹20 crore. The Board proposes to appoint an internal auditor for FY 2026-27 and is considering whether its relatively modest financial size exempts it from Section 138. The company currently engages a practising firm of Chartered Accountants for internal audit. However, the Board wants to replace the external firm with an in-house internal audit arrangement headed by Ms. Riya, who is a Chartered Accountant employed by the company. An independent Cost Accountant has also offered to undertake the assignment. The CFO believes that an internal auditor must necessarily be an external professional and that a Chartered Accountant must be in practice to qualify. The Board is also considering appointing a management professional who is neither a Chartered Accountant nor a Cost Accountant. The directors propose passing a Board resolution selecting that professional for internal audit. The Audit Committee has suggested that the scope, functioning, periodicity and methodology of the internal audit be formulated after consultation with the person appointed. At its meeting on 5 October 2026, the Board requested a legal opinion covering the company's obligation to appoint an internal auditor, acceptable qualifications, employment status and the allocation of responsibility for determining the internal audit framework. The directors also wish to confirm whether continuing the existing outside audit firm is compulsory once the company establishes an adequate in-house internal audit function.

Saffron Technologies Ltd. is a listed company, although its paid-up capital, turnover and outstanding borrowings are all comparatively low. Is it required to appoint an internal auditor under Section 138?

1. Yes, every listed company is covered irrespective of the financial thresholds prescribed for unlisted public companies. (correct answer)
2. No, because every company must independently satisfy the ₹50 crore capital threshold.
3. No, because listed companies are exempt where their borrowings are below ₹100 crore.
4. Yes, but only if its turnover exceeds ₹200 crore in the preceding financial year.

Answer: A — Yes, every listed company is covered irrespective of the financial thresholds prescribed for unlisted public companies.

Explanation. Rule 13(1)(a) independently requires every listed company to appoint an internal auditor. The financial thresholds relating to paid-up capital, turnover, loans and deposits under Rule 13(1)(b) apply to unlisted public companies, while separate tests apply to private companies. Saffron's listed status is sufficient to trigger the requirement, irrespective of its comparatively low financial figures.

Where it goes wrong. Applying the financial thresholds of unlisted public companies to every listed company.

Authority. Section 138(1), Companies Act, 2013; Rule 13(1)(a), Companies (Accounts) Rules, 2014

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

The Board proposes replacing Saffron's external internal audit firm with Ms. Riya, an employed Chartered Accountant. The CFO contends that only a practising Chartered Accountant who is not employed by the company can act as its internal auditor. Which position is correct?

1. The CFO is correct because every internal auditor must be an external practising professional.
2. The CFO is correct because an internal auditor cannot be an employee of the company.
3. Ms. Riya may act only if she resigns from the company before accepting the internal audit assignment.
4. Ms. Riya may be appointed because a Chartered Accountant may act whether in practice or not, and the internal auditor may or may not be an employee. (correct answer)

Answer: D — Ms. Riya may be appointed because a Chartered Accountant may act whether in practice or not, and the internal auditor may or may not be an employee.

Explanation. Section 138(1), read with Rule 13(1), permits a Chartered Accountant, a Cost Accountant or another professional decided by the Board to conduct internal audit. The study material expressly clarifies that a Chartered Accountant or Cost Accountant may be engaged in practice or not, and the internal auditor may or may not be an employee of the company. Hence, Saffron may appoint its employed Chartered Accountant as internal auditor.

Where it goes wrong. Assuming that an internal auditor must necessarily be an external professional engaged in practice.

Authority. Section 138(1), Companies Act, 2013; Rule 13(1), Companies (Accounts) Rules, 2014

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

Saffron's Board proposes appointing a management professional who is neither a Chartered Accountant nor a Cost Accountant to undertake internal audit. The directors are willing to pass a resolution specifically selecting that professional. Is such an appointment permitted?

1. No, because only a practising Chartered Accountant can be appointed under Section 138.
2. Yes, because Section 138 permits another professional selected by the Board to conduct internal audit of the company's functions and activities. (correct answer)
3. No, because a professional other than a Chartered Accountant must first obtain approval from the Registrar.
4. Yes, but only if the professional is simultaneously appointed as the statutory auditor.

Answer: B — Yes, because Section 138 permits another professional selected by the Board to conduct internal audit of the company's functions and activities.

Explanation. Section 138(1) permits the internal auditor to be a Chartered Accountant, Cost Accountant or such other professional as may be decided by the Board to conduct the internal audit of the functions and activities of the company. Therefore, a professional other than a CA or Cost Accountant may be appointed if selected by the Board. Separate approval from the Registrar or appointment as statutory auditor is not prescribed by this provision.

Where it goes wrong. Treating the CA and Cost Accountant categories as exhaustive and overlooking the Board-selected other-professional category.

Authority. Section 138(1), Companies Act, 2013

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

Saffron's Audit Committee proposes to determine the scope, functioning, periodicity and methodology of internal audit without consulting the appointed internal auditor. Which approach is required under Rule 13(2)?

1. The statutory auditor alone must determine the internal audit methodology without consulting the Board.
2. The Registrar must prescribe the scope and periodicity of every internal audit assignment.
3. The Audit Committee or the Board must formulate the scope, functioning, periodicity and methodology in consultation with the Internal Auditor. (correct answer)
4. The internal auditor may independently determine all these matters without consulting the Audit Committee or Board.

Answer: C — The Audit Committee or the Board must formulate the scope, functioning, periodicity and methodology in consultation with the Internal Auditor.

Explanation. Rule 13(2) provides that the Audit Committee of the company or the Board shall, in consultation with the Internal Auditor, formulate the scope, functioning, periodicity and methodology for conducting internal audit. The Audit Committee cannot ignore the consultation requirement. Equally, the internal auditor does not possess exclusive authority to determine these matters independently. The provision recognises the role of either the Audit Committee or the Board.

Where it goes wrong. Confusing the authority responsible for formulating the internal audit framework with the requirement to consult the Internal Auditor.

Authority. Section 138(2), Companies Act, 2013; Rule 13(2), Companies (Accounts) Rules, 2014

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

Scenario. Vardhan Engineering Ltd. is an unlisted public company. During FY 2025-26, its paid-up share capital was ₹49.80 crore, turnover was ₹199 crore and deposits were ₹12 crore. Its bank borrowings crossed ₹100 crore on one day during the preceding financial year but stood at ₹82 crore on 31 March 2026. The Board claims that an internal auditor is unnecessary because year-end borrowings were below ₹100 crore. Which position is correct?

Vardhan Engineering Ltd. is an unlisted public company. During FY 2025-26, its paid-up share capital was ₹49.80 crore, turnover was ₹199 crore and deposits were ₹12 crore. Its bank borrowings crossed ₹100 crore on one day during the preceding financial year but stood at ₹82 crore on 31 March 2026. The Board claims that an internal auditor is unnecessary because year-end borrowings were below ₹100 crore. Which position is correct?

1. No appointment is required because every financial threshold must be satisfied on 31 March.
2. Appointment is required only if the company's paid-up capital reaches ₹50 crore.
3. Appointment is required because bank/PFI borrowings of ₹100 crore or more at any point during the preceding financial year are sufficient. (correct answer)
4. No appointment is required because the maximum borrowing must exceed ₹200 crore.

Answer: C — Appointment is required because bank/PFI borrowings of ₹100 crore or more at any point during the preceding financial year are sufficient.

Explanation. Rule 13(1)(b)(iii) uses the outstanding loans or borrowings from banks or public financial institutions at any point of time during the preceding financial year as the relevant test. The borrowing threshold is ₹100 crore or more. Consequently, reaching ₹100 crore even for one day is sufficient. The rule does not require that the borrowing remain at that level on 31 March. The other thresholds are separate alternative tests.

Where it goes wrong. Using only the closing balance at the end of the financial year instead of the maximum qualifying borrowing during the year.

Authority. Section 138(1), Companies Act, 2013; Rule 13(1)(b)(iii), Companies (Accounts) Rules, 2014

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

Scenario. Meera Lifestyle Pvt. Ltd. has paid-up capital of ₹80 crore and deposits of ₹30 crore, but turnover is ₹190 crore and outstanding borrowings from banks and public financial institutions are ₹95 crore throughout FY 2025-26. The directors believe that the company must appoint an internal auditor because its capital and deposits exceed the limits applicable to unlisted public companies. Which statement is correct?

Meera Lifestyle Pvt. Ltd. has paid-up capital of ₹80 crore and deposits of ₹30 crore, but turnover is ₹190 crore and outstanding borrowings from banks and public financial institutions are ₹95 crore throughout FY 2025-26. The directors believe that the company must appoint an internal auditor because its capital and deposits exceed the limits applicable to unlisted public companies. Which statement is correct?

1. The company is covered because private companies must satisfy the same four tests as unlisted public companies.
2. The company is not covered on these facts because private-company tests concern turnover and qualifying bank/PFI borrowings. (correct answer)
3. The company is covered because paid-up capital above ₹50 crore is sufficient for every class of company.
4. The company is covered because deposits exceeding ₹25 crore are a universal trigger under Rule 13.

Answer: B — The company is not covered on these facts because private-company tests concern turnover and qualifying bank/PFI borrowings.

Explanation. Rule 13(1)(c) requires a private company to appoint an internal auditor where turnover is ₹200 crore or more during the preceding financial year, or outstanding loans or borrowings from banks or public financial institutions are ₹100 crore or more at any point during that year. Paid-up capital and deposits are not independent triggers for a private company. Meera satisfies neither of the two applicable criteria.

Where it goes wrong. Importing paid-up capital and deposit thresholds applicable to unlisted public companies into the private-company category.

Authority. Section 138(1), Companies Act, 2013; Rule 13(1)(c), Companies (Accounts) Rules, 2014

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

Scenario. Saraswati Industries Ltd., an unlisted public company, maintained outstanding deposits of ₹24.50 crore throughout the year except for 28 March 2026, when the outstanding amount reached ₹25.10 crore. Its other financial particulars are below the internal audit thresholds. The CFO proposes using the average yearly deposit balance to decide applicability. Which conclusion is correct?

Saraswati Industries Ltd., an unlisted public company, maintained outstanding deposits of ₹24.50 crore throughout the year except for 28 March 2026, when the outstanding amount reached ₹25.10 crore. Its other financial particulars are below the internal audit thresholds. The CFO proposes using the average yearly deposit balance to decide applicability. Which conclusion is correct?

1. The company is not covered because its average annual deposit balance is below ₹25 crore.
2. The company is covered only if its deposits remain above ₹25 crore for at least six months.
3. The company is not covered because deposits are tested only as at 31 March.
4. The company is covered because deposits of ₹25 crore or more at any point during the preceding financial year are sufficient. (correct answer)

Answer: D — The company is covered because deposits of ₹25 crore or more at any point during the preceding financial year are sufficient.

Explanation. For an unlisted public company, Rule 13(1)(b)(iv) prescribes outstanding deposits of ₹25 crore or more at any point of time during the preceding financial year as an independent internal audit trigger. There is no requirement that the threshold be maintained for a minimum duration or that the annual average exceed ₹25 crore. Since Saraswati reached ₹25.10 crore, it is covered for the relevant assessment.

Where it goes wrong. Substituting the statutory 'at any point of time' test with an average-balance or year-end-balance test.

Authority. Section 138(1), Companies Act, 2013; Rule 13(1)(b)(iv), Companies (Accounts) Rules, 2014

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

Scenario. A listed company appoints a Cost Accountant as its internal auditor. The Cost Accountant is not holding a certificate of practice but is employed by the company in its finance department. The Board has formally appointed the individual and assigned internal audit responsibilities. The statutory auditor objects, claiming that an internal auditor must be a practising Cost Accountant from outside the company. Which statement is correct?

A listed company appoints a Cost Accountant as its internal auditor. The Cost Accountant is not holding a certificate of practice but is employed by the company in its finance department. The Board has formally appointed the individual and assigned internal audit responsibilities. The statutory auditor objects, claiming that an internal auditor must be a practising Cost Accountant from outside the company. Which statement is correct?

1. The appointment is invalid because internal auditors must be independent practising professionals.
2. The appointment is valid only if the employee resigns from the company before commencing the assignment.
3. The appointment is invalid because only Chartered Accountants can act as internal auditors.
4. The appointment may be valid because a Cost Accountant may be in practice or not, and the internal auditor may be an employee. (correct answer)

Answer: D — The appointment may be valid because a Cost Accountant may be in practice or not, and the internal auditor may be an employee.

Explanation. Section 138(1) recognises a Cost Accountant as an eligible internal auditor. The study material clarifies that the term Cost Accountant includes a Cost Accountant whether engaged in practice or not. It further states that the internal auditor may or may not be an employee of the company. Therefore, the employee's lack of a certificate of practice or external status does not by itself invalidate the appointment.

Where it goes wrong. Assuming that the internal auditor must necessarily be a practising professional who is independent of the company's employment structure.

Authority. Section 138(1), Companies Act, 2013; Rule 13(1), Companies (Accounts) Rules, 2014

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

Scenario. Pragati Motors Ltd. is a listed company having two Indian subsidiaries and one foreign subsidiary. The foreign subsidiary is not required to have its financial statements examined under statutory audit under the law of its country of incorporation and therefore prepares unaudited accounts in French. Which arrangement is required for the listed Indian holding company's website compliance under Section 136?

Pragati Motors Ltd. is a listed company having two Indian subsidiaries and one foreign subsidiary. The foreign subsidiary is not required to have its financial statements examined under statutory audit under the law of its country of incorporation and therefore prepares unaudited accounts in French. Which arrangement is required for the listed Indian holding company's website compliance under Section 136?

1. Place its financial statements, CFS if any, separate subsidiary accounts and required attachments on its website; for the foreign subsidiary, place the unaudited financial statements and an English translation. (correct answer)
2. Place only the holding company's standalone financial statements on its website because subsidiary accounts are confidential.
3. Place only the consolidated financial statements on the website because the foreign subsidiary is not required to obtain an audit.
4. Place the foreign subsidiary's French accounts only on the subsidiary's website without any English translation.

Answer: A — Place its financial statements, CFS if any, separate subsidiary accounts and required attachments on its website; for the foreign subsidiary, place the unaudited financial statements and an English translation.

Explanation. The fourth and fifth provisos to Section 136(1) require a listed company to host its financial statements, CFS if any, separate statutory accounts of subsidiaries and other required attachments on its website. The special foreign-subsidiary provision permits unaudited statements where audit is not required under the foreign law and the statements are not examined under statutory audit. If those statements are in a language other than English, an English translation must also be placed on the website.

Where it goes wrong. Assuming that an unaudited foreign subsidiary is completely excluded from the listed holding company's website disclosure obligation.

Authority. Section 136(1), fourth, fifth and sixth provisos, Companies Act, 2013

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

Scenario. A company is covered under Section 135(1) and is required to file its financial statements with the Registrar in ordinary Form AOC-4. It also has a consolidated financial statement. The company secretary is preparing the annual filing and wants to ensure that its CSR reporting is included correctly. Which filing procedure is prescribed under Rule 12?

A company is covered under Section 135(1) and is required to file its financial statements with the Registrar in ordinary Form AOC-4. It also has a consolidated financial statement. The company secretary is preparing the annual filing and wants to ensure that its CSR reporting is included correctly. Which filing procedure is prescribed under Rule 12?

1. File AOC-1 for standalone statements and Form CSR-2 separately instead of the statutory financial statement forms.
2. File only AOC-4 CFS because the consolidated statement replaces the standalone statements.
3. File AOC-4 for standalone statements, AOC-4 CFS for CFS if any, and Form CSR-2 as an addendum to the applicable form. (correct answer)
4. File only Form CSR-2 because the CSR report contains the financial information required by the Registrar.

Answer: C — File AOC-4 for standalone statements, AOC-4 CFS for CFS if any, and Form CSR-2 as an addendum to the applicable form.

Explanation. Rule 12(1) requires an ordinary company to file its standalone financial statements in Form AOC-4 and its CFS, if any, in Form AOC-4 CFS. Rule 12(1B) separately requires every company covered under Section 135(1) to furnish its CSR report in Form CSR-2 as an addendum to the applicable filing form. CSR-2 does not replace the financial statement filing forms.

Where it goes wrong. Treating Form CSR-2 as a substitute for the financial statements or confusing AOC-1 with the prescribed ROC filing forms.

Authority. Rule 12(1), Companies (Accounts) Rules, 2014; Rule 12(1B), Companies (Accounts) Rules, 2014

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

Scenario. Raghav Manufacturing Ltd. was required to hold its AGM by 30 September 2026 but did not hold it. The directors propose waiting until the restructuring process is completed in December 2026 before filing the financial statements. They also do not intend to explain why the AGM was not held. Which position correctly follows Section 137(2)?

Raghav Manufacturing Ltd. was required to hold its AGM by 30 September 2026 but did not hold it. The directors propose waiting until the restructuring process is completed in December 2026 before filing the financial statements. They also do not intend to explain why the AGM was not held. Which position correctly follows Section 137(2)?

1. The company may defer filing until the next AGM because no financial statements were adopted.
2. The company must file the financial statements within 30 days of the Board's eventual approval in December.
3. The company may file only the auditor's report within 30 days of 30 September.
4. The company must file duly signed financial statements and attached documents with a statement of facts and reasons within 30 days of 30 September. (correct answer)

Answer: D — The company must file duly signed financial statements and attached documents with a statement of facts and reasons within 30 days of 30 September.

Explanation. Where an AGM has not been held, Section 137(2) requires duly signed financial statements and the documents required to be attached, along with a statement of facts and reasons for not holding the AGM, to be filed within thirty days of the last date before which the AGM should have been held. Here that date is 30 September 2026. The company cannot postpone the filing until restructuring concludes.

Where it goes wrong. Treating the absence of an AGM as a postponement of the statutory filing obligation.

Authority. Section 137(2), Companies Act, 2013

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

Scenario. A private company is not listed, has paid-up capital of ₹4 crore and turnover of ₹105 crore. It prepares financial statements under the Companies (Indian Accounting Standards) Rules, 2015. Its finance director believes XBRL filing is unnecessary because neither the company is listed nor its paid-up capital has reached ₹5 crore. Which statement is correct under Rule 3(1) of the XBRL Rules?

A private company is not listed, has paid-up capital of ₹4 crore and turnover of ₹105 crore. It prepares financial statements under the Companies (Indian Accounting Standards) Rules, 2015. Its finance director believes XBRL filing is unnecessary because neither the company is listed nor its paid-up capital has reached ₹5 crore. Which statement is correct under Rule 3(1) of the XBRL Rules?

1. XBRL filing is unnecessary because both listing and capital thresholds must be satisfied together.
2. The company must file in XBRL because companies preparing financial statements under the Ind AS Rules are independently covered. (correct answer)
3. The company must file in XBRL only if its turnover exceeds ₹200 crore.
4. The company is exempt because only listed companies and their Indian subsidiaries are covered.

Answer: B — The company must file in XBRL because companies preparing financial statements under the Ind AS Rules are independently covered.

Explanation. Rule 3(1) prescribes XBRL filing for separate categories of companies, including listed companies and their Indian subsidiaries, companies having paid-up capital of ₹5 crore or above, companies having turnover of ₹100 crore or above, and all companies required to prepare financial statements under the Ind AS Rules. These are alternative categories. Since the company follows Ind AS and its turnover is also ₹105 crore, it is covered.

Where it goes wrong. Assuming that XBRL applicability requires a company to satisfy both listing and paid-up capital conditions.

Authority. Rule 3(1), Companies (Filing of Documents and Forms in Extensible Business Reporting Language) Rules, 2015

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

Scenario. A company fails to comply with the circulation requirements under Section 136 by not sending the prescribed financial statements and accompanying documents to members. The Registrar initiates proceedings against the company and the officer responsible for the default. Which penalty is prescribed under Section 136(3)?

A company fails to comply with the circulation requirements under Section 136 by not sending the prescribed financial statements and accompanying documents to members. The Registrar initiates proceedings against the company and the officer responsible for the default. Which penalty is prescribed under Section 136(3)?

1. The company is liable to ₹25,000 and every officer in default is liable to ₹5,000. (correct answer)
2. The company is liable to ₹10,000 and every officer in default is liable to ₹10,000.
3. The company is liable to ₹50,000 and every officer in default is liable to ₹25,000.
4. The company is liable to ₹1 lakh and every officer in default is liable to ₹10,000.

Answer: A — The company is liable to ₹25,000 and every officer in default is liable to ₹5,000.

Explanation. Section 136(3) provides that where default is made in complying with Section 136, the company is liable to a penalty of ₹25,000 and every officer of the company who is in default is liable to a penalty of ₹5,000. These are the specific amounts prescribed for contravention of the circulation and related requirements under this section. The penalties under Section 137 for failure to file financial statements are separate and should not be substituted here.

Where it goes wrong. Confusing the penalty under Section 136 with the different penalty framework prescribed for failure to file financial statements under Section 137.

Authority. Section 136(3), Companies Act, 2013