Reopening & Revision of accounts in Co's Act 2013 - Some practical questions

What is the difference between Re-opening under Sec. 130 & 

Re-statement under Sec. 131?

Who can apply for Re- opening of accounts? Who is authorized to pass Orders?

Accounts can be revised for how many years of the past period?

Tax implications to be kept in mind while financials are revised....

Please read .........

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REOPENING OF ACCOUNTS – SEC 130 & 131 OF

THE COMPANIES ACT 2013

By  Priya Kannan, PCS, Chennai

During 26th June 2012 SEBI had announced that it may mandate restatement of accounts, if there is any qualification by auditors which was not properly / satisfactorily explained by the listed companies and specified the process relating to this.

Unfortunately, there was no provision in the Companies Act 1956 for reopening of accounts at that time. To curtail this problem, the new Act provided a venue through Sec 130 and 131.

RE- OPENING OF ACCOUNTS UNDER SEC. 130

Sec 130 talks about re-opening of accounts based  on a Court’s or in case of any order of  Tribunal.

The following persons are eligible to make an application to National Company Law Tribunal :

                      i.        Central Government

                    ii.        IT Authority

                   iii.        SEBI

                   iv.        Any other statutory regulatory body

                    v.        Any concerned person

                   vi.        Order made by court

                  vii.        Tribunal on its own.

Reopening can be done only on the following grounds :

 i) that the relevant earlier year accounts were prepared in a fraudulent manner /

ii)  the affairs of the company were mismanaged during the relevant period, casting a doubt on the reliability of financial statements.

The accounts so revised or recast under this section shall be final.

VOLUNTARY REVISION OF FINANCIAL STATEMENTS

While Sec. 130 discussed the situation where a Government agency wants to make a re- opening of financials of the Company due to some fraud on the part of the Company,  Sec 131 speaks about the voluntary revision of financial statements or Board’s report by the concerned company itself.

The Board can revise the report in respect of any of the three preceding financial years after obtaining approval of the Tribunal.(There is no such period specification in case of Sec 130)

The required form and the manner in which the application to be made is explained in the draft rules 9.5 to 9.8.

One among the main points in the rule is “the Management has to necessarily revise the financial statements for all the relevant period, subsequent to the financial year for which the revision of financial statement is sought to be made by the Board of Directors”

In the event of revision of previous year’s accounts, the tax implications should also be considered carefully. In such a case, the company may be compelled to file a revised return to tax authorities and the situation will be worse in the case of MAT.

If there is a change in auditors, the present auditor has to report on the restated financial statements which is really an arduous job as he has to re-audit the entire transactions.

Situations will be most awful in case of any merger / joint venture or similar transactions happened during such period that was based on the previous financial statements which is under evaluation.

However, if there is a change in the management, it is a trouble-free way to the new management to correct the errors made by the previous management.

The Board’s report consists of the Director’s responsibility statement in which they declare that they are taking the entire responsibility for the preparation of annual accounts in line with the act and accounting standards, etc. If it is not in accordance with the relevant law, they are having penalty clause also. In such a case, if they are reopening this accounts whether they will be outside the purview of penal sections ?

Let us see in the upcoming years whether Sec 131 will be a boon or bane for companies.