Accounting Standards, and the Board's Report

In one line

Section 133 gives the Central Government power to prescribe the accounting standards, and section 134 says who signs the financial statement, what must be attached to it, and what the Board must report to the members alongside it.

Section 133: where the standards come from

One sentence, and every actor in it matters.

The Central Government may prescribe the standards of accounting or any addendum thereto, as recommended by the Institute of Chartered Accountants of India, constituted under section 3 of the Chartered Accountants Act 1949, in consultation with and after examination of the recommendations made by the National Financial Reporting Authority.

The proviso covers the interval: until the National Financial Reporting Authority was constituted under section 132, the Central Government could prescribe on the recommendation of the Institute in consultation with the National Advisory Committee on Accounting Standards.

The point to take from this section is the chain of authority. A student often says an accounting standard is "issued by the ICAI". For a company, that is incomplete. The Institute recommends; the Government prescribes; and it is the prescribed standard, notified under section 133, that section 129(1) makes binding. A standard the Institute has issued but the Government has not notified does not bind a company under section 129.

This is the same point Module I made about the standard on amalgamations, from the other direction. There the question was whether a standard reaches a partnership firm. Here the question is what makes it reach a company, and the answer is section 133.

Section 134(1): approval and signature

The financial statement, including the consolidated one, shall be approved by the Board of Directors before it is signed on behalf of the Board.

Who signs:

And then it goes to the auditor for his report on it. So the order is: Board approves, signatories sign, auditor reports. A statement that reaches the auditor unsigned is out of order.

Sub-section (2): the auditors' report shall be attached to every financial statement.

Section 134(3): what the Board must report

A report by the Board of Directors shall be attached to the statements laid before the general meeting, and the sub-section lists what it must include. Seventeen clauses, and you are not asked to recite all of them. Learn them in groups.