Corporate Accounting and Statutory Compliance Standards

Posted on Jan 13, 2026 in Accounting and Finance

Introduction to Corporate Accounting

Companies maintain books of accounts to record financial transactions accurately, ensuring transparency and compliance with laws like the Companies Act 2013. These records provide a true and fair view of business operations for stakeholders, auditors, and regulators. They form the essential basis for preparing financial statements, tax filings, and strategic decision-making, with a mandatory retention period of at least eight years from the relevant financial year. [1][2][5]

Books of Accounts to be Maintained

Under Section 128 of the Companies Act 2013, every company must maintain books capturing receipts and expenditures with explanations, sales and purchases of goods or services, assets and liabilities, and prescribed cost items. These include cash books, ledgers, journals, trial balances, and subsidiary records like invoices and vouchers. These must be kept at the registered office (or an approved alternate location notified to the ROC within 7 days). Branch offices are required to send periodical returns to the head office, and electronic maintenance is permitted under specific rules. [2][5][1]

Financial Statements and Reporting

Financial statements comprise the Balance Sheet, Profit and Loss Account (or Income and Expenditure for non-profits), Cash Flow Statement, and explanatory notes. These are prepared per Schedule III to reflect the company’s state of affairs and profit or loss. They must provide a true and fair view, be audited by a Chartered Accountant (mandatory if turnover exceeds specific thresholds), and be filed with the ROC via Form AOC-4. [3][1][2]

Statutory Registers and Compliance

Beyond core books, companies must maintain statutory registers such as the Register of Members, Directors, Charges (Form CHG-7), and Loans/Investments under Sections 88, 170, and 186. These ensure legal compliance and are open for inspection by directors and shareholders. Books must be preserved for 8 years and remain accessible electronically where applicable. [7][2]

Preparation and Presentation of Final Accounts

The preparation of final accounts follows a standard accounting cycle: trial balance, adjustments, and financial statements per Ind AS or Schedule III, followed by an audit and board approval. Listed companies must present these via stock exchanges within 60 days (quarterly) or 30 days (half-yearly), file with the ROC/MCA within 30 days of the AGM, and publish them in newspapers or abridged forms for public access. Non-compliance attracts penalties under Section 128(9). [1][2][3]

Proforma of the Statement of Profit and Loss

The Statement of Profit and Loss, per Schedule III of the Companies Act 2013, starts with revenue from operations minus the cost of goods sold to derive gross profit. This is followed by other income, total income, and expenses (employee benefits, finance costs, depreciation, and other expenses) to reach the profit before tax. It includes tax expenses, profit after tax, other comprehensive income, total comprehensive income, and EPS (Earnings Per Share) calculations, presented vertically with comparative prior-year figures and notes. [11][12]

Key Proforma Structure:

• I. Revenue from operations
• II. Other income → Total Income (I+II)
• III. Expenses → Total Expenses
• IV. Profit before tax (Total Income – Total Expenses)
• V. Tax expense → VI. Profit for the period
• VII. Other Comprehensive Income → VIII. Total Comprehensive Income [12]

Proforma of the Balance Sheet

The Balance Sheet follows a vertical format under Schedule III: Equity and Liabilities (shareholders’ funds, non-current/current liabilities), followed by Assets (non-current/current), with subtotals, totals, and prior period columns. It mandates minimum line items like PPE (Property, Plant, and Equipment), investments, inventories, trade receivables/payables, and disclosures for related parties. [11][12]

Key Sections:

• Equity & Liabilities: Share capital, reserves, borrowings, provisions, and trade payables.
• Assets: PPE, CWIP (Capital Work-in-Progress), intangibles, investments, inventories, trade receivables, and cash equivalents. [12]

Provisions, Reserves, and CSR Obligations

Provisions are liabilities of uncertain timing or amount for present obligations (e.g., depreciation, warranties) and are charged to the P&L. Reserves are retained profits (general or capital) transferred from the P&L for future needs; a reserve fund specifically denotes appropriated profits like a dividend equalization fund. CSR (Corporate Social Responsibility) under Section 135 requires 2% of average net profits over three years for qualifying companies to be spent on specified activities, with unspent amounts transferred to funds and reported in the Board Report. [1][11][12]

Common Adjustments in Final Accounts

Common adjustments in final accounts include outstanding expenses, prepaid expenses, accrued income, depreciation, bad debts, provisions for doubtful debts, closing stock valuation, interest on capital/drawings, partner’s salary/commission, rent received in advance, insurance prepaid, manager’s commission, goods destroyed, freight inwards, bills receivable dishonored, drawings, salary arrears, and abnormal loss. These ensure the accrual basis and matching principle; for example, adding outstanding salary to expenses or deducting prepaid insurance from expenses. [11][12]

Divisible Profit and Dividend Regulations

Divisible profit is the net profit available for shareholder distribution per Section 123 after accounting for depreciation, tax, transfers to reserves, arrears provisions, and prior losses set-off. Dividends are payable from current or accumulated profits (post-depreciation per Schedule II), government grants, or reserves (maximum 1/10th of paid-up capital + free reserves, leaving 15% reserves, and offsetting current losses first). [2][3][1]

Key 23 Points on Divisible Profit and Dividends:

• Computed post full depreciation (current + arrears). [1]
• After income tax provision under Section 198. [2]
• Prior year losses must be set off before declaration. [1]
• Transfers to reserves are mandatory as per the Articles of Association. [3]
• Capital profits are distributable if Articles permit, post-requirements. [4]
• No dividend can be paid from fictitious profits. [3]
• Reserves withdrawal ≤ 1/10th of (paid-up capital + free reserves). [1]
• Post-withdrawal reserves must be ≥ 15% of paid-up capital. [1]
• Cash dividends only (no stock except bonus shares). [4]
• Interim dividends are paid from current profits. [1]
• DDT (pre-2020) was on gross dividends; now dividends are shareholder-taxed. [1]
• Unpaid dividends must go to a special account within 30 days. [4]
• Rate ≤ average of the past 5 years or 10% of paid-up capital. [3]
• Preference dividend arrears must be cleared first. [2]
• Auditor verifies figures before recommendation. [9]
• Board recommends; shareholders approve at the AGM. [1]
• Cannot exceed profits available. [2]
• Paid from free reserves only. [6]
• Offset against reserves for losses. [1]
• No dividend if there is a net loss despite reserves. [3]
• EPS impact post-declaration. [1]
• Disclosure required in notes to accounts. [1]
• Penalties apply for excess declaration. [2][1]

Treatment of Surplus (Deficit) Account

The Surplus (Deficit) Account, formerly known as the Profit and Loss Appropriation Account, captures net profit after tax allocations like dividends, transfers to reserves, and prior period adjustments. It is shown under “Reserves and Surplus” in the Balance Sheet per Schedule III. A credit balance (surplus) adds to retained earnings, enhancing net worth; a debit balance (deficit) appears as a negative figure, reducing reserves and potentially requiring a set-off against future profits. Board discretion allows carrying forward surplus without reserving, applicable for dividends or contingencies, with full disclosure in notes. [2][4]

GST-Based Accounting Treatment

GST treatment integrates Input Tax Credit (ITC) claims and output liability into the books: debit ITC receivable for eligible purchases and credit GST payable for sales, with reconciliation in financial statements under current assets/liabilities. Unutilized ITC shows as an asset; reverse charge mechanism expenses increase costs. The annual return (GSTR-9) reconciles with audited books, impacting the P&L via net GST expense post-ITC. Non-creditable GST (e.g., blocked credits) is treated as part of the cost of goods or services in expenses. [11]

Definition and Characteristics of a Company

A company is an artificial legal person formed by law through registration under the Companies Act 2013, enabling collective business with a separate identity from its members. It is an association of persons pooling capital via shares for profit, characterized by perpetual succession (exists beyond members’ lives), limited liability (members liable only up to unpaid share value), common seal (official signature), capacity to sue and be sued, transferability of shares, and professional management by directors. [1][2]

Classification of Joint Stock Companies

Joint stock companies are classified by incorporation, ownership, and listing status. [2][1]

• Registered Companies: Formed via the Registrar of Companies (ROC) under the Companies Act. Includes private (e.g., Tata Sons), public (e.g., Reliance Industries), One-Person Companies (OPC), and small companies. [4][1]
• Chartered Companies: Created by royal or government charter with special privileges; rare today (e.g., East India Company). [8][2]
• Statutory Companies: Established by special Acts of Parliament for public utility (e.g., SBI, LIC). [3][6]
• Other Kinds: Government-owned (e.g., ONGC, IOC), foreign (e.g., Google India), and listed/unlisted public companies. [5][1]

Public vs. Private Company Comparison

Public companies access stock markets, while private companies prioritize privacy and control. [9][2]

Stages of Company Formation

Company formation involves four stages under the Companies Act 2013: promotion, incorporation, subscription, and commencement. [2]

1. Promotion: Identify the business idea; promoters assemble resources and conduct feasibility studies. [4]
2. Incorporation: File the SPICe+ form with the ROC, including the Memorandum of Association (MoA), Articles of Association (AoA), DIN, and DSC; obtain the Certificate of Incorporation. [1]
3. Capital Subscription: Public companies issue a prospectus; private companies execute subscription agreements. [2]
4. Commencement: Obtain a trading certificate (for public companies) or start operations post-incorporation. [4]

This process requires a PAN, bank account, and registered office; fees are based on the nominal capital. [1][2]