2.1 Query: Reopening of accounts to create Investment Allowance Reserve.
1. Can a shipping company reopen the accounts for all the earlier years beginning from 1986-87 till date with a view to create investment allowance reserve in such earlier years resulting in book loss (i.e., increased net loss as per books) i.e., creating reserve against loss so that the benefit of utilisation is availed by the company for acquisition in 1987-88. The company has already finalised and conducted the Annual General Meeting upto the accounting year 1994-95.
2. The querist has sought the opinion of Expert Advisory Committee as to what is the legal implication and how to proceed on the abovesaid matter.
Opinion September 24, 1996
1. The Committee notes the following paragraph containing the views of the Department of Company Affairs on ‘Re-opening/revision of accounts by a company after their adoption at an Annual General Meeting’, as per its letter dated 19.8.87 which is reproduced herebelow:
“…….the matters referred to by you had been examined in consultation with the Ministry of Law and it has been decided that revision of Balance Sheets for meeting technical requirements of taxation laws is not prohibited under the Companies Act, 1956 and as such the same may be taken as permitted.”
2. The Committee notes the following from the Guidance Note on ‘Revision/ Rectification of Financial Statements’ issued by the Institute of Chartered Accountants of India:
“Under the Companies Act, the Board of Directors of a company is required to prepare a balance sheet and profit and loss account in relation to every financial year and lay the same before the Company in Annual General Meeting. Ordinarily, the accounts once adopted at the Annual General Meeting cannot be reopened. The broader aspects of the auditor’s duties and responsibilities when he is required by the management to report on the revised accounts, subsequent to their adoption at the Annual General Meeting of a Company, have been considered by the Council from time to time. The views of the Department of Company Affairs on this subject were sought in 1977 and the reply received form the Department was published in February, 1977 issue of the Newsletter issued by the Council (Pages 189 & 190). The matter has again been considered by the Council at its 106th meeting and it has been decided that the reopening or rectification of accounts after they have been adopted at the Annual General Meeting should not be permitted under any circumstances.”
3. Based on the above, the Committee notes that as per the Institute’s view accounts once adopted at the Annual General Meeting cannot be reopened. However, the Department of Company Affairs is of a different view. Therefore, if an auditor is asked to report on the accounts which are revised, he should, inter alia, state in his report that such a revision is contrary to the opinion of the Institute of Chartered Accountants of India and the opinion of the Department of Company Affairs (in case the revision is not as per the letter referred to at para 1 above). ______________________________ |