Books of Accounts #
The Companies Act requires every company to ensure that adequate accounting records are kept, sufficient to show and explain its transactions. Moreover, they must be such as to disclose with responsible accuracy at any time, the financial position of the company and also enable a balance sheet and profit and loss account to be prepared so as to give a true and fair view of the company’s financial position and the profit and loss.
According to section 181, the books of accounts must in particular contain:
- All sums of money received and expended by the company and matters in respect of which the receipts and expenditures take place.
- All sales and purchases of goods by the company.
- The assets and liabilities of the company.
- In the case of a company engaged in production, distribution, marketing, transportation, processing , milling, manufacturing, extraction and mining activities; such complete particulars relating to utilization of material, labour and those items of overhead cost as necessary to identify their nature.
The receipts and payments are the primary daily affairs of the company. They must be properly accounted for. A company dealing in goods has to keep statements od stock held at periodic ends with valuation thereof together with the details of such goods sold and purchased. At the end of the accounting year the total assets, debts and liabilities should be arrayed in such a way that would depict a perfect picture of the state of affairs of the company.
The noteworthy new provision in this section (i.e. sec. 181) are the one at sub-section (2) which says it will not be deemed that proper books have been maintained if a true and fair view of the state of affairs and adequate explanation of transactions are not given. The other one is more caustic which provides at sub- section(5) that all books of account and vouchers of last 12 years are to be well preserved
Such books of accounts should normally be kept at the companies registered office. However, the new provides that the books may be kept at any other place in Bangladesh for a period not exceeding six months.
Method of accounting #
there is no prescribed system of accounting laid down in the companies act, nor does it say about any particular language in which it should be maintained by a company.
However, based on the custom, it can be said that the method of accounting practiced in our country is an admixture of English and American system. There also are numerous cases in Bangladesh, where it is the deshi system of boikhata. But whatever is the practice, the account must be complete and meet all requirements of the act.
So far as system of accounting is concerned, there is a provision in the Income Tax Ordinance 1984 about the mode of accounting.
Section 35 of the ordinance, through unclear, incomplete and inapposite, but deals somewhat with the system which is produced below. This section, however, is concerned more with assessment of income as required under the Ordinance. Now the prescribed system of accounting is given below-
- All income classifiable under the head “Income from business or profession” or “Income from other sources” shall be computed in accordance with the method of accounting regularly employed by the assessee.
- Notwithstanding anything contained in sub-section (1), the Board (meaning National Board of Revenue) may, in the case of any business or profession, or class of business or profession, or any other source of income, or any class of persons, by a general or special order, direct that the accounts and other documents shall be maintained in such manner and form, and that payments of commercial transactions recorded in such manner, as may prescribed or as may be specified in such direction; and thereupon the income of the assessee shall be computed on the basis of the accounts maintained, payments made and transactions recorded accordingly.
- Without prejudice to the preceding sub-sections, every public and private company as defined in the companies act 1913 (VII of 1913), and every registered firm whose capital on the last day of any income year was not less than five lakh taka, shall, with the return of income required to be filed under this Ordinance for any income year, furnish a copy of the trading account, profit and loss account and the balance sheet in respect of that income year certified by a charted accountant.
- Where-
- No method of accounting has been regularly employed, or if the method employed is such that, in the opinion of the Deputy Commissioner of Taxes, the income of the assessee cannot be properly deduced therefrom; or
- In the case to which sub-section (2) applies, the assessee fails to maintain accounts, make payments or record transactions in the manner directed under that sub-section; or
- A company or a registered form has not complied with the requirements of sub-section (3),
The income of the assessee shall be computed on such basis and in such manner as the Deputy Commissioner of Taxes may think fit. This section of the Income Tax Ordinance 1984, being inadequate as such , cannot be treated as a filler of the gap in the Companies Act.
Responsibility for maintaining accounts #
The Act has specifically fixed responsibility at sections 181(6 & 7), 183(5) and 185(7) for maintaining for proper books of accounts and other provisions of the connected statutes on the following : (a) managing agent, (b) managing director, (c) directors, (d) executive director, (e) general manager or manager and (f) every connected officers of the company. However, in the todays actual perspective such responsibilities ultimately rest on the officials mentioned below:
- Where the company has a managing director or manager, such managing director or the manager.
- Where there are no managing director or manager every director of the company.
- Every officer and employees of the company having been assigned by the manager, managing director or by the board of director for maintaining proper books of accounts.
Balance Sheet and profit and loss account #
It is prescribed in section 183 that the directors shall present before every annual general meeting of the company:
- A balance sheet drawn on a date at the end of a period as specified below; and
- A profit and loss account for that period; or
- In case of a company not trading for profit, an income and expenditure account.
The period of account shall relate: #
- In the case of first annual general meeting, to the period beginning with the incorporation of the company and ending with the day which shall not procedure the day of the meeting by more than nine months. The first general meeting being required to be held within eighteen months of the incorporation of the company.
- In the case of any subsequent annual meeting to the period immediately following last account and upto a day which shall nit precede the day of the meeting by more than nine months. Such a time limit may however, be extended by the registrar by another three months for special reasons only.
The period to which the accounts relate is called a financial year of the company. It may be less or more than a calendar year but must not exceed fifteen months. The balance sheet and the profit and loss account need also to be audited with a report on the same from the auditors to be attached thereto. The penalty for failure to lay before the company such a balance sheet and profit and loss account is high. Director responsible for violation of this section may be liable to a fine not exceeding TK. 5000 for each offence.
Accounts of holding and subsidiary companies #
The provisions of section 186 requires that the balance sheet of a holding company should annex to it the following information/documents relating to its subsidiaries:
- A copy of the last audited balance sheet and profit and loss account of the subsidiary.
- The auditors report on such accounts.
- A copy of its directors report.
- A statement containing the following particulars:
- The extent of holding company’s interest or losses of the subsidiary, at the end of the financial year.
- The net arrangement amount of profits or losses of the subsidiary, whether dealt with or not in the holding company’s account.
- If the directors of holding company are unable to obtain necessary information for the aforesaid purpose, a statement to that effect.
A holding company may be a resolution authorize its representative named in the resolution , to inspect the books of accounts of the subsidiary company (sec. 188).
According to sub-section (8) of section 186 where the financial year or years of a subsidiary referred to in sub-section (5) do not coincide with the financial year of the holding company, a statement containing information on the following matters shall also be attached to the balance sheet of the holding company:
- Whether there has been any, and if so, what change in the holding company’s interest in the subsidiary between the end of the financial year or of the last of the financial year s of the subsidiary and the end of the holding company’s financial year;
- Details of any material changes which have occurred between the end of the financial year or of the last of the financial years of the subsidiary and the of the holding company’s financial year in respect of-
- The subsidiary fixed assets,
- Its investments,
- The moneys lent by it,
- The moneys borrowed by it for any purpose other than that of meeting current liabilities.
As per sub-section (9) of this section if, for any reason, the board of directors of the holding company is unable to obtain information on any of the matters required to be specified by sub-section (7) , a report in writing to that effect shall be attached to the balance sheet of the holding company.
The documents referred to in clause (e), (f) and (g) of sub-section (1) shall be signed by the person by whom the balance sheet of the holding company is required to be signed.
Authentication of account #
The Directors of the company are responsible for the preparation of and factual disclosure in the accounts of the company. They are, as such, required to undertake that responsibility by approving and signing the prepared accounts of und company. As provided section 189, the balance sheet profit and f account or an income and expenditure account need to be authenticated under joint signatures of:
a) the Company Secretary or manager or managing agent.
b) two directors, one of whom to be the Managing Director.
c) if the number of directors signing falls short, being out of the country, a note to that effect should be subjoined to the balance sheet and profit and loss account.
d) in case of banking company, by the managing agent and three directors.
The whole idea of such signature by directors, apart from responsibility, is that the accounts when prepared will be placed before them in the Board meeting and explained to them. They will consider it and when satisfied - approve it and sign as a mark of acceptance on their part.
One striking feature in sub-section (3) of section 189 is that the Board of directors shall approve and sign the draft accounts before they are submitted to the auditors for their scrutiny and report thereon. There are punitive provisions for non-compliance of the stipulations.
Directors report #
The directors have to make out a short resume on the activities of the company which is called the directors report. This is to be attached to the annual accounts which is placed before the general meeting for consideration of the shareholders. The annual report of a company, as such, consists of the audited balance sheet and profit and loss account together with the auditors report thereon and also the directors report.
The directors report should indicate, in the first place, any changes which may have occurred during the financial year:
a) in the nature of the company’s business.
b) in the company’s subsidiaries or in the nature of their business.
c) Generally in the classes of business in which the company has some interest, and
d) about relevant details of material changes and commitments, if any, affecting the financial position of the company which have occured between the end of the financial year of the company to which the balance sheet relates and the date of the report.
The directors report is the instrument through which the Board, with the charge of management, describes the business prospect in the past year and also in the years ahead. The directors statements are substantiated by the audited accounts The auditors report further testifies the accuracy of such accounts.
The section 184 of the Companies Act 1994 requires that directors report should deal with the company’s affairs in general and indicate the amount recommended as dividend and the amount proposed to be carried to reserves. It should also mention about any significant change taking place between the dates of balance sheet and of the report. As a general proposition it is expected that the directors report will be consistent with the accounts in general and not merely a set of rhetorics.
The directors report, in the current perspective however, should be prepared in a way so as to make a spot light on the company’s affairs which needs appraisal and appreciation by the shareholders. In broader terms, an useful directors report of today includes:
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the objective of the company in general.
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state of the company’s affairs.
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principal activities of the company and trend of activities including the range of competition/export prospects etc.
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indications on - a) future developments, b) any significant shift in policy.
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allocation of profits in dividends, reserves and/or in any other form; namely bonus shares etc.
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contribution to the national exchequer.
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any big deal in the form of lease, loan or debenture.
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about election, re-election or retirement of directors.
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about appointment, reappointment and remuneration of auditors.
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employment policy, labour relations and the total number of employees at year end.
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other sundry information viz:
a) number of branches,
b) number of subsidiaries,
c) any foreign establishments,
d) number of employees,
e) number of shareholders,
f) prevailing share price index, p.e.r., etc.
- acknowledgment of assistance, co-operation etc. from any quarter.
The disclosure requirements as mentioned at regulation 37 of the DSE listing regulations are also important. The regulations may be seen at topic 221.
In fact the report should make out a total overall disclosure about the company on behalf of the Board. It need not necessarily be in flying colours, nor should there be any sort of window-dressing. The directors should appreciate that the shareholders have the urge to know, atleast once in a year, about how actually their company is pulling on.
The report may be signed by the Chairman of the Board on behalf of the directors, if they so authorise him or by persons who sign the balance sheet under sec. 189(1&2).
Submission of annual accounts #
There are two immediate ends where the set of accounts (which includes directors report, auditors report, balance sheet, profit and loss account and the notes to the accounts) are to be submitted. The accounts are prepared primarily for the shareholders, so they must be supplied with the same. Once the audited account is adopted by the shareholders, it is required to be filed with the Registrar of Joint Stock Companies. There are separate requirements for such submission of accounts. The following are the provisions as in the Act :
| Section nos | To be sent to | Time limit for submission | Copies required | Applicable for |
|---|---|---|---|---|
| 191(1) | Every shareholder | 14 days before general meeting | One | Public companies |
| 11 of S&E Ord. | Securities & Ex. Com. and stock Exchanges | Simultaneously as above | Adequately | Listed companies |
| 191(2) | Shareholders or Debentureholders | May be procured on demand or within 7 days of demand | Not mentioned | All Companies |
| 221(1) | Preference sharehoders and debentureholders | Only when demanded | One | Public companies |
190(1) Read with 36(3) |
Register of Join Stock Companies | 30 days after general meeting | three | Public & Private companies |
- Parallel rights with ordinary shareholders
- The accounts are to be filed along with the annual return which is to be submitted within 21 days of general meeting.
In the case of limited companies (regardless of public or private) three copies of decounts as adopted by the shareholders in the general meeting must be filed with the registrar within thirty days of the meeting. If for any reason, the annuth the ref meeting before which a balance sheets hacked to thet adopt it, a statement of the fact and reason therefor should be annexed to the balance sheet and to the copies thereof to be filed with the register. The accounts so submitted should bear the seal ‘certified true copy’ and be over the signature of the Managing Director or the Company Secretary. It is to be noted with care that the mere fact that a company did not start business after incorporation and informed the registrar about it, does not relieve the company and its officers of their liabilities to file accounts and returns with the registrar.
The importance of submission of the accounts with the registrar can be realised from the penalty laid down in this respect. The section 190(3) provides that if a company makes a default in complying with the requirements of this section, it shall be liable to a fine not exceeding taka one hundred for every day during which the default continues, and every officer of the company who knowingly and willfully authorizes or permits the default shall be liable to the like penalty."
Half yearly accounts: For a public limited company listed with any stock exchange, submission of half yearly accounts is also important. It is provided in rule 13 of the Securities and Exchange Rules 1987 that ‘Every issuer shall, within one month of close of the first half-year, prepare and transmit to the stock exchanges on which its securities are listed, to its securities holders and to the Commission, a balance sheet, profit and loss account and cash flows statement in Form ‘C’ annexed to the schedule or as near thereto as circumstances may admit, for the half-year, whether audited or otherwise. The underlying idea for such provision is that the share/debenture/security holders need to be apprised of midway, about the performance and progress in the activities of the company so that they be in a position to decide about whether to retain their holdings, buy some more or to unload them during the year. A quarterly disclosure, however, will be more purposeful in this respect and, who knows, this too may emerge as necessary in future.
Accounts of recoveries #
The Act does not appear to have appreciated the point that this is the era of competitive employment of pooled savings. Because, effective and mutually remunerative investment of private savings is now seen as vital for both individual and national interest. At section 399 the Act mentions about accounts of recoveries made from its staff salaries but fails to identify proper investment of those. It says that all securities deposited with the company by its employees in pursuance of their contracts of service ‘with the company shall be kept in a separate account in a scheduled bank. Further, where a Provident Fund has been constituted by the company for its employees, all moneys contributed to such fund whether by the company or by the employees or accruing by way of interest or otherwise to such fund be either deposited in a Post Office Savings Bank Account or invested in securities mentioned or referred to in clause (a) to (e) of section 20 of the Trust Act 1882.
The avenues of investments mentioned in that section are neither competitive nor remunerative, whereas the company is obliged to ensure good returns on the compulsory savings of its staff. However, one truth is clear in it which is that the security moneys and recoveries from staff salaries obtained by company has to be separately accounted for by the company. There is punitive provision for violation in this and the Company Secretary is supposed to be aware of and informed about it, he being in the forefront.
AUDIT #
As compilation of the statements of accounts are completed, auditing of same stands incumbent. The company is obliged to arrange its books of accounts to be audited under sec. 183(3) of the Companies Act. A company starts and functions with investment in the form of capital provided by persons who are not in control of the application of funds so supplied by them. They would, therefore, like to see that their investments are safe. For this purpose they will be interested in that the accounts are checked and audited by duly qualified persons who are not connected with: a) the company, b) the directors of the company, and c) the employees of the company. The auditors, who are appointed by the investors (i.e. the shareholders) to scrutinise the accounts, however, are not expected to give advice as what ought to be done or on the prudence or imprudence of the business activities of the company. The auditors will ascertain and state about the true financial position of the business by examining the books of accounts. In such exercises the shareholders need to rely on the auditors.
Statutory auditing #
The Companies Act 1994 makes it compulsory for every company to appoint qualified auditors to carry out systematic examination of books and records of the company. In this exercise, auditors, however, have to depend to a great extent on the internal control and check system prevailing in the organisation to express their opinion on the financial statements prepared by the management. They will ascertain, verify and report upon the facts regarding its financial operations and the results thereof. There is a two-fold effect for such audit of accounts, that is: 1) to find out and correct errors and 2) to detect and prevent frauds. It is therefore necessary that the management of the company is aware of this and makes arrangement for such audit to satisfy itself and the owners and those who may be interested in the activities of the organisation as also the statutory requirements.
Accounts of Foreign Company #
Under the section 380 of the Act,
(1) Every foreign company shall, in every calendar year-
(a) make out a balance sheet and profit and loss account or in the case of a company not trading for profit, an income and, expenditure account if the company is a holding company, group accounts, in such a form, and containing such particulars and including such documents, as under the provision of this Act it would, if it had been a company within the meaning of this Act, have been required to make out and lay before the company in general meeting; and.
(b) deliver three copies of those documents to the Registrar: Provided that the Government may, by notification in the official Gazette, direct that in the case of a foreign company or class of foreign companies the requirements of clause (a) shall not apply or shall apply subject to such exceptions and modifications as may be specified in the notification.
(2) If any such document as is mentioned in sub-section (1) is not written in Bengali or English language, there shall be annexed to it a certified translation thereof.