In the realm of business and finance, financial statements play a pivotal role in providing crucial insights into a company's financial health and performance. Under the Companies Act, 2013, companies are mandated to prepare financial statements, which include a balance sheet, a profit and loss account (or income and expenditure account for non-profit companies), a statement of changes in equity (if applicable), and most importantly, a cash flow statement.
In this article, we will delve into the significance of cash flow statements, the companies required to furnish them under the Companies Act, and the exemptions granted to certain categories of companies.
Understanding Financial Statements
As per Section 2 (40) "financial statement" in relation to a company, includes
Provided that the financial statement, with respect to One Person Company, small company and dormant company, may not include the cash flow statement;
Hence, As per the Companies Act, 2013, all companies, except for One Person Companies (OPCs), Small Companies, and Dormant Companies, are required to prepare and furnish a cash flow statement along with their financial statements.
Now, it is imperative to understand what is One Person Company, small company and dormant company? Lets understand one by one.
What is small Companies?
As per Section 2 (85) "small company"* means a company, other than a public company,—
(i) paid-up share capital of which does not exceed Four Crore or such higher amount as may be prescribed which shall not be more than ten crore rupees; and
(ii) turnover of which as per profit and loss account for the immediately preceding financial year does not exceed forty crore or such higher amount as may be prescribed which shall not be more than one hundred crore rupees:
Provided that nothing in this clause shall apply to—
(A) a holding company or a subsidiary company;
(B) a company registered under section 8; or
(C) a company or body corporate governed by any special Act;
Substituted by Companies (Specification of Definition details) Amendment Rules 2022 dated 15th September 2022 - (t) For the purposes of sub-clause (i) and sub-clause (ii) of clause (85) of section 2 of the Act, paid up capital and turnover of the small company shall not exceed rupees four crore and rupees forty crore respectively.)
What is One Person Company?
As per Section 2 (62) “One Person Company” means a company which has only one person as a member.
What is Dormant Company?
Section 455 states that a company formed and registered under this Act, with the purpose of a future project or holding assets or intellectual property, and without any significant accounting transactions, may apply to the Registrar to be classified as a dormant company. An inactive company, as defined in this section, refers to a company that has not engaged in any business or operations, made any significant accounting transactions, or filed financial statements and annual returns in the last two financial years. Significant accounting transactions exclude certain types of transactions, such as payments to the Registrar, payments to comply with legal requirements, allotment of shares as per this Act, and payments for office and record maintenance.
Conclusion
In conclusion, financial statements hold immense importance in assessing a company's financial performance and position. The cash flow statement, a critical component of financial reporting, provides insights into a company's cash movements and aids investors, creditors, and other stakeholders in making informed decisions.
As per the Companies Act, 2013, most companies are required to furnish a cash flow statement, ensuring transparency and accountability in financial reporting. However, certain exemptions are granted to OPCs, Small Companies, and Dormant Companies, allowing them to focus on their specific business objectives without the added burden of preparing a cash flow statement. By adhering to these regulations, companies can instill trust and confidence in their stakeholders, paving the way for sustainable growth and success in the dynamic business landscape.
Disclaimer - Information in this article is for general purposes only. It's not professional advice. Verify and consult experts for accuracy. Author not liable for any actions based on this content. Views are personal.
