Book of Accounts includes: –

  • all sums of money received and expended by the company and explanation of the said transaction;
  • all sales and purchases of goods and services by the company;
  • the assets and liabilities of the company;
  • the items of cost as may be prescribed under section 148 (if applicable);

Book and paper and book or paper include books of account, deeds, vouchers, writings, documents, minutes and registers maintained on paper or in electronic form.

 

REQUIREMENT FOR MAINTENANCE OF BOOKS OF ACCOUNTS

  • To be maintained at the registered office, in case you want to maintain at any other place, Board approval required and ROC to be intimated of the change.
  • On Accrual basis
  • Double entry system of accounting
  • In the case of branch, can be kept at Branch. But proper summarized returns to be sent by branch to registered office.

 

IS THERE ANY REQUIREMENT FOR PRESERVATION OF BOOKS OF ACCOUNTS?

Each company must maintain its books of account, along with associated vouchers, for the preceding eight financial years.

In cases where an investigation has been initiated against the company, the Central Government may order such longer period as it may deem fit.

 

PROCESS FOR INSPECTION OF BOOKS OF ACCOUNTS AND OTHER RECORDS

The books of accounts and other books/papers maintained by the company within India shall be open for inspection during business hours by any director.

Any inspection of the subsidiary company shall be done only by person authorized by a resolution of the board of directors.

  • For Inspection of Books of accounts and papers maintained outside India– Summarized returns of the same shall be sent to the registered office of the company at quarterly interval and kept open for inspection at the registered office of the company.
  • For Inspection of Financial information maintained outside India– In case Director wants to inspect any financial information, a formal request is to be send to the company, specifying the details of the information required and the period for which it’s needed. Further the company is then obligated to provide this financial information to the director within 15 days from the date of receiving the written request.

Furthermore, it’s important to note that the director must personally make the request for such financial information; it cannot be done through a power of attorney holder, agent, or representative.

 

BOOKS OF ACCOUNTS AND OTHER RELEVANT BOOKS AND PAPERS CAN BE MAINTAINED IN ELECTRONIC MODE?

Yes, the books of account and other relevant books and papers can be maintained in “electronic mode”* and remain accessible in India, they must be maintained in their original format or a format that accurately represents the original information.

Backup copies of electronic records must be regularly maintained on servers physically located in India on a daily basis. (Erstwhile it was to be maintained on “periodic basis” only)

Starting from the financial year beginning on or after April 1, 2023, companies using accounting software must use software that records an audit trail for all transactions, maintains an edit log of any changes made in the books of account along with the date of the changes, and prevents the disabling of the audit trail.

The company shall intimate to the Registrar on an annual basis at the time of filing of financial statement:

(a) the name of the service provider;

(b) the internet protocol address of service provider;

(c) the location of the service provider (wherever applicable);

(d) where the books of account and other books and papers are maintained on cloud, such address as provided by the service provider.

(e) where the service provider is located outside India, the name and address of the person in control of the books of account and other books and papers in India.

*As per Information Technology Act, 2000

  • Clause (r) of sub-section (1) of section 2:- “Electronic form” with reference to information, means any information generated, sent, received or stored in media, magnetic, optical, computer memory, microfilm, computer generated micro fiche or similar device;
  • Clause (t) of sub-section (1) of section 2:- “Electronic record” means data, record or data generated, image or sound stored, received or sent in an electronic form or microfilm or computer generated micro fiche;

 

NON-COMPLIANCE

If company contravenes such provisions:

  1. managing director,
  2. whole-time director in charge of finance
  3. Chief Financial officer
  4. any other person of a company charged by the Board with the duty of complying with the provisions of this section.

shall be punishable with fine which shall not be less than Rs. 50,000 (Rupees fifty thousand) but which may extend to Rs. 5,00,000 (Rupees five lakh).

Additionally, the statutory auditors are required to report under Section 143(3)(b) if proper books of accounts as required by the law have been kept by the company.

 

  • CONCLUSION 

Section 128 serves as a cornerstone for financial accountability in businesses operating under the Companies Act. Its provisions are designed to ensure the accuracy and reliability of financial records, which in turn, are essential for multiple stakeholders, including shareholders, investors, regulators, and the company’s management.

The requirement for maintaining books of account and other financial records in their original format or an accurate representation is crucial to prevent data manipulation or tampering, thereby upholding the integrity of financial information. This is especially significant in an era where electronic records are increasingly prevalent, and the risk of data breaches or cyber-attacks is ever-present.

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