## 1. What is a 'Financial Statement'? — Section 2(40)
In relation to a company, financial statement includes:
#
Component
(i)
Balance sheet as at the end of the financial year
(ii)
Profit and Loss Account (or Income & Expenditure Account for not-for-profit entities) for the financial year
(iii)
Cash flow statement for the financial year
(iv)
Statement of changes in equity, if applicable
(v)
Any explanatory note annexed to / forming part of any of the above
### Exception — Cash flow statement is NOT mandatory for:
One Person Company (OPC)
Small company
Dormant company
Start-up private company
> Note: 'Profit and Loss Account' is also referred to as 'Statement of Profit and Loss'.
## 2. What is a 'Financial Year'? — Section 2(41)
Situation
Financial Year
General rule
Period ending on 31 March every year
Company incorporated on or after 1 January of a year
Period ending on 31 March of the following year
Holding/subsidiary/associate of a company incorporated outside India requiring a different FY for consolidation abroad
Tribunal may, on application, allow any period as its financial year
Existing companies (at commencement of the Act) following a non-March FY must align to March within 2 years of commencement, unless Tribunal exemption is obtained.
## 3. True and Fair View
Financial statements must:
Give a true and fair view of the state of affairs;
Comply with accounting standards notified under Section 133;
Be in the form prescribed in Schedule III for the relevant class of company.
## 4. Non-applicability of form / disclosure under Schedule III
The form-and-content prescription does not apply to certain regulated companies. They are not treated as failing 'true and fair view' merely because they do not disclose matters not required under their own governing statute:
Type of Company
Carve-out — matters not required to be disclosed under:
Insurance company
Insurance Act, 1938 / IRDA Act, 1999
Banking company
Banking Regulation Act, 1949
Company engaged in generation/supply of electricity
Electricity Act, 2003
Company governed by any other law
That special law
## 5. Laying before AGM
At every Annual General Meeting, the Board shall lay before the meeting the financial statements for that financial year.
Where a company has one or more subsidiaries OR associate companies, it shall, in addition to its own FS:
Prepare a Consolidated Financial Statement (CFS) of the company together with all subsidiaries and associate companies;
In the same form and manner as its own FS;
In accordance with applicable accounting standards;
Lay the CFS before the AGM along with its own FS.
### Salient features — Form AOC-1
A separate statement containing the salient features of the financial statements of subsidiaries/associates/JVs must be attached in Form AOC-1 (Rule 5).
## 7. Manner of consolidation — Rule 6
Consolidation must be in accordance with Schedule III and applicable accounting standards.
### Exceptions to Rule 6 (when full AS-based consolidation is relaxed):
1. A company covered under Section 129(3) which is not required to prepare CFS under the Accounting Standards — it is sufficient if it complies with the CFS provisions of Schedule III.
2. A company that has no subsidiary but has only associate companies / joint ventures / both — was not required to apply Rule 6 for consolidation in respect of associates / JVs only for FY commencing 1 April 2014 and ending 31 March 2015 (a one-time relief).
### Holding company FS provisions apply mutatis mutandis to CFS
The provisions applicable to preparation, adoption and audit of the financial statements of a holding company shall, mutatis mutandis, also apply to the CFS.
Worked example
### Example 1
Example 1 — Financial year for a newly incorporated company
Nova Tech Pvt Ltd was incorporated on 15 February 2025. What will be its first financial year under Section 2(41)?
Answer: Since Nova Tech was incorporated on or after 1 January (i.e., on 15 February 2025), its first financial year shall be the period ending on 31 March of the following year, i.e., from 15 February 2025 to 31 March 2026.
### Example 2
Example 2 — Cash flow statement exemption
Mango Tea Pvt Ltd is a small company. Its accountant insists on preparing a cash flow statement to make the FS 'complete'. Is the cash flow statement mandatory?
Answer: Under the proviso to Section 2(40), a small company (along with OPC, dormant company and start-up private company) is not required to include a cash flow statement in its financial statements. Hence Mango Tea Pvt Ltd is not obliged to prepare one — it may do so voluntarily.
### Example 3
Example 3 — Consolidation where there is only an associate
Alpha Ltd has no subsidiary but holds 30% in Beta Ltd (an associate). For FY 2025-26, is Alpha Ltd required to prepare CFS?
Answer: Yes. Section 129(3) requires consolidation where a company has 'one or more subsidiaries or associate companies'. Holding an associate alone triggers the CFS requirement. The one-time relief under the proviso to Rule 6 applied only for FY 2014-15. Alpha Ltd must therefore prepare CFS for FY 2025-26 along with Form AOC-1.
### Example 4
Example 4 — Different financial year for foreign-parented company
Gamma India Ltd is a subsidiary of a US-listed parent which follows a calendar-year (January–December) financial year for global consolidation. Can Gamma India Ltd follow a calendar-year FY?
Answer: Section 2(41) proviso allows the Tribunal, on application, to permit a different financial year for a company that is a holding/subsidiary/associate of a body corporate incorporated outside India which requires a different FY for consolidation abroad. Gamma India Ltd must apply to the Tribunal — only with such an order may it follow the January–December FY.
⚠️ Common exam mistakes
Listing only Balance Sheet and P&L as 'financial statement' under Section 2(40) — the definition also includes cash flow statement, statement of changes in equity (if applicable) and explanatory notes.
Stating the cash flow statement exemption applies to all private companies — it applies only to OPC, small company, dormant company, and start-up private company.
Confusing the financial year cut-off — a company incorporated on or after 1 January has its first FY end on 31 March of the following year; some students extend it to 31 March of the same year.
Believing only the Central Government can sanction a different FY — only the Tribunal can do so (post-2018 amendment), and only for cases linked to foreign holding/subsidiary/associate consolidation.
Stating that CFS is required only if there is a subsidiary — Section 129(3) requires CFS even where the company has only an associate or only a joint venture.
Forgetting Form AOC-1 (Rule 5) — the salient-features statement of each subsidiary/associate/JV must be attached to the FS.
Treating the Schedule III non-disclosure carve-out (banks, insurers, electricity companies) as a blanket exemption from financial statement preparation — they must still prepare FS; only the form and certain disclosures differ.
Assuming consolidation can deviate from Accounting Standards — Rule 6 mandates consolidation per Schedule III and applicable AS, except for the narrow carve-outs.
Bare-Act text Section 129 (read with Section 2(40) and Section 2(41)) · The Companies Act, 2013 read with Rules 5 and 6 of the Companies (Accounts) Rules, 2014 · click to expand
Section 129 — Financial statement.
(1) The financial statements shall give a true and fair view of the state of affairs of the company or companies, comply with the accounting standards notified under section 133 and shall be in the form or forms as may be provided for different class or classes of companies in Schedule III:
Provided that the items contained in such financial statements shall be in accordance with the accounting standards:
Provided further that nothing contained in this sub-section shall apply to any insurance or banking company or any company engaged in the generation or supply of electricity, or to any other class of company for which a form of financial statement has been specified in or under the Act governing such class of company:
Provided also that the financial statements shall not be treated as not disclosing a true and fair view of the state of affairs of the company, merely by reason of the fact that they do not disclose— (a) in the case of an insurance company, any matters which are not required to be disclosed by the Insurance Act, 1938, or the Insurance Regulatory and Development Authority Act, 1999; (b) in the case of a banking company, any matters which are not required to be disclosed by the Banking Regulation Act, 1949; (c) in the case of a company engaged in the generation or supply of electricity, any matters which are not required to be disclosed by the Electricity Act, 2003; (d) in the case of a company governed by any other law for the time being in force, any matters which are not required to be disclosed by that law.
(2) At every annual general meeting of a company, the Board of Directors of the company shall lay before such meeting financial statements for the financial year.
(3) Where a company has one or more subsidiaries or associate companies, it shall, in addition to financial statements provided under sub-section (2), prepare a consolidated financial statement of the company and of all the subsidiaries and associate companies in the same form and manner as that of its own and in accordance with applicable accounting standards, which shall also be laid before the annual general meeting of the company along with the laying of its financial statement under sub-section (2):
Provided that the company shall also attach along with its financial statement, a separate statement containing the salient features of the financial statement of its subsidiary or subsidiaries and associate company or companies in such form as may be prescribed:
Provided further that the Central Government may provide for the consolidation of accounts of companies in such manner as may be prescribed.