# Directors' Responsibility Statement (DRS) — Section 134

## Purpose

The DRS is an integral part of the Board's Report. It is a formal statement by the directors confirming that they have discharged their responsibilities towards preparation of the annual accounts.

## Mandatory Contents of the DRS

The Directors' Responsibility Statement shall state that:

1. Applicable Accounting Standards (AS) followed — In preparation of annual accounts, applicable AS had been followed, with proper explanation relating to material departures.

2. Accounting Policies — Reasonable & Prudent Judgments — The directors had selected such accounting policies and applied them consistently, and made judgments & estimates that are reasonable and prudent, so as to give a true and fair view of:

State of affairs of the company at the end of the FY, AND
Profit and Loss of the company for that period.

3. Adequate Accounting Records & Asset Safeguard — The directors had taken proper and sufficient care for maintenance of adequate accounting records (per Act) for:

Safeguarding the assets of the company, AND
Preventing and detecting fraud and other irregularities.

4. Going Concern Basis — The directors had prepared the annual accounts on a going concern basis.

5. Internal Financial Controls (Listed Companies only) — The directors, in the case of a listed company, had laid down internal financial controls (IFC) to be followed by the company and that such IFC are adequate and operating effectively.

6. Compliance Systems — The directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

## Quick Memory Aid (Acronym): "AAPGIC"

Accounting Standards followed
Accounting policies — prudent & consistent
Proper accounting records (safeguard + fraud)
Going concern basis
IFC adequate (Listed only)
Compliance with all laws

## Key Point

Clause 5 (Internal Financial Controls) applies ONLY to LISTED companies. All other clauses apply to every company required to prepare the DRS.

Worked example

### Example 1

Example 1 (Listed Co): Star Ltd, a listed company, prepares its DRS. It must include all 6 clauses — including the IFC clause (clause 5).

### Example 2

Example 2 (Unlisted Public Co): Moon Pvt Ltd, an unlisted private company, prepares its DRS. The IFC clause (clause 5) does NOT apply. The other 5 clauses are mandatory.

### Example 3

Example 3 (Departure from AS): Rainbow Ltd departed from AS-10 in a particular treatment. Its DRS must specifically include a proper explanation for this material departure.

⚠️ Common exam mistakes

Including the Internal Financial Controls (IFC) clause for an unlisted company — clause 5 applies ONLY to listed companies.
Stating only 'going concern basis followed' without confirming the other clauses — all 6 (or 5 for unlisted) must be stated.
Forgetting to mention material departures from Accounting Standards along with proper explanation.
Treating the DRS as an auditor's certificate — it is a director-level statement, not an auditor's opinion.

Bare-Act text Section 134(5) · Companies Act, 2013 · click to expand

The Directors' Responsibility Statement referred to in clause (c) of sub-section (3) shall state that— (a) in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures; (b) the directors had selected such accounting policies and applied them consistently...; (c) the directors had taken proper and sufficient care for the maintenance of adequate accounting records...; (d) the directors had prepared the annual accounts on a going concern basis; (e) the directors, in the case of a listed company, had laid down internal financial controls...; (f) the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

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Directors' Responsibility Statement (Section 134)

Worked example

⚠️ Common exam mistakes