Question

6. What are the statutory provisions with regards to preparation of final
accounts? Who are the stakeholders who would be using the final accounts?
Also, what are advantages and disadvantages of preparing final accounts.

500-600 words please.

Answer 1

The statutory provisions with regards to the preparation of final
accounts

The books of accounts showing true and fair financial statements and relevant papers shall be kept at the registered address of the company. The books shall be kept on an accrual basis and according to the double-entry system of accounting.

Financial Statements (Section 129)

• Shall be prepared in Schedule III format,
• Shall comply with the accounting standards specified in section 133 and
• Shall give a true and fair view of the state of affairs of the company
• Shall be laid before AGM by BOD along with the consolidated financials (prepared on the basis of the same principles of standalone) in case of a subsidiary, associate, and JV.
• If do not comply with accounting standards, shall disclose the deviation, reasons and financial effect

The books of accounts of the company shall be kept in good order for a period of 8 FYs and in case investigations ordered by CG it may direct a longer period.

Stakeholder using the final accounts

i)Owners ii)Management iii)Competitors iv)Customers of the business v)Employees vi)Government vii)Analysts viii)Creditors xi)Trade unions

Advantages of Final Accounts/Financial Statements

i)To Know Profit or Loss

ii)To Know the Financial Position

iii)An important source of document for Financial Planning

iv)To Pay Taxes

v)Helps in the process of Decision Making

Limitations of Final Accounts/Financial Statements

i) Ignores the qualitative aspect. The notable weakness of financial statements is to present quantitative facts of the business in terms of money.

ii)Based on convention and practices. Financial statements are prepared according to the practices adopted by individual firms.

iii)Ignores human resources. The human element is an essential, active, and sensitive factor of production

iv)Ignores price level changes. Change in the price affects the cost of production, sales, and value of assets.

v)Ignores the interest of all concerned parties. Financial statements are prepared to take into consideration proprietors' interests.