The Companies (Accounts) Rules 2014 came into force from 1st April 2014. These rules first time recognised electronic mode for keeping of books of account.
Notice of address at which books of account are to be maintained [Rule 2A]:
As we discussed earlier here according to Section 128 of the Companies Act 2013, every company shall prepare and keep at its registered office books of accounts and other relevant books and papers and financial statement for every financial year. These books must give a true and fair view of the state of affairs of the company and its branch offices. These books must explain the transactions effected both at the registered office and its branches. These books shall be kept on actual basis and double entry system of accounting.
These books or some of these books may be kept at a place other than registered office at the decision of the Board of Directors after filing with the Registrar of Companies a notice in writing giving full address of that place.
The notice regarding address at which books of account may be kept shall be in Form AOC-5.
This Rule 2A came into effect from 16th January 2015.
Manner of books of account to be kept in electronic mode [Rule 3]:
According to Second Proviso to Section 128(1) discussed earlier here, the company may keep such books of account or other relevant papers in electronic mode in such manner as may be prescribed.
“Electronic Mode” includes “electronic form” as defined in clause (r) of sub-section (1) of section 2 of Information Technology Act, 2000 (21 of 2000) and also includes an “electronic record” as defined in clause (t) of sub-section (1) of section 2 of the Information Technology Act, 2000 (21 of 2000). [Explanation to Rule 3]
The books of account and other relevant books and papers maintained in electronic mode shall remain accessible in India so as to be usable for subsequent reference. [Rule 3(1)]
The books of account and other relevant books and papers referred to in sub-rule (1) shall be retained completely in the format in which they were originally generated, sent or received, or in a format which shall present accurately the information generated, sent or received and the information contained in the electronic records shall remain complete and unaltered. [Rule 3(2)]
Books of Account maintained in electronic mode must remain accessible “in India” in usable form for future reference. Term “Reference” denotes legibility and capability to use for analysis.
The term “format” not defined here. In popular parlance “format” means file format. Like a file originally generated in XML format shall remain in XML format completely or may be maintain in a format in which earlier format may accurately read. For Example a file originated in .doc formats may be maintained in upgraded .docs format, which may display complete and unaltered information as was contained in earlier .docs format.
The information received from branch offices shall not be altered and shall be kept in a manner where it shall depict what was originally received from the branches. [Rule 3(3)]
The information in the electronic record of the document shall be capable of being displayed in a legible form. [Rule 3(4)]
There shall be a proper system for storage, retrieval, display or printout of the electronic records as the Audit Committee, if any, or the Board may deems appropriate and such records shall not be disposed of or rendered unusable, unless permitted by law. [Rule 3(5)]
The back-up of the books of account and other books and papers of the company maintained in electronic mode, including at a place outside India, shall be kept in servers physically located in India on a periodic basis. [Proviso to Rule 3(5)]
Proper system of storage, retrieval, display or printout of record shall be maintained. This require compatible display device like monitor or LCS display, CD or DVD players, USB Drives, External Hard disks, printers etc. Backup shall be kept on servers physically located in India on periodic basis. The time and frequency of back – up may be decided by audit committee or Board.
My question whether backup in external hard is sufficient or backup on servers is only option. I think this is not an intention of rule makers and may be amended.
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. [Rule 3(6)]
The rule presumes that all software for maintaining books of account may use some web based service or cloud.
These rules do not ask for digital signature on Books of Account. Please, compare these rules with the Companies (Management and Administration) Rules, 2014 discussed earlier here.
Maintenance and Inspection of certain financial information by directors. [Rule 4]
According to Second Proviso to Section 128(3) discussed earlier here, these books and papers maintained by the company within India shall be open for inspection by any director during business hours. In case of financial information maintained outside India copies of such financial information shall be maintained and produced for inspection by any director.
The summarised returns of the books of account of the company kept and maintained outside India shall be sent to the registered office at quarterly intervals, which shall be kept and maintained at the registered office of the company and kept open to directors for inspection. [Rule 4(1)]
Where any other financial information maintained outside the country is required by a director, the director shall furnish a request to the company setting out the full details of the financial information sought, the period for which such information is sought. [Rule 4(2)]
The company shall produce such financial information to the director within fifteen days of the date of receipt of the written request. [Rule 4(3)]
The financial information required under sub-rules (2) and (3) shall be sought for by the director himself and not by or through his power of attorney holder or agent or representative. [Rule 4(4)]
Transitional provisions with respect to Accounting Standards [Rule 7]
The standards of accounting as specified under the Companies Act, 1956 (1 of 1956) shall be deemed to be the accounting standards until accounting standards are specified by the Central Government under section 133. [Rule 7(1)]
Till the National Financial Reporting Authority is constituted under section 132 of the Act, the Central Government may prescribe the standards of accounting or any addendum thereto, as recommended by the Institute of Chartered Accountants of India in consultation with and after examination of the recommendations made by the National Advisory Committee on Accounting Standards constituted under section 210A of the Companies Act, 1956 (1 of 1956). [Rule 7(2)]
This is important to note that Ministry of Corporate Affairs has notified the Companies (Indian Accounting Standards) Rules, 2015 on 16th February 2015.
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