Hello Auditor

What financial statements must a Section 8 company prepare?

1. Balance Sheet

  • A Balance Sheet provides the financial position of the company as of the last day of the financial year.
  • It includes assets, liabilities, capital funds, and reserves, adjusted for grants, donations, or unused funds.
  • For Section 8 companies, special attention is given to how funds are utilized for charitable objectives.
  • Assets acquired through donations must be reported.
  • It should reflect a true and fair view of the company’s financial health.

2. Income and Expenditure Account

  • In place of a profit and loss statement, a Section 8 company prepares an Income and Expenditure Account.
  • It shows revenue earned (donations, grants, program income) and expenses incurred (programs, admin, salaries) during the year.
  • It highlights whether the income has been used by the company’s charitable objectives.
  • Surplus (if any) is carried forward to support future programs, not distributed as profit.
  • This statement must be supported by proper vouchers and documentation.

3. Receipts and Payments Account

  • A Receipts and Payments Account records actual cash inflow and outflow for the year.
  • It includes donations received, grants, subscription income, purchases, salaries, and other payments.
  • This statement is prepared on a cash basis, unlike the income and expenditure account, which is on an accrual basis.
  • It helps in tracking the cash position and fund utilization of the company.
  • Required particularly when filing reports under 12AB, 80G, or FCRA.

4. Notes to Accounts and Schedules

  • Explanatory notes and schedules must accompany the financial statements.
  • These include details of donor contributions, fund-wise allocations, related party transactions, contingent liabilities, etc.
  • They provide context and clarification for figures reported in the main statements.
  • Disclosure of significant accounting policies and estimates is also mandatory.
  • Transparency in fund usage is a key compliance requirement for Section 8 companies.

5. Auditor’s Report and Board’s Report

  • Financial statements must be audited by a Chartered Accountant in practice.
  • The Auditor’s Report confirms whether the accounts present a true and fair view and comply with applicable standards.
  • A Board’s Report must also be prepared, summarizing performance, financial highlights, and compliance status.
  • If the company is registered under Section 12AB and 80G, the auditor may also prepare Form 10B or Form 10BB as applicable.
  • These reports are filed with the ROC and the Income Tax Department along with financials.

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