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6 Chapter Accounting
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1 Chapter Introduction
1.1 Draft budget for Economy, Tax System in 2014 and 2015
2 Chapter Basic Knowledge
3 Chapter Economic Environment
4 Chapter Incorporation
5 Chapter M&A
6 Chapter Accounting
7 Chapter Tax System
8 Chapter International Tax
9 Chapter Transfer Pricing Taxation
10 Chapter Labor
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Accounting System of India
■Overview of Indian Accounting System
Indian Accounting Standards are a set of accounting standards operated in accordance with the new Companies Act 2013. These accounting standards are formulated by ICAI: The Institute of Chartered Accountants of India.
2. (Accounting Standards) Amendment Rules 2011
3. Indian Accounting Standard Interpretation
4. Companies Act, 2013
For a company to perform business activities in India, one must create financial statements as per the regulations stated.
Indian accounting standards established till January 2015 under Current Accounting Standards 32 (Table 6-1), it shall be applied to all Indian domestic companies. New Indian Accounting Standards that have in convergence to International Financial Reporting Standards (IFRS) shall be applicable from April 2016. However, it is still undecided for which company it shall be applies from January 2015 onwards.
In addition, it is necessary that the listed company conforms to a rule established in Indian Stock Exchange Committee and completes inspection every quarter as well as annual financial statements and audit, stocks evaluation report, and also prepare a corporate governance report. Central government, in addition carries out the regulations relating to financial reporting through the special law or ordinance.
After enforcement of the economic liberalization policy of 1991, India achieved rapid growth, but the maintenance such as accounts, inspection system was delayed. The manager of a company established under the virtual planned economy before 1991 gives priority to “ negotiations with the politician, and, as for U.S. paper Wall Street Journal, it is natural, and it points out that there are a few apparent things to know the management actual situation.
In January 2009, Ramlinga Raju, founder of India's fourth largest IT company Satyam Computers suddenly resigned after confessing that they had done an accounting fraud of $1 billion.
Indian accounting audit maintenance plans that in future upon the ranks of developed countries, it can be termed as an urgent issue.
●Accounting Period
After the Companies Act 2013 came to effect, accounting period was defined as the principle Corporate Tax taxable period as April 1st to March 31st. In exceptional provisions, December 31st was provided as the end of fiscal year. In order to apply an exception, one must obtain permission of the National Company Law Tribunal (NCLF). Submission of authorization and acquisition of documents which are not published makes handling of such documents easier.
Currently Indian Companies have a closing balance sheet date of December 31 without exceptions. It needs to be March 31 from fiscal year 2016 onwards. For companies that did not make any changes in the accounting period, a fine of INR 10,000 would be imposed and if the violation continues, one needs to be careful because the company is subject to a fine of INR 1,000 per day (Companies Act 450 Article).
Q. If the parent company of an Indian Subsidiary wants to do a settlement of accounts in December, in such a case, how would you schedule balancing accounts?
A. In the Income Tax Act, taxable period is defined as the 12 months starting April to March of next year and the act does not have exceptions. Therefore, in case of setting December settlement, settlement on accounting and settlement for tax return are required, namely settlements are required twice. We need to decide on taking the benefit of adapting the accounting period to the parent company and the disadvantage of performing settlements twice into account. As a side note, the settlement period on accounting is required to unify April to March of next year on settlement period by the end of March, 2016 which the new Companies Act 2013 is enforced. However, it is possible to carry out the approved as an exceptional application to the National Company Law Tribunal (NCLF).
(Described above)
●Account Record
The accounting book is a documented proof necessary to be retained for at least 8 years as per Company Law, Article 128. In addition the account book is handed over to the Company Registration Bureau.
Preparation of accounting records must be registered in office. However, in that case, one can be asked to notify the registrar address etc to put with within seven days after the resolution of the Board of Directors in writing.
As the items mentioned of the accounting book, there are cash flow and the cause, stocking of the article and sales, assets and debt. Accounting records are fair explanations for a transaction. In addition, same as Japan accrued basis and the entry with double-entry bookkeeping it must be required and furthermore with the documents of proof must keep the accounting account book in chronological order.
When the company has a branch office within and outside India, it records transaction with the concerned branch office to the accounting account book. On the basis of Company Law, within every 3 months, it is necessary to send the summary report from the branch office to the registration office. (Company Law, Article 128)
If you violate these provisions, the Representative Director or other Company Officers, etc., will face six months or less of fixed-term imprisonment or a fine of INR 10,000 or more or both. However, if it is not intended violation, terminal punishment shall not be imposed.
●Auditor
As per the auditing system, the inspector has the right to inspect without advance notification and the Directors of the Company are required to cooperate with him.
As per Companies Act, in case of violation, a fine of INR 25,000-100,000 can be imposed or 1 year imprisonment. Furthermore, when the officers such as directors are found guilty for violation of these rules, they can't take office as the officer of other companies
●Disclosure, Reporting Schedule
India has many types of tax where there are compliance-related reporting obligations. Here, a reporting schedule in a general enterprise is introduced.
First, in the monthly basis, you must make the withholding tax (TDS) and payment of various indirect taxes. State value-added tax (State VAT) submission period of declaration is, by taxable sales amount of state VAT, monthly, quarterly, semi-annual, but differs from the annual. The declaration payment in most cases is made on 20th of every month. Procedures for filing and payment of Central Sales Tax (CST) and State VAT will be done at the same time.
Monthly Schedule Example in a Normal Month
Excise tax
Payment
5th
※1
31st
Declaration
※3
10th
Service tax
Payment
5th
※1
31st
Withholding Tax
（TDS）
Payment
7th
※2
30th
State VAT
Declaration Payment
20th
Central Sales
（CST）
Declaration Payment
20th
※1 Normal month to 5th of next month, pays amount till March 31st。
※2 Normal month to 7th of next month 7th, pays amount till April 30th.
※3 Monthly report submitted by 10th of every month, amount paid by 5th of next month.
It is followed by the annual schedule which is divided into two parts - accounting and tax reporting.
Closing Business
As compliance relationship business, all of the company, of financial statements within 30 days after the Ordinary General Meeting of Shareholders exit submission, the annual report within 60 days, must be submitted to the Registrar of Companies stations (ROC).
For financial statements of submission, the balance sheet, you will need to submit three copies of the income statement and other relevant documents. In addition, when financial statements to be submitted; the auditor may ask for financial statements. One must close the statutory audit before it.
Item below is stated in the annual report.
• Registered office
• Information of shareholders
• Information of bondholders
• Issue status of stocks and bonds
• Debt situation
• Information on the current-past of shareholders and bondholders
• Present and past of the Board of Directors, Managing Director, Information Manager and Company Secretary
Ordinary General Meeting of Shareholders, since it is necessary to be held within 180 days after the end of the accounting period by March end, the general shareholder's meeting must be held by end of September
Tax Return
On the other hand, Corporate Tax, Personal Income Tax Return such as declaration of quarterly reports and withheld tax; are not included in the system of Japan. For declaration payment schedule of individual tax items, refer to Chapter 8 of Corporate Tax.
It also has generated different cases in principle handling. For example, companies that are doing business with foreign related parties, they must submit transfer pricing as a proof of Auditor’s Certificate (3CEB) until the end of November.
In the case of annual schedule example
※ 3 end of the month settlement
April
May
June
July
August
September
October
November
December
January
February
March
Income Tax
Scheduled payment
15th
15th
15th
15th
Final Return
30th
※1
30th
Personal Income Tax
Scheduled payment
15th
15th
15th
Confirm payment
31st
Source Tax（TDS）
Quarter Declaration
15th
15th
15th
15th
Service Tax
Declaration
25th
25th
General meeting of shareholders
Report
30th
ROC Report
(financial affairs statements)
※2
31st
ROC Report
(Annual Report)
※2
30th
Statutory Audit
Audit
30th
Tax Audit
30th
※1
30th
Transfer Pricing Certificate
30th
※1 Transfer Pricing Certificate (3CEB) submission companies, deadline of tax audit and corporate tax returns are extended until the end of November.
※2 If the Ordinary General Meeting of Shareholders was held at the end of September.
● Preparation of financial statements
Balance sheet and the income statement prepared in accordance with Indian accounting standards and Indian Companies Act are published by the Indian Institute of Chartered Accountants (ICAI). The balance sheet and income statement, signed by the person who is representative of the Board of Directors will be asked. If the director is not in India, instead the other Director’s signs, representatives will specify the reason as to why it cannot be signed.
Financial statements that have been created, after receiving an audit of India Chartered Accountants, to be submitted to the general shareholders' meeting, must be approved by the shareholders.
The Companies Act, if the director is contrary to these provisions, will be one year or less of fixed-term imprisonment or a fine of INR 50 000 or more, or both. In addition, if the there is a negligence of the person who is not a Director; the person will be punished as per the above mentioned directions.
The balance sheet carried out is displayed in fixed sequences method. The fixed sequences method is a method to arrange in order from low liquidity item will appear in order.
Assets "fixed assets" ⇒ the order of "current assets", credit the "capital" ⇒ "fixed liabilities" ⇒ "current liabilities"
With regards to the income statement, in Japan it is calculated by dividing into three stages of profits "gross profit" ⇒ "ordinary income" ⇒ "net income". In India, the extraordinary items are subtracted from total revenue and characterized to calculate the "ordinary income" in one shot.
Disclosure in XBRL system
From accounting period which ends on 31st March 2011, the companies that meet even one following requirements, XBRL report is required concerning the annual report for ROC.
- The Company and its Indian subsidiary has been listed
- Company's paid-up capital is INR 50 million or more
- Company sales INR 100 million or more
The XBRL (Business Reporting Language) creates information for various financial reporting and distribution. It is standardized XML-based markup language. In XBRL, a concept called taxonomy is also defined.
The taxonomy is intended to define the concept and explain the relationship between concepts, and provide additional information about concepts. On the other hand concept defined by taxonomy in a report form and indicate about a letters or numbers displayed.
It is excellent language which is rich in scalability such as translating account title from Japanese to English, making calculating of each financial indicator easier
Also, because it is XML-based and also has excellent compatibility with other languages, business reports and financial reporting in XBRL is a demand in many countries and stock exchanges.
●India's Accounting System
Many Japanese companies also use the Tally to perform financial accounting processing as in India. Mainstream software like SAPR3, SAP, Oracle, Microsoft, Navision are used on a large scale.
These products when applied to local accounting system of India, it is essential to compare prices of products. In addition, the product prices are weighed and it is essential to choose an appropriate product depending on the situation of the company.
Also there are many retail stores handling software in India, but enrichment level of aftercare by dealers vary. Initial deployment support will also determine the level of response in advance, such as law reform, upgrading the contact is very important.
Sample of India's financial statements
BALANCE SHEET
Balance Sheet as at 31st March, 2015
Particulars
Note No
Figures as at the end of current reporting period
Figures as at the end of previous reporting period
I. EQUITY AND LIABILITIES
(1) Shareholder's Funds
(a) Share Capital
(b) Reserves and Surplus
(c) Money received against share warrants
(2) Non-Current Liabilities
(a) Long-term borrowings
(b) Deferred tax liabilities (Net)
(c) Other long-term liabilities
(d)Long-term provisions
(3) Current Liabilities
(a) Short-term borrowings
(b) Trade payables
(c) Other current liabilities
(d) Short-term provisions
Total
II. Assets
(1) Non-current assets
(a) Fixed assets
(i) Tangible assets0
(ii) Intangible assets
(iii) Capital work-in-progress
(iv) Intangible assets under development
(b) Non-current investments
(c) Deferred tax assets (net)
(d) Long-term loans and advances
(e) Other non-current assets
(2) Current assets
(a) Current investments
(b) Inventories
(c) Trade receivables
(d) Cash and cash equivalents
(e) Short-term loans and advances
(f) Other current assets
Total
STATEMENT OF PROFIT AND LOSS
Profit and Loss statement for the year ended 31st March, 2015
Particulars
Note No
Figures as at the end of current reporting period
Figures as at the end of previous reporting period
I. Revenue from operations
II. Other Income
III. Total Revenue (I +II)
IV. Expenses:
Cost of materials consumed
Purchase of Stock-in-Trade
Changes in inventories of finished goods, work-in-progress and Stock-in-Trade
Employee benefit expense
Financial costs
Depreciation and amortization expense
Other expenses
Total Expenses
V. Profit before exceptional and extraordinary items and tax
(III - IV)
VI. Exceptional Items
VII. Profit before extraordinary items and tax (V - VI)
VIII. Extraordinary Items
IX. Profit before tax (VII - VIII)
X. Tax expense:
(1) Current tax
(2) Deferred tax
XI. Profit(Loss) from the period from continuing operations
(VII-VIII)
XII. Profit/(Loss) from discontinuing operations
XIII. Tax expense of discounting operations
XIV. Profit/(Loss) from ｄcontinues operations (XII - XIII)
XV. Profit/(Loss) for the period (XI + XIV)
XVI. Earning per equity share:
(1) Basic
(2) Diluted
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