Legal provision for maintaining books of accounts:
Section 128 of the Companies Act, 2013 states that each company is required to prepare and maintain its books of accounts as well as all relevant books, papers and financial statements for each financial year. These books and papers should give a true and fair view of the financial state of the affairs of the organization. A similar statement is prescribed by section 34 of the LLP Act, 2008 concerning maintenance of books of accounts in an LLP.
Books are required to be preserved for 8 consecutive years:
A company or an LLP is required by law to preserve the books of accounts, relevant papers, vouchers, and other necessary accounting records such as their bank statements, invoices, registers, and more belonging to a financial year for a period of 8 consecutive years. If there are any legal proceedings related to accounts or taxes, then they need to be preserved until the conclusion of any such proceeding.
Penalty for Non-compliance
Violating Section 128 of the Companies Act, can attract imprisonment of up to 1 year or with a fine of Rupees 50,000 or more. This fine can be maximized up to Rupees 5 lakh along with imprisonment. The consequence for violating Section 34 of the LLP Act is a fine of Rupees 25,000 up to 5 Lakhs payable by the LLP, while the designated partner can be fined Rupees 10,000 to 1 lakh.
Place of Maintaining Books of Account
They are supposed to be maintained at the registered office of the company or an LLP. The board of directors may choose to keep the said books at any other location in India. However, such changes must be filed with the ROC using the Form AOC 5 within 7 days of such changes.
Primary onus of maintaining Books of Accounts
The Board of Director of the company or the designated partners of an LLP have the primary responsibility to maintain updated books of accounts. The Managing Director, the full-time Director in charge of finance, and the Chief Financial Officer of the company or Designated Partners of an LLP are held liable in the case of non-compliance.
Final Accounts and Audit
The profit or loss for the financial year needs to be determined by the preparation of the final accounts of the company. The books of accounts are required to be signed by 2 Directors or Designated Partners. The said books of a company are to be audited by the statutory auditor of the company; an audit is only required for an LLP when their turnover exceeds Rupees 40 Lakhs.
