Module: | SEBI LODR & Corporate Governance Frameworks
Q40: Consider the following statements regarding the Directors' Responsibility Statement under Section 134(5) of the Companies Act:
1. The statement must confirm that in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures.
2. The requirement to declare that the directors have laid down internal financial controls to be followed by the company is applicable strictly to listed companies.
3. The directors must declare that they have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.
Which of the above statements is/are incorrect?
2. The requirement to declare that the directors have laid down internal financial controls to be followed by the company is applicable strictly to listed companies.
3. The directors must declare that they have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.
Which of the above statements is/are incorrect?
✅ Correct Answer: B
🎯 Quick Answer:
B. Only 2 is incorrect.Structural Breakdown: Statement 1 is correct; the board must legally affirm adherence to accounting standards.
Statement 2 is incorrect because the Companies (Accounts) Rules extend the reporting on the adequacy of internal financial controls regarding financial statements to the Board's Report of all companies, not strictly listed ones.
Statement 3 is correct as it quotes 134(5)(f). Historical/Related Context: The Directors' Responsibility Statement was strengthened in the 2013 Act to prevent boards from feigning ignorance and shifting the entire blame for accounting frauds onto the statutory auditors.
Causal Reasoning: By legally forcing directors to sign a statement affirming that they personally oversaw the establishment of compliance systems, the law provides a direct mechanism to prosecute the board if systemic fraud is later discovered.