Wednesday, August 30, 2023

Cash Flow Statement Compliance under Companies Act 2013

The Companies Act 2013 has introduced significant changes in financial reporting requirements for companies in India. One key change pertains to the inclusion of the cash flow statement in the financial statements. This article discusses the applicability of the cash flow statement, its compliance requirements, exemptions, and a case study illustrating the consequences of non-compliance.

Applicability of Cash Flow Statements

Under Section 2(40) of the Companies Act 2013, "financial statement" for a company includes a balance sheet, profit and loss account (or income and expenditure account for non-profit companies), cash flow statement, statement of changes in equity, and explanatory notes. This means that the cash flow statement is a mandatory part of the financial statement.

However, there are exemptions provided for certain types of companies:

  1. One Person Company (OPC): An OPC, which has only one person as a member, is exempt from including the cash flow statement in its financial statements.

  2. Small Company: A small company, as defined in Section 2(85), has limitations on paid-up share capital and turnover. Small companies are exempt from including the cash flow statement in their financial statements.

  3. Dormant Company: A dormant company, which is not actively engaged in business or significant transactions, is also exempt from including the cash flow statement.

Format and Standards for Cash Flow Statement

While the Companies Act 2013 does not prescribe a specific format for the cash flow statement, it directs companies to follow Accounting Standard 3 (AS-3) - Cash Flow Statements. This standard outlines how the cash flow statement should be prepared, including the indirect method of preparing the statement.

Consequences of Non-Compliance

Non-compliance with the requirement to include the cash flow statement in the financial statements can result in penalties. Companies failing to file the cash flow statement on time or not including it in their financial statements may face penalties imposed by the regulatory authorities.

Case Study: SMP Constructions Private Limited

To illustrate the consequences of non-compliance, consider the case of SMP Constructions Private Limited. The company failed to attach the cash flow statement to its financial statements for three consecutive financial years. The Registrar of Companies (RoC) initiated an adjudication process, which resulted in penalties being imposed on the company and its directors.

In this case, the penalties were imposed based on the provisions of Section 137(3) of the Companies Act 2013. The penalty amount was calculated for each day of default, with a maximum limit. Both the company and its directors were held liable for the penalty due to their failure to comply with the cash flow statement requirement.


Compliance with the cash flow statement requirement under the Companies Act 2013 is essential for all companies, except those falling under specified exemptions. The cash flow statement provides insights into a company's financial health by detailing its cash inflows and outflows. Non-compliance can result in penalties, as demonstrated by the case of SMP Constructions Private Limited. It's crucial for companies and their directors to understand their obligations and ensure timely and accurate submission of financial statements to avoid legal consequences.