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TMI BlogChanges in Financial Statements of Companies as per Revised Schedule III of Co Act 2013X X X X Extracts X X X X X X X X Extracts X X X X ..... Changes in Financial Statements of Companies as per Revised Schedule III of Co Act 2013 - By: - DHRUV GOEL - Corporate Laws / IBC / SEBI - Dated:- 4-5-2022 - - The Ministry of Corporate Affairs by way of amendments to Schedule III of Companies Act 2013 introduced a number of amendments to format of Financial statements to be prepared by both IND-AS and Non IND-AS Companies ( Notification No. G.S.R. 207(E) dated 24-03-2021 ) . The changes majorly fall into 2 broad categories: New Disclosures and Presentation Changes. The changes are majorly aimed at making the financial statements more transparent with new disclosures on Utilization of borrowed funds, Related party transactions, CSR activities, Capital Work In Progress, Crypto Currency and Impact of Income Tax and Benami proceedings on Balance sheets, among others. These changes would lead to revision of the formats of Financial statements being prepared by companies beginning from FY 2021-22 and onwards. A clause by clause summary of each of the changes are given herein below for your reference: Changes applicable for both Non IND-AS and IND-AS compliant companies SN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Change Nature of Change Remarks 1 Compulsory rounding off of financial statements to hundreds/lakhs Presentation change Earlier, rounding off of figures in financial statements was optional due to usage of word may . However, now same has been replaced by shall . Resultantly, now:- a) Rounding off upto hundreds is compulsory if total income is upto 100 cr and b) Rounding off upto lakhs is mandatory if total income is above 100cr. 2 Separate disclosure in case company has availed loans from banks/financial institutions against current assets New Disclosure If company has availed any finance against security of current assets such as Cash credit Limit, Bank overdraft or such similar loans, then company has to disclose following: a) Whether quarterly returns or statements (such as stock statements) filed by Company with Banks/FI are in agreement with books of accounts b) If there are differences, company has to be reconciliations with reasons for material discre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pancies. 3 Separate disclosure for Trade Receivables Ageing* New Disclosure Separate disclosure has to be given for ageing of Debtors. Debtors are to be divided into 4 categories: a) Undisputed Trade Receivables-Considered good b) Undisputed Trade Receivables-Considered doubtful c) Disputed Trade Receivables-Considered good b) Disputed Trade Receivables-Considered doubtful The ageing is to be split into 5 timelines: a) O/s for less than 6 months b) O/s for 6-12 months c) O/s for 1-2 years d) O/s for 2-3 years e) O/s for more than 5 years It has been specified if due date for receipt was not mentioned on invoice, then due date is to be calculated from date of transaction. 4 Separate disclosure for ageing of Trade Payables* New Disclosure In an attempt to bring more transparency on ageing of the trade payables, all companies have been mandated to disclose ageing schedule in specified format. The ageing is split into 4 categories: MSME ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Others Disputed dues to MSME Disputed dues to others The ageing is to be shown for 4 time periods: Due for less than 1 year Due for 1-2 years Due for 2-3 years Due for more than 3 years It has also been specified that in case no due date of payment was mentioned on invoice, ageing is to be calculated from date of transaction 5 Separate disclosure for Loans And Advances to promoters, directors, Key managerial personnel and related parties New Disclosure In case company has granted any loan or advance to promoters, directors, Key managerial personnel and related parties and such loans are: repayable on demand or without specifying period of repayment, Then company needs to specify following in a separate Table: Category of recipient (Promoter/KMP/Directors/Related Parties) Amount of loan o/s for each category as of balance sheet date % of such loans to total o/s loans and advances 6 Disclosure of Immovable properties which are capitalised in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books of company but title deed of which is not held in name of company New Disclosure In case company has capitalised any property in its books whose title deed is not held in name of company, then following needs to be disclosed in respect of said property: Head of balance sheet where property is reflected Nature of property (Land/Building/Land and Building) Gross carrying value as per Balance sheet Name of person in whose title deed is held Whether title deed holder is promoter/director/relative of director/employee of promoter/director Date since when the property is held in books of company Reason for not holding property in name of company (including details of dispute if any) 7 Separate disclosure of financial ratios New Disclosure Company has to give 11 financial ratios in its balance sheet: Current Ratio, Debt-Equity Ratio Debt Service Coverage Ratio Return on Equity Ratio, Inventory turnover ratio Trade Receivables turnover ratio Trade payables turnover ratio Net ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital turnover ratio Net profit ratio Return on Capital employed Return on investment Further, if there is any change of more than 25% from previous year, company has to give explanation for the same. 8 Separate disclosure for ageing of Capital Work in Progress New Disclosure 2 new disclosures need to be given for CWIP and Intangible assets under development. 1) Company needs to categorise CWIP into : Projects in progress and projects temporarily suspended. Thereafter, breakup of CWIP amount has to be given of amount which has been shown as CWIP for: Less than 1 year 1-2 years 2-3 years More than 3 years 2) Company needs to separately show CWIP projects whose completion is overdue or exceeded budgeted cost and disclose the timeline within which project will be completed (less than 1 year, 1-2 years, 2-3 years or More than 3 years) Further, if a project is suspended, same has to be disclosed separately. 9 Separate Disclosure for proceedings under Benami Act Ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w Disclosure In case, any proceedings have been initiated or pending against the company for holding any benami property, the company has to disclose the following:- Details of the property including year of acquisition Amount of property Details of beneficiaries If property is held in books, head of balance sheet where it is reported If property not in books, provide reasons If the proceedings are in capacity as transferror of a benami property or abetter of benami property, details to be provided Nature of proceedings, status of proceedings and company's view on the proceedings 10 Separate disclosure on usage of borrowed funds* New Disclosure Company has to disclose separately whether the borrowings from banks and financial institutions have been utilised for specific purpose and if not, company is required to give details as to where the borrowings are used. 11 Substitution of Turnover by Total Income for calculating limit for round off of financial statements Presentation change ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Limit for rounding off of figures in financial statements was to be seen on basis of total turnover. For example, if total turnover exceeded 100cr, all figures were to be rounded off by lakhs. Now, in place of turnover, total income is to be considered for calculating extent of round off. Total income would include revenue as well as other income. 12 Addition of Intangible Assets words in Non current assets Presentation change Earlier, fixed assets heading in Balance sheet was only called Property Plant and Equipment . Now, the same shall be called Property Plant Equipment and Intangible Assets 13 Substitution of Tangible Assets by Property Plant and Equipments Presentation change The sub heading of tangible assets has been substituted as Property Plant and Equipments in line with similar amendments in accounting standards. 14 Separate disclosure of shareholding of Promoters and change therein* New Disclosure A new disclosure has been introduced for Share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Capital. As per the same, all companies are bound to disclose name of promoter, no. and % of shares held by promoter and % change in shareholding from last year. Section 2(69) of Companies Act 2013 defines promoter as any person who has control over affairs of company directly or indirectly as well as a person on whose advice the board of directors are accustomed to act. 15 Disclosure of Current maturities of long term borrowings under heading Short term borrowings Presentation change Earlier, current maturities of long term debt was to be disclosed under Other Current Liabilities . However, now the same is to be disclosed under Short Term Borrowings 16 Separate disclosure of change in book value of PPE Intangible Assets due to revaluation* New Disclosure In note for Property, Plant and Equipment Intangible Assets, any change in carrying value of assets due to revaluation (if change is 10% or more in aggregate carrying value of class of assets) is to be disclosed separately. Earlier, same was being shown under head Other adjustme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts Separate disclosure in financial statements needs to be given by company whether the revaluation in PPE is based on report of registered valuer? 17 Disclosure of Long term security deposits to be under Other Non-current assets instead of Long term loans and advances Presentation change Non current security deposits shall henceforth be disclosed under Other Non Current Assets instead of Long Term Loans and Advances earlier. 18 Deletion of disclosure on Specified bank notes Presentation change At time of demonetisation, new disclosure was introduced to give details of SBNs held by the company and deposited post demonetisation. Same has now been deleted. 19 Separate disclosure on being declared Willful defaulter New Disclosure If company has been declared willful defaulter, it shall disclose: a) Date of declaration b) Amount and nature of default 20 Separate disclosure relating to transactions with Strike off companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... New Disclosure Company has to give separate disclosure for relationship with Strike off company:- a) Investment in shares of struck off company b) Amt receivable from strike off company c) Amt payable to strike off company d) Shares of company held by Strike off e) Any other balances 21 Separate disclosure for registration of charge with ROC New Disclosure Company has to disclose whether charge required to be registered with ROC is pending and beyond time specified under Companies Act 2013? (As per law, time limit is 30 days for creation of charge with ROC) 22 Separate disclosure of undisclosed income disclosed under Income tax proceedings* New Disclosure Company shall give details of undisclosed transactions/incomes which have been disclosed in income tax proceedings during the year (including search/survey) and also specify how this unrecorded income or assets have been recorded in books after their disclosure. 23 ..... 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Disclosure of Crypto currency transactions* New Disclosure If company has traded or invested in cryptocurrency during the year, company shall disclose: a) Profit and loss on such crypto currency transactions b) Amount of cryptocurrency held by company on balance sheet date c) Deposits/advances received from third parties for investment in cryptocurrency. 24 Disclosure on Corporate Social Responsibility (CSR)* New Disclosure In case, CSR provisions are applicable to the company, then it shall disclose by way of a separate note: a) Amount required to be spent on CSR during the year b) Amount actually spent on CSR c) Shortfall in expenditure, if any d) Total of shortfall of earlier years, if any e) Reason for shortfall f) Nature of CSR activities g) Details of CSR contributed to related parties including Trust controlled by company h) Details of movement in provisions, if any, made with respect to a liability by entering into a contractual obligation. 24 Disclosure regarding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... compliance with Court approved scheme of arrangement (Amalgamation/Merger etc.) New Disclosure Company shall provide disclosure that in case any scheme of arrangement for merger/demerger/amalgamation has been approved in its case by NCLT, whether the effect of such scheme has been given in books of accounts and same is as per applicable accounting standards. Changes applicable only to IND-AS compliant companies S.no Change Nature of Change Remarks 1 Separate disclosure of lease liabilities Presentation change Separate head of Lease Liabilities has been added on face of balance sheet under both Non current and Current liabilities. Earlier same was being shown under Other Financial Liabilities. 2 Amendment in disclosure for Statement of Changes in Equity and Other Equity* Presentation change Separate disclosure has to be given for changes in equity and other equity due to prior period errors and restated b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alances at beginning of the year after considering the prior period errors 3 Change in disclosure of security deposits Presentation change Security deposits are now required to be disclosed under Other Financial Assets instead of Loans prior to amendment *Changes also applicable to NBFCs. Remaining changes not applicable to NBFCs SUMMARY As can be seen from above, the changes are manifold and may lead to complete revamp of the appearance of the financial statements. Companies and their auditors would have to tread carefully on multiple fronts including on issues relating to reconciliation of stock statements submitted to bank with books of accounts, verification of title deeds of properties recognized in the books of accounts, preparation of multiple financial ratios, disclosures on loans to related parties and many other disclosures discussed above. By:- CA Dhruv Goel Partner, Rajiv Goel Associates Chartered Accountants Chandigarh (9560668527/[email protected]) - - Scholarly articles for knowledge sharing authors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... experts professionals Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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