Easy Office
LCI Learning

Consolidation of accounts for private limited companies

ABHISEK TOSNIWAL , Last updated: 13 May 2015  
  Share


It is believed that to get correct picture of financials of a business, the financials of the subsidiaries & joint ventures of the company should be analyzed together. On this premise the concept of consolidation of accounts is devised & is the part of GAAP.  In the previous companies Act, there was no legal requirement of consolidation of accounts by a company. However as per listing agreement, the listed companies were required to consolidate their accounts along with subsidiaries

To ensure transparency & facilitate disclosure of clear & refined picture of the state of affairs of companies, the companies Act, 2013 made mandatory, the preparation of consolidated financial statements of all the subsidiaries , beside presenting its own financial statement.

The Ministry of corporate affairs had issued a couple of amendments to provide that preparation of consolidated financial statements shall not be required by:

a. An intermediate wholly owned subsidiary, other than a wholly owned subsidiary whose immediate parent is a company incorporated outside India.

b. A company which does not have a subsidiary or subsidiaries but has one or more associate companies or joint ventures or both for the financial year 2014-15.

More recently, on 16 January 2015, the Ministry of corporate Affairs issued another amendment which provided that “the requirements in respect of consolidation of financial statement shall not apply to a company having subsidiary or subsidiaries incorporated outside India only for the financial year commencing on or after 1st April, 2014”.

From the above amendment it appears that the MCA has given a temporary relief to companies having foreign subsidiaries. This is being provided to such companies to deal with the additional challenges in consolidation due to differences in accounting framework and reporting period followed by their subsidiaries.

From plain reading of this amendment it can be concluded that as a temporary relief, the companies having foreign subsidiaries are not required to consolidate the accounts of their foreign subsidiaries, but they are required to consolidate the accounts of Indian subsidiaries.

Having said this, as a matter of fact all the companies who are required to consolidate their accounts should start the process of consolidating them as early as possible since these requirements may require significant time & cost especially in case of large & mid-sized unlisted companies.


Published by

ABHISEK TOSNIWAL
(CA in Practice)
Category Accounts   Report

1 Likes   31700 Views

Comments


Related Articles


Loading