A cakewalk on October amendment to Schedule III


Introduction:

In exercise of the powers conferred by sub-section (1) of section 467 of theCompanies Act, 2013 (18 of 2013), the Central Government makes the following further amendments in Schedule III to the said Act with effect from the date of publication of this notification in the Official Gazette.

The amendments cover inter alia existing Division I (Indian GAAP) & Division II (Ind. AS) Schedule III.

Amendments to Division I of Schedule III preparing IGAP financial statements are more in the nature ofmodifications and corrections in vivid manner.

Amendments to Division II ofInd. AS Schedule III require companies preparing Ind. AS financial statements to give additional disclosures related trade receivables, loans receivables and trade payables and also comply with the disclosure requirements under the Micro, Small and Medium Enterprises Development Act, 2006.

MCA has further notified Ind. AS Schedule III in Division III applicable to Non-Banking Financial Company (NBFC) whose financial statements are drawn up in compliance of the Companies (Indian Accounting Standards) Rules, 2015. Division III has been inserted /inductedspecifically toserve the specific requirements FOR PREPARATION OF FINANCIAL STATEMENTS OF NON-BANKING FINANCIAL COMPANY (NBFC) THAT IS REQUIRED TO COMPLY WITH INDIAN ACCOUNTING STANDARDS (Ind. AS)

Schedule III-Division-I Balance Sheet IGAP:


SR. No

Schedule III-Division-I Balance Sheet IGAPP

Notification No. GSR 404(E)Dt. 6/4/20i6 updated

MCA Notification Dt.11/10/2018)

1

'General instructions”, in paragraph 4, in clause (ii),

4(ii)-Once a unit measurement is used, it

Shall be used uniformly in the Financial statements.

for the word 'shall”, the word 'should” shall be substituted;

2

(ii) Assets in Part I- Balance Sheet,-

Non - Current Assets

(1) (a) Fixed Assets

(A) under the heading 'II Assets”, under sub-heading 'Non-current assets”, for the words 'Fixed assets”, the words 'Property, Plant and Equipment” shall be substituted;

3

'Notes”, under the heading 'General Instructions for preparation of Balance Sheet”

in paragraph 6,- B Reserves and Surplus

(1) (c) Securities Premium Reserve.

(B)

(I) under the heading 'B. Reserves and Surplus”, in item (i), in sub- item (c), the word 'Reserve” shall be omitted;

4

DO

In Paragraph 6-W

(II) in clause W., for the words 'fixed assets”, the words 'Property, Plant and Equipment” shall be substituted;


The above Table will high light changes that are more in the nature of improvement/correction to covey in proper idiom.

The Phrase 'Fixed Assets' is a misnomer (inaccurate term) in the concept of 'Non-Current Assets'. Nothing is fixed or permanent and in that sense, it is better to refer to the same as 'Property, Plant and Equipment'. In that logic, it reflects international concept.

As per section 52 of the Companies Act 2013, 'Where a company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount of the premium received on those shares shall be transferred to a ―securities premium account and the provisions of this Act relating to reduction of share capital of a company shall, except as provided in this section, apply as if the securities premium account were the paid-up share capital of the company'. For brevity, subsections are not quoted- may visit the Section for clarity. In line with the provisions of the Section and sentiment of the Act, it is appropriate to dispense with the word reserve for proper presentation/ disclosure.

Schedule III-Division-II Balance sheet Part I Ind.AS:


Schedule III-Division-II Balance Sheet-Part I Ind.AS

Notification No. GSR 404(E)Dt. 6/4/20i6 updated

MCA Notification Dt.11/10/2018)

1.under the heading 'Equity and Liabilities”, for the words 'Trade payables” at both the places where they occur,:—I (a) (ii) & (2) (ii)

Non-current Liabilities-I (a) Financial Liabilities (ii)-Trade Payables

Current Liablities2 (a) Financial Liabilities II)-Trade Payables

the following shall be substituted, namely:—

'Trade Payables:-

(A) total outstanding dues of micro enterprises and small enterprises; and

(B) Total outstanding dues of creditors other than micro enterprises and small enterprises.”;

2.(ii) Under the heading 'Statement of Changes in Equity”, under sub-heading 'B. Other Equity”,-

Security Premium Reserve

Under Reserves and Surplus

A for the words 'Securities Premium Reserve”, the words 'Securities Premium” shall be substituted

(B) The 'Note” shall be renumbered as clause (i) thereof and after clause (i) as so renumbered, the following clause shall be inserted, namely:-

'(ii) A description of the purposes of each reserve within equity shall be disclosed in the Notes.

3.in the 'Notes”, under the heading 'General Instructions for Preparation of Balance Sheet”,-

 

(A) in paragraph 6,-

(I) under the heading 'A. Non-Current Assets”,-

(i) Under sub-heading 'VII. Trade Receivables”, for item

(ii) Under sub-heading VIII. Loans”, for item (ii),

(i), the following shall be substituted, namely:—

'(i) Trade/Loan Receivables shall be sub-classified as:

(a) Trade/Loan Receivables considered good - Secured; (b) Trade/Loan Receivables considered good - Unsecured;

(c) Trade/Loan Receivables which have significant increase in Credit Risk; and

(d) Trade/Loan Receivables - credit impaired.”;

under the heading 'B. Current Assets”,-

(i) Under sub-heading 'III. Trade Receivables”, for item(i)

(ii) under sub-heading 'V. Loans”, for item (ii),

Similar treatment under the heading A above is needed

   

(III) after the heading 'F. Current Liabilities” and the entries relating thereto, the following shall be inserted, namely:—

'FA. Trade Payables

The following details relating to micro, small and medium enterprises shall be disclosed in the notes:-

(a) the principal amount and the interest due thereon (to be shown separately) remaining unpaid to any supplier at the end of each accounting year;

(b) the amount of interest paid by the buyer in terms of section 16 of the Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006), along with the amount of the payment made to the supplier beyond the appointed day during each accounting year;

(c) the amount of interest due and payable for the period of delay in making payment (whic h has been paid but beyond the appointed day during the year) but without adding the interest specified under the Micro, Small and Medium Enterprises Development Act, 2006;

(d) the amount of interest accrued and remaining unpaid at the end of each accounting year; and 3

(e) the amount of further interest remaining due and payable even in the succeeding years, until such date when the interest dues above are actually paid to the small enterprise, for the purpose of disallowance of a deductible expenditure under section 23 of the Micro, Small and Medium Enterprises Development Act, 2006.

Explanation.- The terms 'appointed day', 'buyer', 'enterprise', 'micro enterprise', 'small enterprise' and 'supplier', shall have the same meaning as assigned to them under clauses (b), (d), (e), (h), (m) and (n) respectively of section 2 of the Micro, Small and Medium Enterprises Development Act, 2006.”.

(B) in paragraph 9, after the words 'For instance,”, the words 'plain vanilla” shall be inserted;

(c) after Division II and the entries relating thereto, the following shall be inserted,


A glance through of the above Table will highlight that except for item 2 on Share Premium, the rest need/involve additional disclosures. Regarding Share Premium, it has been already dealt with copiously under Division I holds water here also.

Regarding additional disclosures relating to Trade/ Loan Receivables both under Current/Non- Current concept, the two relating to (c) Trade/Loan Receivables which have significant increase in Credit Risk; and (d) Trade/Loan Receivables - credit impaired.” are to be addressed properly since these two may land in controversy as have the potency of bone of contention for proper decision between the management and auditors since on which depends the decision for provision for doubtful debts. A guidance from the ICAI may immensely help eschew hullabaloo.

The disclosure demand on Trade Payables under Current Liabilities is to be addressed with all the attention it deserves.

Schedule III-Division-III Ind.AS: Financial Statements for a Non-Banking Financial Company (NBFC) whose financial statements are drawn up in compliance of the Companies (Indian Accounting Standards) Rules, 2015.

What does it mean rather convey?

Every Non-Banking Financial company as defined in the Companies (Indian Accounting Standards) (Amendment) Rules, 2016 to which Indian Accounting Standards apply, shall prepare its financial statements in accordance with this Schedule or with such modification as may be required under certain circumstances.

If we glance through GENERAL INSTRUCTIONS FOR PREPARATION OF FINANCIAL STATEMENTS OF A NON-BANKING FINANCIAL COMPANY (NBFC) THAT IS REQUIRED TO COMPLY WITH INDIAN ACCOUNTING STANDARDS (Ind. AS), It is made amply clear 'Where compliance with the requirements of relevant Act, Regulations, Guidelines or Circulars issued by the relevant regulator from time to time including Indian Accounting Standards (Ind. AS) (except the option of presenting assets and liabilities in accordance with current, non-current classification as provided by relevant Ind. AS) as applicable to the NBFCs require any change in treatment or disclosure including addition, amendment, substitution or deletion in the head or sub-head or any changes inter se, in the financial statements or statements forming part thereof, the same shall be made and the requirements under this Schedule shall stand modified accordingly'.

The disclosure requirements specified in this Schedule are in addition to and not in substitution of the disclosure requirements specified in the Indian Accounting Standards. Additional disclosures specified in the Indian Accounting Standards shall be made in the Notes or by way of additional statement or statements unless required to be disclosed on the face of the Financial Statements.

Similarly, all other disclosures as required by the Companies Act, 2013 shall be made in the Notes in addition to the requirements set out in this Schedule.

For brevity, all General Instructions for Disclosure Requirements under Division III are not reproduced. Obviously, Division III of Schedule III is to be visited upon with all the attention it deserves for proper Guidance.

Part I Balance Sheet:

A peep through of The Balance Sheet (Division III) will covey the classification of Assets under' Non- Current Assets and Current Assets concept is given go bye and instead the concept Of Financial Assets and Non - Financial Assets model has been adopted for reason obvious- being Non -Financial Institutions, this will be an ideal classification. Assets are arranged in the order of liquidity.

Similarly, the arrangement under 'Equity and Liability' is given goodbye but has adopted 'Liabilities and Equity” to respond to the needs of NBFC. Again, Liabilities are grouped under 'Financial Liabilities and Non- Financial Liabilities' rightly so to be in the right conveyer belt fit for NBFC. Here again, liabilities are arranged in the order of liquidity.

In the Statement of Changes under Other Equity, in Share Premiums and Reserve, the reserve is dispensed with, rightly so as explained earlier in relation to Other Divisions. Statutory reserve is given Separate Colum under 'Reserves and Surplus'

In General instructions for the preparation of Balance Sheet, necessary care has been taken of the specific requirements of NBFC like- (For further detail and other notes Refer General instructions-Balance Sheet). For brevity, all are not dealt with here. Specifics relating to NBFC are refered underneath for detailed disclosures- Refer the notes within brackets in the GIs.

Derivative Financial Instruments (refer B)

  • Receivables-Impairment Loss is mentioned as against Provision for Doubtful Debts in other -Dispensations.
  • Loans Detailed disclosure requirements (refer D)
  • Debt Securities detailed and specific disclosure requirements (refer L)
  • Borrowings detailed and specific disclosure requirements (refer M)
  • Deposits detailed and specific disclosure requirements (refer N)

Part II Profit and Loss:

It may be noted presentation ofRevenues from Operations and Expenses are specifically tailored To NBFCS

General instructions for the preparation of Profit and Loss, necessary care has been taken of the specific requirements of NBFC like- (For further detail and other notes Refer General instructions-Profit and Loss). Refer the notes within brackets in the GIs.

Interest Income - Detailed disclosure requirements (refer 3)

Net gain/ (loss) on fair value changes (refer 4)

Other Income (to be specified) (refer 5)

PART III- GENERAL INSTRUCTIONS FOR THE PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS:

(1) Where a Non-Banking Financial Company (NBFC) is required to prepare Consolidated Financial Statements, i.e., consolidated balance sheet, consolidated statement of changes in equity and consolidated statement of profit and loss, the NBFC shall mutatis mutandis follow the requirements of this Schedule as applicable to an NBFC in the preparation of balance sheet, statement of changes in equity and statement of profit and loss. However, where the consolidated financial statements contains elements pertaining to NBFCs and other than NBFCs, mixed basis of presentation may be followed for consolidated financial statements where both kinds of operations are significant. In addition, the consolidated financial statements shall disclose the information as per the requirements specified in the applicable Indian Accounting Standards notified under the Companies (Indian Accounting Standards) Rules 2015, including the following, namely:-

(i) Profit or loss attributable to 'non-controlling interest' and to 'owners of the parent' in the statement of profit and loss shall be presented as allocation for the period. Further, 'total comprehensive income' for the period attributable to 'non-controlling interest' and to 'owners of the parent' shall be presented in the statement of profit and loss as allocation for the period. The aforesaid disclosures for 'total comprehensive income' shall also be made in the statement of changes in equity. In addition to the disclosure requirements in the Indian Accounting Standards, the aforesaid disclosures shall also be made in respect of 'other comprehensive income'.

(ii) 'Non-controlling interests' in the Balance Sheet and in the Statement of Changes in Equity, within equity, shall be presented separately from the equity of the 'owners of the parent'.

(iii) Investments accounted for using the equity method.

Besides, In Consolidated Financial Statements, the following shall be disclosed by way of additional information: Name of the entity in the Group Net Assets, i.e., total assets minus total liabilities Share in profit or loss Share in other comprehensive income Share in total comprehensive income as % of consolidated net assets Amount as % of consolidated profit or loss Amount as % of consolidated other comprehensive income as % of total comprehensive income.

Further, the above information is to be given separately for - Parent, Subsidiaries Indian 1. 2. 3. . . -Foreign- 1. 2. 3. . . -Non-controllingInterests in all subsidiaries Associates (Investment as per the equity method)Indian 1. 2. 3. . . Foreign - 1. 2. 3. . . Joint Ventures (as per the equity method) Indian 1. 2. 3. . . Foreign 1. 2. 3. . With Total.

Conclusion:

As spelled out earlier, in respect of Division I and Division II, amendments are to bring clarity in the presentation and disclosures besides additional information to be provided.

Division III is specifically drafted for compliance by NBFCs coming under the grasp of Ind.AS taking cognizance of NBFC requirements under the relevant legislation and Regulatory Authorities.

Now, a pertinent question arises what will follow suit to Banks and Insurance Companies under different legislative obligations and Regulatory Authorities. Will Divisions IV & V are in the horizons to cater to their needs- let we may have to chatter to 'charter that chapter with proper altars and alters with correct adapters for right connect between Ind. AS and banks and Insurance Companies.

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P.R. Sethuraman 
on 25 October 2018
Published in Audit
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