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Short Summary

The Ministry of Corporate Affairs, Government of India, issued notifications dated 24th March, 2021 to amend Schedule III to the Companies Act, 2013 read with Companies (Accounts) Rules, 2014 and Companies (Audit and Auditors) Rule, 2014 to enhance the disclosures required to be made by the Company in its:-

a) Financial Statements;
b) Board Report;
c) Audit Report

Amendment in Schedule III  and Auditors Report, Directors Report

Purpose of Amendment

By these amendments, MCA has increased stringency in compliances and has added numerous additional disclosures in Financial Statement, Directors Report and Audit Report. The main purpose behind these amendments is more transparency. 

S No Date of Notification Particular Purpose (Amendment in)
i 24.03.2021 Companies (Audit & Auditors) Amendment Rules, 2021 Audit Report
ii 24.03.2021 Companies (Account) Amendment Rules, 2021 Directors Report
iii 24.03.2021 Amendment to Schedule III to the Companies Act, 2013 Financial Statement


Above mentioned amendments shall come into force w.e.f. 01st day of April
2021 except some points including amendment in Auditors Report.

Que: Financial year ended on 31st March 2021. Balance sheet and Directors Report signed on 25th August 2021. Whether Company have to give effect of amendment in Financial Statement and Directors Report?

Ans: All three above mentioned amendment shall be applicable on Companies for financial year start on or after 01st April 2021 or 1st April, 2022. Therefore, all these amendments shall effect the financial statement as on 31st March 2022 i.e. (f.y. 2021-22) or 31st March 2023 i.e. (f.y. 2022-23).

Therefore, one can opine that Directors Report and Financial Statement for financial year ending 31.03.2021 shall be same as per earlier disclosures.

Amendment 1: Companies (Account) Amendment Rules, 2021

First Amendment in Rule 3 i.e. Manner of Books of Account to be Kept in Electronic Mode. in Rule 3, in sub-rule (1) the proviso shall be inserted:

Rule 3(1)The books of account and other relevant books and papers maintained in electronic mode shall remain accessible in India so as to be usable for subsequent reference.

New Proviso: Provided that for the financial year commencing on or after the 1st day of April, 2021, every company which uses accounting software for maintaining its books of account, shall use only such accounting software which has a feature of:

  • Recording audit trail of each and every transaction, 
  • Creating an edit log of each change made in books of account along with,
  • The date when such changes were made and
  • Ensuring that the audit trail cannot be disabled.

Audit Trail means, an audit trail is defined as a step-by-step sequential record which provides evidence of the documented history of financial transactions to its source. An auditor can trace every step of, the financial data of a particular transaction right from the general ledger to its source document with the help of the audit trail.


Benefit of Amendment

  • Prevent Fraud
  • Stress free Audit
  • Easy error correcting and time saving

Provision of Audit Trail, Rules shall come into effect from 01st April, 2022

Ques:1 Whether this amendment applicable on every company or exemptions are given to some classes of companies?

Second Amendment in Rule 8 i.e. Matters to be Included in Board’s Report. In rule 8, sub rule 5 after clause x, two new clauses added. New Clauses:

(xi) the details of application made or any proceeding pending under the Insolvency and Bankruptcy Code, 2016 during the year along with their status as at the end of the financial year.
(xii) the details of difference between the amount of the valuation done at the time of one time settlement and the valuation done while taking loan from the Banks or Financial Institutions along with the reasons thereof.

Disclosure on above mentioned two clauses are required to give in Directors Report of Companies along with other disclosures.

Ques:2 Whether above mentioned amendment in Directors Report required to be covered in Directors Report prepared for FY ended 31.03.2021?

Ques:3 Whether this amendment applicable on Directors Report of every company or exemptions are given to some classes of companies?

To read more in details, find the enclosed attachment

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