The Companies (Accounts) Amendment Rules 2016 was released on 27/07/2016 bringing amendment in rule 6 of The Companies (Accounts) Rules 2014 (principle rule). To understand the amendment better let us first discuss the requirement of the principle rule 2014.
Section 129 (3) of the Companies Act 2013 states that where a company has one or more subsidiary companies it shall prepare a consolidated financial statement in the manner prescribed. Further it must be noted that for the purpose of this sub section subsidiary shall include associates and joint ventures.
Rule 6 of The Companies (Accounts) Rules 2014 prescribed the manner in which the financial statements shall be consolidated.
It states that consolidation must be done as per schedule III of the Act. Now, the Amendment rule states that these companies shall not prepare consolidated financial statement if ALL the 3 conditions laid down are satisfied. viz:
1. It is a subsidiary company of another company (i.e. the company having subsidiaries has a holding company) and all its shareholders including preference share holders are informed in written with proof of delivery that CFS will not be provided by such company and the shareholders do not raise an objection;
2. The holding company of the subsidiary company having subsidiary has filed with RoC CFS in accordance with Accounting Standards.
3. The company does not have its securities listed in any stock exchange or is not even in the process of getting listed. (Unlisted Company)
Now, let us take a few instances to make the above provision more clear.
a. A Ltd. (an unlisted company) is required to prepare CFS. It has a holding company B Ltd. which has prepared CFS and included FS of subsidiaries of A Ltd.
In this case Condition 3 is satisfied as A Ltd is unlisted company. Condition 2 is also satisfied as B Ltd. is providing CFS BUT condition 1 is NOT SATISFIED as A Ltd. has not informed its shareholders about not providing CFS. Hence CFS must be provided by A Ltd.
b. A Ltd. (an unlisted company) is required to prepare CFS. It has a holding company B Ltd. which has prepared CFS and included FS of subsidiaries of A Ltd. Further A Ltd has informed its equity shareholders that CFS will not be provided by A Ltd
In this case Condition 3 is satisfied as A Ltd is unlisted company. Condition 2 is also satisfied as B Ltd. is providing CFS. Condition 1 is again NOT SATISFIED as A Ltd. has only informed its equity shareholders and not preference shareholders. Hence CFS must be provided by A Ltd.
c. A Ltd. (an unlisted company) is required to prepare CFS. It has informed all its shareholders that CFS will not be provided but its holding company B Ltd. which has prepared CFS did not included FS of subsidiaries of A Ltd.
In this case Conditions 1 and 3 are satisfied as A Ltd is unlisted company and has informed all its shareholders that it will not provide CFS but condition 2 is NOT SATISFIED as B Ltd. has only included FS of A Ltd and not of subsidiaries of A Ltd. Hence CFS must be provided by A Ltd.
Conclusion: The requirement of preparing CFS has not been abolished but shifted to the Holding Company of the company having subsidiaries subject to fulfilment of ALL the three conditions. If any of the 3 conditions are not being met then Section 129 (3) shall apply without any relaxation.
CAclubindia
