Write off investment in step down foreign subsidiary

Co Act 2013 70 views 2 replies
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382 Points Joined June 2021

We have 100% wholly owned subsidiary in Mauritis,  who in turn holds 100% stake in another company in Mauritis. Now our subsidiary write off substantial investment in SDS.

Does Indian parent company avoid consolidation of SDS's accounts in India? Auditors simply mention that non consolidation in qualified report? Does it discharge PCA & PCS from any lapses. Actually, impairment ultimately reduces parent's stake in WOS? Possibly, RBI approval is required as initial FDI was under UIN

 

Kindly share your opinion 

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On 19 December 2024 at 17:27 Report
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Master in Accounts & high court Advocate
8756 Points Joined December 2011

Writing off investment in a step-down foreign subsidiary can have implications on the Indian parent company's financial reporting and compliance obligations.

*Consolidation of Accounts:* The Indian parent company is required to consolidate the accounts of its subsidiaries, including the step-down foreign subsidiary, as per the Companies Act, 2013.¹

 However, if the subsidiary's investment is written off, the parent company may not be required to consolidate the subsidiary's accounts.

*Auditor's Qualified Report:* If the auditors mention non-consolidation in their qualified report, it may indicate that the parent company has not complied with the consolidation requirements.

However, this does not necessarily discharge the parent company's auditors (PCA) and practitioners (PCS) from any lapses.

*Impairment and Reduction in Stake:* The impairment of the subsidiary's investment may ultimately reduce the parent company's stake in the wholly-owned subsidiary (WOS).

 This could have implications for the parent company's financial statements and its compliance with foreign direct investment (FDI) regulations.

 *RBI Approval:* As the initial FDI was made under the Unique Identification Number (UIN), it is possible that RBI approval may be required for writing off the investment.

 The parent company should consult with the RBI and obtain necessary approvals to ensure compliance with FDI regulations.

In conclusion, the Indian parent company should carefully evaluate the implications of writing off the investment in the step-down foreign subsidiary.

 It is recommended that the company consults with its auditors, legal advisors, and the RBI to ensure compliance with all applicable laws and regulations.

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On 19 December 2024 at 17:44
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382 Points Joined June 2021

Thanks, sir

Ideally. What would be course of action on the part of PCA,PCS in such scenario ?

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On 19 December 2024 at 20:58


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