The Ministry of Corporate Affairs (MCA) has amended Schedule III of the Companies Act 2013, on October 11, 2018. Schedule III of the Companies Act 2013, provides the format of financial statements of companies complying with Accounting Standards (AS) and Ind AS under its Division I and Division II respectively. Now Schedule III will apply to NBFC covered under Ind AS.
MCA has also modified the existing Division I (Indian GAAP) and Division II (Ind AS). Ind AS Schedule III changes require additional disclosures from the companies preparing Ind AS financial statements. The other disclosures that are notified relate to trade receivables, loans receivables, and trade payables and also satisfy the disclosure requirements under the Micro, Small and Medium Enterprises Development Act, 2006. The noteworthy modification is the insertion of Division III, which prescribes the format for preparation of financial statements for Non-Banking Financial Company (NBFCs) to whom Ind AS is applicable.
Amendment to Division I
The amendments to Division I are smaller changes and mostly relate to the words used in the Balance Sheet of an AS compliant company like the replacement of the word “Fixed assets” under “Non-current assets” with “Property, Plant and Equipment”.
Amendment to Division II
For Ind AS compliant companies, several amendments have been made. The following are the amendments that are brought for Ind AS compliant companies in respect of preparation and presentation of their financial statements:
- Trade Payables under the heading “Equity and Liabilities” will disclose the trade payable to micro and small enterprises and enterprises other than micro and small enterprises on the face of the balance sheet.
- ‘Equity’ – A description of each reserve appearing under the head ‘Equity’ in the Balance sheet must be given in the notes to financial statements. The description can include each reserve’s purpose, the reason for the movement in reserves during the year, etc.
- Non-Current and Current Trade receivables shall be further classified into:
a) Trade Receivables considered good – Secured.
b) Trade Receivables considered good – Unsecured.
c) Trade Receivables that have an increase in Credit Risk that is significant.
d) Trade Receivables – Credit Impaired.
The earlier classification of non-current and current trade receivables was as follows: a) Secured, considered good b) Unsecured considered good c) Doubtful
- Non-current and current loans shall be further classified as follows:
a) Loans Receivables considered good – Secured.
b) Loans Receivables considered good – Unsecured.
c) Loans Receivables which have a significant increase in credit risk.
d) Loans Receivables – Credit Impaired.
The earlier classification of non-current and current trade receivables was as follows: a) Secured, considered good b) Unsecured, considered good c) Doubtful
- The following are the additional disclosures related to MSMEs that must be made: a) The principal amount and the interest thereon remaining unpaid at the end of the financial year. b) The amount of interest paid in accordance with Section 16 of the Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006) along with the amount paid to the supplier beyond the day appointed during each accounting year. c) The amount of interest which is due and payable for the period of delay in making payment (which has been paid but beyond the day appointed during the year) but without adding the interest defined under the Micro, Small and Medium Enterprises Development Act 2006. d) The amount of accrued interest and remaining unpaid at the end of each accounting year. e) The amount of further interest remaining due and payable even in the following years, until such interest is paid to the small enterprise, for disallowance of an expenditure deductible under Section 23 of the Micro, Small, and Medium Enterprises Development Act, 2006.
Amendment to Division III
Financial Statements for an NBFC whose financial statements are drawn in compliance with the Companies (Indian Accounting Standards) Rules, 2015.
NBFC that must comply with Indian AS – General Instructions
- Every NBFC in the Companies (Indian Accounting Standards) (Amendment) Rules, 2016 that is companies to which the Indian Accounting Standards apply, shall prepare the financial statements in accordance with this Schedule or with such changes as may be required under certain circumstances.
- When the compliance with the Act and all accompanying regulation, guidelines, circulars issued by the regulator from time to time applicable to NBFCs, require any change in treatment or disclosure including changes to the financial statements or statements part of it, the same shall be made. The requirements of this Schedule shall stand modified. The only exception being the option of presenting assets and liabilities in accordance with current, non-current classification as per the relevant Ind AS.
- The disclosure requirements that are specified here are in addition to the disclosure requirements specified in Indian Accounting Standards and such disclosures will be made in the Notes to Accounts or by way of additional statements unless and until required to be disclosed on the face of the financial statements. The same also applies to disclosures required to be made under the Companies Act 2013.
- The Notes shall provide for the following in addition to that is presented in financial statements: a) Disaggregations or narrative descriptions of items recognised in those statements. b) Information about items that do not qualify for the recognition in those statements. c) Every item in the Balance Sheet, Statement of Changes in Equity, and Statement of Profit and Loss shall be cross-referenced to any related information in the Notes. In preparation of Notes, there must be a balance between excessive details that may not burden the users of financial statements and miss out on important information due to aggregation.
- The rounding off of the figures appearing in the financial statements will be as follows depending on the total income of NBFC:
Total Income in Rupees
Less than Rs.100 crore
To the nearest hundreds, thousands, lakhs or millions, or decimals thereof.
Rs.100 crore or more
To the nearest hundreds, thousands, lakhs or millions, or decimals thereof
The unit of measurement must be uniformly used in the financial statements.
- The statements must display the corresponding amounts for all the items shown in the preceding reporting period for comparison purposes, except in the case of the financial Statement being prepared for the first time after incorporation.
- The financial statements must disclose all ‘material’ items. ‘Material’ refers to all the items that can individually or collectively affect the economic decisions that users make based on the financial statements. Materiality depends on the size or nature of the item or both and is judged based on circumstances.
- The terms used in the Schedule will have the same meaning as assigned by the Indian Accounting Standards.
- Where any Act and all accompanying regulation, guidelines, circulars issued by the regulator from time to time applicable to NBFCs require any specific disclosures to be made in standalone financial statements, the same must be made in addition to the disclosures under this Schedule.
- The NBFC’s preparing the statements as per this Schedule may change the order of presentation of line items on the face of financial statements or the order of line items in the order of liquidity, if appropriate with regard to the operations of the NBFC.
The Schedule lays out the minimum requirement for disclosure in the Statement of Changes in Equity for the period, Balance Sheet, Statement of Profit or Loss for the period, and Notes. Cash Flow Statement will be prepared in accordance with the relevant Indian Accounting Standard.
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