ICAI issues Guidance Note on Combined and Carve-Out Financial Statements
The ICAI has issued Guidance Note on Combined and Carve-Out Financial Statements provides the meaning of combined/carve-out financial statements, indicative situations in which these may be required to be prepared and procedure for preparation of the same and required disclosures.
Generally, consolidated financial statements of an entity are required to be presented under the relevant legal or regulatory requirements. In India, these requirements are met by presenting consolidated financial statements prepared under the applicable Accounting Standards.
There may be occasions such as take-overs of entities and/or divisions/segments/businesses, demergers, spin-offs, initial public offerings, etc. where specific financial information is required for part or parts of entities which may or may not be part of a group. Similarly, group financials may be required for group loan arrangements. The term ‘group’, in such cases, for the purpose of this Guidance Note may include the entities and/or divisions/ segments/ businesses which are being combined as per the terms of the loan arrangement. In the absence of control, preparation of consolidated financial statements would not be appropriate. In such cases, as well as to present relevant combined financial information of part or parts of one or more entities, combined financial statements may be prepared. In certain circumstances, carve-out financial statements provide additional financial information for a part of an entity, such as, in case of demerger, spin-off, etc.
The combined/ carve-out financial statements can include financial information pertaining to different entities, divisions, branches and/or an aggregation of similar assets, associated liabilities and operations in a specified geographic region or line of business pertaining to different entities. These financial statements can be prepared by aggregating financial statements of segments, separate entities or components of groups which may not necessarily have separate management and accounting records.
Combining businesses for which combined financial statements are prepared are generally under a common control of an entity, or a person; or the management; or they might be undertaking some common business. However, combined financial statements for combining businesses can be prepared in other situations apart from these circumstances also.
Preparing combined/ carve-out financial statements involve areas of judgement, driven by the purpose for which the statements are prepared.
Accordingly, the ICAI has issued Guidance Note on Combined and Carve-Out Financial Statements, which:
i) provides the meaning of combined/carve-out financial statements, indicative situations in which these may be required to be prepared and procedure for preparation of the same and required disclosures.
ii) applies in the preparation and presentation of combined/carve-out financial statements.
iii) should not be construed to be applicable to the general purpose financial statements as the combined/carve-out financial statements are prepared for specific purposes and, therefore, are ‘special purpose financial statements’.
Earlier ICAI had released Exposure Draft of Guidance Note on Combined Financial Statements on 5th Aug. 2016 inviting comments/ suggestions thereon latest by 5th Sept. 2016.