ICAI’s Guidance Note on Division II (Ind AS) of Schedule III to Companies Act, 2013
ICAI has published the revised/ second edition (July 2019) of the Guidance Note on Division II (Ind AS) of the Schedule III to the Companies Act, 2013, for benefit of the Members as well as the Companies which are required to comply with Ind AS, as under:
The Government is bringing out several changes in the Companies Act, 2013 from time to time to enhance transparency by way of mandating additional disclosures. Towards the same, the Ministry for Corporate Affairs has issued a Notification dated 11.10.2018 wherein amendments have been brought in to the Schedule III to the Companies Act, 2013. The amendments are related to additional disclosures for trade receivables, loan receivables, trade payables and to comply with the disclosure requirements under the Micro, Small and Medium Enterprises Development Act, 2006.
Keeping this in mind, a need was felt by ICAI for providing appropriate guidance to the members in view of the amendments that have been brought in by the Government so that the requirements of Schedule III can be complied with by the companies that are required to prepare their financial statements as per Ind AS in letter and spirit. Accordingly, the Corporate Laws & Corporate Governance Committee has undertaken the task of revision of Guidance Note on the Division II – Ind AS Schedule III to the Companies Act 2013. The Guidance Note was initially issued by the Committee in July, 2017 for guidance to the companies that are required to comply with Ind AS. In revised guidance note, detailed guidance has been provided on the various items of Schedule III and various issues and intricacies involved therein.
It may be noted that MCA has, vide notification dt. 6 April, 2016, notified amendments to Schedule III of the Companies Act, 2013 thereby inserting Division II to Schedule III for preparation of financial statements by those entities who have to comply with Indian Accounting Standards (Ind AS), whereby:-
i) The existing Schedule III was renamed as ‘Division I’ to Schedule III (‘Non Ind AS Schedule III’) – which gives a format of Financial Statements for Non-Ind AS companies, that are required to comply with the Companies (Accounting Standards) Rules, 2006. In other words, Non-Ind AS companies, will be required to prepare Financial Statements as per Companies (Accounting Standards) Rules, 2006), as per the format to Division I to Schedule III to the Act;
ii) ‘Division II’ – ‘Ind AS Schedule III’ (Refer Annexure A) was inserted to give a format of Financial Statements for companies that are required to comply with the Companies (Indian Accounting Standards) Rules, 2015, as amended from time to time (‘Companies Ind AS Rules’). This is newly inserted into Schedule III for companies that adopt Ind AS as per Rule 4(1)(i) or Rule 4(1)(ii) or Rule 4(1)(iii) of the Companies Ind AS Rules. Accordingly, such Companies, while preparing its first and subsequent Ind AS Financial Statements, would apply Division II to Ind AS Schedule III to the Act.
These amendments were made in line with MCA Notification dt. 16 Feb 2015 on Indian Accounting Standards (‘Ind AS’) which laid down the road map for all companies, except insurance companies, banking companies and non-banking finance companies, for adoption of Ind AS.
The Ind AS in the first phase shall be applicable to all companies, listed or unlisted, with a net worth of Rs 500 crore or more (along with their holding, subsidiary, joint venture or associate companies) and which shall be required to adopt Ind AS for accounting periods commencing on or after 1 April 2016.
The Guidance Note provides guidance on each of the item of the Balance Sheet, Statement of Profit and Loss, Major differences in Division I and Division II of the Schedule III to the Companies Act, 2013 besides providing Illustrative format for Standalone financial statements and Consolidated Financial Statements etc. Few illustrations have also been included with a view to provide guidance on application of the principles provided in the Guidance Note.
The objective of this Guidance Note is to provide guidance in the preparation and presentation of Financial Statements in accordance with various aspects of Ind AS Schedule III, for companies adopting Ind AS. The disclosure requirements under Ind AS, The Companies Act, 2013, other pronouncements of the Institute of Chartered Accountants of India (ICAI), other statutes, etc., would be in addition to the guidance provided in this Guidance Note. The primary focus of the Guidance Note has been to lay down broad guidelines to deal with practical issues that may arise in the implementation of Ind AS Schedule III while preparing Financial Statements as per Ind AS.
The requirements of Ind AS Schedule III however, do not apply to companies as referred to in the proviso to Section 129(1) of the Act, i.e., any insurance or banking company, or any company engaged in the generation or supply of electricity or to any other class of company for which a form of Balance Sheet and Statement of Profit and Loss has been specified in or under any other Act governing such class of company. Moreover, the requirements of Ind AS Schedule III do not apply to Non-Banking Financial Companies (NBFCs) that adopt Ind AS as per Rule 4(1)(iv) of Companies (Indian Accounting Standards) Rules, 2015 notified in Companies (Indian Accounting Standards) (Amendment) Rules, 2016.
It may, however, be clarified that for companies engaged in the generation and supply of electricity, neither the Electricity Act, 2003, nor the rules framed there under, prescribe any specific format for presentation of Financial Statements by an electricity company. Section 1(4) of the Act states that the Act will apply to electricity companies, to the extent it is not inconsistent with the provisions of the Electricity Act. Keeping this in view, Schedule III as applicable may be followed by such companies till the time any other format is prescribed by the relevant statute.
Guidance given in ‘Guidance Note on Schedule III to the Companies Act, 2013’ published in February 2016 would continue to be applied by non-Ind AS companies which are required to prepare Financial Statements as per the format of Non Ind AS Schedule III.