Financial Statements in

The Companies Act, 2013

Impact Analysis

Rajeev Bhambri, FCS, LL.B., MBA (Finance)

Financial statements
The Companies Act, 2013 has now defines the term
financial statements to include
Balance Sheet as at the end of the FY;
Profit and loss account, or in the case of a
company carrying on any activity not for profit,
an income and expenditure account for the FY;
Cash flow Statement for the FY;
A statement of changes in equity, if applicable;
The financial statement, with respect to OPC, small
company and dormant company, may not include
the cash flow statement
Rajeev Bhambri, FCS, LL.B., MBA (Finance)

Impact Analysis
The exemption from preparation of cash flow

statement different from that under notified AS.

e.g. a One Person Company with a turnover

greater than 50 crore though not required to

prepare cash flow statement under the
Companies Act, 2013, will nonetheless have to
prepare cash flow statement as required by AS3.
Though the notified standard is a subordinate
legislation, the stricter of the two requirements is
likely to apply.
Rajeev Bhambri, FCS, LL.B., MBA (Finance)

 Since the Companies Act, 2013 does not lay down

any format for preparation of cash flow

statement, companies will need to follow AS3 in
this regard.
In respect of listed companies, the listing

agreement requires the indirect method for

preparing cash flow statements. Thus, under the
Companies Act, 2013, non-listed companies will
have a choice of either applying the direct or
indirect method under AS3 to prepare the cash
flow statement. Due to the listing agreement
requirement, that choice will not be available to
listed companies.
Rajeev Bhambri, FCS, LL.B., MBA (Finance)

Uniform Financial Year

The financial year of a company will be the period

ending on 31 March every year and where it has

been incorporated on or after the 1st day of
January of a year, the period ending on the 31st
day of March of the following year.
A company, which is a holding or subsidiary of a
company incorporated outside India and is
required to follow a different financial year for
consolidation of its financial statement outside
India, may apply to the Tribunal for adoption of a
different financial year.
Rajeev Bhambri, FCS, LL.B., MBA (Finance)

Impact Analysis
All companies, except companies, which are holding/

subsidiary of foreign company and exempted by the

Tribunal, will need to follow 1 April to 31 March as their
financial year. Consequently, they will not be allowed to
have a period longer or smaller than 12 months as financial
year.
All existing companies will need to align their financial
year with the new requirement within two years from the
commencement of the new law.
In accordance with AS 21, AS 23 and AS 27, a parent company
can use financial statements of subsidiaries, associates and
joint ventures up to a different reporting date to prepare
CFS. Companies Accounting Standard Rules is a
subordinate legislation and cannot override the
requirements of the Companies Act, 2013. Hence, the relief
contained in these three standards may become irrelevant.
Rajeev Bhambri, FCS, LL.B., MBA (Finance)

National Financial Reporting Authority

NFRA to replace National Advisory Committee on

Accounting Standards (NACAS)

Make recommendations to the Central Government
on the formulation and laying down of accounting
and auditing policies and standards for adoption by
companies or class of companies and their auditors
Monitor and enforce the compliance with accounting
and auditing standards
Oversee the quality of service of the professionals
associated with ensuring compliance with such
standards.
NFRA has been given huge powers
(a) to investigate Body Corporate, misconduct
committed by any member or firm of Chartered
Accountants.
Rajeev Bhambri, FCS, LL.B., MBA (Finance)

 (b)Has the same powers as are vested in a Civil

Court under the Code of Civil Procedure, 1908,

while trying a suit, in respect of the following
matters:
(i) Production of books of account and other
documents
(ii) Summoning and enforcing the attendance of
persons and examining them on oath
(iii) Inspection of any books, registers and other
documents
(iv) Issuing commissions for examination of
witnesses or documents
(c) Have power to impose strict penalties
Rajeev Bhambri, FCS, LL.B., MBA (Finance)

Boards Report
The Companies Act, 2013 requires the inclusion of the

additional information which was not required earlier

(a) Extract of the annual return. Remuneration of
directors/KMPs and penalty or punishment imposed on
the company, its directors/officers
(b) Statement on independence declaration given by
independent directors
(c) Nomination & Remuneration Committee, wherever
applicable, companys policy on directors appointment
and remuneration
(d)
A
statement
indicating
development
and
implementation of risk management policy
(e) Details of policy developed and implemented on CSR
(f ) For all listed companies and other public company with
prescribed paid-up share capital, the manner of formal
annual evaluation by the board of its own performance and
that of its committees and individual directors.
Rajeev Bhambri, FCS, LL.B., MBA (Finance)

Impact Analysis
No longer exemption for banking companies from

signing requirements, they will likely need to comply

with the requirements of the Companies Act, 2013 as
well as the Banking Companies Act, 1956.
Many unlisted companies do not have well
documented risk management policies. To comply
with disclosure requirements concerning risk
management, companies will need to develop and
document properly their risk management policies.
Onerous responsibility for CFO as he/she will have to
attest financial statements, and the requirement will
apply to both listed and non-listed companies.
Rajeev Bhambri, FCS, LL.B., MBA (Finance)

Financial Statements on Website

The Companies Act, 2013 will require a listed

company to place its financial statements,

including CFS on its website, which was not
compulsory earlier.
Every company (including unlisted companies)
with one or more subsidiaries will Place separate
audited accounts in respect of each of its
subsidiary on its website, if any.

Rajeev Bhambri, FCS, LL.B., MBA (Finance)

Re-opening/revision of accounts
Re-opening & recasting of accounts on the Court

/Tribunals
order
after
application
by
C.Goverment, Income Tax Authorities, the SEBI,
any other statutory/ regulatory body or any
person concerned.
Voluntary revision of financial statements or
boards report in respect of any of the three
preceding financial years. For revision, a company
will need to obtain prior approval of the Tribunal.

Rajeev Bhambri, FCS, LL.B., MBA (Finance)

Impact Analysis
There is a three-year time limit for voluntary revision

of financial statements/board report, no such time

limit has been prescribed for reopening of accounts
due to the court/Tribunals order.
2. Revision/reopening of financial statements for a
period earlier than immediately preceding financial
year may impact financial statements for subsequent
years also.
3. Many merger, amalgamation and reconstruction
schemes approved by the court contain an appointed
date which is earlier than the beginning of the current
financial year. In these cases, a company may be able
to voluntarily revise its financial statements for
earlier periods after taking prior approval of the
Tribunal, to give effect to the court scheme from the
appointed date.
Rajeev Bhambri, FCS, LL.B., MBA (Finance)

 4. In case of a voluntary change in the accounting

policy, error and reclassification, Ind-AS requires

that comparative amount appearing in the
current period financial statements should be
restated. One may argue that restatement of
comparative amount appearing in the current
period financial statements tantamount to
revision/re-opening of accounts for earlier
periods. If so, a company may have to follow the
cumbersome procedure prescribed for voluntary
revision, particularly in the case of correction of
errors.

Rajeev Bhambri, FCS, LL.B., MBA (Finance)

Consolidated financial statements

CFS is required for Listed companies only at present, Now

any company with one or more subsidiaries will, in

addition to SFS, prepare CFS.
For this requirement, the word subsidiary includes
associate company and joint venture. It is not clear
whether a company needs to prepare CFS when it has no
subsidiary but has an associate or joint venture.
For all companies, CFS should comply with notified AS.
This will impact companies that are currently preparing
CFS only according to IFRS. Those companies will have to
mandatorily prepare Indian GAAP CFS.
A company may need to give all disclosures required by
Schedule III to the Companies Act, 2013, including
statutory information, in the CFS. Exemption under AS21
will not apply now for disclosure of statutory information,
as will not override Schedule III.
Rajeev Bhambri, FCS, LL.B., MBA (Finance)

Depreciation
Depreciation

Depreciable

Amount
Residual Value

Useful Life
Extra Shift

Depreciation

Allocation of the depreciable amount

of an asset over its useful life.
The cost of an asset less its residual
value.
The useful life of an asset is the
period over which an asset is
expected to be available for use.
Specified in the Schedule II
For double shift, depreciation will
increase by 50% and by 100% in case
of triple shift working.

Rajeev Bhambri, FCS, LL.B., MBA (Finance)

Impact Analysis
Depreciation Rates not specified, hence need to be

calculated with the help of Chart of Useful Life given

in Schedule II.
Useful life is different in new Act. e.g. useful life of
buildings other than factory buildings and other than
RCC frame structure prescribed under Schedule XIV
is approximately 58 years, whereas the same under the
Companies Act, 2013 will be 30 years.
Calculating Residual life of assets for the existing
companies will be a big challenge.
Companies will need to identify and depreciate
significant components with different useful lives
separately.
Rajeev Bhambri, FCS, LL.B., MBA (Finance)

 The bottom line of the company is bound to be

affected either way because of change in amount of

depreciation.
For example, consider that the remaining carrying
value is 60% of the original cost, whereas the
remaining useful life is one year. In this scenario the
entire 60% will be depreciated in one year, which will
be charged to the P & L A/c.
No transition period has been provided, so if the Act is
enacted before finalization of Financial statements,
this will have a significant impact on financial
statements and may give rise to numerous
implementation challenges. The MCA should ensure
that the Schedule is implemented with at least one
year transition period.
Rajeev Bhambri, FCS, LL.B., MBA (Finance)

Thank You

Rajeev Bhambri, FCS, LL.B., MBA (Finance)