accounting & auditing alert-iii

ACCOUNTING & AUDITING 1

Accounting & Auditing Alert - III 13 April 2021

Changes in Schedule III related to Financial Statements for entities covered under Companies (Accounting Standard) Rules 2006 : Indian Accounting Standards (Ind AS):

The financial statements for entities covered by Ind AS are as per Division II of Schedule III.

DATE OF APPLICABILITY The proposed changes will be applicable in respect of Financial statements prepared for the accounting periods commencing from 1st Apr 2021 onwards. However, since the financial statements always require disclosure of preceding year comparison figures, it is advisable to collate this information for the preceding financial year (in this case FY 2020) at the time of audit of FY 2020, as far as practically possible.

GENERAL

Changes for Rounding off:

Benchmark has changed from Turnover to Total Income. Accordingly

AMENDMENTS

The various amendments to Schedule III can be categorised under three categories

I. Change of specific line items from one heading to another.

II. Expansion in the scope of reporting requirements

III. Additional Regulatory information.

Total Income (Earlier Turnover) Rounding Off

Less than 100 Crore Rupees To the nearest of hundred, thousands, lakhs, or millions, or decimal there off.

100 Crore Rupees or More To the nearest lakhs, millions or crores, or decimal thereof


I. CHANGE OF SPECIFIC LINE ITEMS FROM ONE HEADING TO ANOTHER.

II. EXPANSION THE SCOPE OF REPORTING REQUIREMENTS

1. Property, plant and equipment:

Clause (iii) under Property, plant and Equipment of Para 6, A. Non-Current Assets, has been substituted as follows:

A reconciliation of the gross and net carrying amounts of each class of assets at the beginning and end of the reporting period showing additions, disposals, acquisitions through business combinations, amount of change due to revaluation (if change is 10% or more in the aggregate of the net carrying value of each class of Property, Plant and Equipment) and other adjustments and the related depreciation and impairment losses or reversals shall be disclosed separately.

The scope of the existing requirements has been extended to include the amount of change in revaluation if the change is 10% or more of the aggregate value of each class of Property, plant and equipment.

2. Other intangible assets:

Clause (ii) under Other Intangible Assets of Para 6, A. Non-Current Assets, has been substituted as follows:

A reconciliation of the gross and net carrying amounts of each class of assets at the beginning and end of the reporting period showing additions, disposals, acquisitions through business combinations, amount of change due to revaluation (if change is 10% or more in the aggregate of the net carrying value of each class of Intangible assets) and other adjustments and the related depreciation and impairment losses or reversals shall be disclosed separately.

The scope of the existing requirements has been extended to include the amount of change in revaluation if the change is 10% or more of the aggregate value of each class of Intangible Assets.

Issue No. 11/2021

Line Item Existing New

Lease Liabilities• Borrowings under Non-

current Liabilities or/and• Other Financial Liabilities

under “Current Liabilities”

• Financial Liabilities under Non- current Liabilities or/and

• Financial Liabilities under “Current Liabilities”

Security Deposits (Assets) • Loans under Current Assets• Other Non-Current Assets

• Other Financial Assets under Current Assets

• Other Financial Assets under Non-Current Assets

Bank deposits with more than 12 months maturity

An independent line item underNon-Current Assets

Grouped under Other financialassets under Non-Current Assets

Current maturities of Long-term borrowings

Other financial liabilities under current liabilities Borrowings under Current Liabilities

Current maturities of finance lease obligations

Other financial liabilities under current liabilities

Financial Liabilities under “CurrentLiabilities” as Lease Liabilities


Issue No. 11/2021

3. Trade receivables under non-current and current assets :

A new clause has been added as follows:

Note: The ageing is considered from due date and not from the date of transaction. However, where no due date of payment is specified, in that case disclosure shall be from the date of the transaction.

4. Equity capital :

The new disclosure includes:

The disclosures under equity capital are enhanced to disclose the promoter shareholding during the year. A promoter is defined in section 2(69) of the Companies Act 2013 to mean a person who has been named as such in a prospectus or is identified by the company in the annual return referred to in section 92 or who has control over the affairs of the company, directly or indirectly whether as a shareholder, director or otherwise or in accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act. The disclosures should be given for each class of shares. If the shares are allotted during the year, the reference to change should be with such reference.

ParticularsOutstanding for following periods from due date of paymentLess than 6 Months

6 Months - 1 Year 1-2 Years 2-3 Years More than

3 Years Total

(i) Undisputed Trade receivables –considered good

(ii) Undisputed Trade Receivables – which have significant increase in credit risk

(iii) Undisputed Trade Receivables –credit impaired

(iv) Disputed Trade Receivables–considered good

(v) Disputed Trade Receivables – which have significant increase in credit risk

(vi)Disputed Trade Receivables –(vii)credit impaired

Shares held by promoters at the end of the year% Change during the year***

S. No Promoter name No. of Shares** %of total shares

Total


Balance at the beginning of the current reporting

period

Changes in Equity Share Capital due to prior period

errors

Restated balance at

the beginning of the current

reporting period

Changes in equity share

capital during the current

year

Balance at the end of the

current reporting

period

Issue No. 11/2021

5. Trade payables:

A new clause has been added providing for ageing as follows:

It is to be noted that the ageing is from the due date and not from the date of transaction. However, where no due date of payment is specified, in that case disclosure shall be from the date of the transaction.

6. Utilisation of borrowings:

A new clause for disclosure has been inserted:

Where the company has not used the borrowings from banks and financial institutions for the specific purpose for which it was taken at the balance sheet date, the company shall disclose the details of where they have been used.

This clause would specifically apply to borrowings from banks and financial institutions only and when the borrowings are not utilised for specific purpose. As per section 2(39) of the Companies Act, 2013, a financial institution includes a scheduled bank, and any other financial institution defined or notified under the Reserve Bank of India Act, 1934 (2 of 1934). The reporting will not include other entities.

7. Updated statement of changes in equity:

An updated format has been prescribed for statement of changes in equity. The format now provides for changes in due to prior period errors.

Particulars Outstanding for following periods from due date of payment

Less than 1 Year 1-2 years 2-3 years More than 3 years Total

(i) MSME

(ii) Others

(iii) Disputed dues – MSME

(iv)Disputed dues - Others


Issue No. 11/2021

8. Updated other equity:

For detailed disclosure please refer the link here.

http://www.mca.gov.in/Ministry/pdf/ScheduleIIIAmendmentNotification_24032021.pdf

III. ADDITIONAL REGULATORY INFORMATION

I. BALANCE SHEET

1. Property, Plant and Equipment, Intangible Assets and Capital Work in Progress

i. Title Deeds of Immovable Property not held in name of company in the specified format including the legal owner, relationship and the reason for not holding in company’s name.

ii. Whether the fair value of investment property (as measured for disclosure purposes in the financial statements) is based on the valuation by a registered valuer as defined under rule 2 of Companies (Registered Valuers and Valuation) Rules, 2017.

iii. Where company has revalued its property, plant and Equipment, and its intangible

assets, the company to disclose as to whether the revaluation is based on the valuation by a Registered Valuer or not.

iv. Capital Work in Progress (CWIP) and Intangible Assets under development (IAUD)

CWIP/ IAUD To be Completed in

Less than 1 Year 1-2 years 2-3 years More than 3 years

Projects in

Projected

Total

To be Completed in

Less than 1 Year 1-2 years 2-3 years More than 3 years

Projects in

Projected

Total



Issue No. 11/2021

For CWIP and IAUD, following schedules to be given:

Ageing schedule:

CWIP / IAUD, whose completion is overdue or has exceeded its cost compared to its original plan, following completion schedule shall be given.

Separate details in respect of projects with suspended activity to be given.

v. Details of Benami Property Held:

Certain detail needs to be disclosed where proceedings have been initiated or pending

against the company for holding any Benami property under the Benami Transactions (Prohibition) Act, 1988 (45 of 1988) and the rules made thereunder.

2. Loans granted to Promoters, Directors, KMP and related parties

Loans or Advances in the nature of loans are granted to promoters, directors, KMPs and the related parties (as defined under Companies Act, 2013,) either severally or jointly with any other person, that are repayable on demand or without specifying any terms or period of repayment the following details to be disclosed.

3. Borrowings from Banks and Financial Institutions on Security of Current Assets

a. Reconciliation of quarterly returns or current account statements

Generally, such borrowings are short term in nature. The covenants may require the company to provide certain financial information at regular intervals. These may include the stock statements, receivables statements, provisional financial statements, etc.

This clause requires that:

1. The company to confirm that such information tendered is in agreement with books of accounts.

2. A summary of reconciliation with reasons be disclosed, in case of material discrepancies.

Type of BorrowerAmount of loan or advance

in the nature of loan outstanding

Percentage to the total Loans and Advances in the nature of loans

Promoters

Directors

KMPs

Related Parties


Issue No. 11/2021

b. Wilful defaulter

Following information is required to be disclosed where company is declared Will Defaulter by any bank or financial institution:

I. Date of Declaration as wilful defaulter

II. Detail of defaults (amount and nature of defaults)

4. Registration of charges or satisfaction with Registrar of Companies:

Provide details of any charges/satisfaction pending beyond the statutory period. 5. Compliance with number of layers of companies:

Where the company has not complied with the number of layers prescribed under section 2(87) of the Act read with Companies (Restriction on number of Layers) Rules, 2017, the name and CIN of the companies beyond the specified layers and the relationship/extent of holding of the company in such downstream companies shall be disclosed.

6. Relationship with Struck off Companies:

Where the company has any transactions with companies struck off under section 248 of the Companies Act, 2013 or section 560 of Companies Act, 1956, the Company shall disclose the following details:

7. Financial ratios:

Following Ratios along with explanation for items included for calculating needs to be disclosed:

a. Current Ratio

b. Debt-Equity Ratio

c. Debt Service coverage Ratio

d. Return on Equity Ratio

e. Inventory Turnover Ratio

Name of struck off Company

Nature of transactions with

struck-off CompanyBalance

outstanding

Relationship with the Struck off

company, if any, to be disclosed

Investments in securities

Receivables

Payables

Shares held by stuck offCompany

Other outstanding balances (to be specified)


Issue No. 11/2021

f. Trade Receivable Turnover Ratio

g. Trade Payable Turnover Ratio

h. Net Capital Turnover Ratio

i. Net Profit Ratio

j. Return on Capital Employed

k. Return on Investment

Any variation beyond 25% as compared to previous year to be explained.

8. Compliance with approved scheme(s) of Arrangements:

The company must make a specific statement of accounting in books of any approved scheme of arrangements ‘in accordance with the Scheme’ and ‘in accordance with accounting standards’ giving any deviation with explanations.

9. Utilisation of Borrowed funds and share premium:

A. Amount borrowed by company and loaned or invested through an intermediary with company being beneficiary

Where company has advanced or loaned or invested funds (either borrowed funds or share premium or any other sources or kind of funds) to any other person(s) or entity(ies), including foreign entities (Intermediaries) with the understanding (whether recorded in writing or otherwise) that the Intermediary shall.

(i) Directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the company (Ultimate Beneficiaries) or

(ii) Provide any guarantee, security or the like to or on behalf of the Ultimate Beneficiaries

the company shall in addition to disclosing the details of transactions, make an unqualified declaration of being in conformity with the FEMA, 1999 & Companies Act and not being violative of Prevention of Money-Laundering act, 2002.

B. Amount received by company and loaned or invested or guarantee given by it on behalf of the funded party.

Where a company has received any fund from any person(s) or entity(ies), including foreign entities (Funding Party) with the understanding (whether recorded in writing or otherwise) that the company shall.

(iii)Directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding party (Ultimate Beneficiaries)

(iv)Provide any guarantee, security or the like to or on behalf of the Ultimate Beneficiaries;

the company shall in addition to disclosing the details of transactions, make an


Issue No. 11/2021

unqualified declaration of being in conformity with the FEMA, 1999 & Companies Act and not being violative of Prevention of Money-Laundering act, 2002.

II.STATEMENT OF PROFIT AND LOSS

1. Disclosure of undisclosed income:

The Company shall give details of any transaction not recorded in the books of accounts that has been surrendered or disclosed as income during the year in the tax assessments under the Income Tax Act, 1961 (such as, search or survey or any other relevant provisions of the Income Tax Act, 1961), unless there is immunity for disclosure under any scheme and also shall state whether the previously unrecorded income and related assets have been properly recorded in the books of account during the year.

2. Corporate social responsibility:

Where the company is covered under section 135 of the Companies Act, the following shall be disclosed with regard to CSR activities:

a. Amount required to be spent by the company during the year

b. Amount of expenditure incurred

c. Shortfall at the end of the year

d. Total of previous years shortfall

e. Reason for shortfall

f. Nature of CSR activities

g. Details of related party transactions, e.g., contribution to a trust controlled by the company in relation to CSR expenditure as per relevant Accounting Standard

h. Where a provision is made with respect to a liability incurred by entering into a contractual obligation, the movements in the provision during the year should be shown separately.

3. Details of crypto currency:

Where the Company has traded or invested in Crypto currency or Virtual Currency during the financial year, the following shall be disclosed:

a. Profit or loss on transactions involving Crypto currency or Virtual Currency

b. Amount of currency held as at the reporting date

c. Deposits or advances from any person for the purpose of trading or investing in Crypto Currency/ virtual currency.

You may download the Original Notification suggesting changes from here.



Issue No. 11/2021

We trust, you will find the content of this publication useful. You may connect with the following team members if you wish to have any clarification regarding above. Feedback towards further improvisation of the publication or on topics requiring guidance shall be highly appreciated. It shall be our pleasure to respond to your queries and to consider your suggestions / feedback for future releases.

Thank You,

CA Manoj Sharma

Partner – Assurance & Risk Advisory

CA Ritesh Sharma

Partner, Bangalore

Delhi (Head Office)A-15, Second Floor Hauz Khas,New Delhi - 110016Phone: +91 1126856421, 41655801

Our Offices:PuneOffice no 2A, Gangotri Complex, 927, Synagague Street, Camp, Pune - 411001Phone: +91 020 30492191

BangaloreNo - 5A, Second Floor, 6th Main, KHB Colony, Basaveshwaranagar Bangalore Karnataka - 560079Phone: +91 80 42064178

Disclaimer: While every care has been taken in the preparation of this Knowledge series to ensure its accuracy at the time of publication, SNR & Company assumes no responsibility for any errors which despite all precautions, may be found therein. Neither this document nor the information contained herein constitutes a contract or will form the basis of a contract. The material contained in this document does not constitute/ substitute professional advice that may be required before acting on any matter. All logos and trademarks appearing in the newsletter are property of their respective owners. The information transmitted is intended only for the person or entity to which it is addressed and may contain confidential and/or privileged material. Any review, re-transmission, dissemination or other use of, or taking of any action in reliance upon, this information by persons or entities other than the intended recipient is prohibited

accounting & auditing alert-iii

Documents