Recently, a few key changes were implemented to the Schedule III to the Companies Act of 2013 through the Ministry of Corporate Affairs (MCA) which you may have overlooked.

The changes were already made into effect from the beginning of this financial year, i.e. April 1, 2021. Let’s see what these changes are in detail and how it affects your balance sheets and profit and loss statements.

What is Schedule III?

Simply put, Schedule III of the Companies Act of 2013 pertains to the general instructions that companies must follow while preparing their balance sheet and profit and loss statements. It even advises the format in which profit and statements should be made and the essential contents that should be present in balance sheets as well. You may also be interested in learning on Internal Auditing and Management Consultancy in Kerala

The schedule also comes with clear instructions on how to prepare the final statements, so it is a highly reliable document for companies to stay clear in their accounting process.

What are the new changes for Schedule III?

The amendments to the Schedule III of the companies Act (notified by the MCA on 24/03/2021) can be categorized into three parts:

• Changes applicable to AS companies
• Additional changed applicable to IND AS companies
• Additional changes applicable to IND AS NBFC

Let’s go through each one of them in detail.

New changes for AS complied companies

Apparently, the major portion of changes implemented under Schedule III of the companies act is to Division I which deals primarily with the instructions for AS companies.

1. Changes to be made on financial statements

There have been some key modifications to the presentation of fixed assets under the revamped Schedule III. Under non-current assets,

1. Intangible assets have been added to non-current assets and property, plant, and equipment previously the only three non-current assets mentioned under Schedule III.

2. In financial statements, property, plant, and equipment shall be used instead of tangible assets.

3. There is no change in denotation to other components such as intangible assets, capital work-in-progress, and intangible assets under development.

While presenting income in the profit and loss statement, the only change made is the use of ‘total income’ which must be used instead of ‘total revenue’.

2. Changes to be made on presentation and other disclosures

There are more than twenty major changes under the new amendment which relates to the presentation and disclosure of requirements of financial statements.

1. It is now mandatory to round off financial statements for business entities. For companies with incomes lesser than 100 Crore Rupees should round off to the nearest hundreds, thousands, lakhs, or millions or decimals thereof. Companies that earn more than 100 Crore Rupees must round off their total income to the nearest lakhs, millions or crores, or decimals thereof.
2. Full disclosure of shareholding by partners must be made at the end of the year in the below format:

Here, the details for each class of shares should be given separately. Also, the change in the percentage of shares held by promoters should be computed with respect to the value at the beginning of the year. if the shares were issued for the first time in a given year, then the change should be computed with respect to the date of issue.

3. Previously, ageing schedules were only required for trade receivables. But under the latest changes, ageing has been made mandatory for trade payables too. It’s necessary for companies to provide the ageing schedule for trade payables to MSMEs, disputed dues to MSMEs, and other dues and disputed dues.

Another thing to make sure of is to make disclosures wherever no due of payment is specified. In addition, the information for unbilled dues must be disclosed separately. Here’s the format in which the disclosure should be made:

 

4. Current maturities of long-term borrowings shall be disclosed as a line item in notes under ‘short-term borrowings’ instead of ‘other current liabilities’.

 

5. The new amendment makes it necessary to disclose any change in revaluation for acquisition through business combinations that come under the Schedule of property, plant, and equipment. The change due to revaluation must be disclosed separately only if it exceeds 10% of the net carrying amount. In addition, it must be mentioned whether the revaluation was done by a registered valuer or not.

 

6. It is now necessary to provide Ageing schedule and completion due date for capital work in progress and intangible assets under development.

7. Disclosures must be made for loans and advances given to promoters, directors, KMPs, and related parties of the company in the following format.

8. Security deposits that were previously mentioned under ‘other non-current assets’ must be reclassified to ‘long term loans and advances’.

9. Ageing of trade receivables shall be given to disputed and undisputed separately. In addition, it must be divided into considered good and considered doubtful. Here’s the prescribed format for the same:

 

10. It’s important that any utilization of money borrowed from banks or other financial institutions for purposes other than what was intended at the time of borrowing must be disclosed. The details of the actual utilization using the borrowed funds and securities premium should also be disclosed.

11. The title deeds of immovable property that’s not held in the name of the company should be disclosed for each class and their reason as well. Here’s the format to make the disclosure:

 

12. If there are any proceedings pending or if there have been any proceedings against the company for holding any Benami property, the company should disclose the details under:

• Details of such property, including the year of acquisition
• Amount thereof
• Details of beneficiaries
• Reference to the item in the balance sheet, if the property is in the books
• Reason for the property not being in the books, if it isn’t
• The details to proceedings against the company under this law as an a better of the transaction or as the transferor
• The nature of proceedings, its current status, and the company’s view on the same.

 

13. If the company has borrowed from banks or financial institutions on the basis of security of current assets, it must disclose the following:

• Whether quarterly returns or statements of current assets filed by the Company with banks or financial institutions are in agreement with the books of accounts.
• If the above condition is not met, the company should present a summary of reconciliation and reasons for material discrepancies, as required.

 

14. Special disclosures are required if a company is declared a wilful defaulter by any bank, financial institution, or other lender. The disclosures to be presented must have

• The date of declaration as a willful defaulter
• The details of defaults – the amount and the nature of defaults

 

15. If a company has any transactions with companies struck off under section 248, the company must disclose their relationship, nature of the transaction with them, and outstanding balance.

16. The reasons for charges or satisfaction yet to be registered with the Registrar of Companies beyond the statutory period must be disclosed.

17. If the company has not complied with the number of layers prescribed under the Companies act as per Section 186, it must provide the name and CIN of the companies beyond the specified layers. The company must also disclose the relationship/extent of holding of the company in such downstream companies in respect of investments made by it.

18. Some key ratios are to be disclosed under the amended Schedule III of the companies act. Among them, if any of the ratios change more than 25%, the companies must give proper explanations to the reason for such deviation. Here are the key ratios at a glance:

• Current ratio
• Debt-equity ratio
• Debt service coverage ratio
• Return on equity ratio
• Inventory turnover ratio
• Trade receivables turnover ratio
• Trade payables turnover ratio
• Net capital turnover ratio
• Net profit ratio
• Return on capital employed
• Return on investment

 

19. For any approved scheme of arrangement, a proper disclosure for the effect of accounting for such an arrangement including compliance with relevant AS must be provided.

20. Grants or donations received by section 8 companies must be disclosed under ‘Revenue and operations’.

21.The details of any undisclosed income surrendered or disclosed under the Income Tax Act must be disclosed. The company should also state whether the unrecorded income and related assets have been properly recorded in the books of account during the year.

22.

1. CSR expenditure is another key area that needs to be disclosed. The requirement of such a disclosure is in light of the latest amendments in section 135 and other related rules. If the company is covered under section 135 of the Companies act, here are the required disclosures to be made with respect to CSR activities:

• The amount required to be spent by the company during the year
• amount of expenditure incurred
• The shortfall at the end of the year
• total of previous years shortfall
• reason for shortfall
• nature of CSR activities
• 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
• 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

 

23. Another key disclosure pertains to the details of Cryptocurrency or Virtual currency. If the company has traded or invested in Crypto or virtual currency during the financial year, it must disclose the following details:

• profit or loss on transactions involving Cryptocurrency or Virtual Currency
• amount of currency held as at the reporting date
• deposits or advances from any person for the purpose of trading or investing in Crypto Currency/ virtual currency.

 

2. Additional changes applicable to IND AS companies

There have only been two changes with respect to IND AS companies. This is in addition to the ones mentioned above. One of them is a change in format, and the other is the inclusion of financial liabilities.

• There has been a revamped format for the statement of changes in equity. This has been made to include more information.
• A new line item under ‘financial liabilities’, i.e, lease liabilities have been included in order to comply with the requirements of IND AS 116.

 

3. Additional changes applicable to IND AS NBFC

In addition to the general changes mentioned for AS complied companies, there have been a couple more changes under the new amendments.

• The format of the statement of changes in equity has been revamped to include more information.
• For NBFCs, key ratios such as CRAR, Tier I CRAR, Tier II CRAR, and Liquidity coverage ratio must be disclosed.

 

Conclusion

The government is constantly trying to limit the room for misreporting, by increasing the quantum of disclosures. Thus, the above changes to Schedule III are to be seen as a step to make financial statements more transparent and meaningful for users. Most of the amendments discussed above are qualitative in nature, which will increase the readability of the financial statements.

It’s safe to say these changes would invariably increase the responsibilities of the auditor, especially in validating the quality of information given. Parpella could be of immense help here as our team of expert professionals has years of experience working with companies with their accounting and other finance consulting. For a completely digital accounting experience,. Contact your Business and Company Registration Consultant in Kerala today.