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Consolidated financial statements - EY - United …

Consolidated financial statements What the Companies Act 2013 states EY insights Section 129(3) of the 2013 Act requires that a AS 21 does not mandate a company to present company having one or more subsidiaries will, in CFS. Rather, it merely states that if a company addition to separate financial statements , prepare presents CFS for complying with the CFS. Hence, the 2013 Act requires all companies, requirements of any statute or otherwise, it including non-listed and private companies, should prepare and present CFS in accordance having subsidiaries to prepare CFS.

Consolidated financial statements What the Companies Act 2013 states EY insights Section 129(3) of the 2013 Act requires that a company having one or …

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Transcription of Consolidated financial statements - EY - United …

1 Consolidated financial statements What the Companies Act 2013 states EY insights Section 129(3) of the 2013 Act requires that a AS 21 does not mandate a company to present company having one or more subsidiaries will, in CFS. Rather, it merely states that if a company addition to separate financial statements , prepare presents CFS for complying with the CFS. Hence, the 2013 Act requires all companies, requirements of any statute or otherwise, it including non-listed and private companies, should prepare and present CFS in accordance having subsidiaries to prepare CFS.

2 With AS 21. Keeping this in view and proviso to the rule 6, can a company having subsidiary take The 2013 Act also provides the below: a view that it need not prepare CFS? CFS will be prepared in the same form This question is not relevant to listed companies, and manner as SFS of the parent since the listing agreement requires listed companies company. with subsidiaries to prepare CFS. This question is The Central Government may provide for the consolidation of accounts of therefore relevant from the perspective of a non-listed companies in such manner as may be company.

3 Prescribed. The requirements concerning preparation, Some argue that because neither AS 21 nor Schedule adoption and audit of financial statements III mandates preparation of CFS, the Accounts Rules will, mutatis mutandis, apply to CFS. have the effect of not requiring a CFS. Instead, a An explanation to section dealing with company should present statement containing preparation of CFS states that for the information, such as share inprofit/loss and net assets purposes of this sub-section, the word of each subsidiary, associate and joint ventures, as subsidiary includes associate company additional information in the Annual Report.

4 Inthis and joint venture. view, the Accounts Rules would override the 2013. Act. If it was indeed the intention not to require CFS, While there is no change in section 129(3), rule 6 then it appears inconsistent with the requirement to under the Companies (Accounts) Rules 2014 present a statement containing information such as deals with the Manner of consolidation of share in profit/loss and net assets of each of the accounts. It states that the consolidation of component in the group. financial statements of a company will be done in accordance with the provisions of Schedule III to Others argue that the requirement to prepare CFS is the Act and the applicable accounting standards.

5 Arising from the 2013 Act and the Accounts Rules/. The proviso to this rule states as below: accounting standards cannot override/ change that Provided that in case of a company requirement. To support this view, it is also being covered under sub-section (3) of section argued that the Accounts Rules refer to AS 21 for the 129 which is not required to prepare requirement concerning preparation of CFS and AS. Consolidated financial statements under 21, in turn, refers to the governing law which happens the Accounting Standards, it shall be to be the 2013 Act.

6 Hence, the Accounts Rules/ AS. sufficient if the company complies with 21 also mandate preparation of CFS. According to the provisions on Consolidated financial supporters of this view, the proviso given in the statements provided in Schedule III of the Accounts Rules deals with specific exemptions in AS. Act. 21 from consolidating certain subsidiaries which operate under severe long-term restrictions or are Given below is an overview of key requirements acquired and held exclusively with a view to its under the Schedule III concerning CFS: subsequent disposal in the near future.

7 If this was Where a company is required to prepare indeed the intention, then the proviso appears to be CFS, it will mutatis mutandis follow the poorly drafted, because the exemption should not requirements of this Schedule as have been for preparing CFS, but for excluding applicable to a company in the certain subsidiaries in the CFS. preparation of balance sheet and statement of profit and loss. In our view, this is an area where the MCA/ ICAI need In CFS, the following will be disclosed by to provide guidance/ clarification. Until such guidance/.

8 Way of additional information: In respect of each subsidiary, clarifications are provided, our preferred approach is associate and joint venture, % of net to read the proviso mentioned above in a manner assets as % of Consolidated net that the Accounts Rules do not override the 2013 Act. assets. Hence, our preference is to apply the second view, In respect of each subsidiary, , all companies (listed and non-listed) having one associate and joint venture, % share or more subsidiary need to prepare CFS. in profit or loss as % of Consolidated profit or loss.

9 Disclosures at (i) and (ii) IFRS exempts non-listed intermediate holding are further sub-categorized into companies from preparing CFS if certain Indian and foreign subsidiaries, conditions are fulfilled. Is there any such associates and joint ventures. exemption under the 2013 Act read with the For minority interest in all Accounts Rules? subsidiaries, % of net assets and %. share as in profit or loss as % of Attention is invited to discussion on the previous issue Consolidated net assets and regarding need to prepare CFS. As mentioned earlier, Consolidated profit or loss, separately.

10 Our preferred view is that all companies having one or All subsidiaries, associates and joint more subsidiary need to prepare CFS. Under this ventures (both Indian or foreign) will be view, there is no exemption for non-listed intermediate covered under CFS. holding companies from preparing CFS. Hence, all A company will disclose list of companies having one or more subsidiaries need to subsidiaries, associates or joint ventures prepare CFS. which have not been Consolidated along with the reasons of non-consolidation. Currently, the listing agreement permits companies to prepare and submit Consolidated financial results/ financial statements in compliance with IFRS as issued by the IASB.


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