ICAI Issues Guidance Note on Division III of Ind AS Schedule III to the Companies Act 2013 

1. Schedule III to the Companies Act, 2013 (‘the Act’) was notified along with the Act itself on 29 August, 2013 thereby providing the manner in which every company registered under the Act shall prepare its Financial Statements. Financial Statements as defined under the Act include Balance Sheet, Statement of Changes in Equity for the period, the Statement of Profit and Loss for the period, Cash flow statement as applicable for the period and Notes.

2. Ministry of Corporate Affairs (‘MCA’) notified Indian Accounting Standards (‘Ind AS’) on 16 February, 2015 thereby laying down the initial roadmap for all companies, except insurance companies, banking companies and non-banking finance companies, for adoption of Ind AS (‘MCA roadmap’). Further, MCA notified amendments to Schedule III to the Act on 6 April, 2016 whereby:

i. The original 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 (as amended from time to time). In other words, Non-Ind AS companies, will be required to prepare Financial Statements as per Companies (Accounting Standards) Rules, 2006 (as amended from time to time), as per the format of Division I to Schedule III to the Act.

ii. ‘Division II’ – ‘Ind AS Schedule III’ 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 was 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.

3. The MCA issued a notification dated 30 March, 2016 announcing the Ind AS roadmap for non-banking financial companies (‘NBFC’). Further, MCA notified amendments to Schedule III to the Act on 11 October, 2018 whereby:

i. ‘Division III’ to Schedule III’ (Refer Annexure A, Pg 138) was inserted to give a format of Financial Statements for NBFC’s that are required to comply with the Companies (Indian Accounting Standards) Rules, 2015, as amended from time to time (‘Companies Ind AS Rules’). As per the Companies Ind AS Rules, “Non-Banking Financial Company” means a Non-Banking Financial Company as defined in clause (f) of section 45-I of the Reserve Bank of India Act, 1934 and includes Housing Finance Companies, Merchant Banking companies, Micro Finance Companies, Mutual Benefit Companies, Venture Capital Fund Companies, Stock Broker or Sub-Broker Companies, Nidhi Companies, Chit Companies, Securitization and Reconstruction Companies, Mortgage Guarantee Companies, Pension Fund Companies, Asset Management Companies and Core Investment Companies.’ Accordingly, NBFC’s while preparing its first and subsequent Ind AS Financial Statements, would apply Division III to Schedule III to the Act.

Objective and Scope

1. The objective of this Guidance Note is to provide guidance in the preparation and presentation of Financial Statements in accordance with various aspects of Division III to Schedule III, for NBFC’s 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. Paragraph 9 of Division III of Schedule III further states that where any Act, Regulation, Guidelines or Circulars issued by the relevant Regulators from time to time requires specific disclosures to be made in the standalone financial statements of an NBFC, the said disclosures shall be made in addition to those required under this Schedule.

2. Guidance given in ‘Guidance Note on Division I to the Schedule III to the Companies Act, 2013’ published in February 2016 and revised in January 2022 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.

3. In preparing this Guidance Note, reference has been made to Ind AS notified under Section 133 of the Act read together with Paragraph 3 of the Companies Ind AS Rules given in Annexure C (Pg 203) and various other pronouncements of the ICAI. The primary focus of the Guidance Note is to lay down broad guidelines to deal with practical issues that may arise in the implementation of Division III to Schedule III while preparing Financial Statements as per Ind AS. The Guidance Note would primarily provide guidance on the line items contained in the Division III to the Schedule III rather than the specific issues which an NBFC may face.

4. This Guidance Note includes changes to presentation and disclosure requirements of Division III to Schedule III pursuant to Ind AS notified up to March 31, 2021.

Applicability

As per the Government Notification no. S.O. 902 (E) dated 26th March, 2014, Schedule III is applicable for the Financial Statements prepared for the financial year commencing on or after April 1, 2014. As per the Government Notification no. G.S.R. 404(E) dated April 6, 2016, Schedule III is amended to include a format of Financial Statements for a company preparing Financial Statements in compliance with the Companies Ind AS Rules. Further, as per the Government Notification no. G.S.R. 1022 (E) dated October 11, 2018, the Schedule III is amended to include a format of Financial Statements for an NBFC preparing Financial Statements in compliance with the Companies Ind AS Rules. Schedule III has been further amended vide the Government Notification dated 24th March, 2021 to include certain additional presentation and disclosures requirements and changes some existing requirements. These changes need to be applied in preparation of financial statements for the financial year commencing on or after 1st April, 2021. Every Non-Banking Financial company as defined in the Companies (Indian Accounting Standards) (Amendment) Rules, 2016 to which Indian Accounting Standards apply, shall prepare its financial statements in accordance with this Schedule or with such modification as may be required under certain circumstances. Additionally, preparers of financial statements should also consider requirements of the Act as well as other Statutes, Notifications, Circulars issued by various Regulators. Division III to Schedule III requires that except in the case of the first Financial Statements laid before the company after incorporation, the corresponding amounts (i.e. comparatives) for the immediately preceding period are to be disclosed in the Financial Statements including the Notes to Accounts. Thus, for the Financial Statements prepared for the financial year 2018-19 (i.e. 1st April 2018 to 31st March 2019), corresponding amounts need to be given for the financial year 2017-18. As per Ind AS 101, a company’s first Ind AS financial statements shall include at least three balance sheets, two statements of profit and loss, two statements of cash flows and two statements of changes in equity and related notes. This Guidance Note does not deal with the presentation aspects of reconciliations that are required to be provided as a part of a company’s first Ind AS financial statements.

Main principles – Summary of Division III to Schedule III

1. Every Non-Banking Financial company as defined in the Companies (Indian Accounting Standards) (Amendment) Rules, 2016 to which Indian Accounting Standards apply, shall prepare its financial statements in accordance with this Schedule or with such modification as may be required under certain circumstances.

2. As per Paragraph 1 of Part III of Division III where a Non-Banking Financial Company (NBFC) is required to prepare Consolidated Financial Statements, i.e., consolidated balance sheet, consolidated statement of changes in equity and consolidated statement of profit and loss, the NBFC shall mutatis mutandis follow the requirements of this Schedule as applicable to an NBFC in the preparation of balance sheet, statement of changes in equity and statement of profit and loss. However, where the consolidated financial statements contain elements pertaining to NBFCs and other than NBFCs, mixed basis of presentation may be followed for consolidated financial statements where both kinds of operations are significant.

4.3 Financial Statements include Balance Sheet, Statement of Changes in Equity for the period, Statement of Profit and Loss for the period and Notes. Cash Flow Statement shall be prepared in accordance with the requirements of the relevant Ind AS.

Structure of Division III to Schedule III

The Structure of Division III to Schedule III is as under:

A. General Instructions for Preparation of Financial Statements of a Non-Banking Financial Company (NBFC) that is required to comply with Ind AS (‘General Instructions for Preparation of Financial Statements’)
B. Part I – Form of Balance Sheet and Statement of Changes in Equity
C. Part I Notes – General Instructions for Preparation of Balance Sheet
D. Part II – Form of Statement of Profit and Loss
E. Part II Notes – General Instructions for Preparation of Statement of Profit and Loss
F. Part III – General Instructions for the Preparation of Consolidated Financial Statements

General Instructions for Preparation of Financial Statements: Notes 1 to 10

1. The General Instructions lay down the broad principles and guidelines for preparation and presentation of Financial Statements.

2. As laid down in Part A of the Annexure to Companies Ind AS Rules, Ind AS, which are specified, are intended to be in conformity with the provisions of applicable laws. However, if due to subsequent amendments in the law, a particular Ind AS is found to be not in conformity with law, the provisions of the said law will prevail and the Financial Statements should be prepared in conformity with such law. In such a scenario, the statement of compliance with Ind AS should be considered in the light of the principle of overriding effect of law over Ind AS when applying the presentation or disclosure requirements of Division III to Schedule III.

3. Division III to Schedule III requires that if compliance with the requirements of the Act, Regulation, Guidelines or Circulars issued by the relevant Regulators from time to time including applicable Ind AS require any change in the presentation or disclosure including addition, amendment, substitution or deletion in the head/sub-head or any changes in the Financial Statements or Notes to Accounts thereof, the same shall be made and the requirements of Division III to Schedule III shall stand modified accordingly.

4. Note 3 of the General Instructions for Preparation of Financial Statements state that the disclosure requirements of Division III to Schedule III are in addition to and not in substitution of the disclosure requirements specified in Ind AS. They further clarify that the disclosures specified in Ind AS shall be made in the Notes or by way of additional statement(s) unless required to be disclosed on the face of the Financial Statements. Similarly, all other disclosures as required by the Act shall be made in the Notes in addition to the requirements set out in this Schedule.

To Read More Details Download PDF Given Below: