Consolidated financial statements are the aggregate look of the financial position of parent and its subsidiaries. It depict the overall strength of entire group of Companies and give a clear vision about the financial info to the stakeholders.
Summary of provision of Companies Act, 2013 and rules made thereunder are as follow:
♦ Section 129 (3) of the Companies Act, 2013 provides that where a Company has one or more subsidiaries, it shall, in addition to their financial statements prepare a consolidated financial statement of the Company and of all the subsidiaries in the same from and in the same form and manner as that of its own which shall also be laid before the annual general meeting of the Company.
♦ The word “Subsidiary” shall include associate Company and Joint Venture.
♦ Company shall also attach along with its financial statement, a separatestatement containing the salient features of the financial statement of its subsidiary or subsidiaries in Form AOC -1.
♦ The consolidated financial statement of the Company shall be made in accordance with the provisions of Schedule III of the Companies Act, 2013 and the applicable Accounting Standards.
♦ CFS is not applicable to an immediate wholly owned subsidiary whose immediate parent is a company incorporated outside India.
♦ This rules does not apply for the F.Y commencing from the 1st Day of April, 2014 and ending on 31stMarch, 2015 Companies which do not has subsidiary or subsidiaries but has one or more associate companies or joint venture or both, for the consolidation of financial statement in respect of associate companies or joint ventures, as case may be, that means even Companies which do not has subsidiary or subsidiaries but has one or more associate or Joint Venture or both is required to prepare consolidated financial statements form the F.Y commencing on or after 1st April,2015.
| Companies not having Subsidiary or Subsidiaries but having one or more Associates or Joint Venture or Both | For F.Y 2014-15 | For F.Y 2015-16 onwards |
|
Consolidated Financial Statement |
Not Mandatory |
Mandatory |
♦ Rule shall also not apply in respect of consolidation of financial statement by a company having subsidiary or subsidiaries incorporated outside India only for the F.Y commencing on after 1st April, 2014.
Circulars and clarifications
Representations from stakeholders seeking clarifications on the manner of presentation of notes in Consolidated Financial Statement (CFS) to be prepared under Schedule III to the Companies Act,2013. These representations have been examined in examined in consultation with the Institute of Chartered Accountants of India (ICAI) and it is clarified that Schedule III to the act read with the applicable Accounting Standards dose not envisage that a Company while preparing its CFS merely repeats the disclosures made by it under stand- alone accounts being consolidated. In the CFS, the Company would need to give all disclosures relevant for CFS only. [Circular No. 39/2014 dated 14th October, 2014]
FAQs on CFS issued by ICAI:
1. Weather Holding Co. is required to consolidate its Subsidiary which is a LLP or a Partnership firm?
As per Rule 6 of Companies (Accounts) Rules, 2014 provides that CFS of a Company shall be done in accordance with the provisions of Schedule III to the Companies Act, 2013 and the applicable Accounting Standards.
It is noted that relevant Indian Accounting Standard i.e., Ind AS 110, Consolidated Financial Statements provides that where an entity has control on one or more other entities, the controlling entity is required to consolidate all the controlled entities. Since, the word ‘entity’ includes a company as well as any other form of entity, therefore,LLPs and partnership firms are required to be consolidated. Similarly, under Accounting Standard (AS) 21, as per the definition of subsidiary, an enterprise controlled bythe parent is required to be consolidated. The term ‘enterprise’ includes a company and any enterprise other than a company. Therefore, under AS also, LLPs and partnership firms are required to be consolidated.
Accordingly, in the given case, Holding Co. is required to consolidate its subsidiary which is an LLP or a partnership firm.
2. Would the answer be different if LLP is an associate or joint venture of Holding Co.?
If LLP or a partnership firm is an associate or joint venture of Holding Co, even then the LLP and the partnership firm need to be consolidated in accordance with therequirements of applicable Accounting Standards.
3. A Company Holding Co. has no subsidiaries, but has investment in an associate and a joint venture. Whether Holding Co. is required to prepare consolidated financial statements for the year ending March 31, 2016, in the context of Companies (Accounting Standards) Rules, 2006.
Section 129 (3) of the Companies Act, 2013 provides that where a company has one or more subsidiaries, it shall prepare a consolidated financial statement of thecompany and of all the subsidiaries. Further, an Explanation to this sub section provides that the word “subsidiary” shall include associate company and joint venture.
In view of the above, in the given case, though Holding Co. does not have any subsidiary, it is required to prepare consolidated financial statements for its associate and joint venture in accordance with the applicable Accounting Standards, viz, AS 23, Accounting for Investments in Associates in Consolidated Financial Statements and AS 27, Financial Reporting of Interests in Joint Ventures, respectively.
About Author:
Mr. Ashish Pratihast, an Associate’s member of The Institute of Company Secretaries of India (ICSI) and post graduate in Commerce.
ICAI Guidance note says even if you dont have subsidiary and have associate/joint venture, then CFS is applicable for FY 2015-16 where as your views are the same is not mandatory for FY 2015-16