Financial Statement Consolidation, Where a Company have only Associate or Joint Venture but No Subsidiary

CA Shayanki Goyal

Definition of Subsidiary has been changed under Companies Act 2013 only for the Purpose of Compliance with Section 129(3) which requires a company to prepare and Present consolidated financial statement.

Therefore Now Any Company having Associate or Joint Venture shall also be needed to prepare and present at their Annual General meeting The Consolidated Financial Statement.

Manner of Preparing Consolidated Financial Statement has been given under Rule 6 of Companies Rules 2014 which requires every company to follow accounting standard under section 133 of companies act 2013 as the same has not been prescribed yet .Therefore as per Accounting Standard as Notified by the NACAS in accordance with existing provisions of companies act 1956 shall be followed for this purpose.

AS -23 accounting for Investment in associate company govern this scenario which requires company to follow equity method for preparation of consolidated financial statement. In this regard the consolidated financial statement is defined as under:

Consolidated financial statements are the financial statements of a group presented as those of a single enterprise.

And a group is a parent and all its subsidiaries.

Therefore in Nutshell a company having only associates need not to account for their investment in accordance AS-23 as the same is not required so in accordance with AS 23.

Rule 6 Specifies the Requirement where company need not to prepare the Consolidated Financial Statement as per applicable Accounting Standards. Rule 6 Specifies as under:-

Rule 6 of Companies Rules 2014. The consolidation of financial statements of the company shall be made in accordance with the provisions of Schedule III of the Act and the applicable accounting standards:

Provided that in case of a company covered under sub-section (3) of section 129 which is not required to prepare consolidated financial statements under the Accounting Standards, it shall be sufficient if the company complies with provisions on consolidated financial statements provided in Schedule III of the Act:

[Provided further that nothing in this rule shall apply in respect of preparation of consolidated financial statement by an intermediate wholly-owned subsidiary, other than a wholly-owned subsidiary whose immediate parent is a company incorporated outside India:

Provided also that nothing contained in this rule shall, subject to any other law or regulation, apply for the financial year commencing from the 1^st day of April, 2014 and ending on the 31^st March, 2015, in case of a company which does not have a subsidiary or subsidiaries but has one or more associate companies or joint ventures or both, for the consolidation of financial statement in respect of associate companies or joint ventures or both, as the case may be. ]

Therefore to conclude this, it can be said that except for the financial year April to March 2015 A company having only associate or joint venture can be said to have complied with the provision of section 129(3) if while preparing their consolidated financial statement it would be sufficient if they made the following disclosure as per Schedule III.

DISCLOSURE REQUIREMENT UNDER SCHEDULE III FOR THE PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS

1. In Consolidated Financial Statements, the following shall be disclosed by way of additional information:

Name of the entity in the	Net Assets, i.e., total assets minus total liabilities		Share in profit or loss
	As % of consolidated net assets	Amount	As % of consolidated profit or loss	Amount
1	2	3	4	5
Parent Subsidiaries
Indian 1. 2. 3.
Foreign 1. 2. 3.
Minority Interests in all subsidiaries Associates (Investment as per the equity method)
Indian 1. 2. 3.
Foreign 1. 2. 3.
Joint Ventures (as per proportionate consolidation/ investment as per the equity method)
Indian 1. 2. 3. Foreign 1. 2. 3.
TOTAL

2. All subsidiaries, associates and joint ventures (whether Indian or foreign) will be covered under consolidated financial statements.

Some Definition and Provision has been shown for your Reference:-

Section 2(6) of Companies Act 2013

(6)        “Associate company”, in relation to another company, means a company in which that other company has a significant influence, but which is not a subsidiary company of the company having such influence and includes a joint venture company.

             Explanation.—For the purposes of this clause, “significant influence” means control of at least twenty per cent of total share capital, or of business decisions under an agreement;

Section 2(87) of companies Act 2013

“Subsidiary company” or “subsidiary”, in relation to any other company (that is to say the holding company), means a company in which the holding company—

(i)         controls the composition of the Board of Directors; or

(ii)        exercises or controls more than one-half of the total share capital either at its own or together with one or more of its subsidiary companies:

             Provided that such class or classes of holding companies as may be prescribed shall not have layers of subsidiaries beyond such numbers as may be prescribed.

             Explanation.—For the purposes of this clause,—

(a)        a company shall be deemed to be a subsidiary company of the holding company even if the control referred to in sub-clause (i) or sub-clause (ii) is of another subsidiary company of the holding company;

(b)        the composition of a company’s Board of Directors shall be deemed to be controlled by another company if that other company by exercise of some power exercisable by it at its discretion can appoint or remove all or a majority of the directors;

(c)        the expression “company” includes any body corporate;

(d)       “layer” in relation to a holding company means its subsidiary or subsidiaries;

Section 129 of the Companies Act 2013

(1) The financial statements shall give a true and fair view of the state of affairs of the company or companies, comply with the accounting standards notified under section 133 and shall be in the form or forms as may be provided for different class or classes of companies in Schedule III:

Provided that the items contained in such financial statements shall be in accordance with the accounting standards:

Provided further that nothing contained in this sub-section shall apply to any insurance or banking company or any company engaged in the generation or supply of electricity, or to any other class of company for which a form of financial statement has been specified in or under the Act governing such class of company:

Provided also that the financial statements shall not be treated as not disclosing a true and fair view of the state of affairs of the company, merely by reason of the fact that they do not disclose—-

(a) in the case of an insurance company, any matters which are not required to be disclosed by the Insurance Act, 1938, or the Insurance Regulatory and Development Authority Act, 1999;

(b) in the case of a banking company, any matters which are not required to be disclosed by the Banking Regulation Act, 1949;

(c) in the case of a company engaged in the generation or supply of electricity, any matters which are not required to be disclosed by the Electricity Act, 2003;

(d) in the case of a company governed by any other law for the time being in force, any matters which are not required to be disclosed by that law.

(2) At every annual general meeting of a company, the Board of Directors of the company shall lay before such meeting financial statements for the financial year.

(3) Where a company has one or more subsidiaries, it shall, in addition to financial statements provided under sub-section (2), prepare a consolidated financial statement of the company and of all the subsidiaries in the same form and manner as that of its own which shall also be laid before the annual general meeting of the company along with the laying of its financial statement under sub-section (2):

Provided that the company shall also attach along with its financial statement, a separate statement containing the salient features of the financial statement of its subsidiary or subsidiaries in such form as may be prescribed

Provided further that the Central Government may provide for the consolidation of accounts of companies in such manner as may be prescribed.

Explanation.—For the purposes of this sub-section, the word “subsidiary” shall include associate company and joint venture.

(4) The provisions of this Act applicable to the preparation, adoption and audit of the financial statements of a holding company shall, mutatis mutandis, apply to the consolidated financial statements referred to in sub-section (3).

(5) Without prejudice to sub-section (1), where the financial statements of a company do not comply with the accounting standards referred to in sub-section (1), the company shall disclose in its financial statements, the deviation from the accounting standards, the reasons for such deviation and the financial effects, if any, arising out of such deviation.

(6) The Central Government may, on its own or on an application by a class or classes of companies, by notification, exempt any class or classes of companies from complying with any of the requirements of this section or the rules made thereunder, if it is considered necessary to grant such exemption in the public interest and any such exemption may be granted either unconditionally or subject to such conditions as may be specified in the notification.

(7) If a company contravenes the provisions of this section, the managing director, the whole-time director in charge of finance, the Chief Financial Officer or any other person charged by the Board with the duty of complying with the requirements of this section and in the absence of any of the officers mentioned above, all the directors shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees, or with both.

Explanation.—For the purposes of this section, except where the context otherwise requires, any reference to the financial statement shall include any notes annexed to or forming part of such financial statement, giving information required to be given and allowed to be given in the form of such notes under this Act.

Manner of consolidation of accounts

Rule 6 of Companies Rules 2014. The consolidation of financial statements of the company shall be made in accordance with the provisions of Schedule III of the Act and the applicable accounting standards:

Provided that in case of a company covered under sub-section (3) of section 129 which is not required to prepare consolidated financial statements under the Accounting Standards, it shall be sufficient if the company complies with provisions on consolidated financial statements provided in Schedule III of the Act:

[Provided further that nothing in this rule shall apply in respect of preparation of consolidated financial statement by an intermediate wholly-owned subsidiary, other than a wholly-owned subsidiary whose immediate parent is a company incorporated outside India:

Provided also that nothing contained in this rule shall, subject to any other law or regulation, apply for the financial year commencing from the 1^st day of April, 2014 and ending on the 31^st March, 2015, in case of a company which does not have a subsidiary or subsidiaries but has one or more associate companies or joint ventures or both, for the consolidation of financial statement in respect of associate companies or joint ventures or both, as the case may be. ]

Section 133. The Central Government may prescribe the standards of accounting or any addendum thereto, as recommended by the Institute of Chartered Accountants of India, constituted under section 3 of the Chartered Accountants Act, 1949 (38 of 1949), in consultation with and after examination of the recommendations made by the National Financial Reporting Authority.