Brief note:
The Ministry of Corporate Affairs (MCA) has issued the Company (Accounts) Amendment Rules, 2021, Companies (Audit and Auditors) Amendment Rules, 2021 and made amendments to Schedule III under the Companies Act, 2013 (“the Act”). These amendments require significant additional disclosures in the statutory financial statements of companies, enhance reporting responsibilities of the auditors and require companies to use and maintain accounting software with audit trail functionality.
Companies (Accounts) Second Amendment Rules, 2021
Rule 3 – Manner of books of account to be kept in electronic mode (applicable for financial years commencing on or after 1 April, 2022) Applicable w.e.f. April 1, 2022
https://taxguru.in/company-law/companies-mandates-use-software-audit-trail-each-transaction.html
| Old Provision | Amendment (Sub rules inserted) | Consequence |
| Rule 11 (g):
Whether the company, has used such accounting software for maintaining its books of accounts which has a feature of recording audit trail (edit log) facility and if the same has been operated throughout the year for all transactions recorded in the software, the audit trail feature has not been tampered with and the audit trail has been preserved by the company as per the statutory requirements for record retention. |
Rule 11 (g)
Whether the company, in respect of financial years commencing on or after the 1st April, 2022, has used such accounting software for maintaining its books of account which has a feature of recording audit trail (edit log) facility and if the same has been operated throughout the year for all transactions recorded in the software, the audit trail feature has not been tampered with and the audit trail has been preserved by the company as per the statutory requirements for record retention. |
From 01/04/2022 onwards, Auditor’s Report shall also include their views and comments related to new Audit trail accounting software. |
Rule 8: Matters to be Included in Board’s Report (Applicable w.e.f. April 1, 2021)
https://taxguru.in/company-law/companies-mandates-use-software-audit-trail-each-transaction.html
| Earlier Provision | Amendment (following clauses inserted) | Consequence |
| Rule 8 (5):
|
Rule 8 (5)
(xi) The details of application made or any proceeding pending under the Insolvency and Bankruptcy Code, 2016 during the year along with their status as at the end of the financial year. (xii) The details of difference between amount of the valuation done at the time of one time settlement and the valuation done while taking loan from the Banks or Financial Institutions along with the reasons thereof. |
From 01/04/2021 onwards details pertaining to IBC pendency along with valuation differences needs to be reported in the Board report. |
Amendments to Companies (Audit and Auditors) Rules, 2014
Rule 11: Other Matters to be included in Auditors Report (Applicable w.e.f April 1, 2021)
https://taxguru.in/company-law/companies-mandates-use-software-audit-trail-each-transaction.html
| Old Provisions | Amendment (omission) | Consequence |
| Rule 11 (d)
Whether the company has provided requisite disclosures in its financial statements as to holdings as well as dealings in Specified Bank Notes during the period from 8th November, 2016 to 30th December, 2016 and if so, whether these are in accordance with the books of accounts maintained by the company. |
Rule 11 (d)
Omitted |
These notes were demonetized on November 8, 2016 by RBI, hence, w.e.f. December 31, 2016 onwards, specified bank notes will cease to be the liability of RBI. |
| Old provision | Amendment (Sub- rules inserted) | Consequence |
| ———- | (e) (i) Whether the management has represented that, to the best of its knowledge and belief, other than as disclosed in the notes to the accounts, no funds have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the company to or in any other person(s) or entity(ies), including foreign entities (“Intermediaries”), with the understanding, whether recorded in writing or otherwise, that the Intermediary shall, whether, directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the company (“Ultimate Beneficiaries”) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries;
(ii) Whether the management has represented, that, to the best of its knowledge and belief, other than as disclosed in the notes to the accounts, no funds have been received by the company from any person(s) or entity(ies), including foreign entities (“Funding Parties”), with the understanding, whether recorded in writing or otherwise, that the company shall, whether, directly or indirectly, lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party (“Ultimate Beneficiaries”) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries; and (iii) Based on such audit procedures that the auditor has considered reasonable and appropriate in the circumstances, nothing has come to their notice that has caused them to believe that the representations under sub-clause (i) and (ii) contain any material mis-statement. (f) Whether the dividend declared or paid during the year by the company is in compliance with section 123 of the Companies Act, 2013. |
From 01/04/2021 onwards, Auditor’s Report shall also include their views and comments pertaining to Sub rule 11 (e), (f)
|
Companies (Management and Administration) Amendment Rules, 2021
Rule 11: Annual Return (Applicable w.e.f. FY 2020-2021 onwards)
https://taxguru.in/company-law/mca-mandates-new-form-mgt-7-mgt-7a-opc-small-companies.html
| Old Provision | Amendment (omission) | Consequence |
| Rule 11 (1)
|
Rule 11 (1)
Every company shall file its annual return in Form No.MGT-7 except One Person Company (OPC) and Small Company. One Person Company and Small Company shall file annual return from the financial year 2020-2021 onwards in Form No.MGT-7A.] |
For FY 2020-2021, OPC & Small company shall file Annual return in Form MGT-7A. |
Key additional disclosure requirements as per Schedule III (Applicable with effect from 1 April, 2021)
https://taxguru.in/company-law/amendment-schedule-iii-companies-act-2013-wef-01-04-2021.html
The Amended Schedule III can be directly reached at : http://ebook.mca.gov.in/default.aspx > Schedule> Schedule III
What are the 3 divisions of Schedule III and its applicability?
| Division I | Division II | Division III |
| The Division I to the Schedule III of the Companies Act, 2013 lays down the format for preparation of the financial statements by the companies on which IND AS does not apply.
|
Every Company except NBFC to which Indian Accounting Standards (IND AS) apply, shall prepare its financial statements in accordance with Division II of Schedule III.
Applicability of IndAS Phase 1: Applicability of IND AS with effect from 1st April 2016: –
Phase 2: Applicability of IND AS with effect from 1st April 2017: –
Phase 3: Applicability of IND AS to all Banks, NBFCs, and Insurance companies with effect from 1st April 2018:-
Phase 4: All NBFCs whose net worth is more than or equal to INR 250 crores but less than INR 500 crores shall have IND AS mandatorily applicable to them with effect from 1st April 2019. Please Note: If IND AS becomes applicable to any company, then IND AS shall automatically be made applicable to all the subsidiaries, holding companies, associated companies, and joint ventures of that company, irrespective of individual qualification of such companies. |
Every Non-Banking Financial company (NBFC) to which Indian Accounting Standards apply, shall prepare its financial statements in accordance with Division III of Schedule III.
|
- Changes- On the face of Balance Sheet
a. Addition/Deletion under Sub Head Non-Current assets:
II. ASSETS
Non-current assets
(1) (a) Property, Plant and Equipment and Intangible assets
(i) Property, Plant and Equipment
- Changes – On the face of Statement Profit & Loss
a. Addition/Deletion under III. below:
I. Revenue from operations
II. Other income
III. Total Income (I + II)
Disclosures in respect to the notes of Balance sheet
∇ Changes in equity
| Old Provision | Provisions after Amendment |
| The companies including NBFCs required to prepare financial statements as per INDAS are required to disclose only balance at the beginning and end of the reporting period along with changes during the current year. | Now in Schedule III, disclosure shall be made regarding the changes in equity due to prior period errors, restated balance at the beginning of the reporting year, and similarly disclose the same for the previous reporting period. |
∇ Changes in disclosures in respect to shareholding of all promoters
| Old Provision | Provisions after Amendment |
| Only the shareholding of the shareholders holding more than 5% of the shares is required to be disclosed in the Balance Sheet. | A company is required to disclose the shareholding of all of its promoters. The details shall include change in shareholding taken place during the year. |
Disclosure Format
| Shares held by promotes at the end of the Year | % Change during the Year | |||
| S. No. | Promoter’s Name | No. of Shares | % of total shares | |
| Total | ||||
∇ Changes in disclosure requirements pertaining to Loans and advances to promoters, directors, key managerial persons (KMP) & related parties
| Old Provision | Provisions after Amendment |
| No separate disclosures were required earlier for the loans and advances granted to related parties. | Where the company gives any loan and advances to the promoters, directors, KMPs and other related parties either jointly or severally and such loan/ advances so given are either in the nature of a loan/ advance repayable on demand or without any specific terms or period of repayment, the details of such loans shall be disclosed separately in the financial statements along with the amount of loan and % to total loans and advances. |
Disclosure Format
| Type of Borrower | Amount of loan or advance in the nature of loan outstanding | Percentage to the total Loans and Advances in the nature of loans |
| Promoters | ||
| Directors | ||
| KMPs | ||
| Related Parties |
∇ Changes in Note on Trade payable and Trade Receivables
| Old Provision | Provisions after Amendment |
| Unbilled dues are not required to be disclosed. | Unbilled dues shall be disclosed separately by the Company. |
∇ Trade Payables ageing schedule
Companies will be required to provide ageing schedule for trade payables due to MSMEs, disputed dues to MSMEs, and other dues and disputed dues for the periodicity of 1 year, 1-2-year, 2-3 year & more than 3 years and format of such disclosure shall be as follows:
Trade Payables ageing schedule: (Amount in Rs.)
| Particulars | Outstanding for following periods from due date of payment | Total | |||
| Less than 1 yr. | 1-2 yrs. | 2-3 yrs. | More than 3 yrs. | ||
| (i) MSME | |||||
| (ii) Others | |||||
| (iii) Disputed dues- MSME | |||||
| (iv) Disputed dues- Others | |||||
Also below points to be taken care of:
- Similar information shall be given where no due date of payment is specified in that case disclosure shall be from the date of the transaction.
- Unbilled dues shall be disclosed separately
∇ Trade Receivables ageing schedule
Companies will be required to disclose the ageing schedule of its trade receivables i.e. including undisputed and disputed trade receivables considered good and doubtful with ageing in the format given below:
Trade Receivables Ageing schedule: (Amount in Rs.)
| Particulars | Outstanding for following periods from due date of payment | Total | ||||
| Less than 6 months | 6 months- 1 year | 1-2 yrs. | 2-3 yrs. | More than 3 yrs. | ||
| (i) Undisputed Trade receivables- considered good | ||||||
| (ii) Undisputed Trade Receivables- Considered Doubtful | ||||||
| (iii) Disputed Trade Receivables considered good | ||||||
| (iv) Disputed Trade Receivables considered doubtful | ||||||
Also below points to be taken care of:
- Similar information shall be given where no due date of payment is specified in that case disclosure shall be from the date of the transaction.
- Unbilled dues shall be disclosed separately
Disclosure related to funds borrowed from banks and financial institutions
| Old Provision | Provisions after Amendment |
| The purpose against which the Borrowings from banks and financial institutions have been used were not to be disclosed earlier. | If the Company has not used the borrowings from banks and financial institutions for the purpose for which it was taken at the Balance Sheet date, the Company shall disclose the details of where it has been used. |
∇ Disclosure with respect to utilization of Security Premium Account
| Old Provision | Provisions after Amendment |
| The purpose against which the Security Premium have been used were not to be disclosed earlier. | The Company is required to disclose where the amount of share premium account have been used. |
∇ Disclosure with respect to Title Deeds
| Old Provision | Provisions after Amendment |
| Not required to be disclosed earlier. | The Company is required to disclose the details of Title deeds of Immovable Property not held in name of the Company. |
∇ Reclassification of Current Maturities of Long-Term Borrowings
| Old Provision | Provisions after Amendment |
| The Current Maturities of Long-Term Borrowings during the Financial Year are required to be disclosed under the head ‘Other Current Liabilities’. | As per the Amendment Current Maturities of Long-Term Borrowings during the Financial Year are required to be disclosed separately under the head ‘Short Term Borrowings’ instead of ‘Other Current Liabilities’. |
∇ Disclosure with respect to Borrowings from Bank on Security of Current Assets
| Old Provision | Provisions after Amendment |
| Not required to be disclosed earlier. | The Company is required to disclose the borrowings taken from banks or financial institutions on the basis of security of current assets. |
∇ Disclosure with respect to quarterly returns or statements of current assets
| Old Provision | Provisions after Amendment |
| Not required to be disclosed earlier. | The Company is required to disclose whether the quarterly returns of current assets filed by the Company with the banks or financial institutions are in agreement with the books of accounts or not.
If not, the reconciliation statement and reasons of discrepancies are required to disclosed. |
∇ Disclosure with respect to Charges
| Old Provision | Provisions after Amendment |
| Not required to be disclosed earlier. | The Company is required to disclose the charges or satisfaction, which are yet to be registered with Registrar of Companies beyond the statutory period, and reasons thereof. |
∇ Disclosure with respect to subsidiaries beyond prescribed number of Layers
| Old Provision | Provisions after Amendment |
| Not required to be disclosed earlier. | The Company is required to disclose whether the Company is having more than 2 layers of subsidiary Companies. |
∇ Changes in disclosure requirements for Revaluation of property
| Old provision | Provisions after Amendment |
| A reconciliation of the gross and net carrying amounts of each class of assets at the beginning and end of the reporting period showing additions, disposals, acquisitions through business combinations and other adjustments and the related amortization and impairment losses/reversals shall be disclosed separately. | A reconciliation of the gross and net carrying amounts of each class of assets at the beginning and end of the reporting period showing additions, disposals, acquisitions through business combinations, amount of change due to revaluation (if change is 10% or more in the aggregate of the net carrying value of each class of intangible assets) and other adjustments and the related depreciation and impairment losses or reversals shall be disclosed separately.
Disclosure of revaluation if done is based on the valuation by a registered valuer as defined under rule 2 of the Companies (Registered Valuers and Valuation) Rules, 2017 |
∇ Disclosure of Ratios
| Old provision | Provisions after Amendment |
| No separate disclosures with respect to ratios were required earlier. | The companies covered under division I and II of schedule III shall disclose the following ratios:
(a) Current Ratio, (b) Debt-Equity Ratio, (c) Debt Service Coverage Ratio, (d) Return on Equity Ratio, (e) Inventory turnover ratio, (f) Trade Receivables turnover ratio, (g) Trade payables turnover ratio, (h) Net capital turnover ratio, (i) Net profit ratio, (j) Return on Capital employed, (k) Return on investment. The company shall explain the items included in numerator and denominator for computing the above ratios. Further explanation shall be provided for any change in the ratio by more than 25% as compared to the preceding year. The companies covered under division III shall disclose the following ratios: Following Ratios shall be disclosed. (a) Capital to risk-weighted assets ratio (CRAR) (b) Tier I CRAR (c) Tier II CRAR (d) Liquidity Coverage Ratio |
Disclosures in respect of Profit and Loss statements:
∇ Disclosures with respect to CSR
| Old Provision | Provisions after Amendment |
| Earlier the disclosures with respect to CSR were required only in Board Report. | The disclosures in respect to details of related party transactions such as, contribution to a trust controlled by the company in relation to CSR expenditure as per relevant Accounting Standards shall also be made.
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. The term “provision” shall be considered as liability. The provision shall be estimated on the basis of past CSR events already conducted by the company. |
Where the company covered under section 135 of the Companies Act, the following shall be disclosed with regard to CSR activities: –
i. amount required to be spent by the company during the year,
ii. amount of expenditure incurred,
iii. shortfall at the end of the year,
iv. total of previous years’ shortfall,
v. reason for shortfall,
vi. nature of CSR activities,
vii. 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,
viii. 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 shall be shown separately.
∇ Disclosures with respect to investment/trading in Crypto Currency
| Old Provision | Provisions after Amendment |
| No disclosures were required as far as crypto currency is concerned. | Where the company has invested in Crypto Currency during the financial year, the company shall make the following disclosures:
◊ profit or loss on transactions involving Crypto currency 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. |
∇ Undisclosed Income
| Old Provision | Provisions after Amendment |
| No disclosures were required towards undisclosed income. | Details of any transactions not recorded in the books of accounts that has been surrendered or disclosed as income during the year in the tax assessments under the Income Tax Act, 1961, shall be disclosed unless there is an immunity for disclosure under any scheme. Further, the company shall also state whether the previously unrecorded income and related assets have been properly recorded in the books of accounts during the year. |
Disclosures required in an attempt to curb money laundering
∇ Disclosures in respect of Benami Property
| Old Provision | Provisions after Amendment |
| No disclosures were required towards Benami Property. | Where any proceedings have been initiated or pending against the company for holding any Benami property, the company shall disclose various details of the property including the reasons of not disclosing the same in the books of accounts, details of the proceedings against the company including its nature, status and the views of the company on the same. |
∇ Disclosures in respect of Willful Defaulter
| Old Provision | Provisions after Amendment |
| No disclosures were required towards willful defaulter. | Where a company has declared a willful defaulter by any bank or financial Institution or other lender, the following details shall be disclosed:-
(a) date of declaration of willful defaulter, (b) Details of defaults (amount and nature of defaults). |
Other disclosures:
∇ Disclosures in respect to transactions entered with Struck off Companies
| Old provision | Provisions after Amendment |
| No disclosures were required earlier. | Where the company has any transaction with companies struck off under section 248 of the Act, or under section 560 of the Companies Act, 1956, it shall disclose the name of struck off company, the nature of transactions with this company, balance outstanding and relationship with the struck off the company. The transaction can be in the nature of investment in securities, receivables, payables, shareholding of the struck-off company in the company and any other outstanding balances. |
∇ Changes in criteria of Rounding Off the decimals
| Old Provision | Provisions after Amendment | ||
| TURNOVER | Rounding Off | TOTAL INCOME | Rounding off compulsory |
| Less than 100 Crore Rupees | To the nearest hundreds, thousands, lakhs or millions or decimals thereof. | Less than 100 Crore Rupees | To the nearest hundreds, thousands, lakhs or millions or decimals thereof. |
| 100 Crore Rupees or more | To the nearest lakhs, millions or crores, or decimals thereof. | 100 Crore Rupees or more | To the nearest lakhs, millions or crores, or decimals thereof. |
It is optional to do rounding off of figures for financial year ended 31.03.2021. For the purpose of rounding off the figures appearing in the Financial Statements for financial year ending 31.03.2022, the total income of the Company shall be considered as the basis
About the Author
Author is Divya Goel, ACS working as Assistant Manager- Company Secretary with Neeraj Bhagat & Co. Chartered Accountants, a Chartered Accountancy firm helping foreign companies in setting up business in India and complying with various tax laws applicable to foreign companies while establishing their business in India.
Author Bio
