Introduction
1.1 Schedule VI to the Companies Act, 1956 (‘the Act’) provides the manner in which every company registered under the Act shall prepare its Balance Sheet, Statement of Profit and Loss and notes thereto. In the light of various economic and regulatory reforms that have taken place for companies over the last several years, there was a need for enhancing the disclosure requirements under the Old Schedule VI to the Act and harmonizing and synchronizing them with Accounting Standards. Accordingly, the Ministry of Corporate Affairs (MCA) has issued a revised form of Schedule VI on February 28, 2011.
1.2 The relevant notifications along with the Revised Schedule VI to the Act are given in Annexure A. As per the relevant notifications, the Schedule applies to all companies for the financial statements to be prepared for the financial year commencing on or after April 1, 2011.
1.3 The requirements of the Revised Schedule VI however, do not apply to companies as referred to in the proviso to Section 211 (1) and Section 211 (2) of the Act, i.e., 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 Balance Sheet and Profit and Loss account has been specified in or under any other Act governing such class of company.
2.Objective and Scope
2.1. The objective of this Guidance Note is to provide guidance in the preparation and presentation of Financial Statements of companies on various aspects of the Revised Schedule VI. However, it does not provide guidance on disclosure requirements under Accounting Standards, other pronouncements of the Institute of Chartered Accountants of India (ICAI), other statutes, etc.
2.2. In preparing this Guidance Note, reference has been drawn to the Accounting Standards notified under the Companies (Accounting Standards) Rules, 2006 (as amended), other Accounting Standards issued by the ICAI (yet to be notified under the Act) and various other pronouncements of the ICAI. The primary focus of the Guidance Note has been to lay down broad guidelines to deal with practical issues that may arise in the implementation of the Revised Schedule VI. However, the Guidance provided herein should not be taken as exhaustive.
2.3.As per the clarification issued by ICAI regarding the authority attached to the Documents Issued by ICAI, “‘Guidance Notes’ are primarily designed to provide guidance to members on matters which may arise in the course of their professional work and on which they may desire assistance in resolving issues which may pose difficulty. Guidance Notes are recommendatory in nature. A member should ordinarily follow recommendations in a guidance note relating to an auditing matter except where he is satisfied that in the circumstances of the case, it may not be necessary to do so. Similarly, while discharging his attest function, a member should examine whether the recommendations in a guidance note relating to an accounting matter have been followed or not. If the same have not been followed, the member should consider whether keeping in view the circumstances of the case, a disclosure in his report is necessary.”
3.Applicability
3.1. As per the Government Notification no. F.No.2/6/2008-C.L-V dated 30- 3-2011, the Revised Schedule VI is applicable for the Balance Sheet and Profit and Loss Account to be prepared for the financial year commencing on or after April 1, 2011.
3.2. Early adoption of the Revised Schedule VI is not permitted since Schedule VI is a statutory format.
3.3. The Revised Schedule VI requires that except in the case of the first financial statements laid before the company after incorporation, the corresponding amounts for the immediately preceding period are to be disclosed in the financial statements including the notes to accounts. Accordingly, comparative information will have to be presented starting from the first year of application of the Revised Schedule VI. Thus for the financial statements prepared for the year 2011-12 (1st April 2011 to 31st March 2012), comparative amounts need to be given for the financial year 2010-11.
3.4. ICAI had earlier issued the Statement on the Amendments to Schedule VI to the Companies Act, 1956 in March 1976 (as amended). Wherever guidance provided in this publication is different from the guidance in the aforesaid Statement, this Guidance Note will prevail.
3.5. Applicability of the Revised Schedule VI format to interim financial statements prepared by companies in the first year of application of the Schedule:
Relevant paragraphs of AS-25 Interim Financial Reporting are quoted below:
“10. If an enterprise prepares and presents a complete set of financial statements in its interim financial report, the form and content of those statements should conform to the requirements as applicable to annual complete set of financial statements.
11. If an enterprise prepares and presents a set of condensed financial statements in its interim financial report, those condensed statements should include, at a minimum, each of the headings and sub-headings that were included in its most recent annual financial statements and the selected explanatory notes as required by this Statement. Additional line items or notes should be included if their omission would make the condensed interim financial statements misleading.”
3.6. Accordingly, if a company is presenting condensed interim financial statements, its format should conform to that used in the company’s most recent annual financial statements, i.e., the Old Schedule VI. However, if it presents a complete set of financial statements, it should use the Revised Schedule VI, i.e., the new format applicable to annual financial statements.
3.7. The format of Balance Sheet currently prescribed under Clause 41 to the Listing Agreement based on the Old Schedule VI is inconsistent with the format of Balance Sheet in the Revised Schedule VI. Till Clause 41 is revised, this issue to be addressed by companies as explained below :
3.7.1. Clauses 41(I)(ea) and 41(I)(eaa) to the Listing Agreement regarding presentation of Balance Sheet items in half-yearly and annual audit results, respectively states as under:
“(ea) As a part of its audited or unaudited financial results for the half-year, the company shall also submit by way of a note, a statement of assets and liabilities as at the end of the half-year.
(eaa) However, when a company opts to submit un-audited financial results for the last quarter of the financial year, it shall, submit a statement of assets and liabilities as at the end of the financial year only along with the audited financial results for the entire financial year, as soon as they are approved by the Board.”
3.7.2. Further, Clause 41(V)(h) regarding format of Balance Sheet items states as under:
“(h) Disclosure of balance sheet items as per items (ea) shall be in the format specified in Annexure IX drawn from Schedule VI of the Companies Act, or its equivalent formats in other statutes, as applicable.”
Based on the above:
Sheet items, in case of half-yearly results of a company, it has prescribed a specific format for the purpose. Hence, till the time a new format is prescribed by the Securities and Exchange Board of India (SEBI) under Clause 41, companies will have to continue to present their half-yearly Balance Sheet based on the format currently specified by the SEBI.
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