Ahlawat & Associates

Parliamentary Standing Committee approves the draft Digital Personal Data Protection Bill, 2022

Additional disclosures and Reporting in the Financial Statement and Board’s report

The Ministry of Corporate Affairs (“MCA”) through a gazette notification dated March 24, 2021 (“Notification”) amended the Schedule III of the Companies Act, 2013 (“Act”); Companies (Accounts) Rules, 2014 (“Account Rules”); and Companies (Audit and Auditors) Rules, 2014 (“Audit Rules”), (collectively referred to as “Amendments”) wherein the statutory auditor and the Board of Director (“Board”) of the company is required to make new disclosures and reporting while preparing the financial statement along with audit report and Board’s report respectively from the financial year 2021-22 and onwards. 

Under the Notification, under the amended Schedule III require companies to make additional disclosures pertaining to the shareholding of the promoters; proceedings under the Benami Transactions (Prohibition) Act, 1988; utilisation of borrowed funds and share premium; undisclosed income; defaults where a company is a declared wilful defaulter by any bank/financial; cryptocurrency or virtual currency, etc in their financial statement for the financial year under review. Companies must also disclose the details of any shortfall in corporate social responsibility (CSR) spending in the previous years with the reasons for failing to meet targets. Further, they will also have to disclose their relationship with struck off companies and the details of title deeds of immovable property not held in the name of their company. 

In addition to the above, the companies are required to disclose financial ratios such as current ratio, debt-equity ratio, debt service coverage ratio, return on investment etc. for the financial year under review for which the financial statement is prepared.

Further, the amendment under the Account Rules requires every company maintaining accounts electronically to use accounting software that has the feature to record audit trails of all transactions and creates an edit log of each change made in books of accounts with dates. This change aimed to prevent tampering of books of accounts will ensure the true and fair view of the books and accounts.

Further, the Board in their report is required to (i) disclose the status of the application filed by and/ or against the company including the status at the end of the financial year under the Insolvency and Bankruptcy Code, 2016; and (ii) the details of the difference between the amount of the valuation done at the time of one-time settlement and the valuation done while taking a loan from the banks or financial institutions along with the reasons.  This will ensure that the value of the books of the company is neither overrated at the time of obtaining a loan from banks/ financial institution nor undervalued at the time of settlement.

In addition to the above, the statutory auditor is now required to comment on whether the management has assured that no undisclosed funds or loans have been given to anyone or invested in any entity, including non-resident entities, with the written or unwritten understanding that the latter will lend to or invest in any entity on behalf of the company. This disclosure requirement also covers any guarantee given or received by the company. In nutshell, it requires the management of the company to give a representation that, except as otherwise disclosed in the notes to accounts, the company has neither employed nor is itself acting as a ‘conduit entity’ for any financial transaction. The statutory auditor is also required to disclose whether the dividend declared or paid by the Company is in conformity with Section 123 of the Act.

The Amendments are applicable to all companies incorporated under the Act irrespective of size and are effective from April 01, 2021.

Ahlawat & Associates
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