The Ministry of Corporate Affairs (MCA) has modified certain rules of the Schedule III of the Companies Act, 2013 with regard to aspects such as accounts, audits and auditors. The newly introduced amendments make way to increased disclosure requirements and intend to ensure more transparency to the process. As per the announcement by the Ministry, these modifications will be in effect from the 1st of April, 2021.

Now, before we get into learning the changes, let us know the role of Schedule III of the Companies Act, 2013.

Schedule III of the Companies Act, 2013

Schedule III of the Companies Act, 2013 consists of the general set of guidelines that one needs to follow for the preparation of a balance sheet and the profit and loss statement of a company.  

Given below are some of the significant updates made to the Schedule III of the Companies Act, 2013.

Companies Need to Round off the Figures in the Financial Statements

From the 1st of April, 2021, the companies have to round off the figures in the financial statements, which, previously, was optional for the users. Moreover, this rounding-off process will be based on “total income” in the place of “turnover”. 

Companies Have to Disclose the Shareholding of Promoters

The spot of Share Capital in the financial statements will now keep a note of all the Shareholding of the Promoters besides the changes. The changes, if any, will be the ones under evaluation during the financial year, with effect from the 1st of April.

Current Maturities of Long Term Borrowings will have to be Disclosed Separately

As per the changes, the current maturities of long-term borrowings during a financial year will have to be disclosed separately. It needs to be presented under “Short Term Borrowings” instead of “Other Current Liabilities”. 

Trade Payables and Receivables Ageing Schedule has to be Provided

The record of trade payables due for payment on the company’s side will comprise an ageing schedule. This modification is said to affect the unresolved lawsuits under Section 9 of the Insolvency and Bankruptcy Law, 2016. Hence, this disclosure will have an impact on litigation purposes. 

Likewise, the note of trade receivables by the Company will also consist of an ageing schedule.

Re-categorization of the Security Deposits

As per the amendment, security deposits maintained with the company shall be disclosed under the head “Other Non-Current Assets” instead of “Long Term Loans and Advances”.

Disclosure of the Purpose of Borrowings

The company will have to disclose the reason for utilizing the funds for a purpose different than the one for which the funds were borrowed. Moreover, the company will also have to clear on how the funds have been utilized. 

Company Needs to Disclose the Books of Accounts with Monthly or Quarterly Returns Filed with the Banker

In the cases of a company borrowing funds from financial institutions or banks in line with the Security of current assets, it will have to disclose the books of accounts to check if they are tallied with the quarterly or monthly returns filed with the banker. If not, a separate summary of reconciliations and the reason for material disparity has to be adequately disclosed.

Company will have to clear on the Details of all Immovable Properties

The company needs to disclose all the details of the immovable properties whose title deeds are not held by the company or if such an immovable property is co-owned. All details regarding the percent of the company’s share need to be specific. However, the immovable properties where the company is the lessee and the lease agreements have been clearly done in favour of the lessee will not fall under this category.

Disclosure Regarding Revaluation of Property Plant and Equipment 

If the concerned company has revalued its equipment, plant or property, it has to disclose if the revaluation done is in sync with the valuation by a registered valuer.

Company to Disclose Details Regarding Loans or Advances

The Company needs to make a disclosure regarding the loans or advances made to the directors, promoters, KMPs and other associated parties (as specified under the Companies Act, 2013), be it jointly or severally and are repayable on order or demand or without specifying a definite period for repayment.

Disclosure in regard to Capital-work-in-Progress

The company needs to disclose details regarding the Capital WIP ageing schedule and the Capital WIP in cases where the completion is late or the cost compared to the original plan has exceeded.

Disclosure on Tangible Assets

The disclosure on tangible assets will comprise the amount of change due for revaluation, provided the change is more than 10% or more than that in the average of the total carrying value of each class of tangible assets.

Disclose Details regarding any Proceeding Started or is Pending against the Company

If any proceeding has been initiated or is pending against the company for holding any Benami Property under the Benami Transactions (Prohibitions) Act, 1988, and its enlisted provisions, then, such disclosures need to be made.

Disclosure in Regard to Wilful Defaulter

If a company has been tagged a wilful defaulter by any bank or financial institution or other lenders, all details regarding such matter have to be disclosed.

Other Significant Changes

  • Disclosures regarding any transactions with a company that has been knocked off
  • In cases where charges are yet to be made to the Registrar of Companies past the Statutory period, such details and reasons to be disclosed.
  • Ratios such as (a) Current Ratio (b) Return on Equity Ratio (c) Trade Receivables Turnover Ratio (d) Debt-Equity Ratio (e) Inventory turnover ratio (f) Net capital turnover ratio (g) Return on investment (ROI) (h) Trade payables turnover ratio need to be disclosed
  • Disclosure needs to be made on the utilization of borrowed funds and the share premium also needs to be given
  • In case if the company has received funds from foreign companies or any person to further lend or for providing a guarantee or to invest, such details need to be disclosed.
  • When a scheme of arrangement has been approved, disclosures regarding that need to be made in the book of accounts and effective reasons should be provided for any deviations in the accounting standards.

Key Takeaway

Slated to be effective from the next financial year, that is, the 1st of April, 2021, there is hardly any time left to be updated with the new changes in the Schedule III of the Companies Act, 2013. Therefore, without wasting any more time, get into the details to save any future hassles. And, for more information, get in touch with FinGurus.