On 24 March, 2021, the Ministry of Corporate Affairs (MCA) revised or amended the requirements of Schedule III. The latest amendment is made with an objective of enhancing the existing disclosure requirements while preparing the financial statements of a Company. Though there are amendments in all three segments or divisions, this article focuses on key developments in Division II to Schedule III of the Companies Act, 2013.
The amendments in Division II have been further classified into three categories:
A) DISCLOSURES ON THE FACE OF BALANCE SHEET
There are three changes on the face of Balance sheet. These are:
- Current maturities of long-term borrowings [Regrouping from Other Financial Liabilities to Borrowings] - Prior to amendments, 'Current maturities of long-term borrowings' were part of 'Other Financial Liabilities'. Pursuant to amendments, these are to be shown as part of 'Current Borrowings'.
- Security Deposit [Regrouping from Loan to Other Financial Assets, both current and noncurrent] - Pursuant to amendments, 'Security deposits' are required to be disclosed under 'Other Financial Assets' as against 'Loans' prior to amendments.
- Lease Liabilities [Regrouping from Other Financial Liabilities to Lease Liabilities, both current and non-current] - 'Lease Liabilities', which were a part of 'Other Financial Liabilities' prior to the amendments, will be shown separately on the face of the Balance sheet under 'Financial Liabilities' both under current and non-current liabilities.
B) DISCLOSURES IN ALIGNMENT WITH CARO REQUIREMENTS
Few amendments in Schedule III is made to align with the disclosures requirements of Companies (Auditor's Report) Order, 2020 (CARO 2020). This will facilitate the auditors in reporting CARO 2020, as they are also required to report similar matter in their Audit Report.
| Disclosures in Notes in alignment with CARO | Relevant Clauses in CARO 2020 |
| Details of immovable property (other than properties where the Company is the lessee and the lease agreements are duly executed in favour of the lessee) where title deeds are not held in the name of the Company in a specified format. | Reporting on Property, Plant & Equipment [Clause – 3(i)(c)] |
| In case if fair valuation of investment property is carried out, disclosure is required whether the fair value of investment property is based on the valuation by registered valuer as defined under rule 2 of Companies (Registered Valuers and Valuation) Rules, 2017. | Reporting on Property, Plant & Equipment [Clause – 3(i)(c)] |
| In case if revaluation of Property, plant and equipment & intangible assets is carried out, disclosure is required whether the revaluation is based on the valuation by registered valuer as defined under rule 2 of Companies (Registered Valuers and Valuation) Rules, 2017. | |
| Where revaluation of property, plant and equipment and intangible assets is carried out, separate disclosure is required in reconciliation of gross carrying amount and net carrying amount if the amount of revaluation exceeds 10% of net carrying amount of such class of asset. | Reporting on Property, Plant & Equipment [Clause – 3(i)(d)] |
| Loans and advances in nature of loans to promoters, directors, KMPs and related parties: Disclosure is required if loans and advances in nature of loans are repayable on demand or are given without specifying any term or period of repayment in a specified format. | Reporting on Loans given by Company, Loans to Director [Clause – 3(iii) and 3(iv)] |
| Where the company has not complied with the number of layers of investment prescribed under clause (87) of section 2 of the Act read with the Companies (Restriction on number of Layers) Rules, 2017, the name and CIN of the companies beyond the specified layers and the relationship or extent of holding of the company in such downstream companies shall be disclosed. | Reporting on Investments, loans and advances given [Clause – 3(iv)] |
| Any income which the Company has not been recorded but which arises during the course of Income Tax assessment or other tax assessments, shall be disclosed unless any scheme exempts this disclosure. Also, any previously unrecorded income or assets have been properly recorded in the books of accounts. | Reporting on Transactions not recorded [Clause – 3(viii)] |
| The amendment requires a disclosure if the Company has been declared as a "willful defaulter" by any bank, financial institution or other lender about date of declaration and details of defaults. | Reporting on Repayment of Loan [Clause – 3(ix)(b)] |
| Utilisation of borrowed funds: Where funds are given/received by a Company which are to be given as loan, investment, security or guarantee to a third company via an intermediary company to the ultimate beneficiary, the Company & the intermediary company shall make a disclosure of details of funds exchange, details of ultimate beneficiaries & compliance with FEMA & PMLA. | Reporting on Repayment of Loan [Clause – 3(ix)(c)] |
| If any proceedings has been initiated or pending against the Company under the Benami Transactions (Prohibition) Act, 1988, the Company shall disclose the details of property, amount, beneficiary details, whether it is recorded in the books of accounts or not, nature of proceedings and company's view on the same. | Reporting on Property, Plant & Equipment [Clause - 3(i)(e)] |
| If funds borrowed from banks and financial institutions are not used for the specified purpose for which they are raised, disclosure of where the funds have been used is required to be made. | Reporting on Repayment of Loan [Clause – 3(ix)(c)] |
| For CSR expenditure, in case of shortfall, details of shortfall for current year and cumulative shortfall amount are to be given along with reasons thereof. | Reporting on CSR [Clause - 3(xx)] |
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Originally published October 2021
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