Amendments in Schedule III to the Companies Act, 2013

Amendments in Schedule III to the Companies Act, 2013

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Amendments in Schedule III to the Companies Act, 2013

Amendments in Schedule III to the Companies Act, 2013 were introduced on March 24, 2021, to improve the quality and reliability of financial statements. Some new disclosures were also added to Schedule III, such as disclosures about promoter shareholding and subsidiaries, reconciliation of statements filed with banks for working capital, Benami transactions, loans to promoters, etc. The amendments to Schedule III were applicable from 1st April 2021.

Synopsis of Amendments in Schedule III to the Companies Act, 2013

The Ministry of Corporate Affairs with a view of transparency and disclosure, made significant amendments in Schedule III to the Companies Act, 2013 by directing the Companies/Statutory Auditors to provide additional details of certain transactions in the Balance Sheet/Profit & Loss Account/Schedules on Balance Sheet/Profit & Loss Account.

These changes were made applicable with effect from 01-04-2021 i.e. Companies/Statutory Auditors have to incorporate these amendments in the financial statements for the period ended 31-03-2022.

Schedule III of Companies Act, 2013

Schedule III provides a general reporting format of financial statements to make uniformity in financial statements. It is divided into three parts, that is, Division I, Division II, and Division III.

  • Division I applies to entities preparing their financial statements as per the Companies (Accounting Standards) Rules, 2006;
  • Division II applies to entities preparing their financial statements as per the Companies (Indian Accounting Standards) Rules, 2015; and
  • Division III applies to non-banking financial institutions preparing their financial statements as per Ind AS.

Amendments in Schedule III

A brief snippet of the amendments in Schedule III to the Companies Act, 2013 is as follows:

Shareholding of Promoters

As compared to an earlier version of Schedule III of Companies Act, 2013, the entities shall now disclose the shares held by the promoters at the end of the financial year and % change during the year in notes to accounts in tabular format as mentioned in the Schedule:

Rounding Off

The companies must round off the figures appearing in the financial statements based on ‘Total Income’. Earlier this provision was optional and round-off was done based on ‘Turnover’.

Short Term Borrowings

From 1 April 2021 onwards, the current maturities from long-term borrowings are required to be separately disclosed in the financial statements.

Trade Payables Due For Payments

As per the earlier version of Schedule III of the Companies Act, 2013 aging schedule for only receivables was made. As per the Amendments in Schedule III to the Companies Act, 2013, it shall be prepared for trade payables also which are due for payment, in a tabular form, whether or not, the due date of payment is specified on the bill. However, unbilled dues shall be separately disclosed.

On the signing page of the Balance Sheet, under the heading TRADE PAYABLES, the Company/Auditor need to disclose the following details:

  • Total outstanding dues to MSME
  • Total outstanding dues to other creditors

Forgiving disclosure of the same, the Company/Auditor is required to check the status of the creditor under MSME and need to obtain an MSME registration certificate from the respective creditor.

Disclosure for Tangible and Intangible Asset

At the beginning and end of the reporting period, a reconciliation of the gross and net carrying amounts of each class of assets showing additions, disposals, acquisitions through business combinations, amount of change due to revaluation and other adjustments, and the related depreciation and impairment losses or reversals shall be disclosed separately, if the changes are 10% or more in each class of asset.

On the signing page of the Balance Sheet, the name of the heading- Tangible Asset shall be replaced with a new heading- Property, Plant, and Equipment. Further, separate details of Intangible Asset to be provided after the heading Property, Plant and Equipment.

Trade Receivables outstanding

The aging schedule shall be prepared for trade receivables in a tabular form in a manner as notified by MCA, the due date of payment is specified on the bill. However, unbilled dues shall be separately disclosed.

Borrowing from Banks and Financial Institutions

On a balance sheet date, the companies shall disclose the details of those funds which were borrowed from banks and financial institutions for a specific purpose.

Title deeds of Immovable Property

The companies have to give the details of all those immovable properties whose title deeds are not in the name of the company, except those immovable properties in which the company is lessee and lease agreement is executed.

Loan Granted to Promoters, Directors, KMPs, and the Related Parties

The company shall disclose all the loans and advances like loans granted to promoter director and KMPs and related parties, severally or jointly with any other person either repayable on-demand, without specifying any terms or period of repayment.

Benami Property

Company shall disclose all the Benami property in which proceedings have been initiated or pending against the company for holding any Benami property under the Benami Transactions (Prohibition) Act, 1988 and rule made thereunder, disclosures shall be made in the manner prescribed.

The Company shall disclose the following:

  • Details of such property including a year of acquisition
  • Amount
  • Details of Beneficiaries,
  • If the property is in the books, then reference to the item in the Balance Sheet
  • If the property is not in the books, then the fact shall be stated with reasons
  • Where there are proceedings against the Company under this law as an a better of the transaction or as the transferor then the details shall be provided
  • Nature of proceedings, the status of same and Company’s view on same
  • Willful Defaulter

If any company is declared as a willful defaulter by the bank or financial institution or any other lender then disclosures shall be made by the company in the manner prescribed.

Ratios

Companies shall disclose all those ratios which are prescribed and shall explain the items included in the numerator and denominator for computing the above ratios. Moreover, if any change in the ratio is more than 25% as compared to the preceding year then the explanation for the same shall be provided.

  • Current Ratio
  • Debt-Equity Ratio,
  • Debt Service Coverage Ratio
  • Return on Equity Ratio,
  • Inventory turnover ratio,
  • Trade Receivables turnover ratio,
  • Trade payables turnover ratio
  • Net capital turnover ratio
  • Net profit ratio
  • Return on Capital employed
  • Return on investment

Undisclosed income

If a company has surrendered or disclosed any income under the relevant provisions of the Income Tax Act and which are not disclosed earlier shall be disclosed in the books of accounts, unless there is immune impact.

Corporate Social Responsibility

If a company falls under section 135 of the Companies Act, 2013, then disclosure shall be made in the manner prescribed in Schedule III to the Companies Act, 2013.

  • The auditor needs to give disclosure of following in the Notes to Accounts
  • The amount required to be spent by the Company during the year
  • Amount of expenditure incurred
  • The shortfall at the end of the year
  • Total of previous years shortfall
  • Reason for shortfall
  • Nature of CSR activities
  • Details of related party transactions. E.g. contribution to a trust/society controlled by the Company about CSR expenditure as per relevant Accounting Standard

If a provision is made concerning a liability incurred by entering into a contractual obligation, the movements in the provision during the year should be shown separately.

Crypto Currency or Virtual Currency

If any company has traded or invested in Cryptocurrency or Virtual Currency then the following disclosures shall be made in the financial statements:-

  • Profit and loss made from cryptocurrencies.
  • Amount of currency held at the reporting date.
  • Deposit or advance has taken from any person for trading or investment in crypto

Amendments in Schedule III and CARO 2020

The majority of the modifications made in Schedule III and CARO 2020 were to match the two reporting frameworks and improve transparency between the company and the users of financial statements. It further enabled the reduction of the risk of fraud and other unethical behavior on part of the companies.

CARO 2020 provides a para-wise commentary on Companies (Auditor’s Report) Order. It is a complete guide on the applicability and the matters that need to be reported by an Auditor on CARO, supplemented by Clause-wise Ready Reckoner, FAQs, Case Studies, in a Nutshell, etc.

For more details on Companies (Accounts) Amendment Rules-2020, click here

To comply with all these amendments, the Company/Auditor needs to check every aspect of financial transactions thoroughly and needs to incorporate these amendments in the financials of 31-03-2022 onwards

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