Few mandatory disclosures as required by Companies Act 2013 in financial statement, effective from April 01, 2021.

Dear Company Owners / Directors,

Following are few provisions of The Companies Act 2013 which have been made applicable with effect from 01.04.2021 for companies whose financial statements are required to comply with the Accounting Standards and such financial statements should include these disclosures for the year ending 31.03.2022.

This is to be noted that the financial statement for the year ending 31.03.2022 should include the comparative figures of 31.03.2021 so it is better to get these figures / notes / disclosures ready for the year ending 31.03.2021 at the time of preparation of financial statement for the year ending 31.03.2021:

  1. Shareholdings of promoters: Name, number of shares, percentage of shares and percentage change during the year.

By this disclosure, the promoters who were not reporting the transactions in the income tax return may be traced easily from the books of accounts of the company.

  1. Ageing of trade payables: It has to be given in case of payables to msme, others, disputed dues to msme, disputed due to others ranging for the period from less than 1 year to more than 3 years.

This disclosure would identify the payables which are older than 3 years, the income tax officers may take a view that the amount outstanding older than 3 years are not actually payable to the parties and will be treated as income of the company itself.

  1. Ageing of trade receivables: Trade receivables have to be disclosed as undisputed and disputed and further the same are to be bifurcated to trade receivable considered goods and doubtful.

The company which are not booking their bad debts as losses and showing profits regularly would be exposed, their profits would be reduced drastically and their faith would be at stake in the eyes of bankers, creditors, other stakeholders by showing profits in the financial statement.

  1. Title deeds of immovable property of the company not held in the name of the company is also to be disclosed.
  2. Ageing of capital work in progress (CWIP) and intangible assets are to be disclosed with respect to projects in progress and projects temporarily suspended. Project wise details of CWIP and intangible assets are to be given where completion is overdue or has exceeded its cost.
  3. Valuation of assets is also to be disclosed in the financial statement of the company.
  4. Loan / advances to directors / KMP / related parties are to be disclosed, in my view such disclosure is also required to be made as per Accounting Standard-18, however the companies were not reporting it accurately, hence the provision might have been incorporated under the law itself to make it as a mandatory disclosure.
  5. Details of proceedings initiated / pending against the company under the Benami Transactions (Prohibitions) Act 1988 are to be disclosed.
  6. In respect of details of borrowing, the companies have to disclose whether quarterly returns / statement of assets filed by the companies with the bank are in agreement with the books of account. If the same are not in agreement with the books, summary of reconciliations and reasons thereof are to be disclosed.

This is an important aspect for those companies which have taken working capital loans from the banks and in most of the cases, the companies do not consider the stock statements submitted by it. Now these have to be checked thoroughly.

In my view, the companies should try to close the books of accounts on quarterly basis with all respects as it does regularly at the end of the financial year, otherwise in case of material discrepancies from the books, working capital may be affected.

  1. Details of wilful defaulter are also to be disclosed.
  2. Name of struck off company, nature of transaction with struck off company such as investment, receivable, payable, shares held etc, balance outstanding, relationship with struck off the company are to be disclosed.
  3. Details and reasons for not registering the registration of charges and satisfaction of charges beyond statutory period are to be mentioned.
  4. Compliances with number of layer of the companies are to be disclosed.
  5. Few ratios have been specified by the law, deviation of more than 25% from preceding year is also to be explained.
  6. Details of utilization of borrowed funds are to be disclosed.
  7. Where scheme of compromise or arrangement has been approved by competent authority under IBC law and in case of merger and demerger, the company shall disclose the arrangements in the books of account of the company in accordance with the scheme and accounting standards.
  8. Disclosure with respect to the undisclosed income as per Income Tax Act, 1961, few disclosures of CSR and crypto currency / virtual currency are also to be made.

This note has been prepared for making the business owners / shareholders / directors aware regarding the provisions of companies act. It is better to be prepared from the beginning of the financial year itself so that adverse reporting may not be made by the auditor just for lack of knowledge of the shareholders or directors.

Team – Intellex Strategic Consulting Pvt Ltd

Economiclawpractice.com, Intellexconsulting.com, Startupstreets.com, Sudheendrakumar.com

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