CONSOLIDATED FINANCIAL STATEMENT
CONSOLIDATED FINANCIAL STATEMENT
The 2013 Act mandates preparation of
consolidated financial statements (CFS) by all Companies, including unlisted
Companies, having one or more subsidiaries, joint ventures or associates.
Previously, the Securities and Exchange Board of India (SEBI) required only
listed Companies to prepare CFS. Mandating preparation of CFS is a step in the
right direction to align the reporting requirements to the international
reporting practices, since standalone financial statements do not present a
true picture from an economic entity perspective.
Consolidated financial statements
normally include consolidated balance Sheet, Consolidated statement of profit
and loss, and notes, explanatory material that form an integral part thereof,
and also consolidated cash flow statement (in case a parent present its own
cash flow statement). Consolidated financial statements are presented, to the
extent possible, in the same format as adopted by the parent for its separate
financial statement.
FAQ’S RELATING TO CONSOLIDATION ARE GIVEN AT THE END OF THE
ARTICLE
Objective of CFS:
A Move to Greater Transparency, The
Government of India, in its endeavor to enforce and raise compliance standards,
has legislated the Companies Act, 2013, the much required code for corporates
in India in line with the developments taking place worldwide and in order to
meet the growing demands of stakeholders towards greater transparency and ease
of understanding.
The Concept of CFS was brought with an
objective of achieving the true and fair view of reporting the position of the
company for the financial year, since the consolidated financial Statements are
generally considered as the primary financial statements from an economic
entity perspective, whereas the standalone Financial Statements projects only
the position of the company in its individual performance and it does not
provide the true and fair view to the shareholders about the overall
performance of the company with its subsidiaries.
Key compliance
requirements:
§ CFS is to be prepared and laid before
an AGM, in addition to SFS. Audited accounts of the listed companies, along
with those of the subsidiaries, have to be made available on the website.
§ Audited accounts of all of the
subsidiaries are required to be prepared and provided to shareholders on
request
Requirement of
Consolidation of Financial Statement:
Section 129 sub section 3 states that ‘Where
a company has one or more subsidiaries, it shall, in addition to financial statements provided under sub-section (2), prepare
a consolidated financial statement of the company and of all the subsidiaries
in the same form and manner as that of its own which shall also be laid before
the annual general meeting of the company along with the laying of its
financial statement under sub-section (2)’.
Explanation: — for the purposes of this sub-section, the word “subsidiary” shall
include Associate Company and Joint Venture.
Financial Statement: As per section 2
clause 40
“Financial Statement” in relation to a
company, includes—
a)
A balance
sheet as at the end of the financial year;
b) A profit and loss account, or in the
case of a company carrying on any activity not for profit, an income and
expenditure account for the financial year;
c) cash flow statement for the financial
year;
d) A statement of changes in equity, if
applicable; and
e)
Any explanatory
note annexed to, or forming part of, any document referred to in sub-clause (i)
to sub-clause (iv):
Associate Company:
“Associate Company”, in relation to
another company, means a company in which that other company has a significant
influence, but which is not a subsidiary company of the company having such
influence and includes a joint venture company.
“Significant Influence” means control of at least twenty per
cent. of total share capital, or of business decisions under an agreement.
Companies which have to consolidate its
Financial Statement:
§ Where a Company have one or more
subsidiary (ies).
§ Where a Company have Associate Company
(ies).
§ Where a Company have Joint Venture(s).
§ Where a Company have Foreign Subsidiary
(ies)
§ Where a Company have wholly owned
subsidiary.
§ Where a Company have Subsidiaries, Associates
and joint ventures all.
Applicability of
Provision of Companies Act, 2013
Manner of Preparation of CSF: As stated in Section 129 (4) the provisions of this Act
applicable to the preparation, adoption and audit of the financial statements
of a holding company shall, mutatis mutandis, apply to the consolidated
financial statements of the Company. The consolidation of financial statements
of the company shall be made in accordance with the provisions of Schedule III
of the Act and the applicable accounting standards (i.e. AS 21- Consolidated
Financial Statements, AS 23-Accounting for Investments in Associates in
Consolidated Financial Statements& AS 27-Financial Reporting of Interests
in Joint Ventures).
Presentation of Notes in CSF:
As per MCA General Circular No. 39/2014
dated 14th October, 2014
Government has received representations
from stakeholders seeking clarifications on the manner of presentation of notes
in Consolidated Financial Statement (CFS) to be prepared under Schedule III to
the Companies Act, 2013(Act). These representations have been examined in
consultation with the Institute of Chartered Accountants of India (ICAI) and it
is clarified that Schedule III to the Act read with the applicable Accounting
Standards does not envisage that a company while preparing its CFS merely
repeats the disclosures made by it under stand-alone accounts being
consolidated. In the CFS, the company would need to give all disclosures
relevant for CFS only.
It is clear from the above mentioned
circular that there is no need to repeat the disclosures relates to only stand
alone account of the Company. The would need to give all the disclosures
relevant for CSF Only.
Accounting
Standard:
In case of a company covered under
sub-section (3) of section 129 which is not required to prepare consolidated
financial statements under the Accounting Standards, it shall be sufficient if
the company complies with provisions on consolidated financial statements
provided in Schedule III of the Act.
According to Companies (Accounts)
Rules, 2014 the consolidation of financial statements of the Company shall be
made in accordance with the provision of schedule III to the Act and the
applicable accounting standards. However, a Company which is not required to
prepare consolidated financial statements under the accounting standards, it
shall be sufficient if the Company complies with provisions on consolidated
financial statements provided in schedule III of the Act.
Other:
The Consolidated financial statements
shall also be approved by the Board of Directors before they are signed on
behalf of the board, along with its own financial statements and shall also be
laid before the annual general meeting of the Company along with the laying of
its own financial statement.
Effective date of
applicability:
From Financial Year:
01.04.2014-31.03.2015
The provision of this section
applicable on all the Companies w.e.f. 01st April, 2014. Every
Company which falls under Section 129(3) requires preparing consolidated
financial statement along with stand alone statement for the financial year
commencing from 1st day of April, 2014 and ending on 31st
March, 2015.
Exceptions:
As there were no transitional
provisions for the Company preparing CSF for the First time therefore exemption
was given to below mentioned companies from preparation of consolidation
financial statement for the financial year commencing from 1st day
of April, 2014 and ending on 31st March, 2015.
i.
A company
having subsidiary or subsidiaries incorporated outside India only.
ii.
[1]In case of a company which does not
have a subsidiary or subsidiaries but has one or more associate companies or
joint ventures or both 9 for the consolidation of financial statement in
respect of associate companies or joint ventures or both, as the case may be.)
iii.
An intermediate
wholly-owned subsidiary Company incorporated in India would not be required to
prepare CFS. The requirements, however, remain unchanged for those intermediate
wholly-owned subsidiary Companies whose immediate parent is a Company
incorporated outside India.
Example on Point no III
Only A will prepare CFS.
A & B will prepare CFS. B
will prepare CFS.
FAQ’s
Who will prepare the
Consociated Financial Statement?
As stated in Section 129 It is duty of
the Parent Company (Management) to prepare the consolidated financial statement
of the company and laid the same before the Annual General Meeting along with
Stand alone financial statement.
What are the provisions
in relation to audit of the consolidated Financial Statement of the Company?
As stated in Section 129 the provisions of this Act relating to
audit applicable on holding company shall, mutatis mutandis, apply to the consolidated
financial statements of the Company.
Therefore, all the provision of Audit applicable to stand alone
financial statement will be applicable on audit of consolidated financial
statements.
In determining control,
whether potential equity shares (eg option, convertible bonds, debentures etc)
need to be considered?
The potential equity shares of the
investee held by the investor should not be taken into account for determining
the voting power of investor.
Who will audit the
consolidated Financial Statement of the Company?
There could be two situations in an
audit of consolidated financial statements- when the parent’s auditor is also
the auditor of all the components to be included in the consolidated financial
statements and when the parent’s auditor is not the auditor of one or more
subsidiaries and therefore uses the work of other auditor in the audit.
The Auditor of the consolidated
financial statements may not necessarily be the auditor of the separate
financial statements of the parent or one or more of the components included in
the consolidated financial statement.
If a Company have more
than one Subsidiary then whether both the Parent Company will consolidate the
account of Subsidiary?
A Company can be subsidiary of two
Companies. If more than 50% of paid up share capital is hold by one Company and
another Company control the composition of Board of Directors.
In such cases, both parents to
consolidate the same subsidiary
If Company (A) is
subsidiary of another Company (B) on 29.03.2014 but not the subsidiary as on
31.03.2015 whether for the financial year ended 31.03.2015 Company (B)
consolidate the account of Company (A)?
For the purpose of consolidate of
financial statement relation of holding and subsidiary will be considered as on
31.03.2015. In the above situation A is not subsidiary on 31.03.2015 therefore
there is no need to prepare consolidated financial statement.
Whether need to
consolidate account of LLP?
First Situation: LLP as Joint Venture:
A joint venture is a contractual
arrangement whereby two or more parties undertake an economic activity, which
is subject to joint control.
If a Company enters into a joint
venture agreement with a LLP in which Company control more than 20% of business
decision. Such Joint venture LLP shall be consider as associate as per
definition of Section 2(6) of CA, 2013.
As a joint venture or associate there
is need to consolidate the accounts of such LLP with the Company.
Second Situation: LLP as Subsidiary:
·
As per
clause 87 of section 2 of CA, 2013 “subsidiary
company” or “subsidiary”, in relation to any other company (that is to say the
holding company), means a company in which the holding company exercises or controls more than one-half of the
total share capital either at its own or together with one or more of its
subsidiary companies.
· As per explanation of this definition: the
expression “company” includes anybody corporate.
· As per section 3 of LLP Act, LLP is Body Corporate.
Therefore, LLP as a Body Corporate fall under the
definition of Subsidiary. Therefore, Company required consolidating the
accounts of LLP.
[2](i)Whether
a company H ltd is required to consolidate its subsidiary which is a Limited
Liability Partnership (LLP) or a partnership firm?
(ii)
Would the answer be different if LLP is an associate or joint venture of H Ltd?
(i)As per rule 6 of Companies (Accounts) Rules, 2014, under the heading ‘Manner of consolidation of accounts’ it is provided that consolidation of financial statements of a company shall be done in accordance with the provisions of Schedule III to the Companies Act, 2013 and the applicable Accounting Standards.
(i)As per rule 6 of Companies (Accounts) Rules, 2014, under the heading ‘Manner of consolidation of accounts’ it is provided that consolidation of financial statements of a company shall be done in accordance with the provisions of Schedule III to the Companies Act, 2013 and the applicable Accounting Standards.
It is noted that relevant Indian Accounting Standard i.e., Ind AS 110, Consolidated Financial Statements provides that where an entity has control on one or more other entities, the controlling entity is required to consolidate all the controlled entities. Since, the word ‘entity’ includes a company as well as any other form of entity, therefore, LLPs and partnership firms are required to be consolidated. Similarly, under Accounting Standard (AS) 21, as per the definition of subsidiary, an enterprise controlled by the parent is required to be consolidated. The term ‘enterprise’ includes a company and any enterprise other than a company. Therefore, under AS also, LLPs and partnership firms are required to be consolidated.
Accordingly, in the given case, H ltd is required to consolidate its subsidiary which is an LLP or a partnership firm.
(ii) If LLP or a partnership firm is an associate or joint venture of H ltd, even then the LLP and the partnership firm need to be consolidated in accordance with the requirements of applicable Accounting Standards.
If Company A hold 35%
Equity Shares and 75% convertible preference share capital of Company B, then Whether
Company B shall be Subsidiary of Company A?
Definition of
Subsidiary: “subsidiary
company” or “subsidiary”, in relation to any other company (that is to say the
holding company), means a company in which the holding company exercises or
controls more than one-half of the
total share capital either at its own or together with one or more of
its subsidiary companies.
As per
Definition holding will be determine on the basis of total share capital
(equity + convertible preference). According to this Company B will be consider as subsidiary
of Company A and because of holding of 75% of convertible preference share capital Company
A required to prepare the consolidate financial statement including Company B.
What is the time period
for filing of CSF with the ROC?
As stated in
section 137(1) A copy of the financial statements, including consolidated
financial statement, if any, along with all the documents which are required to
be or attached to such financial statements under this Act, duly adopted at the
annual general meeting of the company, shall be filed with the Registrar within
thirty days of the date of annual general meeting.
A Company H ltd has no
subsidiaries, but has investment in an associate and a joint venture. Whether H
Ltd. is required to prepare consolidated financial statements for the year
ending March 31, 2016, in the context of Companies (Accounting Standards)
Rules, 2006.
Section 129 (3) of the Companies Act, 2013 provides that where a company has one or more subsidiaries, it shall prepare a consolidated financial statement of the company and of all the subsidiaries. Further, an Explanation to this sub section provides that the word “subsidiary” shall include associate company and joint venture.
In view of the above, in the given case, though H ltd does not have any subsidiary, it is required to prepare consolidated financial statements for its associate and joint venture in accordance with the applicable Accounting Standards, viz, AS 23, Accounting for Investments in Associates in Consolidated Financial Statements and AS 27,Financial Reporting of Interests in Joint Ventures, respectively.
Some Practical
questions:-
1)
D has 3
wholly-owned subsidiary who hold 30% each in P, but D has no holding in P. How
should P be consolidated?
D exercise
control over more than 50% of total voting power of P, indirectly through D’s
wholly-owned subsidiaries. Therefore, irrespective of whether or not A
exercises any direct control over the operations of P, D would have to
consolidate P directly as a subsidiary, in preparing its CFS.
2)
A Limited is
controlled by two enterprises; one control by virtue of ownership of majority
of the voting power and the other controls, by virtue of an agreement, the
composition of the Board of directors so as to obtain economic benefits from
its activities. Who should consolidate the accounts of A Limited?
In such rare
cases, both the controlling enterprises should consolidate the financial
statements of A Limited. Because A limited is subsidiary Company of both the
controlling enterprises.
3)
If Company A holds
50% shares of Company B. One another shareholder of Company B grants a power of
attorney to Company A for exercising voting power on his behalf at AGM. Whether
Company A required consolidating financial statement of Company B.
No, the power
of attorney doesn’t result in Company A controlling the ownership, directly or
indirectly through subsidiary (ies).
4)
If P is holding
60% in Q and Q is holding 60% in R and R is holding 25% in S then whether P and
Q will consolidate the accounts of S.
As per
Act R will consolidate account of S, Q will consolidate the accounts of R
(which already include S) and P will consolidate accounts of Q (which already
include Q,R,S). I am in favour that one
has to look at the group as one entity, since group is consolidated, S should
be consolidate.
5)
A has an 90%
interest in subsidiary B. A holds direct interest of 25% of C and B holds a 30%
interest in entity C. All shares have equal voting rights. Is company C a
subsidiary or an associate Company of A.
Company C is subsidiary of Company A. Company A
controls entity B and therefore, it controls (90%*30)= 27% voting power that B
hold over C. in addition, A itself has a 25% direct interest and relating
voting power, in entity C. Entity A’s total voting power in C is (25%+27%=52%).
Company A controls C and should therefore consolidate C as a Subsidiary.
Effective of Companies bill, 2016 on
Consolidation of Accounts:
I. Effect of Change in Definition of Subsidiary Company:
Definition of Subsidiary: “subsidiary
company” or “subsidiary”, in relation to any other company (that is to say the
holding company), means a company in which the holding company exercises or controls more than one-half of the total share capital
either at its own or together with one or more of its subsidiary companies.
Bill: The Bill recommended
that the term “Total Share Capital”
be replaced with the term ‘Total
Voting Power’, as equity share capital should be the basis for
determining holding/ subsidiary status.
Effect: This
would also prevent the occurrence of such a situation in which a preference
shareholder becomes the holding company under the Act, however, during
consolidation, the equity shareholder would show it as its subsidiary in its
books of accounts.
II. Effect of Change in Section 129(3):
Language of
Section: Where a company has one or more subsidiaries, it shall, in addition to
financial statements provided under sub-section (2), prepare a consolidated
financial statement of the company. Explanation.—for the
purposes of this sub-section, the word “subsidiary” shall include associate
company and joint venture.
Bill- The following
shall be substituted: Where a company has one or more
subsidiaries or associate companies, it shall, in addition to financial
statements provided under sub-section (2), prepare a consolidated financial
statement of the company
Effect: According to
the substitution joint ventures
will be excluding from the ambit of subsidiary for the purpose of consolidation
of accounts. But it will not effect that much because joint venture are still
include in the associate Company.
III. Effect of Change in Section 134(1) (Signing of Financial Statement):
Language of
Section: The financial statement, including consolidated financial statement, if
any, shall be approved by the Board of Directors before they are signed on
behalf of the Board at least by the chairperson of the company where he is
authorized by the Board or by two directors out of which one shall be managing
director and the Chief Executive Officer, if he is a director in the company,
the Chief Financial Officer and the company secretary of the company, wherever
they are appointed, or in the case of a One Person Company, only by one
director, for submission to the auditor for his report thereon
Bill- The following
shall be substituted: The financial statement, including
consolidated financial statement, if any, shall be approved by the Board of
Directors before they are signed on behalf of the Board at least by
the chairperson of the company where he is authorized by the Board or by two
directors out of which one shall be managing director, if any, and
the Chief Executive Officer, if he is a
director in the company, the Chief Financial Officer and the
company secretary of the company, wherever they are appointed,
Effect: As per the Bill, 2016, the CEO shall sign
the financial statements including the Consolidated Financial Statements
irrespective of the fact whether such CEO is also a director or not.
_________________________________________________________________________________
Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, I assume no responsibility therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not a professional advice and is subject to change without notice. I assume no responsibility for the consequences of use of such information. IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION WITH THE USE OF THE INFORMATION. This is only a knowledge sharing initiative and author do not intend to solicit any business or profession.
[1]
A company having no subsidiaries but only having associate
company (ies) and/or joint venture(s) is exempted from consolidation of
financial statement in respect of associate company (ies) and/or joint
venture(s) for the financial year commencing on or after 01.04.2014 and ending
before 31.03.2015.
[2]
Clarification by ICAI.The 2013 Act mandates preparation of
consolidated financial statements (CFS) by all Companies, including unlisted
Companies, having one or more subsidiaries, joint ventures or associates.
Previously, the Securities and Exchange Board of India (SEBI) required only
listed Companies to prepare CFS. Mandating preparation of CFS is a step in the
right direction to align the reporting requirements to the international
reporting practices, since standalone financial statements do not present a
true picture from an economic entity perspective.
F
Please see the exact defunition of total share capital
ReplyDeleteIts not equity + preference.... its equity + converttible preference..... while consolidation one need to check whether the holding is convertible preference or not..... otherwise consolidation is not required..... the actual definition of total share capital as per companies specification and definition rules...total share capital means EQUITY+ CONVERTIBLE PREFERENCE SHARES.... i think you have missinterpreted it.....
ReplyDeleteIts not equity + preference.... its equity + converttible preference..... while consolidation one need to check whether the holding is convertible preference or not..... otherwise consolidation is not required..... the actual definition of total share capital as per companies specification and definition rules...total share capital means EQUITY+ CONVERTIBLE PREFERENCE SHARES.... i think you have missinterpreted it.....
ReplyDeletePlease see the exact defunition of total share capital
ReplyDeleteJoint venture in form of Company shall be consider as a joint venture for consolidation as stated in Section 2(6)
ReplyDeletein which associate company include joint Venture Company.....
it it clearly mentioned that associate company include only joint venture Company
ReplyDeleteOr you can do this shortly after retaining an attorney. Those who sit with their attorneys and assist them with the inclusion of knowledge of their financial condition, plus their goals for post bankruptcy, will have a better idea of what to expect from the bankruptcy proceedings.
ReplyDeleteBankruptcy Education
Indeed, even the best organizations habitually require more money than they can acquire from a business bank. In any case, what is regularly ignored by numerous dealers is the opportunity to diminish their Visa administration and Visa handling costs while they get a shipper loan by means of Mastercard receivables financing and a working capital business credit. 13f
ReplyDeleteGreat share!
ReplyDeleteI love this bucket list and you know you're right. sand blasting machine manufacturer. We all have the same amount of hours in a day so put them to good use. We all have to start somewhere and your plan is perfect. I understand the way of the attractive to the customer with the products sand blasting machine.
Sand blasting machines like shot blasting machine, sand blasting machine, and grit blasting machines, Wood Working Machinery Dust Extraction unit, Abrasive Blasting Media and various others. Keep it works and share with us your latest information. My time will come but I know I'm on the right path.
They are similar to small communities that you own - check them out if you haven't already. It's all got a lot better than before!t. Value that list of thousands but I'll get there.
Thanks for sharing. Have a nice week ahead.
Visit at : www.gritblast.co.in
Also check
portable shot blasting machine
portable sand blasting machine
sand blasting cabinet
grit blasting cabinet
shot blasting cabinet
Regards,
Ankit Manawat.