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Faqs on Consolidation of Financial Statements FAQs FAQs on Consolidation of Financial Statements Swati Rampuria Corporate Law Division [email protected] [email protected] May 22, 2015 Check at: http://india-financing.com/staff-publications.html for more write ups. Copyright: This write up is the property of Vinod Kothari & Company and no part of it can be copied, reproduced or distributed in any manner. Disclaimer: This write up is intended to initiate academic debate on a pertinent question. It is not intended to be a professional advice and should not be relied upon for real life facts. FAQs on Consolidation of Financial Statements 1. Are the Consolidated Financial Statements required to be attached with the Board’s report? Pursuant to Section 134 (1) of the Companies Act, 2013 (‘Act, 2013) standalone financial statements of the Company and consolidated financial statements of the Company and of its subsidiary or subsidiaries, associate company(s) and joint venture(s) (as per the explanation given under Section 129 (3) of the Act, 2013, the word ‘subsidiary’ shall also include associate company and joint venture) have to be attached with the Board’s report. Further, Clause 32 of the Listing Agreement states that the Company shall mandatorily publish consolidated financial statements in its Annual Report in addition to the individual financial statements. 2. Salient features of financial statements of the subsidiaries – is this required to be attached to the Board’s report/financial statements? Pursuant to first proviso to Section 129 (3) of the Act, 2013 read with Rule 5 of the Companies (Accounts) Rules, 2015, a Company shall along with its financial statements attach a separate statement containing the salient features of the financial statements of its subsidiary or subsidiaries in form AOC 1. 3. Salient features of financial statements i.e. AOC 1 of the Associates and Joint Ventures – is this required to be attached to the Board’s report/financial statements? As per the explanation given under Section 129 (3) of the Act, 2013, the word ‘subsidiary’ shall also include associate company and joint venture. Thus, a separate statement containing the salient features of the financial statements of a company’s joint venture and associate company is also required to be attached with its financial statements in form AOC 1. 4. What is the manner in which AOC 1 has to be signed? Is the auditor required to sign AOC 1? AOC 1 is to be signed in the same manner in which the balance sheet is to be certified. Manner of certification of financial statements is stated in 134 (1), wherein it is stated that financial statements is to be signed 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 CEO, if he is FAQs on Consolidation of Financial Statements a Director in the Company, the CFO and the CS of the Company. Thus, the auditor is not required to sign form AOC 1. 5. Are standalone financial statements of the subsidiaries required to be placed on the website of the company? Pursuant to fourth proviso to Section 136 of Act, 2013, separate audited accounts of subsidiaries have to be uploaded on the website of the Company. 6. Are the standalone financial statements of the Associates/Joint Ventures required to be placed on the website too? Pursuant to fourth proviso to Sec 136 of the Act, 2013, separate audited accounts of subsidiaries only have to be uploaded on the website of the Company. There is no requirement to upload the standalone financial statements of the Associates/Joint Ventures. 7. Are standalone financial statements of the subsidiaries/ associates/ joint venture required to be attached with the Board’s report? By virtue of Section 134 (1) of the Act, 2013 and Clause 32 of the Listing Agreement only consolidated financial statements of the Company and of its subsidiaries/ associates/ joint venture is required to be attached with the Board’s report. Thus, there is no requirement to attach the standalone financial statements of the subsidiaries/joint venture/ associates with the Board’s report of the Company. 8. Do auditors have to sign the consolidated financial statements too? Pursuant to Section 129 (4) of the Act, 2013 preparation, adoption and audit of the consolidated financial statements shall be done in the same manner as that of the holding company. Further, Clause 32 of the Listing Agreement also states that the company will have to get its consolidated financial statements audited by the statutory auditors of the Company. 9. Is the Board of the parent company required to sign the consolidated financial statements? FAQs on Consolidation of Financial Statements Pursuant to Section 134 (1) of Act, 2013 the consolidated financial statements shall be approved by the Board of the parent company as well. 10. Is every company (listed and unlisted), not having subsidiaries but having associates or joint ventures, required to consolidate its financial statements for F.Y. 2014-15? The MCA vide Companies (Accounts) Amendment Rules, 2014 dated 14 October, 2014 added the following proviso to Rule 6: Provided also nothing contained in this rule shall, subject to any other law or regulation, apply for the financial year commencing from the 1st day of April, 2014 and ending on the 31st March, 2015, 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, for the consolidation of financial statement in respect of associate companies or joint ventures or both, as the case may be. However, the exemption provided is of no relevance in case of a listed company as pursuant to Listing Agreement a listed company will have to account for investments in associates irrespective of it having subsidiary or not and also account for investment in the associates and the joint ventures in the manner as prescribed in the Accounting Standard. Further, in case of an unlisted company there is no question of consolidation unless there is a subsidiary. 11. Is every unlisted company having subsidiaries required to consolidate for F.Y. 2014-15? Yes, exemption is only for the Companies not having subsidiaries. Refer Ques 10. 12. Auditor’s report on consolidated financial statements should be addressed to whom? In the present regime of Act, 2013, Section 129(3) requires a company having subsidiary(s) to prepare consolidated financial statement of all the subsidiary(s) in the same form and manner as that of its own and to lay such consolidated financial statement before the Annual General Meeting of the company for adoption. FAQs on Consolidation of Financial Statements Further, Section 143(2) of Act, 2013 explicitly states that the auditor’s report on every financial statement shall be made to the members of the company. Since, Section 129 (4) of the Act, 2013 requires the company having subsidiary(s) to prepare, get audited and adopt the consolidated financial statement in the same manner in which the standalone financial statement is prepared, audited and adopted, the consolidated financial statement shall henceforth be addressed to the members of the company in line with the addressee to the auditor’s report for standalone financial statement. 13. Are consolidated financial statements required to be filed with the Registrar? Section 137 of the Act, 2013 states that the financial statements, including consolidated financial statements shall be filed with the Registrar in AOC 4 within 30 days of the date of Annual General Meeting. Read articles on: 1. Presentation on Secretarial Standards 1 & 2 at : http://www.india- financing.com/images/Secretarial_Standard_1_and_2_- _Vinod_Kothari.pdf 2. Understanding the date of applicability of Secretarial Standards at : http://www.india- financing.com/images/Understanding_the_date_of_applicability_of_Secret arial_Standard.pdf 3. FAQs on sec 167 (1)(b) of Companies Act, 2013 at: http://www.india- financing.com/images/Articles/FAQs_on_section_167_1_b.pdf 4. Read other articles on Companies Act, 2013 at: http://www.india- financing.com/component/content/article/281.html .
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