Hello Sir On page 3.2 on your book it was written that no need to prepare CFS in case AS not apply but co act ask to make consolidation which seems contradictory to question 7 of ch 10 of PM. SO kindly guide for the same.
We have to analyse Sec 129 (3) / Rule 6 / Schedule III
Section 129 (3)
Says consolidated financial statements should be prepared along with standalone and it should be prepared in same manner as standalone (same format as standalone)
Proviso further explains that the Central Government may provide for the consolidation of accounts of companies in such manner as may be prescribed (that means they will bring rule for consolidation)
So we have rule 6 of the Companies (Accounts) Rules, 2014
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: (So rule says to follow AS for consolidation & Schedule III for additional disclosures regarding consolidation)
Rule also explains what if subsidiary is not consolidated ?
Provided that 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 (these same wordings are in PM also these are copied from rule)
Now it says for such circumstances follow Schedule III
Part III deals with consolidation which gives disclosure requirements such as % contribution of consolidated subsidiaries etc and asks to follow AS / Ind As for consolidation.
Further it also specifies following
An entity shall disclose the list of subsidiaries or associates or joint ventures which have not been consolidated in the consolidated financial statements along with the reasons of not consolidating.
Sec 129 (3) —> Rule 6 —> Schedule III —> Follow AS / Ind AS for consolidation purpose and give additional disclosures of schedule III.
For subsidiaries which are not consolidated , as per schedule III list should be given in notes to accounts along with reasons for the same.
If company acts says for consolidation go to AS 21, if it says no simply give disclosure for no consolidation. Further dont worry such subsidiaries are covered in following with all other subsidiaries
1. Included in form AOC 1, Salient features of subsidiary
2. Financial statements are available on website
3. Share holder can ask for financial statements
4. if its foreign subsidiary its financial statements are submitted to ROC
so there is no lack of information
I know till the stage we go to Schedule III.
Thanks for giving such an extensive knowledge and the way you make it understand is commendable.
so now can I conclude that CFS is mandatory for those companies which are covered by the AS or Schedule III?
Considering the AS-21 revised (Amended on 30/3/16) if an entity has associate and JV, then these entities are also required to prepare CFS. Such amendment aligns the requirement of Com Act, 2013 with AS.
AS never makes it mandatory for anyone to prepare consolidated financial statements, it only provides principles on how to do consolidation. It also says if you are doing consolidation follow us. Amendment in AS 21 simply means if you are doing consolidation of only Associate or only JV follow respective standards. This is line with company act.
Conclusion :- all companies are required to do consolidation except as exempted by company act 2013 or by AS 21 / 23 / 27 for such entities disclosure will be given in notes to accounts consisting list and reasons for not consolidating such subsidiaries.