As the exemption from uniform financial year will depend on the consolidation requirement outside India, it appears that a company with a foreign parent will be more eligible than one that has only foreign subsidiaries.

With the passing of Companies Bill 2012, all companies will have April 1 to March 31 as their financial year. However, the Income Tax Appellate Tribunal may permit a company to follow a different financial year, if it is

a holding/ subsidiary of a foreign company; and

required to follow a different financial year for consolidation outside India.

As the exemption will depend on the consolidation requirement outside India, it appears that a company with a foreign parent will be more eligible than one that has only foreign subsidiaries. Also, it appears that a company that is an associate/ joint venture of a foreign company, or has only an associate/ joint venture outside India will not be eligible for exemption.

This despite the fact that associates and joint ventures should also be included in consolidation. It is believed that alignment of the financial year for all companies may result in significant advantages from a regulatory perspective, as it eliminates arbitrage opportunity between statutory accounts and tax accounts. It will also provide a sound basis for peer comparison of companies.

The Companies Bill will require the financial statements of all companies to be signed by, among others, the chief financial officer, if appointed. This is a significant change in the attestation requirements. Currently, the listing agreement for listed companies does not require CFOs to sign financial statements — rather, they have to certify to the Board that the financial statements are free of material misstatements. Going forward, the CFO will have to attest financial statements in all companies. By signing the financial statements, the CFO will assume more onerous responsibility to ensure true and fair view.

All companies, including unlisted, that have one or more subsidiaries will have to upload on their Web site (if any) separate audited accounts for each of the subsidiaries. They should also provide copies of the separate audited statements for subsidiaries to shareholders who want them.

The language suggests that a company should have audited accounts for all subsidiaries, including foreign ones. This despite the fact that the subsidiary may not need to have its accounts audited under local laws. Undoubtedly, the audit of subsidiary accounts will increase their reliability. However, it may also have cost implications. To avoid confusion, the Ministry of Corporate Affairs should clarify.

The Companies Bill will require all companies that have one or more subsidiaries to prepare consolidated financial statements (CFS) in addition to separate financial statements (SFS). Unlisted companies, in particular, should gear up for this, as they are currently not required to prepare CFS. Also, companies should provide complete disclosures, including statutory disclosures required under Schedule III, in the CFS — at present, AS-21 exempts companies from it. The collection of statutory information for foreign subsidiaries may be challenging.

Currently, AS-3 exempts small- and medium-size companies from preparing cash-flow statements. Under the Bill, such exemptions will be available to a one-person company, small company, and dormant company. There are differences between the requirements of the two pronouncements. In case of conflict, companies have to follow the more stringent requirement. Hence, more companies, including those with turnover ranging from Rs 2 crore to Rs 50 crore, should prepare cash-flow statements. As the Companies Bill does not lay down any format for cash-flow statement, companies will follow AS-3 for it.

Senior professional in a member firm of Ernst & Young Global

(This article was published on April 7, 2013)
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