Laws of work say that 90 per cent of a project takes 10 per cent of the time. The remaining 10 per cent takes 90 per cent of the time. In the case of the Companies Bill — drafted in 2009, the remaining 10 per cent is taking forever. It is reported that the Bill, conceived to cleanse and condense a complicated Companies Act, 1956, may not be tabled before Parliament; this session having lost half the time due to non-functioning has more pressing matters such as the Finance Bill 2011 to tackle in the second half. This is ironical considering the fact that close on the heels of announcing 35 Converged Indian Accounting Standards, a new Schedule VI has been drafted.

Revised Schedule VI

For a corporate entity, Schedule VI is the equivalent of the Accounting Constitution. Initial reports suggested that the revised Schedule would apply to all entities, but a detailed look at the Schedule seems to suggest that it could only apply to entities that need to follow the Converged Indian Accounting Standards.

This could immediately spring a question whether one could have two Schedules under the same Act. When one can have multiple accounting standards, why not two Schedules? The stand-out feature in the Revised Schedule is the requirement to segregate both assets and liabilities into Current and Non-Current- a requirement that IFRS swears by.

The 12-month benchmark identified by IFRS standards to distinguish between current and non-current has been followed in the revised Schedule.

Another give-away that the Schedule would apply only to CIAS entities is the use of the term “Cash and Cash Equivalents”. The requirements for the Notes on Accounts almost match the words of IAS 1 word-for-word — notes to accounts shall contain information in addition to those presented in the Financial Statements and shall provide where required (a) narrative descriptions or disaggregations of items recognised in those statements and (b) information about items that do not qualify for recognition in those statements as do the mandate to cross-reference each line item in the financial statements with the Notes and vice-versa.

Significant departures

There are detailed Explanations to be given for each item in the Notes on Accounts which marks a significant departure from the earlier Schedule by focusing on financial reporting than accounting. Schedule VI regulars can decipher a significant omission on the Application of Funds — Miscellaneous Expenditure which was a misnomer and found itself filled, incurred losses not finding a place in the Schedule.

An Explanatory Note clarifies that losses would have to be prefixed with a negative sign under Reserves and Surplus. Perhaps the only proposal that it could apply to all companies is the necessity to disclose proposed dividends which IFRS ignores for accounting. Defaults in servicing loans or repaying them would also need to be disclosed separately. A welcome step is the dilution in the disclosures on quantitative information. Almost all line items in a Balance-Sheet are broken up into their significant constituent elements and disclosed separately. Though not specifically stated in the Schedule, entities would do well to remember the IFRS-diktat that a wrong accounting policy cannot be rectified by a disclosure in the Notes on Accounts.

Income Statement

The Revised Schedule does not intend following IFRS terminology such as Statement of Financial Position and Income Statement for the twin pillars of financial statements. The Statement of Profit and Loss has a new look and expenses can be classified on the basis of the nature of expense. The Revised Schedule requires comparatives to be disclosed but lacks transitional provisions. Would the general statement “previous year's figures have been regrouped/reclassified wherever necessary” suffice? As expenses would now be classified by function, it would probably be logical to restate the comparatives on the basis of function. Specific rounding off instructions based on turnover find a place in the Schedule.

Companies Bill 2009

Looked at holistically, the revised Schedule VI appears to complement the CIAS and comprises only a small element of the Companies Bill. The Bill has other significant amendments which need to be enacted statim. Much water has flown down the Yamuna since 2009. Routine Parliamentary administrative delays cannot hold up a major enactment ad infinitum. With all the groundwork having been completed by the Ministry of Corporate Affairs (MCA) and the possibility of a major objection or demand for a joint parliamentary probe into the proposed Companies Bill non-existent, the Bill should simply be tabled. Approval will follow soon enough.

(The author is a Bangalore-based chartered accountant.)

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