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Amendment to Schedule III to the Companies Act, 2013
The Ministry of Corporate Affairs notified amendments to Schedule III of the Companies Act, 2013. These amendments shall be applicable from 1 April 2021 and will enable comprehensive disclosure and facilitate in bringing about a higher degree of transparency to financial reporting.
Presented hereunder is an overview of the key amendments of the notification summarized in bullets for your quick reference:
- Disclosure of shareholding of promoters to form a part of Share Capital disclosures and shall include
- Name of Promoter
- Number of Shares
- % of Total Shares
- % Change during the years
- Current maturities of long-term debt to be disclosed separately under the heading ‘short term borrowings’
- Aging Schedules for
- Trade payables classifying amounts payable to Micro Small and Medium Enterprises (MSMEs), Others, Disputed MSMEs, and Disputed Others with age brackets of 1 year, 1-2 years, 2-3 years, and more than 3 years
- Trade Receivables classifying amounts receivable from undisputed trade receivables considered good, undisputed trade receivables considered doubtful, disputed trade receivables considered good, and disputed trade receivables considered doubtful with age brackets of 1 year, 1-2 years, 2-3 years, and more than 3 years
- Capital Work in progress
- Classified as projects in progress and projects temporarily suspended with age brackets of less than 1 year, 1-2 years, 2-3 years, and more than 3 years
- For projects, whose completion is overdue and have exceeded its cost compared to the original plan with an age bracket of less than 1 year, 1-2 years, 2-3 years, and more than 3 years
- Intangible Assets under development
- Classified as projects in progress and projects temporarily suspended with age less than 1 year, 1-2 years, 2-3 years, and more than 3 years
- For projects, whose completion is overdue and have exceeded its cost compared to the original plan with age less than 1 year, 1-2 years, 2-3 years, and more than 3 years
- Detailed information of title deeds of immovable property not held in the name of the company disclosing:
- Relevant line item of the immovable property in the balance sheet – PPE, Investment Property, PPE retired from active use and held for disposal, others
- Description of the item of property
- Gross carrying value
- Name of the holder of the title deeds
- Whether the holder of the title deeds is a promoter, director, or relative of promoter/director, an employee of promoter/director
- Property held since which date
- Reason for not being held in the name of the company
- Disclosure of 11 key financial and operation ratios along with a further explanation for any change in the ratio by more than 25% as compared to the preceding year
- Current ratio
- Debt-Equity ratio
- Debt service coverage ratio
- Return on equity ratio
- Inventory turnover ratio
- Trade receivables turnover ratio
- Trade payables turnover ratio
- Net capital turnover ratio
- Net profit ratio
- Return on capital employed
- Return on investment
- Corporate Social Responsibility
- The amount required to be spent by the company during the year
- Amount of expenditure incurred
- The shortfall at the end of the year
- Total of previous years shortfall
- Reason for shortfall
- Nature of CSR activities
- Details of related party transactions, e.g., contribution to a trust controlled by the company in relation to CSR expenditure as per relevant Accounting Standard
- Where a provision is made with respect to a liability incurred by entering into a contractual obligation, the movements in the provision during the year should be shown separately
- Disclosure of lease liabilities (on account of Ind AS 116: Leases) as non-current liabilities and current liabilities based on them falling due for payment
- Disclosure of loans/advances made to Promoters, Directors, Key Management Personnel and Related Parties stating the amount of loan/advance and percentage of the same to the total loans and advances
- Details of Benami property held
- Reconciliation and reasons of material discrepancies, in quarterly statements submitted to bank and books of accounts
- Disclosure where a company is a declared wilful defaulter by any bank or financial Institution
- Company’s relationship with struck off companies
- Pending registration of charges or satisfaction with Registrar of Companies
- Compliance with number of layers of companies
- Details of cryptocurrency or Virtual Currency
- Compliance with approved Scheme(s) of Arrangements
- Utilization of borrowed funds and share premium
- Details of transaction not recorded in the books that have been surrendered or disclosed as income in the tax assessments
- Reconciliation of the gross and net carrying amounts of each class of assets
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Our Comments
Comprehensive disclosures provide a cushion of relief to investors and shareholders by enhancing the degree of trust they have in an organization. The amendments disclose granularities in crucial blocks of the financial statements like equity and liabilities, and non-current assets. With an added layer of transparency to related party transactions and loans to directors and KMP, the amended Schedule III will strengthen the quality of financial reporting from 2020-21 onwards. A positive impact is expected on the quantum of inbound investments in India.
For the detailed notification, please click here
In addition to the above amendment, the MCA has mandated the following:
Mandatory use of accounting software having audit trail
Other matters to be included in the Auditor’s report
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