Financial Reporting Framework and Statutory Requirements
The hierarchy
Section 129 requires financial statements to give a true and fair view and comply with Schedule III. Section 133 empowers the Central Government to notify accounting standards; Ind AS applies to listed companies, unlisted companies above the prescribed turnover or net-worth thresholds, and their holding, subsidiary, joint venture and associate companies. Others follow the AS framework in Division I of Schedule III; Ind AS companies use Division II; NBFCs use Division III.
Mandatory statements
- Balance sheet, statement of profit and loss, cash flow statement, statement of changes in equity and notes - Section 129(1).
- Consolidated financial statements for companies with subsidiaries, associates or joint ventures - Section 129(3), with salient features of subsidiary accounts in Form AOC-1.
- Board's report under Section 134, auditor's report under Section 143, CARO 2020 for specified companies, and the secretarial audit.
Regulators to name
NFRA (Section 132) for standard-setting and oversight of listed and large unlisted companies; SEBI LODR Regulations 33 and 52 for listed entities; MCA for forms and exemptions.
Worked example
A company classified a ₹5 crore term loan as non-current although ₹1.5 crore is repayable in nine months, arguing it will refinance after year end. Schedule III Division II requires a liability to be current unless the entity has an unconditional right at the reporting date to defer settlement beyond twelve months. Refinancing intention does not create that right, so ₹1.5 crore is current. The error also distorts the current ratio and any covenant note.
Traps
- Presenting dividend or CSR as an expense where it is an appropriation or separate disclosure item.
- Omitting the Section 129(3) statement or AOC-1.
- Applying Division I formats to an Ind AS company.