Challenges – Transactions with Struck off Companies – Schedule III disclosure requirements

Transactions with Struck off Companies – Schedule
III disclosure requirements

        A.  Schedule III – As per new requirement of Schedule III, if your Company has any transactions with companies struck off under section 248 of the Companies Act, 2013 or section 560 of Companies Act, 1956, the financial statements of your Company shall carry required disclosure in the financial statements.

B.     Management’s responsibility –The Company should check if the MCA status of these parties is active or struck-off. For all such Companies identified as struck-off, the details of all transactions & balances should be disclosed in the financial statements (like RPT disclosure).

C.     Risk for Management – As it is a disclosure to be provided in the financial statements, following an approach of sample checks on the list of parties, will not be in compliance with the Schedule III.

D.    Challenge – Any Company with a reasonable volume of business, would have transacted with thousands of parties (vendors & customers). Each RoC issues a notification as and when a list of Companies is struck off, as such there will be numerous notifications issued by respective RoCs. Further, consolidated list of all such companies struck-off is not available in the public domain, contrary to which performing manual checks is a tedious and time-consuming task.

E.     Risk for auditors – Auditors can rely on the check performed by the management and perform a sample test. However, if management has performed a sample check, it poses the risk both to management and auditors.

 We have helped our clients in addressing this requirement with least efforts. 

  • Chartered Accountants, SGGK & Co LLP

Restatement – Business combination under common control

Restatement – Business combination under common control

Resolved – No requirement to present third balance sheet in case of business combination. ITFG Bulletin 22 date Oct 14, 2019– Issue 5.

If you have either faced the scenario of business combination under common control or have audited (applicable to me) such scenario, you would have wondered about the requirement of presenting third balance sheet. This was a questionable topic till there was a clarification from ITFG.

As per Para 9, Appendix C of Ind AS 103, financial information in the financial statements in respect of prior periods should be restated as if the business combination had occurred from the beginning of the preceding period in the financial statements, irrespective of the actual date of the combination.

By this clarification, ITFG has relieved industry from presenting third balance sheet, in case the business combination under common control has occurred after the first day of the comparative period. The requirement continues if the business combination was prior to the first day of the comparative period.

Though there is a clarification on this issue, we still see industry proposing for restatement and hence this attempt.

  • Chartered Accountants, SGGK & Co LLP