The financial industry in India has grown significantly in recent years, with companies and startups playing a crucial role in driving the country’s economic growth. However, with the increasing complexity of financial transactions and regulations, compliance with accounting standards has become more critical than ever before. This article will focus on understanding the Accounting Standards under the Companies Act, 2013, and provide insights into Schedules III.
The adoption of Accounting Standards is essential to ensure transparency and consistency in financial reporting. However, compliance with these standards can be a complex process, and companies may require expert assistance to ensure adherence to the guidelines provided by the Act. An e-filing expert can help companies maintain accurate financial records and file financial statements in compliance with regulatory authorities, providing timely and accurate filings.
Startups and companies need to be aware of the importance of maintaining compliance with relevant laws and regulations in the financial industry. Failure to comply with regulations can result in financial and reputational losses, which can be detrimental to a company’s growth and success. Therefore, companies must seek the assistance of e-filing experts to ensure compliance and maintain the trust and confidence of their stakeholders.
What are Accounting Standards?
Accounting Standards are a set of guidelines issued by the Institute of Chartered Accountants of India (ICAI) that provide a framework for companies to maintain financial records and prepare financial statements. These standards ensure transparency and consistency in financial reporting, making it easier for investors and other stakeholders to evaluate a company’s financial health.
The Companies Act, of 2013, mandates the adoption of Accounting Standards in the preparation of financial statements by companies. The Ministry of Corporate Affairs (MCA) has issued the Companies (Accounting Standards) Rules, 2021, which lays down the Accounting Standards applicable to companies in India.
Understanding Schedule III
The schedule guides the format and content of financial statements, including the classification and presentation of assets, liabilities, and equity. It also specifies the minimum information that must be disclosed in the financial statements.
General Instructions for Schedule III
The financial statements of your company must be planned and prepared in line with the principal Accounting Standards laid down by the Institute of Chartered Accountants of India.
Divisions under Schedule III:
Schedule III is divided into four parts, each dealing with a specific aspect of financial reporting. These divisions are as follows:
Division I – Balance Sheet: This section requires companies to disclose information about their assets, liabilities, and equity.
Division II – Statement of Profit and Loss: This section requires companies to disclose information about their revenues, expenses, and profits or losses.
Division III – Cash Flow Statement: This section requires companies to disclose information about their inflows and outflows of cash during a given period.
Division IV – Notes to Accounts: This section requires companies to provide additional information about their financial statements, including details about accounting policies, contingencies, and related party transactions.
Schedule III and MSMEs in India:
The schedule requires companies to disclose the age-wise analysis of trade receivables and payables. This means that a company has to disclose the number of trade receivables and payables that are outstanding for a period of more than 45 days, 45 to 60 days, 60 to 90 days, and so on. This disclosure can be useful for MSMEs as they often face delayed payments from their customers and may need to monitor their receivables more closely.
Know How: The Accounting Standards under Companies Act, 2013
Some of the Accounting Standards applicable to companies under the Companies Act, 2013, include:
- AS 1: Disclosure of Accounting Policies – This standard requires companies to disclose their significant accounting policies in the notes to their financial statements.
- AS 2: Valuation of Inventories – This standard lays down the principles for the valuation of inventories and requires companies to follow the same consistently.
- AS 3: Cash Flow Statements – This standard requires companies to prepare a cash flow statement, which shows the inflow and outflow of cash and cash equivalents.
- AS 4: Contingencies and Events Occurring After the Balance Sheet Date – This standard requires companies to disclose any material contingencies or events that occur after the balance sheet date and prior the approval of all the company’s financial statements.
- AS 5: Prior Period Item List and New Changes in Accounting Policies – This standard guides the determination of the detailed net profit or loss for the period and the treatment of prior period items and changes in accounting policies.
- AS 7: Construction Contracts – This standard provides guidance on the accounting treatment of construction contracts, including the recognition of revenue and costs.
To ensure accuracy and compliance with Accounting Standards, companies need to maintain precise financial records and seek the help of experts. An e-filings expert can assist in the preparation and filing of financial statements with regulatory authorities. These experts possess a thorough understanding of the relevant laws and guidelines and can assist companies in adhering to accounting standards, while also providing timely and accurate filings.