Revision in Schedule VI

Ministry of Corporate Affairs has issued the revised Schedule VI to the Companies Act, 1956.

Schedule VI to the Companies Act, 1956 provides for the manner in which every company shall prepare its balance sheet and profit and loss account.

Various changes have taken place in the economic and regulatory environment for companies across the world and in India. Internationally, the observance of universally accepted reporting norms in respect of financial information of companies is perceived as an important measure for good corporate governance, enabling transparency with regard to financial position of the company and proper disclosure to shareholders. It was necessary not only to enable proper and adequate disclosures but also to resolve any ambiguity in application of various Rules etc. to be observed by companies in this regard. Therefore, it has became essential to harmonize and synchronize the general disclosure requirements under Schedule VI with those prescribed in the Accounting Standards.

The revised Schedule VI to the Companies Act, 1956 has been prepared on the following concepts:

a)      To have a ‘readable, useful, transparent and user friendly’ form of Schedule VI.

b)      To set out minimum disclosure requirements which are considered essential to ensure true and fair presentation of the financial position and financial performance of the company and comparability both with the company’s previous periods and with other companies.

c)       The Balance Sheet and the Statement of Profit and Loss should not be burdened with too many disclosure requirements.

d)      To remove the requirements of disclosures no longer considered relevant in view of the changed socio-economic structure and level of development of the economy.

e)      To remove disclosure requirements which are meant for statistical purposes only e.g. Part IV of Schedule VI.

f)       To have inherent flexibility for amendments and industry/sector specific improvements from time to time and to cater to industry/sector specific disclosure requirements.

g)      To harmonize and synchronize the general disclosure requirements with those prescribed in the Accounting Standards by removing the existing inherent anomalies.

Some of the highlights of the revised Schedule VI are as follows:

·         Schedule VI and Accounting Standards: It provides clarification in the general instructions that, requirement of schedule for disclosure are the minimum requirements and any disclosure, as required by accounting standard shall be applicable accordingly and further in case of any anomaly with respect to accounting standard, the Schedule VI with stand modified accordingly.

·         Formats prescribed for Profit and Loss account and Cash flow Statement : Existing Schedule VI prescribes the format of the balance sheet only,  the revised schedule now prescribes the format for the balance sheet and profit and loss account (to be in Vertical format only).

·         Rounding of figures appearing in Financial statements: Earlier there were 3 slabs now there are 2 slabs of less than Rs 100 Cr and more than and equal to Rs 100 Cr.

·         Presentation changes in balance sheet In terms of presentation of the balance sheet; A significant change is adoption of the principle of current and non-current classification of assets and liabilities which is as prescribed by non-converged Indian Accounting Standards. This meets one of the objectives of the Ministry of Corporate Affairs of harmonizing and converging with global disclosure requirements. Also, the revised schedule has specifically added line item of “Share Application Money” on the face of the balance sheet after the heading “Shareholders funds” and removed requirements like disclosure of secured and unsecured loans, details of gross and net block of fixed assets, etc. on the face of balance sheet. These disclosures are now required to be furnished in notes to accounts.

·         Presentation changes in profit and loss account: The revised schedule has made significant changes in disclosure requirements for profit and loss account. It has suggested specific format for profit and loss account.

This revised Schedule VI has been framed as per the existing non-converged Indian Accounting Standards notified under the Companies (Accounting Standards), Rules, 2006 and is not relevant to the converged Indian Accounting Standards. This will apply to all the companies uniformly for the financial statements to be prepared for the financial year 2010-11 and onwards.