Unlisted companies have cause for cheer with the Corporate Affairs Ministry providing a “limited relief” to such entities on preparation of consolidated financial statements (CFS).
Companies having one or more overseas subsidiaries need not prepare CFS for one financial year (beginning on or after April 1, 2014), the Corporate Affairs Ministry has said, amending an existing rule for this purpose.
This exemption is seen as a “limited relief” for unlisted companies given that the new company law had made consolidation mandatory for companies.
Prior to the enactment of the new company law in 2013, unlisted companies were never required to consolidate their financial statements even if they had overseas subsidiaries.
Many corporate law experts see the latest rule change as one applying for unlisted companies alone.
As for listed companies, the listing agreement requirement of mandatory consolidation will continue to apply for them, they said.
“This corporate affairs ministry move could be a limited relief only for unlisted companies having one or more overseas subsidiaries. I don’t see the relief being passed on to listed companies, which will, under the listing agreement, have to provide consolidated financial statements”, V Balaji, Partner, Deloitte, Haskins & Sells told Business Line.
Balaji also said the latest rule change as being limited for one year only and not for perpetuity.
Sai Venkateshwaran, Partner and Head of Accounting Advisory Services, KPMG in India, saw the rule change as more of a “transitional relief” to unlisted companies that have foreign subsidiaries.
This is being provided to such companies to deal with the additional challenges in consolidation due to differences in accounting framework and reporting period followed by their subsidiaries.
“It is expected that unlisted companies with overseas subsidiaries would be required to prepare CFS from next year”, Venkateshwaran said.
Lalit Kumar, Partner, J Sagar Associates, a law firm, also said this move appears to be a limited exemption for only one financial year.
After the latest change, consolidation is not required for unlisted companies with one or more foreign subsidiaries and/or joint ventures/ associate companies.
However, consolidation is required if the unlisted Indian company has a subsidiary located within India besides any foreign subsidiaries, said company law experts.
srivats.kr@thehindu.co.in