Revised Schedule III

Notified IND-AS Schedule III - Emphasis on Statement of Changes in Equity

April 7, 2016

CA Vinayak Pai V

Introduction

The switch over from prevailing accounting standards to Indian Accounting Standards (IND-AS) for Phase 1 companies happens in the current fiscal year that commenced on April 1, 2016. For Phase 2 companies, the transition date for converging with IND-AS is also April 1, 2016.

On 6 April 2016, the Ministry of Corporate Affairs, notified an IND-AS compatible Schedule III to the Companies Act, 2013 and this amends the said Schedule by inserting an additional layer for companies that are required to converge with IND-AS. The Revised Schedule III provides general instructions and the formats for preparation and presentation of the Balance sheet and the income statement for companies that are required to comply with the Companies (Indian Accounting Standards) Rules, 2015.

There is much more emphasis on the Statement of Changes in Equity under IND-AS Schedule III than under the prevailing accounting framework (AS). While the statement of changes in equity is another schedule to the balance sheet and therefore not new to financial statement preparers/auditors in India, there are numerous core IFRS concepts (On which IND-AS is based) that come into play in a large measure, that surround the statement of changes in equity, when one starts analyzing impact of various IND-AS on individual corporate balance sheets.

IND-AS Schedule III - Statement of Changes in Equity

a) Backdrop

As per section 2(40) of the Companies Act, 2013, financial statement includes a statement of changes in equity, if applicable.

b) IND-AS Schedule III balance sheet requirements

   i) On the face of the balance sheet

A company is required to provide the following line items under equity on the face of the balance sheet:

    i) Equity share capital, and

   ii) other equity

  ii) In the Statement of Changes in Equity

The following needs to be provided in the statement of changes in equity as a schedule:

   a) Equity share capital (with the balance at the beginning of the reporting period, changes in equity share capital during the period and the closing balance)

   b) Other Equity

  •  Share application money pending allotment

  •  Equity component of compound financial instruments

  •  Reserves and surplus segregating

  •  Capital reserve,

  •  Securities premium reserve,

  •  Other reserves, and

  •  Retained earnings

  •  Components of other comprehensive income (OCI)

  •  Debt instruments through other comprehensive income

  •  Equity instruments through other comprehensive income

  •  Effective portion of cash flow hedges

  •  Revaluation surplus

  •  Exchange differences on foreign operations translation

  •  Other OCI items

  •  Money received against share warrants

It may be noted that other reserves need to be classified in the notes to the financial statements as capital redemption reserve, debenture redemption reserve and share options outstanding account.

Practical application of IND-AS Schedule III

IND-AS in-scope companies would need to apply the requirements of Revised Schedule III from the transition date. This means that Phase 2 companies are required to prepare a IND-AS Schedule III compliant balance sheet as of the date of transition namely April 1, 2016 in the preparation of both the stand-alone and consolidated financial statements. The requirements of the notified schedule also needs to be complied for steady-state external financial reporting too.

In the preparation of the consolidated balance sheet, non-controlling interest (NCI), if applicable, in a subsidiary needs to be reckoned and accounted appropriately in the statement of profit and loss, total comprehensive income layer of comprehensive income and in the statement of changes in equity. The requirements of IND-AS 1 and IND-AS 110 also, run in parallel.

Conclusion

Companies need to gear their internal financial accounting and reporting processes as well as their internal control mechanisms to comply with the requirements of the new financial reporting regime.

The statement of changes in equity, albeit another schedule to the financial statement, nevertheless plays a key role in imbibing the finer concepts that make the IFRS framework conceptually different from current Indian GAAP. Preparers and auditors need to make note of this.

The author can be reached at Vinayakpaiv@hotmail.com