Exemption for Filing Consolidated Financial Statements (CFS) with ROC by Kuldeep Dadhich


What is Consolidated Financial Statements?

Consolidated Financial Statements are the "Financial statements of a group in which the assets, liabilities, equity, income, expenses and cash flows of the parent company and its subsidiary companies, associate companies, partnership firms and Limited Liability Partnership (LLP) are presented at group level ",

Scope of Consolidated Financial Statements (CFS)

A Parent (Holding) Company which presents its consolidated financial statements must consolidate all of its subsidiaries, foreign as well as domestic. Where a company doesn’t have any subsidiary but has only associates and/or joint ventures such company also needs to prepare consolidated financial statements.

#FAQ

Does Consolidation include LLP and Partnership Firm?

As per rule 6 of Companies (Accounts) Rules, 2014, under the heading ‘Manner of consolidation of accounts’ it is provided that consolidation of financial statements of a company shall be done in accordance with the provisions of Schedule III to the Companies Act, 2013 and the applicable Accounting Standards.

As per Ind AS 110, Consolidated Financial Statements provides that where an entity has control on one or more other entities, the controlling entity is required to consolidate all the controlled entities. Since, the word ‘entity’ includes a company as well as any other form of entity, therefore, LLPs and partnership firms are required to be consolidated.

Similarly, under Accounting Standard (AS) 21, an enterprise controlled by the parent is required to be consolidated. The term ‘enterprise’ includes a company and any enterprise other than a company. Therefore, under (AS) 21, also LLP(s) and partnership firms are part of consolidation.

Exemption for Filing Consolidated Financial Statements (CFS) with ROC

As per notification of Ministry of Corporate Affairs (MCA) dated 27-07-2016 https://cdn.caclub.in/wp-content/uploads/mca-notification-dt-27-july-2016-companies-accounts-amendment-rules-2016.pdf  

A parent company can claim exemption for preparation and filing of consolidated financial statements with ROC if it meets the following conditions;

(i) it is a wholly-owned subsidiary, or is a partially-owned subsidiary of another company and all its other members, including those not otherwise entitled to vote, having been intimated in writing and for which the proof of delivery of such intimation is available with the company, do not object to the company not presenting consolidated financial statements;

 (ii) it is a company whose securities are not listed or are not in the process of listing on any stock exchange, whether in India or outside India; and

(iii) Its ultimate or any intermediate holding company files consolidated financial statements with the Registrar which are in compliance with the applicable Accounting Standards.”

# Practical Case

ABC Private Limited (An Indian Company) holds 90.00% shares cum voting rights in XYZ Private Limited (another Indian Company) i.e. ABC Pvt. Ltd. is a holding Company of XYZ Pvt. Ltd.

Further, XYZ Private Limited (An Indian Company) holds 100% shares cum voting rights in PQR LLC (A Offshore Company) i.e. XYZ Pvt. Ltd. is a holding Company of PQR LLC.

Question:

Who needs to file Consolidated Financial Statements with ROC?

Answer:

ABC Private Limited shall be required to file CFS of both the companies (XYZ and PQR) with ROC and middle order holding company i.e. XYZ Private Limited can claim exemption for filing CFS with ROC if meets following conditions;

(i) XYZ Private Limited is a partially owned subsidiary of ABC Private Limited and all its other members, including those not otherwise entitled to vote, having been intimated in writing and for which the proof of delivery of such intimation is available with the company, do not object to the company not presenting consolidated financial statements;

 (ii) it is a company whose securities are not listed or are not in the process of listing on any stock exchange, whether in India or outside India; and

(iii) Its ultimate holding company files consolidated financial statements with the Registrar which is in compliance with the applicable Accounting Standards.”

ABC Private Limited(An Indian Company)

                   ↓

           Holding 90.00%

XYZ Private Limited(An Indian Companies)

                 ↓

         Holding 100%

PQR LLC(Offshore Company)

 

Click here to read the disclaimer


Write a Comment