REVISED SCHEDULE VI
THE COMPANIES ACT, 1956
An analysis of the Revised Schedule VI of the Companies Act is presented in this paper. The need for the revision of Schedule VI is first discussed followed by an analysis of the shortcomings of the Old Schedule VI. Next, the salient features of the Revised Schedule as to the changes brought in the presentation of the Balance Sheet and Profit and Loss Account is presented. This is then followed by an examination of the major challenges that various industries would face in the first year of its implementation. Finally the paper concludes by pointing out that the Revision of this Schedule is a milestone in the pursuit of harmonizing the Indian Accounting Standards with the IFRS.
INTRODUCTION: The Companies Act, 1956 has 658 sections and 15 schedules. The Schedule VI of the Companies Act deals with requirements, presentation and interpretation as to Balance Sheet and Profit and Loss Account of Companies. The Ministry of Corporate Affairs (MCA) on Tuesday, the 1st day of March 2011 notified Schedule VI (revised). The revised Schedule VI has been framed as per the existing non-converged Indian Accounting Standards notified under the Companies (Accounting Standards), Rules, 2006 and has no link with the converged Indian Accounting Standards, 35 in all notified by the MCA. As per the notification issued by MCA, the applicability of Revised Schedule VI shall be for the year commencing on or after 01/04/2011. THE NEED FOR THE REVISION: The transparency in financial statements of a company has a significant bearing on the decision of a stakeholder to invest, as well as the quantum of his investment. The classification under the old Schedule VI was not in line with the international practices followed by many developed countries, making investors reluctant to invest in the Indian companies. The Indian companies were required to prepare another set of financial statements to make foreign investors understand the performance and position of their companies, which not only resulted in higher costs, but also consumed considerable time and effort. With India moving towards convergence to IFRS, there was an urgent call to revise the old Schedule VI, as it was not compatible to meet either the disclosure requirements or the provisions of the upcoming accounting standards. SHORTCOMINGS OF THE OLD SCHEDULE VI: Classification in old Schedule VI was not in line with the disclosure requirements under AS: After introduction of Accounting Standards on Leases, Consolidated Financial Statements, Accounting for Taxes, Discontinuing Operations, Impairments of Assets, Provisions etc., the disclosure requirements of old Schedule VI on the face of balance sheet was insufficient. Further, appropriate heads, under which disclosures prescribed in the accounting standards have to be made, were missing in the Balance Sheet under old Schedule VI. For instance, Accounting Standard 22 requires that deferred tax assets (DTA) and deferred tax liabilities (DTL) should be disclosed under a separate heading in the balance sheet of the enterprise, separately from current assets and current liabilities. In other words, as per AS 22, DTA and DTL have to be
disclosed under the heading “non-current assets” or “non-current liabilities”, which classification was not provided for in the old schedule VI. No place for industry specific requirements: Old Schedule VI had a fixed format in which every industry has to present its financial statements. However, the industry specific requirements could not always fit into such format. The old schedule VI did not address such problems which made it difficult for a preparer of financial statements to identify the appropriate head for their industry specific items. No specific format for Profit and Loss Account: One of the shortcomings of old Schedule VI was that it did not contain any specific...