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Indian GAAP Consolidation framework
In India, consolidated financial statements are governed by the following framework
Companies Act, 2013
Section 129(3) of the Companies Act, 2013 requires a company to prepare Consolidated Financial Statement. Where a company has one or more subsidiaries, then in addition to its stand-alone financial statements, it is required to prepare a consolidated financial statement of the company and of all the subsidiaries in the same form and manner as that of its own. The consolidated financial statements are also required to be laid before the annual general meeting of the company along with the stand-alone financial statements. For the purposes of this sub-section, the word “subsidiary” includes associate company and joint venture.
Companies (Accounts) Rules, 2014
As per Rule 5, such a company is required to attach along with its financial statement, a separate statement containing the salient features of the financial statement of its subsidiaries in form AOC-1.
Stock exchange listing agreement:
The listing agreement with the stock exchange contains provisions regarding preparation and submission of consolidated financial results.
Clause 41 (I)(e) of the listing agreements specifies the following requirements-
If the company has subsidiaries,
(i) it may, in addition to submitting quarterly and year to date stand-alone financial results to the stock exchange within forty-five days of the end of the quarter, also submit quarterly and year to date consolidated financial results within forty-five days from the end of the quarter; and
(ii) while submitting annual audited financial results prepared on stand-alone basis, it shall also submit annual audited consolidated financial results to the stock exchange within sixty days from the end of the financial year.
Principles and Procedures of Consolidation
Institute of Chartered Accountants of India has issued Accounting Standards 21, 23 and 27 which deal with consolidation of Subsidiaries, Associates and Joint ventures. Click here for more information about these 3 standards which contain detailed procedures for consolidation.
Other relevant Accounting Standards
Other Accounting Standards which impact consolidated financial statements are
AS-3 Cash flow statements
Preparation of cash flow statements is governed by AS-3. Click here for more information about AS-3.
AS-11 Effect of Changes in Foreign Exchange Rates
Financial statements of controlled entities located outside India have to be translated into Indian Rupees at the time of consolidation. AS-11 prescribes the procedure for such foreign currency translation. Click here for more information about requirements of AS-11.
AS-18 Related Party Disclosures
Clause 7 and 8- No disclosure is required in consolidated financial statements in respect of intra-group transactions. Disclosure of transactions between members of a group is unnecessary in consolidated financial statements because consolidated financial statements present information about the holding and its subsidiaries as a single reporting enterprise.
AS-22 Accounting for Taxes
The question arises whether tax effects of exchange differences impacting P&L account should be computed and accounted for during consolidation procedures.
AS-11 Para 35 says “Gains and losses on foreign currency transactions and exchange differences arising on the translation of the financial statements of foreign operations may have associated tax effects which are accounted for in accordance with AS 22, Accounting for Taxes on Income.”
Institute of Chartered Accountants of India has issued Accounting Standards Interpretation (ASI) 26 which answers this question. As per para 2 of the ASI-26, “While preparing consolidated financial statements, the tax expense to be shown in the consolidated financial statements should be the aggregate of the amounts of tax expense appearing in the separate financial statements of the parent and its subsidiaries”.
Presentation- Schedule III of Companies Act, 2013
Schedule III of the Companies Act prescribes the format of Balance Sheet and Statement of Profit and Loss of the company and various disclosure requirements.
Schedule III specifies the following information to be disclosed in the consolidated financial statements pertaining to controlled entities
Name of the entity Net Assets, i.e., total assets minus total liabilities Share in profit or loss
As % of consolidated net assets Amount As % of Consolidated Profit or Loss Amount
This information has to be given for
Subsidiaries (Indian and foreign)
Minority interest in all subsidiaries
Associates (investment as per the equity method)- Indian and foreign
Joint ventures (as per proportionate consolidation or as per the equity method) - Indian and foreign
Also disclose entire list of any entities not consolidated, along with reasons for not consolidating
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