Schedule III– Challenges and Opportunities
“Schedule III to the Companies Act 2013, provides guidance with respect to preparation and presentation of Financial Statements (i.e., balance sheet, statement of profit and loss, statement of changes in equity, cash flow statement and notes) of a company. Earlier, the Schedule III was revised or amended on April 6, 2016 to include general instructions on preparation of financial statements of a company, whose financial statements have to comply with Indian Accounting Standards (Ind AS). Read on…”
1 Overview of Schedule III Architecture & The March 2021 Amendments
The applicability of Schedule III to the Companies Act, 2013 is structured across three distinct segments:
Applicable to companies whose financial statements are drawn up in compliance with the Companies (Accounting Standards) Rules, 2006.
Applicable to companies whose financial statements are drawn up in compliance with the Companies (Indian Accounting Standards) Rules, 2015.
Applicable to Non-Banking Financial Companies (NBFCs) whose financial statements are drawn up in compliance with Ind AS Rules, 2015.
On March 24, 2021, the Ministry of Corporate Affairs (MCA) amended the requirements of Schedule III with the overarching objective of enhancing existing disclosure requirements, bridging informational gaps, and establishing stringent transparency. While amendments span all three divisions, this analysis focuses primarily on key developments in Division II (Ind AS), systematically classified into:
(A) Disclosures on the Face of the Balance Sheet;
(B) Disclosures in Alignment with CARO 2020 Requirements (“Integrated Approach”); and
(C) Other Extensive New Disclosures in Notes to Financial Statements.
2 A. Disclosures on the Face of the Balance Sheet
Three pivotal presentation modifications have been mandated directly on the face of the Balance Sheet. Notably, no amendments affect disclosures on the face of the Statement of Profit and Loss.
1. Current Maturities of Long-Term Borrowings
Prior to Amendments: Disclosed as a line item under ‘Other Financial Liabilities’.
Post Amendments: Mandatorily regrouped and presented as part of ‘Current Borrowings’ under Current Liabilities.
2. Security Deposits Regrouping
Prior to Amendments: Grouped under ‘Loans’ in non-current/current assets.
Post Amendments: Required to be presented under ‘Other Financial Assets’, both current and non-current.
3. Lease Liabilities Presentation
Prior to Amendments: Subsumed within ‘Other Financial Liabilities’.
Post Amendments: Disclosed separately on the face of the Balance Sheet under ‘Financial Liabilities’, both under Current and Non-Current Liabilities.
3 B. The “Integrated Approach” – Alignment with CARO 2020
A defining breakthrough of the revised Schedule III is its “Integrated Approach”, establishing complete structural harmony between financial statement disclosures by preparers and statutory auditor reporting obligations under the Companies (Auditor’s Report) Order, 2020 (CARO 2020):
| Disclosures in Notes to Financial Statements | Relevant Clauses in CARO 2020 |
|---|---|
| Title Deeds of Immovable Property: Details of immovable property (other than properties where Company is lessee and lease agreements are duly executed in favour of lessee) where title deeds are not held in the name of the Company, in a specified tabular format. | Reporting on Property, Plant & Equipment [Clause 3(i)(c)] |
| Fair Valuation of Investment Property: Disclosure whether fair valuation is based on valuation by a registered valuer as defined under Rule 2 of Companies (Registered Valuers and Valuation) Rules, 2017. | Reporting on Property, Plant & Equipment [Clause 3(i)(c)] |
| Revaluation by Registered Valuer: Where revaluation of PPE or intangible assets is carried out, disclosure whether based on valuation by registered valuer under Rule 2 of Registered Valuers Rules, 2017. | Reporting on Property, Plant & Equipment [Clause 3(i)(c)] |
| 10% Revaluation Variance Reconciliation: Separate disclosure in reconciliation of gross and net carrying amounts if revaluation amount exceeds 10% of net carrying amount of such class of asset. | Reporting on Property, Plant & Equipment [Clause 3(i)(d)] |
| Loans to Promoters, Directors & KMPs: Disclosure if loans or advances in the nature of loans are repayable on demand or given without specifying any term or period of repayment, in a specified tabular format. | Reporting on Loans Given [Clause 3(iii) and 3(iv)] |
| Layers of Companies: Non-compliance with number of investment layers prescribed under Section 2(87) read with Companies (Restriction on number of Layers) Rules, 2017, disclosing name, CIN, and holding extent of downstream companies beyond specified layers. | Reporting on Investments & Loans [Clause 3(iv)] |
| Undisclosed Income in Tax Assessments: Disclosure of previously unrecorded income surrendered or disclosed during Income Tax or other tax assessments, confirming whether recorded properly in books. | Reporting on Unrecorded Transactions [Clause 3(viii)] |
| Willful Defaulter Declaration: Disclosure if declared a “willful defaulter” by any bank, financial institution, or lender, including date of declaration and details of defaults. | Reporting on Repayment of Loans [Clause 3(ix)(b)] |
| Intermediary Fund Routing (Ultimate Beneficiaries): Disclosures where funds are lent/invested via intermediaries to ultimate beneficiaries (or received for funding others), with full details of fund transactions and compliance with FEMA and PMLA. | Reporting on Utilization of Borrowings [Clause 3(ix)(c)] |
| Benami Property Proceedings: Disclosures where proceedings initiated or pending against the Company under Benami Transactions (Prohibition) Act, 1988, including property details, amount, beneficiaries, and company view. | Reporting on PPE & Benami Assets [Clause 3(i)(e)] |
| Diversion of Borrowed Funds: Where funds borrowed from banks and FIs were not used for the specific purpose for which they were raised, disclosing where funds were actually deployed. | Reporting on Borrowing Utilization [Clause 3(ix)(c)] |
| CSR Expenditure Shortfall: Full details of CSR shortfall for current year and cumulative shortfall amount along with specific reasons thereof. | Reporting on Corporate Social Responsibility [Clause 3(xx)] |
4 C. Other Comprehensive Disclosures in Notes to Accounts
1. Promoter Shareholding Disclosure
Mandatory disclosure of shareholding patterns of promoters at the end of the financial year:
| Sr. No. | Promoter Name | No. of Shares | % of Total Shares | % Change during the FY |
|---|---|---|---|---|
| 1. | Promoter / Promoter Group Entity | [Number] | [% Holding] | [% Variance] |
2. Trade Payables Ageing Schedule
Introduced for the first time in Notes to Financial Statements – reporting by exception for overdue cases (including where no due date is specified):
| Particulars | Outstanding for following periods from due date of payment | ||||
|---|---|---|---|---|---|
| < 1 year | 1–2 years | 2–3 years | > 3 years | Total | |
| (i) MSME | |||||
| (ii) Others | |||||
| (iii) Disputed Dues – MSME | |||||
| (iv) Disputed Dues – Others | |||||
3. Trade Receivables Ageing Schedule
Overdue trade debtors ageing analysis across 6 distinct risk and credit categories:
| Particulars | Outstanding from due date of payment | |||||
|---|---|---|---|---|---|---|
| < 6 mos | 6 mos – 1 yr | 1–2 yrs | 2–3 yrs | > 3 yrs | Total | |
| (i) Undisputed – considered good | ||||||
| (ii) Undisputed – significant increase in credit risk | ||||||
| (iii) Undisputed – credit impaired | ||||||
| (iv) Disputed – considered good | ||||||
| (v) Disputed – significant increase in credit risk | ||||||
| (vi) Disputed – credit impaired | ||||||
4. Current Assets Statements vs. Books of Accounts (Bank Borrowings)
Companies are required to disclose whether periodic statements (stock statements, book debt statements, etc.) filed with banks and financial institutions for borrowing facilities are in agreement with the books of accounts. Where material discrepancies exist, a full reconciliation and description of material discrepancies must be disclosed in the Notes.
5. CWIP & Intangible Assets Under Development (IAUD) Disclosures
Mandatory dual-level disclosure for Capital Work-in-Progress (CWIP) and Intangible Assets Under Development (IAUD):
| CWIP / IAUD | Amount in CWIP for a period of | Total | |||
|---|---|---|---|---|---|
| < 1 year | 1–2 years | 2–3 years | > 3 years | ||
| Projects in progress | |||||
| Projects temporarily suspended | |||||
Additionally, for projects whose completion is overdue or has exceeded its cost compared to its original plan, completion timelines must be disclosed across < 1 year, 1–2 years, 2–3 years, and > 3 years.
6. Accounting for Schemes of Arrangements
The Company shall disclose that the effect of any Scheme of Arrangements approved by the National Company Law Tribunal (NCLT) has been accounted for in the books of accounts ‘in accordance with the Scheme’ and ‘in accordance with accounting standards’, with explicit explanation of any deviations.
7. Mandatory Disclosure of 11 Financial Ratios & 25% Variance Rule
Schedule III mandates disclosure of eleven standard ratios along with formula elements (numerators and denominators):
8. Transactions with Struck-Off Companies
Where a company transacted with companies struck off by the ROC under Section 248 of the Act, detailed disclosures are required:
| Name of Struck off Company | Nature of Transactions (Investments / Receivables / Payables / Shares / Others) | Balance Outstanding | Relationship with Struck-off Company |
|---|---|---|---|
| [Entity Name] | Investments in securities / Payables / Receivables | [Amount] | [Holding / Subsidiary / Associate / Third Party] |
Disclosure of any charge or satisfaction of charge pending registration with ROC beyond statutory time limits, with specific reasons.
Format of Statement of Changes in Equity amended to incorporate a mandatory column for restatement due to prior period errors in share capital reconciliation.
Disclosing profit/loss on crypto transactions, currency balances held at reporting date, and customer deposits/advances taken for crypto trading.
5 Key Takeaways & Strategic Implications for Preparers & Auditors
- Corporate Failures as Catalyst: The revised Schedule III was largely triggered by prominent corporate defaults and governance collapses in recent years, prompting the regulator to enforce airtight financial reporting.
- Escalating Disclosure Trajectory: Reporting mandates have expanded significantly and this trajectory will continue upward in future iterations.
- Unprecedented Auditor Responsibility: With Schedule III and CARO 2020 operating synchronously, auditors and corporate preparers must deploy advanced IT tools and analytics to verify vast ledgers (e.g., struck-off company cross-referencing and project ageing).
- Double-Edged Sword: While presenting substantial compliance challenges for corporates and auditors, the enhanced disclosures represent a historic opportunity for investors, lenders, and rating agencies to conduct profound forensic evaluation of financial health.