Schedule III of the Companies Act 2013: Representation of Salient Features Schedule III of Companies Act 2013 is amongst the most salient features of India's financial reporting at the company level. Schedule III is a provision for the representation of the financial statements of the company in a manner so that statements of all entities end up being analogous, comparable, and transparent.
No matter if a person is a student of company law, finance analyst, or entrepreneur, it must be ascertained what Schedule III is for the sake of statutory reporting and to assess the financial condition of a company accordingly.
Let's talk about its structure, key divisions, and applicability as per Companies Act 2013:
What is the Companies Act 2013's Schedule III? Schedule III is a Company Act, 2013, and lays down the format and structure of financial statements to be employed by all such companies under the Act.
Is a template of:
Balance Sheet
Statement of Profit and Loss
Notes to Accounts
Statement of Changes in Equity (for Ind AS follow companies)
It makes all the companies present financial information in a standardized form so that investors, regulators, auditors, and stakeholders can compare them easily and determine company performance.
Organisation of Schedule III Schedule III is divided into three divisions based on accounting standards for another category of company.
The two divisions have special accounting presentations in financial statements — headings, subheadings, and disclosure items.
Division Applicable To Basis of Accounting Division I Companies following Accounting Standards(AS) Non-Ind AS companies Division II Companies following Indian Accounting Standards(Ind AS) Ind AS compliant companies Division III "NBFCs(Non-Banking Financial Companies) following Ind AS" Specialized Ind AS for NBFCs
Division I: Companies Adopting Accounting Standards (AS) Division I is for such companies which are exempted to adopt Ind AS (strategically small or private companies).
Key Highlights
Financial statements will be according to the Accounting Standards (AS) specified under the Companies (Accounting Standards) Rules, 2006.
Assets and liabilities must be disclosed in the classified manner — Current and Non-Current in the Balance Sheet.
Revenue, expense, and profit must be disclosed in detail by Statement of Profit and Loss.
Accounting policies, contingencies, and commitments must be disclosed by Notes to Accounts.
Example:
Non-mandatory private limited companies in accounting must comply with Division I of Schedule III.
Division II: Indian Accounting Standards (Ind AS) Following Companies Division II for adoption by large listed and public companies.
Key Features
Compiled in accordance with international IFRS guidance on the Ind AS framework.
Fair value basis of measurement.
Statement of Changes in Equity, not available earlier.
Provides high-level disclosure requirements such as related-party transactions, segment reporting, and financial instruments.
Example:
A listed manufacturing company using Ind AS should present statements based on Division II.
Division III: NBFCs Post-Ind AS published in 2018, Division III is applicable to Non-Banking Financial Companies (NBFCs) under Ind AS.
Points to Remember:
Financial assets, credit risk, and financial liabilities are presented.
Not gives ultimate detailed item-by-item disclosure of interest income, impairment losses, and financial instruments.
Balance Sheet is drawn to separate borrowings, other financial liabilities, and loan receivables separately.
Illustration:
A Non-Banking Finance Company such as Bajaj Finance Ltd. gives reports under Division III.
Major Schedule III Amendments. (2021 Notification) The Ministry of Corporate Affairs (MCA) issued a significant revision to Schedule III in March 2021 with the objective of enhancing transparency and Indian reporting standards in accordance with international standards.
Amendment Area Key Changes Introduced Audit Trail Companies must maintain an audit trail of accounting entries Crypto Assets Mandatory disclosure of profit/loss from cryptocurrency or virtual currency transactions. Trade Payables/Ageing Companies must disclose ageing schedules for trade payables and receivables. Borrowings Classification of borrowings based on nature and security. Title Deeds of Immovable Property Companies must disclose if any property is not held in their name. Current Maturities Clearly classify current maturities of long-term borrowings. Promoter Shareholding Disclosure of promoters’ shareholding details at year-end.
Effective from April 1, 2021, for all such companies that are being given the financial statements after the above-referenced date.
Official Source: Ministry of Corporate Affairs Notification (March 2021)
Purpose and Significance of Schedule III
Schedule III has a couple of important reasons in India's corporate reporting regime for reports:
Homogeneity: Imposes homogeneity to how companies report financial disclosures.
Transparency: Allows disclosure and restricts regions of potential manipulation.
Comparability: Simplicity of comparability of companies across industries by regulators and investors.
Compliance: Mandatory application of forms of statutory reports offered by the Act by companies.
Accountability: Simplicity of corporate governance owing to level playing field for report forms.
Impact of Schedule III on Financial Reporting Adoption of Schedule III has radically changed the quality of financial reporting in India.
Aspect Before Schedule III After Schedule III Presentation Varied across companies Standardized across all companies Disclosures Minimal or inconsistent Detailed and structured Comparability Difficult for stakeholders Easy due to common format Transparecy Limited Enhanced significantly
In providing such a framework, the distinction among Indian accounting requirements and international standards like IFRS is reduced to zero.
Most Common Mistakes Made by Companies Even Schedule III is of transparent character, but Schedule III is not taken up by companies.
Saves from legal documents in case of any dispute or audit.
A few of the mistakes which must be avoided with great strictness are as follows:
Misclassification of current as well as non-current assets/liabilities.
Omission of related party transactions.
Not updating templates post-after-2021 amendments being done.
Ageing analysis of payable/receivable not accounted for.
Shareholding by promoters not disclosed sufficiently.
Not just compliance that saves penalty but even one which gives confidence to the auditor's as well as investor's.
FAQs What is Schedule III of the Companies Act 2013? Schedule III prescribes the form of financial statements like Balance Sheet and Profit & Loss Account to all such companies as are brought under the Act.
Schedule III items are what? There are three segments – Division I (AS), Division II (Ind AS), and Division III (NBFCs adopted Ind AS).
Schedule III 2021 amendments are what? Audit trail, disclosure of cryptocurrency, shareholding of a promoter, ageing analysis of payables/receivables are some significant changes.
Should Schedule III be applied by every company in the world? Yes. All of them must be registered under the Companies Act, 2013 and shall also prepare financial statements as per Schedule III.
Why is Schedule III prepared? It allows all companies to make uniform, transparent, and comparable financial reporting.
Conclusion Indian accounting disclosure Fidus haciendas is Schedule III of Companies Act 2013. It requires companies to disclose their accounts in a way it becomes transparent, comparable, and accountable.
Schedule III is robustised with the new business scenario by incorporating audit trail and crypto disclosures.
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