Consolidated Financial Statements

Backdrop

The Companies Act,1956  was silent on consolidated financial statements. Section 129 of the Companies Act,2013 has made  consolidated financial statements mandatory  in cases where company has one or more subsidiaries or associates or joint ventures.

• Section 212 of the 1956 Act required  a holding company to attach to its balance sheet a statement showing holding company’s interest in subsidiary [See section 212(5) of the 1956 Act].  The 2013 Act omits this requirement.
• Instead the 2013 Act requires the holding company to attach with its financial statement, a separate statement containing the salient features of the financial statement of its subsidiary/ies, associate companies and joint ventures in Form No. AOC-1 of Companies (Accounts) Rules, 2014.
• The provisions relating to what should be the financial year of subsidiary [See section 212 of the 1956 Act] have also been omitted from the 2013 Act as the concept of uniform financial year of 1st April to 31st March has been made mandatory for companies under the 2013 Act.

Separate Financial Statements [Section 129(2)]

Section 129(2) of the Companies Act,2013 requires that "At every annual general meeting of a company, the Board of Directors of the company shall lay before such meeting financial statements for the financial year".  Section 129(2) casts an obligation on every company. . In the context of a holding company, the financial statements referred to in sub-section (2) are commonly referred to as 'separate financial statements'


Consolidated Financial Statements

• Section 129(3) provides that where a company has one or more subsidiaries, it shall, 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 shall be in addition to its separate financial statements[ie .its financial statement under sub-section (2)]
• The  consolidated financial statements which shall also be laid before the annual general meeting of the company along with the laying of its separate financial statements[ie .its financial statement under sub-section (2)]
• The company shall also attach along with its financial statement, a separate statement containing the salient features of the financial statement of its subsidiary or subsidiaries in such form as may be prescribed (ie in Form AOC-1).
• The Central Government may provide for the consolidation of accounts of companies in such manner as may be prescribed.[See Rule 6 below]
• For the purposes of this sub-section [ie section 129(3)], the word “subsidiary” shall include associate company and joint venture.

Section 129(4) provides that the provisions of this Act applicable to the preparation, adoption and audit of the financial statements of a holding company shall, mutatis mutandis, apply to the consolidated financial statements referred to in sub-section (3).



Rules Prescribed by Central Govt for consolidation[Rule6]
Rule 6 of the Companies (Accounts) Rules, 2014 provides that

• The consolidation of financial statements of the company shall be made in accordance with the provisions of Schedule III of the Act and the applicable accounting standards.
• In case of a company covered under sub-section (3) of section 129 which is not required to prepare consolidated financial statements under the Accounting Standards, it shall be sufficient if the company complies with provisions on consolidated financial statements provided in Schedule III of the Act.