The government has exempted all companies with a foreign subsidiary from preparing consolidated financial statements ( CFS) for the current fiscal, a move that experts welcomed saying this will give these companies much-needed time for compliance.
The exemption came on Tuesday as the corporate affairs ministry notified the companies (accounts) amendment rules. According to experts, the exemption was needed since subsidiaries that are incorporated outside India are required to follow the financial reporting frameworks applicable in those jurisdictions.
Moreover, many foreign entities follow a calendar year as their financial year. “The requirement for consolidated financial statement for companies having foreign affiliates seems to have been deferred by one year. This will come as significant relief for such companies,” said Yogesh Sharma, partner-assurance at Grant Thornton India LLP. Sharma, however, said more clarity is needed on the applicability of ministry’s notification.
“While the amendments do not specify this, it appears that the use of the words ‘subsidiary’ or ‘subsidiaries’ incorporated outside India in the amendment also refers to and includes foreign associates and joint ventures. We hope that this will be followed by a suitable clarification from the ministry,” he said. It is not clear whether the exemption will be available if a company has just one foreign subsidiary along with Indian subsidiaries, or it will apply to a company that has only foreign subsidiaries.
“This is seen as more of a transitional relief to companies that have foreign subsidiaries and have to deal with additional challenges in consolidation due to differences in accounting framework and reporting period followed by these subsidiaries,” said Sai Venkateshwaran, partner – Accounting Advisory Services at KPMG in India.
The article appeared in the Economic Times. The article can be found here.