A comparative Study – Schedule VI of the Companies Act, 1956

Old V/s.NewThe Ministry of Corporate Affairs (MCA) vide Notification No. S.O. 447(E) dated 28th February, 2011 have revised Schedule VI of the Companies Act, 1956 (The Act) which provides the instructions for the preparation of the Balance Sheet and Statement of the Profit & Loss of the Company. The purpose for revising the reporting format of the financial accounts of the Company was mainly to bring it in par with the International Financial Reporting Standards (IFRS). The financial statements prepared as per the revised Schedule VI shall have the following advantages

• Structured Presentation
• Easy comparison of the figures with other peer companies internationally
• Increased transparency as the Company is required to make disclosures for any change in treatment including addition, amendment, substitution or deletion in the financial statements.
• Qualitative improvement in presentation and disclosure requirement of the financial statement as focus is on substance over form
• Analysis of the financial statements made simple

The amended Schedule VI is to take effect for financial accounts closing on 31st March, 2012. As per MCA, the revised Schedule VI has been framed as per the existing non-converged Indian Accounting Standards notified under the Companies (Accounting Standards), Rules, 2006 and has nothing to do with the converged Indian Accounting Standards. The disclosure requirements specified in the amended Schedule VI are in addition to and not in substitution of the disclosure requirements specified in the Accounting Standards prescribed under the Act.  Hence, all disclosures as required by the Companies Act and Accounting Standard shall be made in the notes to accounts in addition to the requirements set out in this Schedule. Some of the major changes between the revised Schedule VI and the existing Schedule VI are given below:

Revised Schedule VI – a Comparison with Old Schedule VI

S.No.	Particulars	Old Provision	New Provision
1	Authority	Provisions of Schedule VI will prevail over Accounting Standards	Provisions of Accounting Standards will be in addition to the disclosure norms as per Schedule VI
2	Form of Balance Sheet	Both, horizontal and vertical forms were allowed	Only vertical form is specified
3	Form of Profit and Loss Account	No format specified	Vertical format specified
4	Share Capital	No separate disclosure for issuance of Bonus shares as well as other shareholder details	Notes to accounts on the Share Capital needs more detailed disclosure and reconciliation of the number of shares held etc. including details of the No. of bonus shares allotted during last 5 years to be disclosed. Also need to disclose the names and no. of shares held by share holders holding more than 5% of shares
5	Borrowings	Short - term & long - term borrowings  grouped together under the head Loan funds sub-head Secured / Unsecured.	Long - term borrowings to be shown under non-current liabilities and short term borrowings to be shown under current liabilities with separate disclosure of secured / unsecured loans.Period and amount of continuing default as on the Balance Sheet date in repayment of loans and interest to be separately specified in each case.
6	Capital Advances	Used to be shown under the head Capital Work in process under Fixed Assets	To be shown under the head "Long term Loans and Advances"
7	Profit & Loss (Debit Balance)	Separately disclosed in the Assets side of the Balance Sheet	Shown as negative figure under the head Surplus. Therefore, Reserve & Surplus can have a negative balance.
8	Debtors outstanding for more than six months	Debtors outstanding for more than six months from invoice date to be shown separately.	Debtors outstanding for more than six months from the date they became due to be shown separately.
9	Bank Balances	Required separate disclosure of Current account balance and fixed deposit balance	Fixed deposit with maturity of more than 12 months required separate disclosure.
10	Classification of Expenses	Function wise & nature wise	Nature wise
11	Segregation between current and non- current	Borrowings, Investments and Loans  & Advances  are disclosed under respective heads.	Borrowings, Investments and Loan & Advances are classified between  current and non –current under respective heads.
12	Current Assets and Current Liabilities	--	Bifurcation to be made in current and non-current.
13	Proposed Dividend	Accounted as part of appropriation and  shown under provisions.	Not to be accounted and disclose in Notes
14	TDS amount on Interest, royalty received.	TDS amount was required to be shown for Interest Income etc.	No requirement of disclosing TDS amounts separately.
15	ESOP Expenses	No requirement to show separately as part of Employee Benefits expense.	Expense on Employment Stocks Options Scheme (ESOP) and Employee Stock Purchase Plan (ESPP) to be shown separately as part of Employee Benefits expense
16	Managerial Remuneration & Commission	Payment to Directors and Detailed calculation under sec 198 was required to be disclosed.	No disclosure required of Managerial remuneration.
17	Quantitative Details	Quantitative details of Raw materials, purchases, stocks and turnover to be given for each class of goods. Also,Licensed, Installed and Production quantities are to be disclosed.	No quantitative details required
18	Rounding off of figures	Where Turnover: (i) < Rs. 100 crores – Hundreds/ Thousands (ii) Between 100 crores to 500 crores - Hundreds/ Thousands/ Lakhs/ Millions (iii) > 500 crores - Hundreds/ Thousands/ Lakhs/ Millions/ Crores	Where Turnover: (i) < Rs. 100 crores – Hundreds/ Thousands/ Lakhs/ Millions (iii) > 500 crores - Lakhs/ Millions/ Crore
19	Profit and Loss Appropriation	Opening Surplus, Proposed dividend and transfer to/from reserves were shown in P&L Appropriation a/c	Transfer from/to reserves to be shown under the heading Reserves & Surplus only. No separate P&L Appropriation a/c
20	Part IV- Balance Sheet Abstract	Required to be attached with financials	No such requirement
21	Schedule’s to B/S and P & L Account	Schedules to B/S and P/L form an integral part of the financial statements	As per the revised Schedules have been done away with and have been replaced with Notes to the accounts.

Some Issue Emanating from Revised Schedule VI Any change is always resisted as the human mind does not like to be taken away from its comfort zone for experimenting any newer technologies / concepts. Similar is the case of the Amendment of Schedule VI. Though the revised schedule VI has reduced the burden in terms of disclosure requirement and made the presentation of Financial Statements more meaningful, yet there is resistance to its applicability. For instance, revised Schedule VI requires the comparative information in respect of the immediately preceding reporting period for all items given in the financial statements. This requires the figures of immediately preceding reporting period to be reinstated as per schedule VI, which no doubt is a cumbersome process.  Further the application of the revised Schedule VI may cast an additional burden, both in terms of cost and consumption of time. It may also require customizing of IT/MIS system of a Company within a shorter period to prepare its financial within the set time. There may be certain other issues as well which may come up while preparing the financial statements as per Schedule VI. No doubt, in course of time, these issues will be resolved by MCA. The need of hour is to overcome the resistance to change. The game in knowledge is “How fast one can learn”. Therefore, to sustain in a knowledge Economy, where change is inevitable, adaption and constant learning are essential prerequisite. Disclaimer: The entire contents of this document have been developed on the basis of relevant regulations and are purely the views of the author. Though the author has made utmost efforts to provide authentic information however, the author and the company expressly disclaim all and any liability to any person who has read this document, or otherwise, in respect of anything, and of consequences of anything done, or omitted to be done by any such person in reliance upon the contents of this document.