Changing face of financial reporting in India

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Changing face of financial reporting in India Powered By Docstoc
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                <p>The Ministry of Corporate Affairs has notified the
revised Schedule VI on 28 February 2011 <em>vide</em> Notification No.
S.O. 447(E) (as amended by Notification No.S.O.653 (E) dated 30 March
2011). The revised Schedule VI will replace the existing Schedule VI in
respect of Balance Sheet and Profit and Loss Account to be prepared for
the financial year commencing on or after 01-04-2011. The existing
Schedule VI to the <em>Companies Act, 1956</em> (herein after called as
old Schedule VI) has been in place for almost five decades without any
major change and has not been able to keep pace with the changes taking
place in the international arena. The revised Schedule VI is an attempt
to bridge that gap. It shall come into force for the Balance Sheet and
Profit and Loss Account to be prepared for the financial year commencing
on or after 01-04-2011 and is applicable to all the companies.</p>
<p>Â </p>
<p>Where compliance with the requirements of the Act including Accounting
Standards as applicable to the companies require any change in treatment
or disclosure including addition, amendment, substitution or deletion in
the head/sub-head or any changes inter se, in the financial statements or
statements forming part thereof, the same shall be made and the
requirements of the Schedule VI shall stand modified accordingly. Thus,
in other words, the requirements of accounting standards notified under
the <em>Companies (Accounting Standards) Rules, 2006</em> will prevail in
case of a conflict with the requirements of revised Schedule VI.</p>
<p>Â </p>
<p>The revised Schedule VI clearly provides that except in the case of
the first Financial Statements laid before the company (after its
incorporation) the corresponding amounts (comparatives) for the
immediately preceding the reporting period for all items shown in the
Financial Statements including notes shall also be given. A question,
thus, arises that whether at the time of first time application of
revised Schedule VI, i.e. while drawing up the financial statements for
2011/12, an entity would need to give the comparative for 2010/11 as per
the revised Schedule VI. In our view, the comparatives for 2010/11 will
also be based on the revised Schedule VI.</p>

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<p>Â </p>
<p>The revised Schedule VI sets out the minimum requirements for
disclosure on the face of the Balance Sheet, and the Statement of Profit
and Loss (hereinafter referred to as "Financial Statements" for the
purpose of this Schedule) and Notes. Line items, sub-line items and sub-
totals shall be presented as an addition or substitution on the face of
the Financial Statements when such presentation is relevant to an
understanding of the company's financial position or performance or to
cater to industry/sector-specific disclosure requirements or when
required for compliance with the amendments to the Companies Act or under
the Accounting Standards. The revised Schedule VI prescribes the format
for information to be presented on the face of Balance Sheet and
Statement of Profit and Loss. There is no format prescribed for cash flow
<p>Â </p>
<p>Unlike the old Schedule VI, the revised Schedule VI does not give the
option to present the financial statements in horizontal format. Both the
Balance Sheet as well as the Statement of Profit or Loss is to be
presented in the vertical format.</p>
<p>Â </p>
<p>MCA has also decided to mandate certain class of companies1to file
Balance Sheets and Profit and Loss Account along with Director's and
Auditor's Report for the year 2010/11 onwards by using XBRL taxonomy. The
financial statements required to be filed in XBRL format would be based
upon the Taxonomy, Taxonomy Business Rules, Validity rules etc. on XBRL
developed for the existing Schedule VI [as per the existing (non-
converged) Accounting Standards notified under the <em>Companies
</em>(<em>Accounting Standards</em>)<em> Rules, 2006</em>]. It is
expected that about 30,000 companies would be covered in the first phase.
It will later be extended to all 900,000 companies.</p>
<p>Â </p>
<p>XBRL stands for eXtensible Business Reporting Language. It is an
electronic format for communication of business and financial data. XBRL
is one of a family of "XML" (eXtensible Mark Up Language). It is an open
standard, free of licence fees. It is already being put to practical use
in a number of countries and implementations of XBRL are growing rapidly
around the world.</p>
<p>Â </p>
<p>There are lots of benefits that XBRL offers ,e.g., faster data
analysis, automated data processing, multi-language capability, enhanced
quality of information, enhances usability of financial statements,
enhances comparability, flexibility, time and cost savings, etc.</p>
<p>Â </p>
<p>There are various terminologies that are being used viz., taxonomy,
instance document, XBRL reports etc. To put it simply, what one needs to
do is to link the financial and non-financial items contained in the
financial statements with the taxonomy given by MCA. Today we punch in
the key balance sheet and profit and loss account information in Form
23AC and 23ACA, attach the financial statements and file it in MCA
21.Henceforth, we will just need to link our financial statements with
the relevant items in the taxonomy and there will be no need to
separately attach any financial statements. Not only this, even the
auditors' report will be filed in XBRL format.</p>
<p>Â </p>
<p>Overall these are both exciting and challenging times for finance
profession inIndiaand needs to be exploited at the earliest to gain an
early mover advantage.</p>                <!--INFOLINKS_OFF-->

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