Statutory Provisions regarding Preparation of Financial Statements of Companies as per IND AS-1

IND AS-1, Presentation of Financial Statements, lays down the principles for presenting general-purpose financial statements, ensuring comparability both with the entity’s own prior periods and with other entities. For companies in India, the preparation and presentation of financial statements must comply with the Companies Act, 2013 (particularly Section 129 and Schedule III) and applicable Indian Accounting Standards notified under the Companies (Indian Accounting Standards) Rules, 2015.

Legal Framework under Companies Act, 2013:

Section 129 – Financial Statements

• Every company must prepare a financial statement for each financial year that:

  1. Gives a true and fair view of its state of affairs,

  2. Complies with accounting standards notified under Section 133, and

  3. Is in the form provided in Schedule III.

• Financial statements must be laid before the Annual General Meeting (AGM) along with the consolidated financial statements (if applicable).

• The Board of Directors must approve and authenticate the statements before presentation to shareholders.

Schedule III – Form of Financial Statements:

• Provides the structure and minimum disclosure requirements for the Balance Sheet, Statement of Profit and Loss, and accompanying notes.

• Separate formats exist for companies complying with IND AS and those following Accounting Standards (AS).

Objective of IND AS-1:

• To prescribe a uniform basis for presentation of financial statements.

• To ensure that the financial statements:

  • Present a true and fair view.

  • Provide relevant, reliable, and comparable information.

  • Enable users to assess the financial position, performance, and cash flows of the entity.

Components of Financial Statements:

A complete set of financial statements as per IND AS-1 includes:

1. Balance Sheet (Statement of Financial Position) as at the end of the period.

2. Statement of Profit and Loss – including Other Comprehensive Income (OCI).

3. Statement of Changes in Equity – showing movements in equity components during the period.

4. Statement of Cash Flows – prepared as per IND AS-7.

5. Notes to Accounts – including significant accounting policies and explanatory information.

6. Comparative Information for the preceding period.

Fundamental Principles under IND AS-1:

a) Fair Presentation and Compliance with IND AS

• Entities must present financial statements fairly to reflect the economic reality.

• Full compliance with all applicable IND AS is presumed to achieve fair presentation.

• In extremely rare cases, where compliance with a requirement would be misleading, departure is allowed — with detailed disclosure of the reasons and the financial impact.

b) Going Concern

• Management must assess whether the entity is a going concern.

• If material uncertainties exist that may cast significant doubt, these must be disclosed.

c) Accrual Basis of Accounting

• Financial statements (except for cash flow information) must be prepared using the accrual basis — recognising transactions when they occur, not when cash is received or paid.

d) Consistency of Presentation

• Presentation and classification must be consistent from one period to the next unless:

  • A significant change in the nature of operations justifies a new presentation, or

  • A change is required by a new or revised IND AS.

Presentation and Disclosure Requirements:

Materiality and Aggregation

• Each material item must be presented separately in the financial statements.

• Similar items may be aggregated if immaterial.

• Materiality is judged in the context of the financial statements as a whole.

Offsetting

• Assets and liabilities, or income and expenses, must not be offset unless permitted or required by an IND AS.

Comparative Information

• Comparative figures must be disclosed for the preceding period for all amounts.

• Comparative narrative and descriptive information is also required when relevant.

Structure and Content

• Identification: Each component must be clearly identified with the name of the entity, statement title, reporting date, and currency used.

• Distinction: Entities must distinguish between current and non-current assets and liabilities unless a liquidity presentation is more relevant.

• Minimum line items: Schedule III prescribes the minimum line items to be presented on the face of the Balance Sheet and Statement of Profit and Loss.

Notes to Accounts:

The notes must:

1. Present information about the basis of preparation and specific accounting policies used.

2. Disclose the information required by IND AS that is not presented elsewhere.

3. Provide additional information necessary for a fair presentation.

Order of notes typically:

• Statement of compliance with IND AS.

• Summary of significant accounting policies.

• Supporting information for items presented in the financial statements.

• Other disclosures (e.g., contingent liabilities, commitments, related party transactions).

Statutory Disclosures under IND AS-1 & Companies Act

• Authorisation date for issue of financial statements.

• Significant judgments made by management.

• Key sources of estimation uncertainty.

• Capital management policies.

• Dividends proposed or declared.

• Disclosure of first-time adoption adjustments if applicable.

Responsibilities and Approval:

• Preparation: Primarily the responsibility of the management.

• Approval: Board of Directors must approve before submission to auditors.

• Authentication: Signed by the chairperson of the Board, managing director, CFO, or authorised directors.

• Filing: Filed with the Registrar of Companies (ROC) along with the Board’s and Auditor’s Reports.

Importance of Compliance:

Non-compliance with IND AS-1 and Companies Act provisions can result in:

• Legal penalties.

• Misrepresentation of financial position.

• Loss of investor confidence.

• Qualification in the Auditor’s Report.