GPMI Home
Access FREE world-class global payroll education and compliance resources: Subscribe
Access FREE world-class global payroll education and compliance resources: Subscribe

Asia Briefing

horizAsiaBriefing (7)

India Requires Additional Company Disclosures 

 

By Dezan Shira & Associates

The Ministry of Corporate Affairs (MCA) announced that starting 1 April 2021, all companies must declare any investments they have made in cryptocurrencies, any relationships they have with dissolved companies, and any loans they have extended to related parties. They must also state if they have been declared willful defaulters by banking, lending, or financial authorities.

All Companies Must Record Audit Trails of Their Accounts

Firms using accounting software to maintain their books must enable the record audit trails of their accounting transactions and create an edit log that will include the date of transactions, etc. 

The amendments to the Companies (Accounts) Rules, 2014 reads:

  • In rule 3, sub-rule (1): “Provided that for the financial year commencing on or after the 1st day of April, 2021, every company which uses accounting software which has a feature of recording audit trail of each and every transaction, creating an edit log of each change made in books of account along with the date when such changes were made and ensuring that the audit trail cannot be disabled.”
  • In rule 8, sub-rule (5) after clause (x), the following clauses are inserted:
    (xi) “the details of application made or any proceeding pending under the Insolvency and Bankruptcy Code, 2016 (31 of 2016) during the year along with their status as at the end of the financial year. (xii) the details of difference between amount of the valuation done at the time of one time settlement and the valuation done while taking loan from the Banks or Financial Institutions along with the reasons thereof.”

See also the MCA announcement on Companies’ (Audit and Auditors) Amendment Rules, 2021.

The corporate ministry’s announcement is directed mostly at smaller firms and to curb practices like making backdated entries. Bigger firms already use such accounting software widely, as it results in cost savings for their operations and protects them from exposure to fraud and malpractice, decreases accounting errors, and helps avoid corporate incompliance.

The Indian government is overall keen to strengthen corporate financial and general reporting norms in the country so it can act against defaulting or noncompliant companies more quickly.

Specifications of Additional Company Disclosures

The amendment to Schedule III under the Companies Act, 2013 will make additional disclosures relating to cryptocurrency dealings, benami property, loans to related parties of dissolved or dormant companies, and the aging of payables and receivables with vendors mandatory.  

Disclosing dealings in cryptocurrencies must include profit/loss details on such transactions, the amounts of currency held, and financial information pertinent to transactions with any person trading or investing in these currencies.

For benami property holdings, companies must disclose any proceeding that has been initiated/is pending against them for holding the property and the rationale for doing so.

Companies must also provide the details of any shortfall in corporate social responsibility (CSR) spending in the previous years and state the reasons for failing to meet targets.

All the loans that companies have granted to related parties that are repayable on demand or without specific repayment terms must be declared in terms of amount and percentage to total loans granted. This will educate investors about the true financial health of companies before they invest in or lend money to them.


This article was first published by India Briefing, which is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in ChinaHong KongVietnam, Singapore, India, and Russia. Readers may write to [email protected] for more support.