As a step towards this, it is planning to revise and simplify Schedule-VI of the Companies Act which prescribes the presentation and disclosure requirements for financial statements. This simplification is a credible goal, particularly for companies which are not ‘public interest entities' as this would considerably remove costs and other associated impediments for small and medium businesses. However, time has come to ask whether the Schedule-VI format is relevant at all today?

Globally, professional bodies of accounting standard setters prescribe accounting formats. The advantages are obvious. This is a specialised area which requires professional input; and has to be updated frequently to keep pace with changes in the economic and commercial environment. A schedule to a law, which has to be debated and amended only by Parliament obviously does not offer the flexibility required. Also given the scheme of things, an accounting legislation may not be the highest priority of our Parliamentarians.

Today, the prescriptions of Schedule-VI are far removed from the reality of what financial statements mean. It is only a legal figment that accounts in India comply with Schedule-VI. For starters, Schedule-VI does not even have any prescribed format for a Profit & Loss Account; it does not require a cash flow statement; it does not require disclosure of accounting policies; it does not require disclosure for leases; it does not warrant disclosure of deferred taxes or disclosure regarding impairment losses or intangibles. Further, the Schedule VI was conceived in an era when nobody had even heard of derivatives and so remains blissfully unaware of derivatives and disclosure of potential losses therein.

On the other hand, the Schedule-VI requires detailed disclosure of inventories, capacity, production and turnover for every significant item produced or traded. This is not required under any global framework and is potentially disadvantageous for the Indian industry vis-à-vis its global competitors as it forces companies operating in India to disclose their confidential operating data. These disclosures were conceived in a "Licence Raj" era and serve no useful purpose today when alternate Segment Reporting data is already available.

Similarly, there is redundancy in data disclosures pertaining to dues from or transactions with, related parties (eg, companies under the same management, director/officers of the company etc.) where there is an existing parallel and more efficient framework of related party disclosures which is warranted by Accounting Standards and is globally acceptable. A lot of clutter such as requirement to disclose CIF values of imports, and earnings and expenditure in foreign currency continues to be mandated by the Schedule VI. These are essentially relics of the insecure foreign exchange days of the sixties and the seventies.

While on one hand the MCA is trying to reinvent the Schedule-VI, on the other hand multiplicity and confusion in the standard setting process in the country is increasing. ICAI's Accounting Standards Board is setting Standards; the National Advisory Committee of Accounting Standards (NACAS) is considering and notifying Standards; the MCA is notifying Rules (Accounting Standards Rules, 2000) that directly contradict Schedule-VI thereby creating a legislative conflict by specifying that a Rule will override an Act !!; the RBI is issuing provisioning & income recognition guidelines; SEBI is mandating presentation and disclosure formats of interim and annual results; and the ICAI is busy issuing ‘announcements', impacting accounting but without either the due diligent process of formulating Standards or investing these announcements with the authority of a mandatory pronouncement.

If the MCA really wants to move to an internationally comparable regime of accounting and transparency, it should not waste its resources in trying to write presentation and disclosure standards into laws. Rather it should repeal both the Schedule-VI to the Companies Act and the IIIrd Schedule of the Banking Regulation Act.

The MCA should invest in laying down rigorous laws around processes of standard setting, ensuring the independence and professionalisation of designated standards setters, unification of Accounting Standards within the country and harmonisation of standards internationally. It is time we all spoke same language. It is time we gave a decent farewell to Schedule-VI.

The views expressed herein are the personal views of the author and do not necessarily represent the views of Ernst & Young Global or any of its member firms