Unlisted companies with at least one foreign subsidiary can prepare consolidated financial statements from the next financial year, according to a January 16 notification by the corporate affairs ministry. Under the new companies Act, these companies were to prepare consolidated statements from this financial year.
However, there is confusion in terms of the companies the notification is applicable to. “On a plain reading, it is not completely clear whether the exemption is available if a company has at least one foreign subsidiary, as well as Indian subsidiaries, or if a company has only foreign subsidiaries and no Indian ones,” said Yogesh Sharma, partner (assurance), Grant Thornton India LLP.
There is no clarity on whether the new norm will be applicable to foreign associates and joint ventures. “While the amendments do not specify this, it appears the use of the words ‘subsidiary or subsidiaries incorporated outside India’ in the amendment also refers to and includes foreign associates and joint ventures,” Sharma added.
The government had decided to provide relief in this regards, as “companies with foreign subsidiaries have to deal with additional challenges in consolidation”, said Sai Venkateshwaran, partner and head of accounting advisory services, KPMG in India. These challenges result from differences in the accounting frameworks and reporting periods followed by subsidiaries. “It is expected these companies will have to prepare consolidated financial statements from next year,” Venkateshwaran said.
