Revised Schedule VI: Disclosures galore; benefits to accrue :Edelweiss, PDF link

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Changing face of financial statements

Indian corporates are increasingly getting innovative in the preparation of financial statements. With a view to bring about greater transparency to investors and readers of financial statements, the Ministry of Corporate Affairs (MCA) has modified the existing ‘Schedule VI’ format (‘old format’) of Companies Act, 1956. Schedule VI lays down the format for the presentation and disclosure of Balance Sheet (BS) and Profit & Loss account. The ‘new format’ named ‘Revised Schedule VI’ is yet another step in the right direction for ultimately migrating towards IFRS.

Why should investors take note of this revision?

We believe that the revised format will facilitate better analysis of financial statements by disclosing:

·       Asset-liability mismatch on the face of BS

·       Full details of convertible instruments

·       Bifurcation of sundry creditors into creditors for operating activities and others (will assist in accurate forecasting of payable days/operating cash flows)

·       Current maturity of long-term debt (debt repayable within one year) will be disclosed separately under‘Other current liabilities’

·       Detailed bifurcation of addition to fixed assets (amalgamation/other adjustments) will be disclosed separately

·       Debtors exceeding six months post due date of payment.

Revised Schedule VI is applicable to all companies for preparation of financial statements and IPOs for the financial year commencing on or after April 1, 2011.

The new format has been mandated for standalone financial statements and consolidated financial statements, however, certain disclosures such as CIF value of imports, foreign currency expenditure and earnings are required only at the standalone level. The companies would be required to provide comparative fiscal years’ figure in the new format. Accordingly, FY11 financial statements figures will be regrouped and stated as per the new format.

Revised Schedule VI is not applicable to companies for whom the format for financial statements is already specified (like banking and insurance companies). Further, SEBI has by recent amendment rolled out the format for reporting quarterly financials in line with Revised Schedule VI.

For live illustrations of changes in FY11 financials – Refer annexure in attached report

Analysis Beyond Consensus - Revised Schedule VI: Disclosures galore; benefits to accrue

Regards,