Section 129(1) of the Companies Act, 2013 (“the Act”) requires the financial statements to comply with the accounting standards. The financial statements, as defined in Section 2(40), include a cash flow statement for the financial year, subject to the exemptions for certain classes of companies.
The Requirement
The cash flow statement presents the inflows and outflows of cash and cash equivalents during the financial year, classified into operating, investing, and financing activities. The statement is prepared in accordance with AS 3 or Ind AS 7, depending on the framework applicable to the company. The statement is a part of the financial statements, and it must be audited along with the balance sheet and the profit and loss account.
The Exemptions
Section 2(40) exempts the following classes of companies from the cash flow statement requirement: a one person company, a small company, a dormant company, and a private company that is a start-up and has not committed a default in filing its financial statements or annual return. The exemption is available only where the company satisfies the definition of the exempted class throughout the financial year.
The small company definition has been revised, and the exemption is available to a company with a paid-up capital not exceeding ₹4 crore and a turnover not exceeding ₹40 crore. The start-up exemption is available to a private company that is recognised as a start-up by the Department for Promotion of Industry and Internal Trade and that has not defaulted in its filings.
The Preparation
A company that is not exempt must prepare the cash flow statement and include it in the financial statements. The statement must reconcile the opening and closing cash and cash equivalents, and it must disclose the non-cash transactions. The auditor must report on the statement, and the ROC must be satisfied that the statement is complete.
A company that claims an exemption but does not satisfy the conditions is in breach of Section 129. The auditor should report the non-compliance, and the ROC may initiate action.
Call to Action
Anuj Desai & Associates advises companies on the cash flow statement requirement—from the exemption analysis and the AS 3 or Ind AS 7 preparation to the audit and filing. If your company is unsure whether it qualifies for the exemption, we can help you assess the position.
📧 office@anujdesaiassociates.com
📞 9619456656
🌐 https://anujdesaiassociates.com
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