Section 129(3) of the Companies Act, 2013 (“the Act”) mandates consolidated financial statements for every company that has one or more subsidiaries. The obligation is not confined to listed companies or large groups; it applies to any company with a subsidiary, including a private company. The consolidation must comply with the accounting standards, and it must be audited.
The Scope of Consolidation
The consolidation must include all subsidiaries, whether wholly owned or partially owned. The company must also consolidate its associates and joint ventures where the applicable accounting standards so require. The consolidation eliminates intra-group transactions, balances, income, and expenses, and it presents the group as a single economic entity.
The accounting standards prescribe the consolidation procedures. Ind AS 110 governs the consolidation under the Ind AS framework, and AS 21 governs the consolidation under the Accounting Standards framework. The company must apply the framework that is applicable to it, and it cannot choose the framework that produces a more favourable result.
The Exemptions
Rule 6 of the Companies (Accounts) Rules, 2014 exempts a company from the CFS requirement where it is a wholly owned subsidiary or a partially owned subsidiary of another company, all its other members have been intimated in writing that the company will not present CFS, the company's securities are not listed, and its ultimate or intermediate holding company files CFS with the Registrar.
The exemption is not available to a listed company, and it is not available where the holding company does not file CFS. The company that avails the exemption must ensure that the conditions are satisfied throughout the year, and it must obtain the written intimation from the members who are not otherwise entitled to vote.
The Exclusion from Consolidation
A subsidiary, associate, or joint venture may be excluded from consolidation where the control or investment is intended to be temporary and the entity is held for disposal in the near future. The exclusion must be justified by the circumstances, and the financial statements must disclose the reason for the exclusion.
The Audit and Filing
The CFS must be audited by the company's statutory auditor, and it must be filed with the ROC in Form AOC-4. The auditor's report on the CFS is separate from the report on the separate financial statements, and it must state whether the CFS gives a true and fair view of the consolidated state of affairs.
A company that has subsidiaries but does not prepare CFS, without satisfying the exemption, is in breach of Section 129(3). The penalty is imposed on the company and its officers, and the auditor is required to report the non-compliance.
Call to Action
Anuj Desai & Associates advises companies on the Section 129(3) consolidation obligation—from the scope of consolidation and the accounting standards to the Rule 6 exemption and the AOC-4 filing. If your group structure is complex, we can help you determine the consolidation perimeter and the available exemptions.
📧 office@anujdesaiassociates.com
📞 9619456656
🌐 https://anujdesaiassociates.com
🔗 linkedin.com/in/ca-anuj-desai-122547230
Article 156