What is Schedule III of Companies Act'13 | Applicability of Division I,II and III | SEBI Grade A |

Summary

The video script discusses the intricacies of Schedule III of the Companies Act, focusing on the divisions created for financial statement preparation. It explains the rationale behind the division, who should apply which division, and the implications for different types of companies. The speaker elaborates on the application of Indian Accounting Standards (Ind AS) and the Companies Act for various entities, including listed and unlisted companies, and those in the process of being listed. The session aims to provide clarity on the requirements and formats for financial reporting under the Companies Act.

Takeaways

• 😀 The session is about discussing Schedule III of the Companies Act and its relevance to financial statements.
• 📚 Schedule III is a part of the Companies Act that specifies the format and content of financial statements for companies.
• 🏢 The Companies Act allows for the incorporation of businesses and outlines the rules and regulations for their operation, including financial reporting standards.
• 💡 Limited liability is a significant benefit of incorporating a company, which is why many businesses choose this structure.
• 📈 Schedule III is divided into different divisions, each with specific formats and requirements for different types of companies.
• 📋 Financial statements must present a true and fair view of a company's affairs and comply with accounting standards notified under section 133.
• 🌐 The discussion highlights the shift towards International Financial Reporting Standards (IFRS) for global consistency and investor clarity.
• 🏛 The Ministry of Corporate Affairs notifies accounting standards, which are recommended by the Institute of Chartered Accountants of India and examined by the National Financial Reporting Authority.
• 📝 Small companies, defined by specific criteria, are exempt from certain requirements, such as preparing a cash flow statement.
• 📖 The session aims to provide a basic introduction to Schedule III, explaining why divisions were created and which divisions apply to different entities.
• 🔍 The speaker emphasizes the logic behind which companies should follow which division of Schedule III based on their size, listing status, and industry.

Q & A

What is the main topic discussed in the session?

The main topic discussed in the session is Schedule III of the Companies Act, its divisions, and how different types of companies are required to follow different divisions of Schedule III for preparing their financial statements.

What is the benefit of limited liability in the context of the Companies Act?

Limited liability is a significant benefit as it protects the personal assets of the company owners, meaning they are only liable up to the amount of their investment in the company, and not for the company's debts.

Why are financial statements required to follow a specific format as per Schedule III?

Financial statements are required to follow a specific format to ensure consistency, comparability, and transparency, making it easier for stakeholders such as investors, regulators, and the public to understand the financial health of a company.

What is the purpose of dividing Schedule III into different divisions?

Schedule III is divided into different divisions to cater to the varying needs and complexities of different types of companies, such as listed companies, unlisted companies, banking companies, insurance companies, and non-banking financial companies.

What is the role of the Institute of Chartered Accountants of India (ICAI) in relation to accounting standards?

The ICAI is responsible for issuing accounting standards in India. It recommends and examines these standards, which are then notified by the National Financial Reporting Authority (NFRA) and adopted by the central government.

How does globalization impact the need for a common set of accounting standards?

Globalization necessitates a common set of accounting standards to facilitate cross-border investments and to enable investors worldwide to understand and compare financial statements of companies from different countries.

What is the significance of the term 'true and fair view' in financial statements?

The term 'true and fair view' implies that the financial statements should accurately represent the financial position and performance of the company, adhering to the principles of transparency and fairness.

Why are some companies exempted from preparing a cash flow statement?

Some companies, such as dormant companies or small companies that meet specific criteria, are exempted from preparing a cash flow statement to reduce the compliance burden and because their operations are minimal or simple.

What is the definition of a 'small company' as per the Companies Act?

A 'small company' is defined as a company that does not exceed specified thresholds, which currently include a paid-up share capital of up to INR 5 crores and an annual turnover of up to INR 20 crores.

How does the listing status of a company's securities affect the application of Schedule III?

If a company's securities are listed or in the process of being listed on a stock exchange, either in India or outside, the company must follow Schedule III Division II, which requires adherence to Indian Accounting Standards.