In this article, we will talk about some of the new disclosures which have been introduced for the company to disclose in the Annual Report of the Financial Year 2022. So, let’s get started!
Schedule III of Companies Act 2013
- There is new disclosure the company has to make from FY22 as mandatory disclosure. Schedule III of the Companies Act is one of the schedules prescribed under the Act which mandates the disclosures required to be made in the financial statements of the companies.
- This schedule talks about the presentation and disclosure required that need to be made by all companies to Ind AS is applicable. All the listed companies are required to comply with Ind AS accounting requirements.
- In March 2021, certain amendments were made by the Ministry which included making certain additional disclosures in the financial statement which will apply to FY22 financials and annual reports.
1) Trade Receivables & Trade Payables:
Current Format for Trade Receivables
- There is a key change in trade receivables and trade payable, earlier there was limited information available for the trade receivable and payable.
- Just by looking the at financial report investors will not able to know its age of it. After this change, the investors will be able to know the age of the trade receivable and payable.
New Format for Trade Receivables & Trade Payables
- As per the new disclosure, the aging analysis is required to be provided by the companies where the outstanding amount would be disclosed concerning days since due for payment. There are further requirements to be disclosed into brackets of dispute/undisputed and whether the credit risk for them has increased, has been impaired, or is considered good. This disclosure is also required to be done in the case of trade payables.
2) Loans and Advances to Promoters/Group Companies
Loans and Advances to Promoters/Group Companies – Current Disclosure
Loans and Advances to Promoters/Group Companies – New Disclosure
- Change in loans and advances to promote and group companies. As per the new disclosure requirement, the number of loans given to promoters, and directors are to be disclosed as a percent of the total loans and advances of the company. This will provide insight on how much percent of exposure is to related parties.
3) Relation with struck off companies – New disclosure:
- New disclosure, A company with strike-off is the process when a business is removed from the company’s house register and ceases to exist. The disclosure will help investors know if any company that has been struck off owes any money to the company. Since the company has been struck off, it is highly unlikely for this amount to be recovered.
4) Current Asset security – New disclosure
- There is a need for working capital by the company to finance its day-to-day activities. As selling products and receiving payment for the same has some gap, so the company needs money to perform their functions for this they take finance from the bank and submit the stock statement to the bank. Sometimes this stock statement is submitted to the bank and doesn’t match with the books of account stock statement.
- Typically, one of the covenants of working capital loans is the submission of monthly/quarterly stock statements wherein, the company provides a disclosure about the working capital utilization at the end of the month. From now on, companies are required to disclose where these statements tally with the books of accounts of the company.
- So, as per the new disclosure companies are required to disclose whether these statements tally with the books accounts of the company or not.
5) Capital work-in-progress – New disclosure
- Capital work-in-progress is not capitalized until it is completed, this is done by the company to save themselves from the depreciation. Sometimes companies have large amounts struck in CWIP for a long duration for which shareholders do not get any information. The aging of CWIP is now required to be provided by companies.
6) Disclosure of ratios – New disclosure requirement:
- New disclosure requirement 13 ratios are mandated by the MCA to disclose. Also, the amount used to calculate this ratio is mandated to show in the financial report.
- Current Ratio
- Debt-Equity Ratio
- Return on equity ratio
- Inventory turnover ratio
- Trade receivables turnover ratio
- Trade payable turnover ratio
- Net capital turnover ratio
- Net profit ratio
- Return on capital employed
- Return on investment
What Should Investors Do?
Reading Annual Report is one of the best things a wise investor does. The Annual Report of the company gives a wide outlook of the company via several pointers like Company Overview, Management Outlook, Financials, and much more. This recent development by the regulatory body regarding disclosure will help an investor to understand the company in-depth, and make the proper decision about the health of the company.
Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent are commendation to buy or sell stocks or MF.