Key Amendments To Maintenance of Accounts

Key amendments to maintenance of
accounts and financial reporting under

the Companies Act, 2013
26 March 2021
Summary
The Ministry of Corporate Affairs (MCA) has issued the Company (Accounts) Amendment
Rules, 2021, Companies (Audit and Auditors) Amendment Rules, 2021 and made
amendments to Schedule III to the Companies Act, 2013 (the Act). These amendments
require significant additional disclosures in the statutory financial statements of
companies, enhance reporting responsibilities of the auditors and require companies to use
and maintain accounting software with audit trail functionality.
Amendments to Companies (Accounts) Rules, 2014

Rule 3 - Manner of books of account to be kept in electronic mode (applicable
for financial years commencing on or after 1 April 2021)
‒ Every company needs to use only such accounting software that has a feature to record
audit trail of each and every transaction, creating edit log of each change made including
the date of such change and ensuring that the audit trail cannot be disabled.
Rule 8 - Matters to be included in the Board's Report (applicable with effect from
1 April 2021)
‒ Details of application made or pending proceedings under Insolvency and Bankruptcy
Code, 2016 along with year-end status.
‒ Details of difference between the valuations done during one-time settlements versus
during taking loans from banks or financial institutions.
Grant Thornton Alert

Amendments to Companies (Audit and Auditors) Rules, 2014
• Additional reporting responsibilities under Rule 11 have been included to report on:
‒ Whether management representations have been obtained that there are no funding
arrangements where the company is either the investor or investee, other than those
already disclosed in the financial statements, where there exist separate understanding,
whether in writing or otherwise, between lending company and receiving company, for
any further lending, investment or provision of security or guarantee to any other
'ultimate beneficiaries' identified by or on behalf of the funding company
‒ Negative assurance by auditors on such management representations based on
appropriate and reasonable audit procedures under the circumstances
• Reporting on compliance with Section 123 of the Act in respect of declaration or payment
of dividend during the year.
• Reporting on:
‒ Whether the accounting software used by the company has a feature of recording of
audit trail (edit log) facility
‒ Whether the above feature operated throughout the year for all transactions recorded in
the software and the audit trail feature has not been tampered with
‒ Audit trail feature has been preserved by the company as per the statutory record
retention requirements

Key additional disclosure requirements as per Schedule III (applicable
with effect from 1 April 2021)
Asset- related Equity and liability related Statement of Profit and Loss
• Amount of change due to re- • Disclosure of shareholding of • Separate disclosure of

valuation (if change is 10% or promoters grants or donations
more of net carrying value) of • Disclosure of current received by Section 8
each class of property, plant maturities of long-term companies (applicable for
and equipment (PPE) and borrowings re-classified from Division I and Division II)
intangible assets ‘other current liabilities’ to • Details of transactions of
• Disclosure of security deposits ‘short-term borrowings’ undisclosed income
re-classified from ‘long-term • Trade payables ageing surrendered as income
loans and advances’ to ‘other schedule segregated by during the year under the
non-current assets’ disputed and others, Income Tax Act, 1961
• Trade Receivables ageing including separate disclosure • Additional disclosures with
schedule from due date of of amounts due to MSME respect to Corporate
payment where available, else • Disclosure of borrowings for Social Responsibility
from the date of transaction specific purpose, where they expenditure and related
• Capital work-in-progress are not used for such provisions, including
(CWIP) and intangible assets purpose details of related party
under development ageing and • Reconciliation of quarterly transactions
completion (where overdue) statements of current assets • Details of dealings in
schedules submitted to banks or Crypto Currency or
• Extensive disclosures regarding financial institutions for Virtual Currency
immovable property where title secured borrowings, with
deeds are not held in name of books of accounts and
the company including whether disclosure of reasons of
they are held in the name of the material discrepancies, if any
promoter, director or relatives • Separate disclosure of Lease
and reason for not being held in liabilities under current and
the name of the company non-current liabilities
• Loans or advances granted to (applicable for Division II)
promoters, directors, KMPs and • Disclosure of prior period
the related parties that are errors and restatements in
repayable on demand or statement of changes in
without terms or period of equity (applicable for
repayment Division II and Division III)

Other significant disclosures
• Extensive details of transactions where the company is either an investor (advances, loans,
share capital or otherwise) or investee, where there is an understanding that the intermediary
entity will further directly or indirectly, lend, invest or provide any guarantee, security or the like
on behalf of ultimate beneficiaries including declaration regarding compliance with the relevant
provisions of the Foreign Exchange Management Act, 1999, Companies Act, 2013 and whether
there are violations of the Prevention of Money-Laundering act, 2002.
• Details of proceedings initiated or pending against the Company under the Benami
Transactions (Prohibition) Act, 1988 for holding Benami Property
• Details of transaction not recorded in the books that has been surrendered or disclosed as
income in the tax assessments
• Disclosure where a company is declared as a wilful defaulter by any bank or financial Institution
• Delays in registration of charges or satisfaction including reasons
• Details of transactions with companies struck-off from Register of Companies
• Compliance with restrictions on number of layers of companies, as applicable under the
Companies (Restriction on Number of Layers) Rules, 2017
• Disclosure of specified financial ratios (along with explanation of more than 25% change as
compared to preceding year for Division I and Division II)
• Compliance of accounting of approved Scheme(s) of Arrangements in accordance with such
scheme and in accordance with the applicable accounting standards

Our comments
These amendments have added significant disclosures in financial statements and
consequently, enhanced auditor responsibilities with an aim to enhance transparency in
financial reporting. It is pertinent to note that there are already significant reporting
requirements that have been included in the Companies (Auditor’s Report) Order, 2020,
which is applicable for financial years commencing on or after 1 April 2021.
Whilst we are supportive of the overall objective of enhancing transparency and
bringing in higher accountability to both preparers and auditors, such extensive
changes need to be brought in with adequate time being given for implementation.
Some changes such as the one relating to accounting software is likely to be
impractical to comply with in a short span of time for the vast number of small and
medium-sized companies which use software without the required functionality. These
amendments also raise several questions on the manner in which they need to be
disclosed and reported on and will require guidance from the regulator as well as the
Institute of Chartered Accountants of India.

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Key amendments to maintenance of

accounts and financial reporting under

require significant additional disclosures in the statutory financial statements of

and maintain accounting software with audit trail functionality.

Amendments to Companies (Accounts) Rules, 2014

Code, 2016 along with year-end status.

during taking loans from banks or financial institutions.

Grant Thornton Alert

any further lending, investment or provision of security or guarantee to any other

'ultimate beneficiaries' identified by or on behalf of the funding company

‒ Negative assurance by auditors on such management representations based on

appropriate and reasonable audit procedures under the circumstances

audit trail (edit log) facility

Grant Thornton Alert

• Amount of change due to re- • Disclosure of shareholding of • Separate disclosure of

Grant Thornton Alert

there are violations of the Prevention of Money-Laundering act, 2002.

Transactions (Prohibition) Act, 1988 for holding Benami Property

income in the tax assessments

• Delays in registration of charges or satisfaction including reasons

• Details of transactions with companies struck-off from Register of Companies

• Compliance with restrictions on number of layers of companies, as applicable under the

Companies (Restriction on Number of Layers) Rules, 2017

compared to preceding year for Division I and Division II)

• Compliance of accounting of approved Scheme(s) of Arrangements in accordance with such

scheme and in accordance with the applicable accounting standards

Grant Thornton Alert

These amendments have added significant disclosures in financial statements and

consequently, enhanced auditor responsibilities with an aim to enhance transparency in

which is applicable for financial years commencing on or after 1 April 2021.

Whilst we are supportive of the overall objective of enhancing transparency and

bringing in higher accountability to both preparers and auditors, such extensive

Some changes such as the one relating to accounting software is likely to be

Institute of Chartered Accountants of India.

Grant Thornton Alert

NEW DELHI NEW DELHI AHMEDABAD BENGALURU CHANDIGARH

CHENNAI DEHRADUN GURGAON HYDERABAD KOCHI

KOLKATA MUMBAI MUMBAI NOIDA PUNE

For more information or for any queries, write to us at [email protected]

© 2021 Grant Thornton Bharat LLP. All rights reserved.

Grant Thornton Alert

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