Checklist for Preparing Financial Statements as per Revised Schedule III of Companies Act

Preparing financial statements properly is not just a legal formality — it helps companies build trust with investors, bankers, and regulators. Under the Companies Act, 2013, Schedule III provides the format and required disclosures for preparing the balance sheet, profit and loss statement, and other financial reports.

The Ministry of Corporate Affairs ( MCA ) made important changes to Schedule III on March 24, 2021, effective from April 1, 2021. These amendments brought in stricter disclosure rules to increase transparency and improve reporting quality. No further changes have been notified since 2021.

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First Step: Know Which Division Applies to Your Company

The structure of Schedule III is divided into three divisions. Your first step is to identify which one applies to your company:

• Division I: For companies following the Companies (Accounting Standards) Rules, 2006.
• Division II: For companies following Indian Accounting Standards (Ind AS).
• Division III: For Non-Banking Financial Companies ( NBFCs ) following Ind AS.

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Always confirm your accounting framework before starting your financial statement preparation. It decides the format and the level of disclosures required.

General Guidelines to Remember

• Follow both Companies Act, 2013 and the applicable Accounting Standards (AS or Ind AS). Schedule III disclosures are additional, not optional.
• Include narrative notes to accounts explaining key numbers and transactions. Notes should break down totals, provide explanations, and highlight important items.
• Apply rounding off of figures:
• If total income is less than Rs. 100 crore: Round off to the nearest hundreds, thousands, lakhs, or millions.
• If total income is Rs. 100 crore or more: Round off to the nearest lakhs, millions, or crores.
• Show comparative figures for the previous financial year for all items unless it is your first year of operation.
• Disclose all material items that may influence decisions of investors or lenders.

Example: If your company paid Rs. 1 crore as penalties for non-compliance, even though it is not a regular expense, you must disclose it separately.

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Balance Sheet Checklist: How to Get It Right

1. Classify Assets and Liabilities Properly

• Current assets: Expected to be realized, sold, or consumed within one year.
• Non-current assets: Used for longer than one year.
• Current liabilities: Obligations due within one year.
• Non-current liabilities: Payable after one year.

Tip: If the company’s normal operating cycle is not clear, assume it to be 12 months.

2. Share Capital Disclosures

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• Mention promoter shareholding with the number of shares and percentage.
• Disclose any change in promoter holding during the year.

3. Borrowings

• Clearly state whether borrowings are secured or unsecured.
• If there is a default in repayment, disclose the amount and the period of default.

4. Trade Payables

• Prepare an ageing schedule showing how long payments are due: Less than 1 year, 1–2 years, 2–3 years, More than 3 years
• Separate the payables into:
• Dues to MSMEs (Micro, Small, and Medium Enterprises)
• Dues to others
• Disputed dues (both MSMEs and others)

5. Property, Plant, and Equipment (PPE) and Intangible Assets

• Provide a reconciliation of asset values: Opening balance, Additions, Disposals, Depreciation and amortization, Closing balance
• If assets were revalued, mention if the valuation was done by a registered valuer.

6. Capital Work-in-Progress (CWIP)

• Include an ageing analysis of projects: Less than 1 year, 1–2 years, 2–3 years, More than 3 years
• For overdue projects, explain reasons for delays and give completion timelines.

7. Title Deeds of Immovable Properties

• If the property title is not in the company’s name, disclose:
• Name of the person holding the title
• Whether they are promoters, directors, or their relatives
• Reason why the property is not in the company’s name

Profit and Loss Statement Checklist

1. Revenue and Other Income

• Clearly break down:
• Revenue from sales of products or services
• Other operating revenue (such as job work charges)
• Other income (like interest earned, rent, or dividend income)

2. Expenses to Disclose Separately

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• Employee benefit expenses: Salaries, bonuses, provident fund, gratuity.
• Depreciation and amortization: Show as a separate line item.
• Auditor fees: Split between audit fees, tax audit fees, and other services.
• CSR Expenditure:
• Amount required to be spent
• Amount actually spent
• Reasons for any shortfall
• Related party details, if CSR spending was done through related parties.

3. Special Disclosures

• Crypto or Virtual Currency Transactions:
• Profit or loss from crypto trading
• Amount of currency held at the reporting date
• Deposits or advances received for crypto activities’
• Undisclosed Income:
• If income was surrendered to tax authorities but not recorded earlier, disclose it.
• Confirm if now properly recorded in the books.

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Special Disclosures and Other Important Information

If the company has subsidiaries, associates, or joint ventures, it must prepare consolidated financial statements. These should clearly show the share of profits or losses and net assets of the parent company and its group companies.

Certain other disclosures are also mandatory under the 2021 amendments. These include:

• Loans or advances given to promoters, directors, key managerial personnel (KMPs), or related parties, especially if they are repayable on demand or do not have fixed repayment terms.
• If the company has borrowings secured by current assets, it must confirm whether the quarterly returns filed with banks match the company’s books.
• Details of any transactions with companies that have been struck off by the Registrar of Companies.
• Disclosure of whether the company has been declared a wilful defaulter by any bank or financial institution.
• Information about benami property, if any proceedings are going on against the company under the Benami Transactions (Prohibition) Act.
• Ratios like current ratio, debt-equity ratio, inventory turnover ratio, and others must be disclosed. If there is more than 25% change in any ratio compared to last year, the company must explain the reasons.
• Reporting on utilization of borrowed funds or share premium if these were passed through intermediaries to ultimate beneficiaries.

Documentation and Verification for Compliance

The company must maintain proper documentation to support all the figures and disclosures made in the financial statements. It is important to keep accurate records because these statements will be reviewed by auditors and regulators.

Companies are advised to use a compliance checklist, especially if they are applying these disclosure rules for the first time. Consulting a chartered accountant, company secretary, or financial advisor can help ensure that the company is fully compliant with all the requirements.

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