In a plethora of changes to the disclosure rules under the Companies Act on Wednesday, the ministry of corporate affairs (MCA) significantly enhanced the reporting requirements for firms in the preparation of balance sheets and financial statements from the coming fiscal.
Further, the MCA also mandated companies to record an audit trail of its accounts starting from April 1.
All firms using accounting software to maintain their books need to use softwares with features of recording the audit trail of each and every transaction, creating an edit log including the date of such changes.
Starting from the upcoming fiscal, any dealings in cryptocurrencies would have to be disclosed with details on profit or loss on such transactions, amounts of such currency held and deposits or advances from any person for trading or investing in these currencies.
“While the government is already working on a bill on crypto currency, the disclosures for such currency has made it clear that the government wants to gather data on crypto currency,” said Nischal Arora, partner at Nangia Andersen LLP.
Another important change was related to the disclosure of any benami properties held.
“This disclosure is another step to improve transparency for the stakeholders as they will have to disclose any proceeding that has been initiated or pending against the company for holding any benami property and also provide a reasoning and view on the same,” said Amit Maheshwari, partner, AKM Global
Loans granted to promoters, directors and related parties that are repayable on demand or without specific repayment terms from companies would have to now be disclosed in terms of amount and percentage to total loans granted.
Firms would also have to disclose if they have been declared a wilful defaulter by any bank, financial institution or any other lender.
While this would push firms to regularly service their loans, it “will be helpful for the investor and other lenders to be aware about these types of companies before making any investment or lending the money,” Maheshwari said.
“These disclosures will make it easier for the government to track non-compliances and take suitable action,” Arora said.
Amending the Companies (Accounts) Rules, the MCA specified that firms need to ensure that the audit trail feature on the accounting software cannot be disabled.
According to Shalu Kedia, partner at Nangia and Co LLP, the move was largely aimed at curbing backdated entries and would mostly affect smaller firms as the larger corporates already use such software.
“This will improve the internal controls of companies as each change to the accounts will appear as a fresh entry in the software, preventing manipulation of the original transaction at a later date,” Kedia said.