Enquiry:

Section 2 (33) of the Companies Act, 2017, include statement of other comprehensive income, statement of changes in equity and statement of cash flow in the definition of the financial statements. This section applies to all companies whether small-sized, medium-sized or large-sized.

On the other hand, section 1.2 of the ‘Revised Accounting and Financial Reporting Standard for Small-Sized Entities’, states that the minimum set of financial statements includes (a) Statement of Financial Position, (b) Income Statement and (c) Accounting Policies and explanatory notes. Since the law overrides the accounting standards, it transpires that the Small-Sized Companies will have to prepare the financial statements as defined in the Companies Act, 2017.

Opinion:

The Board would like to draw your attention to section 2(33) of the Companies Act, 2017 which defines financial statements as follows:

“Financial statements in relation to company, includes: 

1. statement of financial position as at the end of the period
2. a statement of profit or loss and other comprehensive income or in the case of a company carrying on any activity not for profit, an income and expenditure statement for the period;
3. a statement of changes in equity for the period;
4. a statement of cash flows for the period;
5. notes, comprising a summary of significant accounting policies and other explanatory information;
6. comparative information in respect of the preceding period; and
7. any other statement as may be prescribed.”

The above definition is general and all-encompassing, whereas the third schedule of the Companies Act, 2017 specifies the framework to be followed by an entity.

Further, section 1.2 of the ‘Revised Accounting and Financial Reporting Standard for Small-Sized Entities’ (Revised AFRS for SSEs), states that the minimum set of financial statements includes:

1. Statement of Financial Position
2. Income Statement and
3. Accounting policies and explanatory notes.

Based on the above definition of financial statements and requirements of section 1.2 of the Revised AFRS for SSEs, the financial statements prepared in accordance with the Revised AFRS for SSEs shall contain the statements mentioned in such standard only.

(October 02, 2017)