Exemption to Consolidation of Accounts for Wholly-Owned and Non-Listed Subsidiaries under Chapter IX of The Companies (Accounts) Rules, 2014

 

Introduction:

Under Chapter IX of The Companies (Accounts) Rules, 2014, there is a provision that allows certain companies to be exempt from the requirement of preparing consolidated financial statements. This exemption is specified in the second proviso of the rule related to the manner of consolidation of accounts. Here, we provide an in-depth explanation of the conditions that a company must meet to be eligible for this exemption:

1) Wholly-Owned or Partially-Owned Subsidiary:

·       To qualify for the exemption, the company in question must either be a wholly-owned subsidiary or a partially-owned subsidiary of another company. In the case of a partially-owned subsidiary, it is crucial that all its members, including those who do not have voting rights, are informed in writing about the decision not to present consolidated financial statements.

·       Proof of delivery of such intimation should be available with the company, demonstrating that all relevant parties have been duly notified.

2) Non-Listing of Securities:

·       The second condition for exemption is that the company's securities must not be listed on any stock exchange, whether in India or outside India. In other words, the company should not be publicly traded.

3) Compliance with Accounting Standards:

·       The third condition specifies that the ultimate or any intermediate holding company of the subsidiary should file consolidated financial statements with the Registrar of Companies. These consolidated financial statements must be in compliance with the applicable Accounting Standards.

Key Takeaways:

·       Chapter IX of The Companies (Accounts) Rules, 2014 contains provisions related to the consolidation of accounts by companies.

·       The second proviso of the rule grants an exemption from the requirement of preparing consolidated financial statements under certain conditions.

·       To be eligible for the exemption, a company must:

·       Be a wholly-owned or partially-owned subsidiary.

·       Ensure that all its members are informed in writing about the decision not to present consolidated financial statements, with proof of delivery available.

·       Not have securities listed on any stock exchange.

·       Have its ultimate or intermediate holding company file consolidated financial statements in compliance with Accounting Standards.

This exemption is designed to provide flexibility to certain companies, particularly subsidiaries, and to ease their regulatory burden in cases where consolidated financial statements may not be necessary or practical. Companies should carefully assess their eligibility for this exemption and ensure compliance with the specified conditions to avoid any regulatory issues related to the consolidation of accounts.