Small-and medium-sized companies (SMCs) may soon have a `SARAL' format for disclosing their financial statements. For ensuring better compliance by all categories of companies with disclosure norms prescribed under the company law, the Ministry for Corporate Affairs (MCA) had asked the Institute of Chartered Accountants of India (ICAI) to suggest a simpler format of financial statements especially for SMCs.
Currently, schedule VI of the Companies Act prescribes the format for disclosing profit and loss statement and balance sheet by companies. A SARAL schedule VI would help SMCs to comply with the disclosure norms without much compliance cost.
Speaking to Business Line, Mr Prem Chand Gupta, Minister for Corporate Affairs, said, "Transparency and disclosure are very important for promoting good corporate governance and protecting investor interest. For this purpose it is necessary that the companies meet all the compliance requirements prescribed under the law. The disclosure norms in case of small- and mediumsized companies have to be reasonable without overburdening them."
To carry out the exercise, the ICAI had constituted a study group for prescribing SARAL schedule VI. A draft SARAL schedule VI had been prepared and public comments were sought. This SARAL schedule would apply to those companies which fulfil and satisfy the following conditions at the end of relevant reporting period - their equity or debt securities are not listed or not in the process of being listed on any stock exchange, whether in India or outside India; it should not be a bank, financial institution or insurance company; turnover (excluding other income) does not exceed Rs 50 crore in the immediately preceding reporting period; does not have borrowings (including public deposits) in excess of Rs 10 crore during the immediately preceding reporting period.
Besides, the entity should not be a holding or subsidiary of a company that is not a small-and medium-sized company.
It is believed that SMCs will not have complex transactions and do not have public accountability. Besides, they do not hold assets in a fiduciary capacity for broad group of outsiders and accountability is limited to owners/government agencies.