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ICAI issues norms for consolidated statements

K.R. Srivats

NEW DELHI, March 29

THE Institute of Chartered Accountants of India (ICAI) has issued an Accounting Standard (AS-21) on `consolidated financial statements'. An enterprise that presents consolidated financial statements would have to prepare and present these statements in a ccordance with this new accounting standard.

This new standard, which comes into force on accounting periods commencing on or after April 1, 2001, will be applicable in the preparation and presentation of consolidated financial statements for a `group' of enterprises under the control of a `parent' .

``This accounting standard of the institute cannot be a mandatory one as envisaged under the Companies Act. We can't consider this statement as mandatory as this does not apply to a company. This is because AS-21 is about preparation and presentation of consolidated financial statements for a group under the control of a parent. Probably SEBI or any other regulatory body can make the adherence to this standard mandatory through listing agreements or through other means,'' a senior ICAI official told Bus iness Line here.

For the purpose of AS-21, a `parent' would mean to be an enterprise that has one or more subsidiaries. While a `group' would mean a `parent' and all its subsidiaries, a `subsidiary' is an enterprise that is controlled by another enterprise (known as the parent).

The AS-21, however, does not deal with the methods of accounting for amalgamations and their effects on consolidation, including goodwill arising on amalgamation. It also does not deal with accounting for investments in associates and accounting for inve stments in joint ventures (at present governed by AS-13, Accounting for Investments).

A parent which presents consolidated financial statements would have to present these statements in addition to its separate financial statements.

In a parent's separate financial statements, investments in subsidiaries should be accounted for in accordance with AS-13.

AS-21 also prescribes that a parent which presents consolidated financial statements should consolidate all subsidiaries _ domestic as well as foreign.

A subsidiary should be excluded from consolidation when: a) control is intended to be temporary because the subsidiary is acquired and held exclusively with a view to its subsequent disposal in the near future or; b) it operates under severe long-term re strictions which significantly impair its ability to transfer funds to the parent.

In consolidated financial statements, investments in such subsidiaries should be accounted in line with AS-13 (Accounting for Investments). The reasons for not consolidating a subsidiary should also be disclosed in the consolidated financial statements.

Besides consolidation procedures, the AS-21 has prescribed transitional provisions to the effect that comparative figures for the previous period need not be presented on the first occasion that consolidated financial statements are presented.

In all subsequent years, full comparative figures for the previous period should be presented in the consolidated financial statements.