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Attention Startups! The MCA Now Wants To Know How You Handled Cash During Demonetization

Attention Startups! The MCA Now Wants To Know How You Handled Cash During Demonetization

by Sanjeev Archak

The financial year 2016 – 2017 would go down in the economic history of India for one primary reason. The ‘Demonetization’ scheme introduced by our Prime Minister Shri Narendra Modi and his government. This scheme took the entire nation by storm on November 8, 2016. The advantages and disadvantages of enforcing this scheme is a topic of huge debate for every Indian, and it would continue to be so for years to come.

The Government of India vide their Notification no. 2652 dated November 8, 2016, decided to cancel the legal tender character of the high denomination bank notes of Rs. 500 and Rs. 1000 denominations (hereafter referred to as Specified Bank Notes) issued by the RBI. The scheme was necessitated to tackle counterfeiting Indian banknotes, to effectively nullify black money hoarded in cash and curb funding of terrorism with fake notes.

In the same line, the Ministry of Corporate Affairs now wants companies to disclose demonetization transactions in their Balance Sheet and Audit report.

How You Handled Cash During Demonetization

The MCA made two significant amendments concerning disclosures of the cash during demonetization. It is to be made by the Companies in their Notes of Accounts as well as the Report to be provided by the Statutory Auditors for the year ended 31st March 2017.

Amendment 1 – Mandatory Disclosure in Balance Sheet

The MCA vide its notification dated 30.03.2017 has now amended the SCHEDULE III of the Companies Act, 2013 as well as the Matters to be included in the Statutory Auditors Report. Every company is now required to disclose details of the SBN which ceased to be a legal tender since 8th November 2016.

The amendment in the Companies Act, 2013 in Schedule III, in Division I, in Part I, under the heading “General instructions for preparation of Balance Sheet” in paragraph 6, after clause ‘W’, the following clause shall be inserted namely:-

“X. Every company shall disclose the details of Specified Bank Notes (SBN) held and transacted during the period from 8th November 2016 to 30th December 2016 as provided in the Table below:-

details of Specified Bank Notes

Explanation: For the purposes of this clause, the term ‘Specified Bank Notes’ shall have the same meaning provided in the notification of the Government of India, in the Ministry of Finance, Department of Economic Affairs number S.O. 3407(E), dated the 8th November 2016.”

In the principal Act, in Schedule III, in Division II, in Part I under the heading “General instructions for preparation of Balance Sheet” in paragraph 6, after clause ‘J’, the following clause shall be inserted namely:-

“K. Every company shall disclose the details of Specified Bank Notes (SBN) held and transacted during the period 08/11/2016 to 30/12/2016 as provided in the Table below:-

details of Specified Bank Notes (SBN)

Explanation: For the purposes of this clause, the term ‘Specified Bank Notes’ shall have the same meaning provided in the notification of the Government of India, in the Ministry of Finance, Department of Economic Affairs number S.O. 3407(E), dated the 8th November 2016.”

Note: Schedule III of the Companies Act, 2013 came into force with effect from the 1st April 2014 vide Notification S.O. 902(E), dated 26.3.2014, subsequently amended vide G.S.R. 679(E), dated 04.09.2015 and vide G.S.R. 404(E), dated 06.04.2016.

Amendment 2 – Disclosure in Auditor Report 

In exercise of powers conferred by section 143 read with sub-sections (1) and (2) of section 469 of the Companies Act, 2013 (18 of 2013), the Central Government hereby makes the following rules further to amend the Companies (Audit and Auditors) Rules, 2014, namely:—

(1) These rules may be called the Companies (Audit and Auditors) Amendment Rules, 2017.

(2) They shall come into force on the date of their publication in the Official Gazette.

As per MCA Notification No. G.S.R. 307(E) dated 30th March 2017, there is an amendment in Companies (Audit and Auditors) Rules, 2014, in rule 11 after clause (c), the following clause shall be inserted, namely:—

“(d) whether the company had provided requisite disclosures in its financial statements as to holdings as well as dealings in Specified Bank Notes during the period from 8th November, 2016 to 30th December, 2016 and if so, whether these are in accordance with the books of accounts maintained by the company.”

Rule 11 relates to the matter to be included in ‘Auditor Report.’ As a result, the Auditor Report for the financial year ended 31st March 2017 it is binding for the auditors to bring up above mentioned information relating to Specified Bank Notes in its reports.

The latest move by the MCA further necessitates the need to maintain books of accounts and good internal control over cash during demonetization & bank accounts. It’s the responsibility of the company and the statutory auditors to be fair and true in all their disclosures towards transactions of cash during demonetization period.

This is a time when two significant economic changes will impact the way businesses maintain their books of account – demonetization, and GST. It is crucial to hire a good firm, especially one that is good for small businesses, to guide you through these changes.

Write to us in the comments below or through email to get your queries answered about this notification or if you need expert guidance for your business.

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