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For a Section 8 Company, transparency and accountability are key to fulfilling its non-profit mission. Consolidation of accounts ensures all financial activities across branches or subsidiaries are accurately combined into one clear report. As per the Companies Act, 2013, this process strengthens financial reporting, boosts donor confidence, and supports legal compliance. In this article, you will get detailed information on the consolidation of the accounts of Section 8 Company.
Consolidation of accounts means combining the financial statements of a parent company and its subsidiaries into a single, unified set of financial statements. This gives a complete and transparent view of the overall financial position and performance of the entire group as if it were a single entity. For Section 8 Companies (non-profits), consolidation is important when they control or significantly influence other organisations. It helps maintain financial clarity, ensures proper utilisation of funds, and meets statutory compliance under Section 129 of the Companies Act, 2013, and Indian Accounting Standard (Ind AS) 110.
The following details include the legal provisions for consolidation:
1. Section 129 of the Companies Act, 2013
According to Section 129(3) of the Companies Act, 2013, if a company has one or more subsidiaries, it must prepare consolidated financial statements (CFS) along with its standalone financial statements. These consolidated accounts must be in the same format and follow applicable accounting standards. This provision applies to all companies, including Section 8 Companies, when they have subsidiaries or control over other entities.
2. Indian Accounting Standard (Ind AS) 110 – Consolidated Financial Statements
Ind AS 110 issued by the Institute of Chartered Accountants of India (ICAI) provides detailed rules and guidelines for preparing consolidated financial statements. According to Ind AS 110:
3. Schedule III of the Companies Act, 2013
As per Schedule III, companies must follow a prescribed format for financial statements, including notes and disclosures. When preparing consolidated statements, companies must ensure that the format remains consistent and clearly reflects both the parent and subsidiary positions.
As per Section 129(3) of the Companies Act, 2013, a Section 8 Company is required to prepare consolidated financial statements if it:
Even if the other entity is also a not-for-profit or is engaged in charitable work, the parent Section 8 Company must consolidate its financials to give a complete and true financial picture.
Here is a step-by-step guide to help you understand how to consolidate accounts effectively and correctly.
Step 1: Identify the Need for Consolidation
Start by identifying whether your Section 8 Company:
If any of these apply, consolidation is mandatory under the Companies Act, 2013.
Step 2: Gather Financial Information
Collect the latest and audited financial statements of the:
Ensure that all financials are prepared for the same reporting period, i.e., the same financial year.
Step 3: Standardise Accounting Policies
Check whether the financial statements of all entities follow the same accounting policies and accounting standards. If not, adjustments must be made to align them before consolidation. This step ensures consistency and comparability across all entities being consolidated.
Step 4: Eliminate Intra-Group Transactions
Remove the effects of any transactions between the parent and subsidiary or among subsidiaries. These may include:
This prevents double counting and shows a true and fair view of the group’s performance.
Step 5: Adjust for Non-Controlling Interests (NCI)
If the parent company does not own 100% of the subsidiary, the portion of equity and profits that belong to other shareholders is shown as Non-Controlling Interest (NCI) in the consolidated balance sheet. This ensures proper representation of ownership.
Step 6: Combine Line-by-Line Items
Merge the assets, liabilities, income, and expenses of the parent and subsidiaries line-by-line. This means each corresponding item is added together across all entities.
For example:
Step 7: Prepare Consolidated Financial Statements
After all adjustments, prepare the final Consolidated Balance Sheet, Statement of Profit & Loss, and Cash Flow Statement as per Schedule III of the Companies Act, 2013.
These statements must:
Step 8: Approval and Audit
The consolidated financial statements must be approved by the Board of Directors of the parent Section 8 Company. After approval, they are audited by the statutory auditor, just like standalone accounts.
Step 9: Filing with MCA
File the consolidated financial statements along with the Board’s Report and Auditor’s Report in Form AOC-4 CFS on the MCA Portal within the prescribed due date.
The details below include the required disclosures in consolidated statements:
1. List of Subsidiaries, Associates, and Joint Ventures
Names of all subsidiary companies, joint ventures, and associate companies must be disclosed.
Include details such as:
2. Basis of Consolidation
Clearly explain:
This helps readers understand how figures were combined.
3. Non-Controlling Interest (NCI)
Show the portion of equity and profits/losses attributable to minority shareholders (i.e., those not controlled by the parent company). NCI must be separately presented in both the Balance Sheet and Statement of Profit and Loss.
4. Intra-Group Eliminations
Disclose that inter-company transactions (like sales, purchases, loans, dividends, etc.) were eliminated during consolidation. Helps avoid double-counting and shows a clean financial picture.
5. Significant Restrictions
Mention any legal, contractual, or regulatory restrictions on subsidiaries, especially those that may affect the group’s access to their assets or ability to manage them freely.
6. Contingent Liabilities and Commitments
Disclose any group-level legal claims, guarantees, or liabilities that are not recognised but may become liabilities in the future.
7. Impairment of Investments
If the value of an investment in a subsidiary or associate is reduced, disclose the reason for impairment loss.
8. Events After the Reporting Period
Mention significant events that happened after the financial year-end but before the approval of financial statements, if they affect group entities.
9. Related Party Transactions
Disclose transactions between the parent and subsidiaries or among group companies, including:
Follow Ind AS 24 for related party disclosures.
10. Auditor’s Report
Here are the key roles and responsibilities of the auditor in consolidated accounts:
1. Verification of Consolidation Process
The auditor must ensure that the consolidation is done in line with Indian Accounting Standard (Ind AS) 110. This includes:
2. Examination of Financial Statements of Subsidiaries
The auditor needs to examine the audited financial statements of all subsidiaries and associates. If another auditor has audited the subsidiary’s accounts, the principal auditor must review their work and rely on their report, as per SA 600 (Using the Work of Another Auditor) issued by the ICAI.
3. Review of Intra-Group Transactions
The auditor must check whether intra-group transactions (such as inter-company sales, loans, dividends, etc.) are correctly identified and eliminated during consolidation. Failure to eliminate such transactions can lead to inflated revenue or asset values.
4. Reporting on Non-Controlling Interests (NCI)
The auditor must verify the correct calculation and presentation of NCI—the portion of equity and profits belonging to shareholders outside the parent company.
5. Evaluation of Disclosures and Compliance
The auditor should confirm that all necessary disclosures are made in the consolidated financial statements, such as:
This ensures compliance with Schedule III of the Companies Act, 2013 and applicable Ind AS standards.
6. Issuing the Consolidated Audit Report
7. Liaising with Management and Board
Failure to comply with the consolidation provisions can lead to the following penalties:
1. Monetary Penalty under Section 129(7)
If a company fails to comply with Section 129:
2. Registrar of Companies (ROC) Action
If the ROC finds that a Section 8 Company has not filed consolidated financial statements or has submitted incomplete/misleading data:
3. Reputational Damage
For Section 8 Companies that rely on donor funding, CSR grants, or government schemes, non-compliance with statutory reporting can result in:
Non-profit organisations are expected to uphold the highest standards of governance, and improper financial reporting can seriously harm their reputation.
4. Disqualification of Directors (in severe cases): If repeated non-compliance is observed and leads to legal proceedings or fraud charges, directors of the company may face disqualification under Section 164 of the Companies Act.
5. Compounding of Offences: If the company wants to resolve the issue voluntarily, it can file for compounding of offence under Section 441 of the Companies Act, 2013. However, this also involves paying additional fines and court fees.
Consolidating accounts is not just about numbers, but about building trust, ensuring transparency, and staying compliant. For Section 8 Companies, proper consolidation reflects credibility and commitment to purpose. Following the legal process, timely audits, and disclosures not only safeguard against penalties but also enhance donor confidence and public trust. In this article, you will learn about the consolidation of accounts of Section 8 company. Contact Online Legal India to get support and assistance in filing a Section 8 company registration from professional experts.