Latest Trends in Presenting Financial Data - Analysis and interpretation of Financial statements, Co B Com Notes | EduRev

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Recent Trends in Presenting Financial Statements

In India every company has to present its financial statements in the form and contents as prescribed under Section 129 of the Companies Act, 2013. Keeping in view the complicacies of statutory forms in the Companies Act, now-a-days it is common practice to add the Statement of Profit & Loss and balance sheet drawn in statutory forms, some voluntary supplementary information in a simple manner as would be easily understood by a layman. This voluntary information may include the following:

  1. Statement of Profit and Loss and Balance Sheet: Every company registered under the Companies Act shall prepare its Balance Sheet, Statement of Profit and Loss and notes thereto in accordance with the manner prescribed in Schedule III to the Companies Act, 2013. The requirements of the Schedule III however, do not apply to companies as referred to in the proviso to Section 129 (1) of the Act, i.e., any insurance or banking company, or any company engaged in the generation or supply of electricity or to any other class of company for which a form of Balance Sheet and Statement of Profit & Loss has been specified in or under any other Act governing such class of company.
  2. Highlights: Highlights are usually shown at the beginning of the annual report so that the users may come across the important facts of the company immediately as he opens the report. It may usually cover information about sales, production, profit before and after tax, capital projects, working capital, fixed assets, share capital, important landmarks of the year, etc.
  3. Cash flow statements: The preparation of cash flow statement has become mandatory now-adays. A statement of cash flow, reports the cash receipts, cash payments and net changes in cash resulting from operating, investing and financing activities of an enterprise during a period in a format that reconciles the beginning and ending cash balances. It reports a net cash inflow or outflow for each activity and for the overall business.
  4. Provision of important accounting ratios: Accounting ratios show the inter- relationship which exists among various accounting data. Balance sheet is substantiated by the important ratios of the current year and of the last two years.
  5. Disclosure of accounting policies: Presently, progressive companies disclose accounting policies in their published accounts on the basis of which they have prepared their financial statements. This is done with a view to giving better understanding of the financial statements to the public.
  6. Use of charts, graphs and diagrams: Many companies incorporate charts, graphs and diagrams in their published accounts. It is known as graphic method of presentation of information. It attracts the attention of the users more quickly and forcibly. Recently, graphs and diagrams have been becoming very popular because they are considered to be the most effective media for disclosing trends and making comparisons over fairly long periods within a short space. The method of presenting information can effectively depict production costs, fluctuations in output and sales, components of cost of production and income, use of divisible profits as taxes, dividends, other appropriations and retained profits etc.
  7. Use of schedules: In order to make the balance sheet and Statement of Profit & Loss as compact as possible, separate schedules for different heads (e.g. share capital, reserves and surplus, secured loans, unsecured loans, current liabilities and provisions, fixed assets, investments, current assets, loans and advances, miscellaneous expenditure, etc.) are prepared and details regarding these heads as prescribed in the Companies Act are given in these schedules. s is done to make the balance sheet and Statement of Profit & Loss manageable within limited space. These schedules are properly numbered and reference of these is given in the balance sheet and Statement of Profit & Loss.
  8. Impact of price level changes: Since prices go on changing every day, financial statements based on historical costs do not reflect the effect of price level changes on the financial position and profitability of the company. In order to accommodate the effect of price level changes in the financial statements now-a-days many companies have started showing this effects on financial statements in a supplementary statement in addition to the conventional statements prepared on historical basis.
  9. Rounding off of figures: The Sachhar Committee has recommended that companies should be given the option to round off the figures of financial statements to the nearest thousand and/or hundred or ten rupees. This recommendation has been accepted and companies are now-a-days making use of rounding off of figures.
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