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A cash flow statement is one of the most important financial statements that a company issues. In this article, we will understand what the applicability of a cash flow statement is and its exemptions. However, before we get into the applicability of cash flow statement as per Companies Act 2013, let’s first know about a cash flow statement.

What is a Cash Flow Statement?

A cash flow statement is a financial statement that gives aggregate data about the cash and cash equivalents that enter and leave a company. Just like an income statement, a cash flow statement also helps in measuring the performance of a company over a period of time. Let’s explore the applicability of a cash flow statement as per Companies Act, 2013.

Applicability of Cash Flow Statement

A company’s financial statements include a cash flow statement according to Section 2(40) of the Companies Act, 2013. The Companies (Accounting Standards) Rules, 2006 (AS 3) and The Companies (Indian Accounting Standards) Rules, 2015 (Ind AS 7) govern the cash flow statement of a company as applicable. However, certain companies are given the exemption from filing the cash flow statement. Here is a look at the income tax exemptions

Who is Exempted From Filing a Cash Flow Statement?

There are companies that do not come under the applicability of a cash flow statement as per Companies Act, 2013. The list includes dormant companies, one person companies and small companies. Let’s learn what each of them is.

Dormant Company

As per Section 455(1) of the Companies Act, 2013, when a company is incorporated and registered under this act for a future project or holds an asset or intellectual property and there is no significant accounting transaction, then such a company or an inactive company can apply for registration in the prescribed manner to obtain dormant company status.

One Person Company

As per Section 2(62), one person company signifies a company that only has one person as a member.

Small Company

As per Section 2(85), a small company is a company whose:

  • Contributed share capital does not exceed ₹50 lakh or any higher amount as may be stipulated, shall not exceed ₹10 crore

  • Turnover under the profit and loss account of the preceding financial year does not exceed ₹2 crore or a higher amount as may be specified does not exceed ₹100 crore.

Provided, nothing should be applicable to:

  1. A company registered under Section 8

  2. A holding or subsidiary company

  3. A company or a body corporate that is governed by any special act

Applicability of The Companies (Auditor’s Report) Order

The Companies (Auditor’s Report) Order, 2020 would be applicable from April 1, 2021. This is as per the order number S.O. 849(E) of MCA dated March 25, 2020, read along with order number S.O. 4588(E) of MCA dated December 17, 2020. However, the Companies (Auditor’s Report) Order, 2020 will not apply to the companies mentioned below:

  • An insurance company according to the Insurance Act, 1938

  • A banking company according to Section 5(c) of the Banking Regulation Act, 1949

  • A company licensed to operate under Section 8

  • Small company

  • One person company

  • A private company that is not a subsidiary or holding company of a public company-

  1. Having paid-up capital and reserves and surplus of up to ₹1 crore

  2. Having borrowings of up to ₹1 crore

  3. A company that does not have a total revenue as mentioned in Schedule III of the Companies Act. This includes revenue from discontinuing operations, which are above ₹10 crore in a financial year

Applicability of Internal Financial Control

Internal Financial Controls reporting should be according to Section 143(3)(i) of Companies Act, 2013 and Rule 10A of The Companies (Audit & Auditors) Rules, 2014. The applicability of Internal Financial Control is for all the companies except:

  1. Small company

  2. One person company

  3. A private company with borrowing from banks, financial institutions or a body corporate of less than ₹25 crore

  4. A private company where the turnover is less than ₹50 crore according to the latest audited financial statement

Applicability of Cash Flow Statement: Final Thoughts

  • The financial statement of a company consists of a cash flow statement.

  • All companies other than one person company, dormant company and small company come under the applicability of cash flow statements under Companies Act, 2013.

  • Applicability of The Companies (Auditor’s Report) Order and Applicability of Internal Financial Control is valid for all companies barring some exceptions.

FAQs

  • ✔️For whom is cash flow statement compulsory?

     Preparing cash flow statements is mandatory for all companies except one person company, dormant company and small company.

  • ✔️Is a cash flow statement mandatory for Nidhi company?

     Yes, it is mandatory for Nidhi company to prepare a financial statement and cash flow statement.

  • ✔️What is the CARO report and its applicability?

     A CARO report is the Company Auditor’s Report Order. It is applicable to all companies except some that are specifically excluded.

  • ✔️What are the 3 main activities of a cash flow statement?

     The 3 main types of activities of a cash flow statement are investing, operating and financing.

  • ✔️Which accounting standard is applicable to cash flow?

     Accounting Standard 3 is about the cash flow statement. This AS deals with the cash and cash equivalents of an entity during a particular period.

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