Exemptions from Preparation of Consolidated Financial Statements (CFS)
# Exemptions from Preparation of Consolidated Financial Statements
Under the Companies Act, 2013, certain companies are exempted from the requirement to prepare Consolidated Financial Statements (CFS).
## Key Rule
The rule requiring CFS does NOT apply to consolidation of financial statements where a company has subsidiary or subsidiaries incorporated outside India commencing on or after 1st April 2014 — but this is subject to specific cumulative conditions.
## Conditions for Exemption (All Must Be Satisfied)
A company is exempt from preparing CFS if ALL of the following conditions are met:
1. Subsidiary Status — It is a wholly-owned subsidiary, OR is a partially-owned subsidiary of another company AND all its other members have been intimated and do not object.
2. Securities Not Listed — It is a company whose securities are not listed or are not in the process of listing on any stock exchange (whether in India or outside India).
3. Ultimate/Intermediate Holding Files CFS — Its ultimate or any intermediate holding company files consolidated financial statements with the Registrar.
## Memory Aid
Think WUF:
Wholly/partially owned subsidiary (with consent)
Unlisted (and not in process of listing)
Filing of CFS by ultimate/intermediate holding company with ROC
If any one condition fails, the company must prepare CFS.
## Disclosure for Non-Compliance with Accounting Standards
Where the financial statements of a company do not comply with the Accounting Standards, the company shall disclose in its financial statements:
The deviation from the accounting standards;
The reasons for such deviation; and
The financial effects, if any, arising out of such deviation.
Worked example
### Example 1
Example 1: XYZ Pvt Ltd is a wholly-owned Indian subsidiary of ABC Ltd (a foreign company). XYZ's securities are not listed. ABC Ltd files CFS with its overseas regulator but does NOT file CFS with the Indian Registrar. Is XYZ exempt from CFS?
Answer: No. Although conditions (i) and (ii) are met, condition (iii) requires that the ultimate/intermediate holding company files CFS with the Registrar (in India). Since ABC Ltd does not file with the Indian ROC, XYZ Ltd cannot claim exemption and must prepare its own CFS.
### Example 2
Example 2: PQR Ltd is a partially-owned subsidiary (70% held by holding company) and its securities are in the process of being listed on BSE. Can it claim exemption?
Answer: No. Condition (ii) requires the company's securities to be neither listed nor in the process of listing. Since PQR is in the process of listing, exemption is not available.
⚠️ Common exam mistakes
Treating the three conditions as alternatives — they are CUMULATIVE; all three must be satisfied.
Overlooking the requirement that for partially-owned subsidiaries, the other members must not object.
Assuming exemption applies if the holding company files CFS overseas — the filing must be with the Indian Registrar.
Confusing 'not listed' with 'unlisted' — companies in the process of listing are also disqualified from exemption.
Forgetting to disclose deviations, reasons, and financial effects when the company does not comply with AS.
Bare-Act text Section 129 read with Companies (Accounts) Rules, 2014 · The Companies Act, 2013 · click to expand
Nothing in this rule shall apply in respect of consolidation of financial statement by a company having subsidiary or subsidiaries incorporated outside India commencing on or after 1st April 2014. Exemptions from preparation of CFS: (i) It is a wholly-owned subsidiary, or is a partially-owned subsidiary of another company and all its other members, statements (ii) It is a company whose securities are not listed or are not in the process of listing on any stock exchange, (iii) Its ultimate or any intermediate holding company files consolidated financial statements with the Registrar. Where the financial statements of a company do not comply with the accounting standards, the company shall disclose in its financial statements, the deviation from the accounting standards, the reasons for such deviation and the financial effects, if any, arising out of such deviation.