MCA Mandates Companies to Disclose Their Investments in Cryptocurrencies

By – Ashwathy Nair

• Firms are mandated to disclose the investments made in cryptocurrencies, spending on CSR & transactions of Benami property.
• The relationship of the companies with struck-off firms is also needed to be disclosed.
• Other amendments that focus on broadening the scope of the audit report will have to be reported.

In the Companies Act, the Ministry of Corporate Affairs (MCA) has made amendments to rules by mandating the companies to reveal their investments in cryptocurrencies, along with that their spending on corporate social responsibility (CSR), as well as the transactions of Benami property, among others. From the next financial year, these are mandated to be present in their financial statements.

Companies are also mandated to be disclosing their relationship with struck-off firms along with the details of title deeds of immovable property that are not held in the name of the company.

A partner at Nangia Anderson, Nischal S Arora stated that the companies will have to be revealing the cryptocurrencies in which they had exchanged; their profits as well as losses from such trades, along with that the deposits or advances that were taken from other persons in these currencies.  He further stated that “While the government is already working on a bill on cryptocurrencies, the rules on disclosure have already been made clear that the government is required to collect data on digital currencies.”

A few other changes are aimed to be expanding the audit reporting spectrum. Now, the organizational representations on advances, loans and investments, among others, will be expected to be published. One of these reforms mandates that corporations use accounting software for maintaining their books that will be helping them to monitor the audit trail of any transaction.

Companies are also obligated to disclose the matters of insolvency and bankruptcy along with the information that is related to the valuation of the assets of the company in the board’s report. The new rules will be coming into effect from 1^st April 2021.

The associate partner at Economic Laws Practice, Mahendra Singh stated that “The new set of rules that are introduced by the Ministry of Corporate Affairs will be demanding the management and auditors for playing a greater role as far as the flow of information as well as the representations that are concerned.”

The companies are also required to be disclosing the previous year’s CSR expenditures, together with the reasons for any shortfalls. CSR spending has previously been reported in the director’s report, but the organizations will now be expected to report it in their financial statements.

In that sense, Arora stated that there is some mismatch concerning the penal provisions for CSR, which were introduced in January this year along with the reporting of such spending.

The founder and chairman of HostBooks, Kapil Rana stated that the amendments allowed companies to include the application of any proceeding pending under the Insolvency and Bankruptcy Code (IBC) during the financial year in the board report, as well as their position at the end of the financial year.

He also stated that the report should also be consisting of the details of the difference between the amounts of valuation of related assets performed at the time of one-time settlements along with the valuation performed when taking a loan from banks or financial institutions as well as the explanations for the difference.

If the information cited above was not disclosed in the notes to accounts, the audit report would have to disclose it starting next year. It must also be reported whether or not the dividend declared or charged complied with Section 123 of the Companies Act. The section mandates the organizations to declare dividends only from profits or money provided by governments in place of guarantees.

Partner at Nangia and Co, Prateek Agarwal stated that some of these requirements have major consequences for small companies if they were not supported by current accounting software. It is expected that the Institute of Chartered Accountants of India (ICAI) might be providing comprehensive guidelines on these issues in the near future so that they can be considered in audit reports.

Singh stated that on the new software’s requirement, this might be proving to be a challenge for the organizations that didn’t use software with such compliant features. Rana stated that the companies were also mandated to be creating the edit log of each change that is made in account books with the proper dates.

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