9 Schedule III mistakes that show up in small company accounts

In a small company audit, the numbers usually get most of the attention: stock, debtors, provisions, tax. The presentation gets whatever time is left — and that is where Schedule III slips creep in. A loan instalment sits in the wrong place, the share capital note has no reconciliation, or "miscellaneous expenses" quietly holds three items that should have been shown separately. None of these changes the profit, but each one is visible to anyone who reads the accounts with the Schedule in hand. Here are nine mistakes that are common in small-company files, with the requirement in Division I of Schedule III (as amended from 1 April 2021), the usual slip, and the fix. The ICAI Guidance Note on Division I (revised January 2022) is the reference for the interpretations.

Classification on the balance sheet

1. Current and non-current decided by habit

The requirement. Every asset and liability is classified as current or non-current using the tests in the General Instructions for the Balance Sheet. A liability is current if it is expected to be settled in the normal operating cycle, is held primarily for trading, is due within twelve months after the reporting date, or the company has no unconditional right to defer settlement for at least twelve months. Where the operating cycle cannot be identified, it is taken as twelve months.

The slip. Last year's grouping is rolled forward. Unsecured loans from directors that are repayable on demand sit in long-term borrowings; capital advances are shown as current; deferred tax appears under current items.

The fix. Apply the tests to each balance this year. The Guidance Note is specific on a few of these: a loan repayable on demand from the outset is current even if the lender never asks for it (a term loan that becomes recallable only on a covenant breach is judged differently); capital advances are non-current irrespective of when the asset is expected to be received; and net deferred tax asset or liability is always non-current.

2. Current maturities left inside long-term borrowings

The requirement. Since the 2021 amendment, the Schedule requires current maturities of long-term borrowings to be disclosed separately under short-term borrowings. The old item "current maturities of long-term debt" under other current liabilities was omitted.

The slip. The whole term loan or vehicle loan is shown as long-term, or the instalments due within the next year still sit in other current liabilities, as they did before 2021.

The fix. Take the repayment schedule, split each loan into the portion due within twelve months and the balance, and show the first as a separate line under short-term borrowings. The Guidance Note also asks companies to show, by note, schedule or cross-reference, the current and non-current portions of each category of long-term borrowing, so the reader can see the full liability.

3. Every credit balance called a trade payable

The requirement. A payable is a trade payable only if it is due for goods purchased or services received in the normal course of business. The Guidance Note excludes contractual obligations such as dues for purchase of property, plant and equipment and intangible assets, statutory dues like provident fund, contractually reimbursable expenses and interest accrued on trade payables; these go under other liabilities, disclosed by nature. Acceptances, however, stay within trade payables. Loans repayable on demand belong in short-term borrowings.

The slip. The "Sundry Creditors" group in Tally is mapped wholesale to trade payables — capital creditors, salary payable, GST and TDS payable, and sometimes an unsecured loan from a relative.

The fix. Review the creditors list ledger by ledger before mapping. Getting this right matters twice over, because the trade payables figure drives the MSME disclosure and the ageing schedule.

Related parties and share capital

4. Loans to related parties buried in "other advances"

The requirement. Both long-term and short-term loans and advances must show "loans and advances to related parties (giving details thereof)" as a separate item, with "related parties" read as in AS 18. Separately, under the Additional Regulatory Information, where loans or advances in the nature of loans are given to promoters, directors, KMPs or related parties (as defined in the Companies Act) and are repayable on demand or have no specified terms or period of repayment, a table shows the amount and its percentage of total loans and advances in the nature of loans.

The slip. The advance to the director's other company is included in "other advances", and the table is omitted because "there is no loan agreement" — which is exactly the case the table is meant for.

The fix. Start from the related party list, trace each party to the loans and advances ledgers, and show the related party balances separately. Then decide which of them are in the nature of loans; the Guidance Note says an advance far in excess of an order's value, or for far longer than normal trade practice, may be in the nature of a loan to the extent of the excess.

5. Share capital note without the reconciliation or the promoters

The requirement. For each class of shares, the note shows, among other items, the authorised, issued and subscribed shares, a reconciliation of the number of shares outstanding at the beginning and end of the period, the shareholders holding more than 5%, and — since 2021 — the shareholding of promoters: name, number of shares, percentage of total shares and percentage change during the year.

The slip. In a two-shareholder company the note shows the authorised and paid-up capital and nothing else; the promoters' table is left out because "nothing changed".

The fix. Give the reconciliation even when the number is unchanged, and give the promoters' table every year (promoter as defined in the Companies Act). The Guidance Note recommends also showing the shares held at the beginning of the year, so the percentage change can be understood.

Off the face of the balance sheet

6. Contingent liabilities and commitments mixed up

The requirement. Contingent liabilities (to the extent not provided for) are classified as claims against the company not acknowledged as debt, guarantees, and other money for which the company is contingently liable. Commitments are classified as estimated amounts of contracts remaining to be executed on capital account and not provided for, uncalled liability on partly paid shares and investments, and other commitments (specify nature).

The slip. Bank guarantees given for the company's own performance, and counter-guarantees to its bank, are listed as contingent liabilities; a disputed tax demand is left out because an appeal is pending; and the capital commitment for machinery ordered before the year-end is not mentioned at all.

The fix. Apply AS 29 to decide what is contingent. The Guidance Note says performance guarantees and counter-guarantees for the company's own obligations should not be shown as contingent liabilities, since they are not really guarantees of someone else's debt. Ask the client specifically for open purchase orders on capital account and pending demands, appeals and legal cases.

Statement of profit and loss

7. Everything else in "miscellaneous expenses"

The requirement. The additional information in the notes includes any item of income or expenditure that exceeds one per cent of revenue from operations or ₹1,00,000, whichever is higher. The Schedule also lists items to be shown separately under other expenses, such as power and fuel, rent, repairs to buildings and to machinery, insurance, and rates and taxes.

The slip. A single large "miscellaneous" or "general expenses" figure holding professional fees, travel and commission, each above the threshold.

The fix. Work out the threshold each year. With revenue from operations of ₹3 crore, 1% is ₹3 lakh, which is higher than ₹1 lakh, so ₹3 lakh is the limit; with revenue of ₹60 lakh, 1% is ₹60,000 and the ₹1 lakh limit applies. Show every item above the limit separately, and remember the test covers income as well as expenditure.

8. A single "audit fees" line

The requirement. Payments to the auditor are shown as (a) auditor, (b) for taxation matters, (c) for company law matters, (d) for management services, (e) for other services, and (f) for reimbursement of expenses. The Guidance Note says these are payments to the firm of auditors.

The slip. One "audit fees" figure that also contains certification fees, tax work and out-of-pocket expenses — often agreed to the invoice total rather than split.

The fix. Split the firm's fees by service using the engagement letters and invoices. As the auditor, you know the split better than anyone; it should not be the line that is wrong.

The general instructions

9. Rounding, units and comparatives

The requirement. Since 2021, rounding off is compulsory ("may" became "shall") and is based on total income, not turnover: below ₹100 crore, to the nearest hundreds, thousands, lakhs or millions, or decimals thereof; ₹100 crore or more, to the nearest lakhs, millions or crores, or decimals thereof. Once a unit is used, it is used uniformly. Comparatives for the immediately preceding period are given for all items, including the notes, except in the first financial statements after incorporation.

The slip. Statements in full rupees; the balance sheet in lakhs but some notes in rupees; notes that no longer total after rounding; and new notes (the promoters' table, an ageing schedule) with no previous-year column.

The fix. Choose one unit for the whole set, round from the trial balance, and adjust rounding differences so every note still totals to the face. Give comparatives for every note, prepared on the same basis as the current year; if last year's figures were regrouped, it is good practice to say so in a note, and to agree them to last year's signed accounts.

Also on the list

Several other disclosures are routinely checked by reviewers of small company accounts, and are covered in other articles:

• MSME dues and ageing — the MSMED Act disclosures under trade payables, and the ageing schedules for payables and receivables. See ageing schedules under Schedule III.
• Ratios — the eleven ratios and an explanation for any change of more than 25%. See Schedule III ratios.
• Additional regulatory information — title deeds not in the company's name, benami proceedings, quarterly statements to banks agreeing with the books, struck-off companies, charges not registered in time.
• CSR, crypto and undisclosed income — the CSR details for companies covered by section 135; profit or loss on and holdings of crypto or virtual currency; and income surrendered or disclosed in tax assessments (under the Income-tax Act, 1961 for FY 2025-26) that was not recorded in the books.

A one-page review sheet

Run it on the final draft, not the first one. Most of these slips arise when the statements are rebuilt from last year's file, and a single sheet completed before the partner's review catches them while they are still easy to correct.

Frequently asked questions

Sources

• Schedule III amendment — G.S.R. 207(E), 24 March 2021 (Gazette)
• Companies Act, 2013 with Schedule III (as amended) — India Code
• ICAI — Guidance Note on Division I – Non Ind AS Schedule III to the Companies Act, 2013 (revised January 2022)
• ICAI — Accounting Standards (AS 18, AS 29)
• Companies Act, 2013 — sections 2(69), 2(76), 135 (India Code)