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A finance controller is reviewing the Ind AS 7 Statement of Cash Flows before the audit committee meeting. Opening cash and cash equivalents at 1 April is Rs 45 crore. Operating activities generated Rs 12 crore. Investing activities used Rs 8 crore. Financing activities generated Rs 3 crore. Simple arithmetic — opening plus operating minus investing plus financing — gives a closing figure of Rs 52 crore. But the bank statements pulled for 31 March across all group accounts sum to Rs 49 crore. There is a Rs 3 crore gap that has to be explained to the audit committee, to the statutory auditor under Section 143(3)(i) of the Companies Act 2013, and inside the ICFR walkthrough. The gap looks like a reconciliation failure, but the ICFR guidance from ICAI treats an unexplained residual as a control deficiency in its own right — meaning the controller has both an accounting question and a controls question to answer at the same meeting.
The gap between the CFS opening-plus-flows arithmetic and the sum of the bank statement balances at year-end decomposes into six buckets under Ind AS 7 and Ind AS 21. Bucket 1 is the Ind AS 21 restatement of foreign-currency bank balances at the closing rate — a USD account translated through the year at transaction-date spot rates carries a rupee value that does not equal the year-end rupee value of the closing USD balance at the closing rate. Ind AS 7 paragraph 28 requires the restatement effect on cash and cash equivalents to sit on a separate line below financing. Bucket 2 is restricted cash — Debt Service Reserve Accounts, escrow deposits, margin money against bank guarantees, letters of credit — that shows on bank statements but sits outside cash and cash equivalents under the paragraph 6 insignificant-risk and three-month-residual-maturity tests. Bucket 3 is bank overdraft classification — an overdraft that is repayable on demand and forms an integral part of daily cash management is a negative cash equivalent under paragraph 8; every other overdraft is a financing activity. The wrong choice moves whole crores between the CFS closing figure and the bank statement sum. Bucket 4 is the cash-equivalent boundary itself — petty cash on hand, credit card float in transit, short-tenor fixed deposits with more than three months residual maturity at acquisition. Bucket 5 is intercompany transfers between group accounts — they sum to zero across the group but each subsidiary bank statement shows them individually, and a consolidated CFS eliminates them. Bucket 6 is BRS timing — cheques issued but not presented, cheques deposited but not cleared — that widens the gap at cut-off in either direction.
A working paper that lists each of the six buckets with a subtotal, tied to source documents. For bucket 1 (foreign currency), a treasury schedule showing the closing USD/EUR/GBP balance in each foreign currency account, the closing rate applied from the RBI reference rate on the reporting date, the rupee value at closing rate, the rupee value at weighted transaction-date rate, and the difference as the paragraph 28 line. For bucket 2 (restricted cash), a schedule listing every DSRA, escrow account, and margin money deposit with the underlying facility reference, the restriction reason, and the residual-maturity test. For bucket 3 (overdrafts), the sanction letter reference, the fluctuate-through-zero test, and the classification decision. For bucket 4 (cash-equivalent boundary), a schedule of every FD by acquisition date, tenor, and residual maturity at reporting date. For bucket 5 (intercompany), the elimination schedule from the consolidation workbook. For bucket 6 (BRS timing), the outstanding cheque-issued and cheque-in-transit lists from the BRS. A sign-off from the CFO and the statutory auditor on each bucket before the audit committee meeting.
The Rs 3 crore gap resolves into Rs 2.1 crore under bucket 1 (Ind AS 21 restatement of USD and EUR accounts at the RBI reference rate), Rs 0.9 crore under bucket 2 (restricted DSRA and escrow deposits), and zero under buckets 3 through 6 after the walk. The CFS as presented shows a separate 'Effect of exchange rate changes on cash and cash equivalents' line of Rs 2.1 crore below financing, and the closing figure ties back to the bank statement sum less the Rs 0.9 crore restricted-cash balance which is classified as investments on the balance sheet. The reconciliation working paper is filed as the ICFR compensating control for Section 143(3)(i) purposes. The audit committee sees a walkthrough that ties three numbers — CFS arithmetic, restatement adjustment, restricted-cash carve-out — into a single view rather than an unexplained residual, and the statutory auditor's analytical review has an entry point rather than a question.
Opening cash and cash equivalents on 1 April is Rs 45 crore. Operating activities during the year generated Rs 12 crore. Investing activities used Rs 8 crore. Financing activities added Rs 3 crore. The Ind AS 7 Statement of Cash Flows closes at Rs 52 crore.
Then you pull the bank statements. Every operating account, every current account, every foreign currency wallet, every fixed deposit that lives on the treasury schedule — you sum the closing balances on 31 March and you get Rs 49 crore. There is a Rs 3 crore gap. The audit committee meeting is on Friday, the statutory auditor is asking for the reconciliation working paper, and the ICFR walkthrough is scheduled for the following week. The arithmetic in the CFS is right. The bank statements are right. Where does the gap live?
The quick answer
The gap between the CFS closing figure and the sum of the bank statement balances almost always decomposes into six buckets under Ind AS 7 and Ind AS 21. Two of them — foreign-currency restatement at the closing rate under Ind AS 21, and restricted cash carve-outs under the Ind AS 7 paragraph 6 cash-equivalent definition — are the ones that usually carry most of the gap. The other four — bank overdraft classification, the three-month cash-equivalent boundary, intercompany transfers in a consolidated CFS, and BRS timing at cut-off — carry the residual.
On the illustrative Rs 3 crore gap, Rs 2.1 crore sits in bucket 1 (Ind AS 21 restatement of a USD operating account at the RBI closing rate) and Rs 0.9 crore sits in bucket 2 (a Debt Service Reserve Account fixed deposit that is restricted by the term-loan sanction letter). Buckets 3 through 6 clear to zero after the walk. The audit committee sees three numbers rather than an unexplained residual.
Bucket 1 — foreign-currency bank balances restated under Ind AS 21
Under Ind AS 21 paragraphs 21 and 23, a foreign-currency transaction is recorded at the spot rate on the transaction date, and every foreign-currency monetary item (which includes a foreign-currency bank balance) is restated at the closing rate on the reporting date. A USD 500,000 operating account carries a rupee value in the ledger that is the running sum of the transaction-date translations, but on 31 March that balance has to be reported at Rs 83.50 to the dollar (or whatever the RBI reference rate is on the reporting date) regardless of what the transaction-date rates through the year averaged.
The mechanics: transaction-date rates through the year averaged Rs 82.20 to the dollar, weighted by transaction value. The ledger USD balance is therefore carried at Rs 4.11 crore (USD 500,000 x Rs 82.20). The 31 March closing rate is Rs 83.50 to the dollar, so the USD 500,000 restates to Rs 4.175 crore. The Rs 6.5 lakh uplift — and, aggregated across USD, EUR, GBP accounts — the Rs 2.1 crore restatement on the illustrative case never flowed through the ledger as an actual cash movement.
Ind AS 7 paragraph 28 requires that Rs 2.1 crore to be presented as a separate line — “Effect of exchange rate changes on cash and cash equivalents” — below the financing section and above the closing balance line. This is not an operating cash flow, not an investing cash flow, not a financing cash flow. It is a reconciling item that closes the CFS opening-plus-flows arithmetic to the actual restated closing balance. The why-does-my-forex-invoice-show-a-different-INR-amount-in-my-books walkthrough covers the invoice-level version of the same Ind AS 21 restatement mechanic on the AR/AP side.
What to do. Pull the treasury schedule of foreign-currency closing balances on 31 March. Apply the RBI reference rate on the reporting date. Compute the difference against the ledger carrying value. That difference is the paragraph 28 line.
Bucket 2 — restricted cash sits inside the bank statement but outside cash and cash equivalents
Ind AS 7 paragraph 6 defines cash equivalents as short-term, highly liquid investments that are readily convertible to known amounts of cash and subject to an insignificant risk of changes in value, with a residual maturity of three months or less from the date of acquisition. A fixed deposit that a lender requires the borrower to hold as a Debt Service Reserve Account (DSRA) against a term loan is not readily convertible to cash while the loan is live — the restriction is contractual. It fails the paragraph 6 test and moves out of cash and cash equivalents to the investments line on the balance sheet.
The same treatment applies to an escrow deposit against an M&A completion mechanism, to margin money against a bank guarantee that the beneficiary can call, to margin money against a letter of credit that has not yet been drawn, and to any bank balance that is subject to a lien in favour of a third party.
Illustrative arithmetic — Rs 0.9 crore of the Rs 3 crore gap is a DSRA fixed deposit against the outstanding rupee term loan. The bank statement for the DSRA account shows the Rs 0.9 crore balance on its face. The CFS closes to cash and cash equivalents, which excludes the DSRA. The reconciliation working paper carves the Rs 0.9 crore out of the bank sum, tags it against the term loan sanction letter reference, and shows the balance sheet classification as investments or other financial assets.
What to do. Extract every fixed deposit, escrow deposit, and margin-money balance on the reporting date. Cross-reference each against the sanction letter, escrow agreement, or bank-guarantee/letter-of-credit reference that creates the restriction. Anything under contractual restriction sits outside cash and cash equivalents in the CFS and outside the closing figure that the CFS is reconciling to.
Bucket 3 — bank overdraft classification
Under Ind AS 7 paragraph 8, bank borrowings are generally financing activities. The exception — the paragraph 8 carve-out — applies where the overdraft is repayable on demand and forms an integral part of the entity’s cash management, with the account fluctuating between positive and overdrawn. Working-capital cash credit lines against which the treasury team draws and repays through the month typically qualify. Term loans structured as monthly-repayment facilities do not.
Where the overdraft qualifies for the paragraph 8 carve-out, it is a negative cash and cash equivalent. Its net movement flows through the operating section (or wherever the treasury policy classifies it) rather than through financing, and the closing balance — a negative number — reduces the CFS closing cash and cash equivalents figure. Where it does not qualify, drawdown is a financing inflow, repayment is a financing outflow, and the overdraft balance sits outside cash and cash equivalents entirely.
The classification decision is one of the most common causes of a whole-crore-scale gap. An overdraft of Rs 5 crore classified the wrong way moves Rs 5 crore between the CFS closing figure and the bank statement sum, and a mistreatment surfaces during the auditor’s analytical review of the CFS as a potential Section 143(3)(i) ICFR deficiency.
What to do. For every overdraft or cash credit facility, pull the sanction letter and check for repayable-on-demand language. Confirm the account activity shows the fluctuate-through-zero pattern. Document the treasury policy on integral cash management. Apply paragraph 8 consistently across the group.
Bucket 4 — the three-month cash-equivalent boundary
Ind AS 7 paragraph 6 sets the three-month test at the date of acquisition, not at the balance-sheet date. A six-month fixed deposit acquired on 1 January that has a three-month residual maturity on 31 March does not qualify as a cash equivalent because it did not qualify at the date of acquisition. Conversely, a three-month fixed deposit acquired on 1 February with a one-month residual maturity on 31 March does qualify.
Petty cash on hand, cash on deposit with the bank (demand deposits), and credit card float held in a settlement account with a short-tenor sweep are all cash or cash-equivalent items and sit inside the CFS closing figure. Corporate credit card float that has not yet been settled is an operating liability, not a cash asset, and does not sit inside cash and cash equivalents at all.
Illustrative arithmetic — the illustrative Rs 3 crore gap does not have a bucket 4 residual because the FD portfolio was constructed with clear tenors and the petty cash is de minimis. In practice, a bucket 4 residual of a few tens of lakhs is common in a mid-market entity that treats the FD portfolio informally.
What to do. Maintain a fixed-deposit schedule that shows acquisition date, original tenor, maturity date, and residual maturity at reporting date. Test each FD against the paragraph 6 three-months-at-acquisition test rather than three-months-at-reporting-date.
Bucket 5 — intercompany transfers eliminated in the consolidated CFS
For a standalone CFS, intercompany transfers between subsidiaries do not exist. For a consolidated CFS in a group with multiple entities, an intercompany transfer of Rs 4 crore between subsidiary A’s HDFC account and subsidiary B’s ICICI account shows on subsidiary A’s bank statement as an outflow and on subsidiary B’s bank statement as an inflow. Both are captured in the standalone CFS of the respective subsidiary. In the consolidated CFS, the pair eliminates.
If the elimination is not performed, the operating (or financing) section of the consolidated CFS shows double the actual cash movement — Rs 4 crore of outflow at subsidiary A plus Rs 4 crore of inflow at subsidiary B, netting to zero, but only if the two are eliminated on the same line. A cash-pool arrangement where the group treasury sweeps balances between subsidiaries daily creates dozens of intercompany transfers a month, and the consolidation workbook has to eliminate every one.
Illustrative arithmetic — the illustrative Rs 3 crore gap is on a standalone CFS, so bucket 5 is zero. In a consolidated CFS, the elimination workpaper often carries the largest of the six buckets by absolute value.
What to do. Pull the intercompany transfer schedule from the consolidation workbook. Match each debit against the corresponding credit at the counterparty subsidiary. Eliminate the pair on the consolidated CFS.
Bucket 6 — cheques issued but not presented, cheques deposited but not cleared
The bank reconciliation statement carries two timing items that widen the CFS-versus-bank-statement gap at cut-off in either direction. Cheques issued to vendors but not yet presented for payment reduce the book bank balance below the bank statement balance — the ledger shows the cash outflow, the bank statement does not. Cheques deposited into the bank but not yet cleared work the opposite way — the ledger shows the cash inflow, the bank statement does not.
Under Ind AS 7 and the general Indian audit practice, the CFS closes to the bank balance per books (the ledger balance) — which is the balance after all issued cheques have been debited and all deposits have been credited. The gap against the bank statement sum on the same date is the sum of the BRS timing items, and it should reconcile through the bank reconciliation statement that the finance team already maintains as part of the monthly BRS discipline.
Illustrative arithmetic — the illustrative Rs 3 crore gap is expressed against ledger closing balances (Rs 49 crore is the ledger sum, not the bank statement sum), so bucket 6 is zero. If the Rs 49 crore had been taken from bank statements directly, the BRS timing items would open up an additional layer of reconciliation before the six-bucket walk began. Always confirm which of the two the Rs 49 crore represents.
What to do. Pull the BRS for every operating account on the reporting date. Tie the ledger balance to the bank statement balance through the outstanding cheque list and the cheques-in-transit list. Only then run the six-bucket walk against the ledger balance.
Which bucket to escalate first
Bucket 3 (overdraft classification) is the highest-severity of the six, because a mistreatment moves whole crores between the CFS closing figure and the bank sum and is a Section 143(3)(i) ICFR deficiency risk. Bucket 1 (Ind AS 21 restatement) and Bucket 2 (restricted cash) are the ones that usually carry the largest absolute amounts of the residual. Buckets 4, 5, and 6 are usually small residuals that clear after the first three are resolved.
The escalation ladder is straightforward. The CFO signs off on bucket 3 (overdraft classification) directly, because the classification decision is a policy choice with a Section 143(3)(i) implication that has to be defended against the statutory auditor. The treasury head signs off on bucket 1 (foreign-currency restatement), because the closing-rate application is a treasury-schedule task. The financial controller signs off on buckets 2, 4, 5, and 6.
When the manual six-bucket walk stops holding
A standalone entity with predominantly INR operating accounts, one working-capital cash credit line, three or four fixed deposits on the treasury schedule, and no restricted cash beyond a single margin-money account can hold the six-bucket walk in a single Excel workbook. The controller runs it once a quarter alongside the CFS review and the statutory audit checklist.
A consolidated group with 12 subsidiaries, a mix of INR and multi-currency operating accounts across USD, EUR, GBP, SGD, and AED, DSRA and escrow restrictions at multiple subsidiaries against a mix of term loans and M&A completion mechanisms, and a group treasury policy that operates a daily cash-pool across subsidiary bank accounts, is running the six-bucket walk continuously rather than quarterly. The intercompany elimination workpaper alone is a full-time discipline for a treasury analyst. The Ind AS 21 restatement schedule has to be refreshed every reporting date at the RBI reference rate. The DSRA and escrow restriction register has to be re-tested at each reporting date for changes in the underlying facility terms.
At that scale, moving the six-bucket walk from a controller’s spreadsheet onto a continuously refreshed detection system — where Terra Insight’s reconciliation software for India treats the CFS-versus-bank residual and its six-bucket decomposition as a first-class monthly output rather than a workbook the controller refreshes on demand — is what keeps the ICFR walkthrough on schedule and the audit committee packet defensible without a last-minute scramble. Below that scale, the Excel workbook is the right tool and the discipline of running the six buckets by hand is what builds the reconciler’s judgement for the shift.
Go deeper
- Cash flow reconciliation for Indian entities — the Ind AS 7 pillar treatment
- Forex reconciliation for Indian entities — the Ind AS 21 restatement mechanics
- HDFC bank reconciliation — narration patterns and MT940 mapping
- The statutory audit reconciliation checklist under CARO 2020
- Why does my forex invoice show a different INR amount in my books?
- Intercompany reconciliation for consolidated groups
- Reconciliation software for India
Frequently Asked Questions
The CFS closing figure is Rs 3 crore higher than the sum of my bank statements. Is that always wrong?
Not necessarily. Two of the six buckets that make up the reconciliation between the CFS closing figure and the bank statement sum are legitimate accounting items that widen the gap by design. The Ind AS 21 restatement of foreign-currency bank balances at the closing rate on the reporting date creates a rupee-value difference against the transaction-date rupee amounts that flowed through the ledger during the year — under Ind AS 7 paragraph 28 that difference sits on a separate line in the CFS and does close the arithmetic if you present it correctly. Restricted cash items — fixed deposits with a Debt Service Reserve Account, escrow deposits held against an M&A completion mechanism, margin money against bank guarantees or letters of credit — sit inside the bank balance but outside the cash and cash equivalents figure that the CFS closes to. The correct residual after those two adjustments is zero. A Rs 3 crore residual after the six-bucket walk that still does not resolve is the sign of a real classification error, and the escalation is to the audit senior before the balance-sheet date.
How do I know whether my overdraft is a negative cash equivalent or a financing item?
The two-question test under Ind AS 7 paragraph 8. First, is the overdraft repayable on demand — meaning the bank can call the facility back at any time without notice, and the entity draws on it and repays it as part of normal daily cash management? A working-capital cash credit line that the treasury team draws and repays through the month satisfies this test. A term loan structured as a monthly-repayment facility does not. Second, does the bank balance on this facility fluctuate between positive and overdrawn, forming an integral part of cash management? If both are yes, the overdraft is a negative cash and cash equivalent and its movement flows through the operating section on a net basis rather than through financing. If either is no, the overdraft is a financing item, its drawdown is a financing inflow, and its repayment is a financing outflow. Auditors will look for the sanction letter (repayable-on-demand language), the account activity (evidence of the fluctuate-through-zero pattern), and the treasury policy document (integral to daily cash management).
The company has a foreign currency bank account with USD 500,000 in it. How does that show up in the CFS?
Three separate movements. First, every operating, investing, or financing inflow into the USD account during the year is translated at the spot rate on the transaction date and flows through the respective section of the CFS at that rupee value under Ind AS 21 paragraph 21. Second, every outflow is translated at the spot rate on the transaction date and flows through the respective section at that rupee value. Third, on the reporting date, the USD 500,000 closing balance is restated at the closing rate under Ind AS 21 paragraph 23 — if the closing rate is Rs 83.50 to the dollar and the weighted transaction-date rate during the year averaged Rs 82.20, the restatement creates a Rs 6.5 lakh rupee-value uplift that never flowed through the ledger as an actual cash movement. Ind AS 7 paragraph 28 requires that uplift to be presented as a separate line — ‘Effect of exchange rate changes on cash and cash equivalents’ — below the financing section and above the closing balance line. Miss that line, or push the uplift into operating cash flow, and the CFS closing figure will not reconcile to the actual USD 500,000 restated at closing rate.
Do restricted fixed deposits — DSRA, escrow, margin money — sit inside or outside the CFS closing figure?
Outside, unless they meet the Ind AS 7 paragraph 6 three-month residual-maturity test and the paragraph 6 insignificant-risk test. A Debt Service Reserve Account fixed deposit that a lender requires the borrower to maintain as security for a term loan is not readily convertible to cash while the loan is live — it is restricted by contract — so it fails the paragraph 6 definition of a cash equivalent and sits inside investments or other financial assets on the balance sheet. An escrow deposit against an M&A completion mechanism, or margin money against a bank guarantee that the beneficiary can call, is restricted for the same reason. The bank statement will show the DSRA balance on its face, but the CFS will exclude it from the closing figure. If the entity is presenting a CFS for consolidated purposes, the parent-level DSRA restriction has to be re-tested at each reporting date — a facility that becomes freely available on lender consent within three months of year-end may move back into cash and cash equivalents in a subsequent period, and the movement is disclosed as a non-cash transaction in the CFS notes.
The manual six-bucket walk works for one company. How does it hold up in a consolidated group with 12 subsidiaries?
Below roughly five active subsidiaries with predominantly INR bank accounts, the six-bucket walk fits in a single Excel workbook and the group controller can run it in the days-11-to-15 window of the consolidation close. Once the group scales beyond that — a mix of INR and foreign-currency operating accounts, DSRA and escrow restrictions at multiple subsidiaries, intercompany transfers between group accounts that need elimination in the consolidated CFS, and a treasury policy that draws overdrafts across the group under a common cash-pool arrangement — the six buckets stop being an end-of-quarter reconciliation and become a continuous exception queue. That is the point where a continuously refreshed detection system that treats the bank-versus-CFS residual as a first-class output rather than a controller’s spreadsheet becomes economically defensible. Before that scale, the Excel walk is the right tool and the discipline of running the six buckets by hand is what builds the reconciler’s judgement for when the shift is due.
Content authored by practitioners with experience at Amazon India, Intuit QuickBooks, and the Tata Group. Meet the team →
- ▸ Ind AS 7, Statement of Cash Flows, paragraph 6 — Cash comprises cash on hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. An investment normally qualifies as a cash equivalent only when it has a short maturity of, say, three months or less from the date of acquisition. The three-month residual-maturity threshold is what separates a fixed deposit that sits inside cash and cash equivalents (and therefore inside the closing figure of the cash flow statement) from one that sits outside it as an investing-line balance. The interpretation is date-of-acquisition rather than balance-sheet date, which is the boundary most reconcilers get wrong at year-end.
- ▸ Ind AS 7, Statement of Cash Flows, paragraph 8 — Bank borrowings are generally considered to be financing activities. However, in some countries, bank overdrafts which are repayable on demand form an integral part of an entity's cash management. In these circumstances, bank overdrafts are included as a component of cash and cash equivalents. A characteristic of such banking arrangements is that the bank balance often fluctuates from being positive to overdrawn. The classification decision — overdraft as a negative cash and cash equivalent versus overdraft as a financing activity — is one of the most common causes of a whole-crore-scale gap between the CFS closing figure and the bank statement sum. The wrong classification at year-end is a Section 143(3)(b) qualification risk if the auditor disagrees with the treatment applied.
- ▸ Ind AS 7, Statement of Cash Flows, paragraph 28 — Unrealised gains and losses arising from changes in foreign currency exchange rates are not cash flows. However, the effect of exchange rate changes on cash and cash equivalents held or due in a foreign currency is reported in the statement of cash flows in order to reconcile cash and cash equivalents at the beginning and the end of the period. This amount is presented separately from cash flows from operating, investing and financing activities and includes the differences, if any, had those cash flows been reported at end of period exchange rates. This is the statute anchor for the separate 'Effect of exchange rate changes on cash and cash equivalents' line in the CFS — the line that absorbs the Ind AS 21 restatement of foreign-currency bank balances at the closing rate and closes the residual gap between the opening-plus-flows arithmetic and the actual bank closing sum.
- ▸ Ind AS 21, The Effects of Changes in Foreign Exchange Rates, paragraphs 21 and 23 — A foreign currency transaction shall be recorded, on initial recognition in the functional currency, by applying to the foreign currency amount the spot exchange rate between the functional currency and the foreign currency at the date of the transaction. At the end of each reporting period foreign currency monetary items shall be translated using the closing rate. Foreign currency bank balances are monetary items and must therefore be restated at the closing rate on the balance sheet date. The restatement moves through the CFS as the separate paragraph 28 line rather than through operating, investing, or financing activity — a mistreatment that pushes the exchange difference into operating cash flow is a classic classification error that surfaces during the auditor's analytical review.
- ▸ Companies (Indian Accounting Standards) Rules 2015, Rule 4 — The Ministry of Corporate Affairs prescribes the class of companies that must comply with the Indian Accounting Standards. Phase I companies (listed and unlisted with net worth of Rs 500 crore or more) applied Ind AS from FY 2016-17. Phase II companies (all listed companies not covered under Phase I, and unlisted companies with net worth between Rs 250 crore and Rs 500 crore) applied Ind AS from FY 2017-18. NBFCs adopted Ind AS from FY 2018-19 (large NBFCs) and FY 2019-20 (smaller NBFCs). Ind AS 7 is therefore the operative cash-flow standard for the vast majority of Indian corporate reporters — AS 3 continues only for smaller unlisted entities under the Accounting Standards regime and for entities not yet migrated. The interpretive difference between Ind AS 7 paragraph 8 and AS 3 (which does not permit overdrafts as cash and cash equivalents) is one to watch on any group with a mix of Ind AS and AS reporters.
- ▸ Guidance Note on Reporting under Section 143(3)(i) of the Companies Act 2013, ICAI — The auditor's responsibility on reporting on Internal Financial Controls over Financial Reporting includes the design and operating effectiveness of controls over the preparation of the cash flow statement and its reconciliation to the movement in cash and cash equivalents on the balance sheet. A material unexplained gap between the CFS closing figure and the sum of the bank statement balances at the reporting date is a control deficiency in its own right — the reconciliation to bank statements is a compensating control, and the absence of a documented reconciliation, or a reconciliation that leaves an unexplained residual, is a reportable weakness in the ICFR opinion under Section 143(3)(i).