Transcript New Companies Act - ICAI | Online Web TV | Live Channels

New Companies Act
Salient Features of importance to the Industry and
Opportunities / Critical Risks to the Chartered
Accountants
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Salient features
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Salient Features…
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New Concepts
Business Structures
Board and Management
Business Friendly
Accounts
Audit and Auditors
Dispute Resolution
CSR
Cross Border Mergers
Others
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New Concepts
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One person Company
Concept of Small Company and Dormant Company
“Provisions of entrenchment” in AOA
National Financial Reporting Authority (NFRA) from NACAS
◦ More than advisory; Charged with monitoring and enforcement
◦ Investigate into professional or other misconduct
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CSR obligations on companies
◦ Covered company to spend 2% of its average NP for 3 years
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Provision for cross border mergers
Registered Valuers
CG empowered to prescribe restrictions on layers of
subsidiaries
New Act is highly rule driven
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Business structures
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Structuring Advisory
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Chapter I
Sec. 2 (62), 2
(85), 455
New formats of business
◦ One Person Company (OPC)
◦ Dormant Companies
◦ Small Company
 Option to use these formats for business
 Especially, potential to convert proprietorship into OPC
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Number of members enhanced from 50 to
200 for private limited companies
 Effect on control and management
 Potential to advice on structuring revolving around
terms an conditions to be placed on members
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New Structures
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Chapter I
Sec. 2 (62), 2
(85), 455
ICAI could take up measures to develop
◦ Simplified format for financials
◦ Accounting Standards for small companies
◦ Simplified format of Audit report including CARO
requirements
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ICAI could also help provide support in
terms of prescribing process for registration,
monitoring etc., of these type of companies
◦ Especially, considering the experience India has
had with a huge lot of vanishing companies!
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Chapter XII
Sec. 186 (1)
Restriction on layer of subsidiaries
Step down subsidiaries restricted to two
layers going forward
 Scope for advisory to groups which have
significant number of subsidiaries across
multiple layers
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Directors and Management
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A person can be a director in 20 companies (incl. 10 public
companies)
Duties and liabilities of directors has been prescribed
Max. Directors – 15 (more through special resolution)
At least one woman director mandatory for certain class of
companies
Every company to have at least one director who has stayed
in India for over 182 days in the PY
Independent Directors prescribed for class of companies
◦ Also tenure (10 years) and liability codified
◦ Nominee director cannot be an independent director
◦ Stringent requirements for independence
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Statutory recognition to audit committee, remuneration
committee and stakeholders relationship committee as well
as CEO, CFO and CS as KMP
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Directors and Management
Shares cannot be issued at a discount
 Use of securities premium
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Inter corporate loans will include loans
to and investment into “any person”
◦ Minimum interest on ICD to be G Sec
rates
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More disclosures on related party
transactions
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Business Friendly - Process
Speedy incorporation process
Private limited members limit enhanced to
200
 Simpler and single forum approval for M&A
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◦ Simple and short process for holding and WOS
or small companies
◦ Concept of deemed approval in some cases
Squeeze out provisions – purchase of
minority shareholding when 90% holding
reached
 Simplified process for voluntary removal of
name from register
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Business Friendly - E-enable
Voting through electronic means by
members at meeting
 Board meetings can be held by video
conferencing / electronic means
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◦ Such participation will count for quorum
too
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Maintenance and allowing inspection
of documents by companies in
electronics form
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Business Friendly – Deleted
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Certificate of Incorporation is the conclusive evidence
Provisions relating to certificate of commencement of
business
Statement in lieu of prospectus
Statutory meeting and statutory report
Share warrants
Public trustee
Payment of interest out of capital
Transfer to general reserve for declaration of dividend
Special audit
Share qualification
Restrictions on appointment and remuneration of sole selling
/ sole-purchasing agents
Employee’s Security and PF amounts
Receivers and Managers
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Accounts
Consolidated Financials made mandatory
Company’s financial year made standard – 1st
April to 31st March (except for exceptional cases)
 No need to attach full annual reports of
subsidiaries
 Provision for revision of accounts
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◦ On being ordered by the authority
◦ Voluntary revision
Internal audit by members of professional body
being made mandatory
 Mandatory secretarial audit for bigger companies
including listed companies
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Audit and auditors
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Chapter IX
Sec. 132
NFRA
New oversight body for the accounting and
auditing profession
 Functions hitherto with NACAS will also
move over to NFRA
 NFRA will deal with
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◦ Prescribing Standards based on ICAI’s standard
setting – Accounting as well as Auditing
◦ Monitor compliance with the accounting and
auditing standards
◦ For prescribed class of companies / auditors deal
with disciplinary mechanism
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Chapter X
Sec. 139 (2)
Audit Rotation
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Rotation of auditors after 5 / 10 years for CA /
firm
◦ Rotation of team and partner if the members so
resolve
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5 year tenure for auditors appointed in AGM
◦ Automatic reappointment in AGM where no
auditor is appointed / reappointed
Scope to move into Statutory Audits for more
firms
 Opportunity to specialise in specific industries by
firms to become the automatic choice for such
rotation
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Chapter X and XVI
Sec. 245, 143
Onerous Responsibility…
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245 (1) (g) (ii) and 245 (2) –
Class Action suits a
major area of concern for CA
professionals
143 (3) (i) – to be limited to internal
financial controls that would materially
impact the financial statements (like ICOFAR
under SoX)
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Chapter X
Sec. 143
Audit Execution and Reporting
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143 (3) (a)
– Details of
◦ How audit to be performed to be left to
Auditing Standards
◦ Discretion on reporting issues to Auditor’s
judgement
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Chapter X
Sec. 143
Fraud and Auditor’s Responsibility
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143 (12) and 143 (15) – To
be limited to fraud,
if identified in the course of the audit
◦ Audit is only seeking reasonable assurance
◦ Primary responsibility to protect from fraud
and error lies with Management and TCWG
◦ Audit procedures
 May be effective to identify material errors
 But not to identify all frauds
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Chapter X
Sec. 141
Auditor’s Eligibility and Disqualifications
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141 (1) - Firms / LLP with majority partners being
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141 (3) (d) –
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Chartered Accountants can be auditors
◦ Could lead to non professionals and foreign
entities taking advantage
◦ Only multi disciplinary firms under CA Act to be
permitted
Relatives to be redefined as
“financially dependent relatives”
141 (3) (e) – Arms length transactions in the
ordinary course of business to be permitted
141 (3) (e) - “Business relationship” should
exclude permitted professional services
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Audit and Auditor
Tribunal can direct change of auditors
if it is satisfied that the auditors have
colluded in a fraud…
 LLPs may be appointed as auditors
 Auditing Standards to be made
mandatory
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Chapter X
Sec. 144
Prohibited Services
Differentiate “public interest entities” and others
 Can provide for safeguards where applicable (like
ICAI code of conduct)
 Clarity needed on its application on services
rendered outside India
 Services prohibited to be specifically defined for
their meaning
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Over stringent norms could lead to services
slipping away from CA professionals to other
professionals
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Dispute Resolution
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Class Action Suits
Disgorgement provisions in such cases
Resigning directors to also notify ROC with
detailed reasons
Investigation into the affairs by SFIO
Vigil mechanism (whistle blowing…)
Mediation and Conciliation Panel
Prohibition of insider trading
Personal and unlimited liability on directors,
promoters, experts etc., in case of fraudulent
purpose
Special court to deal with offences under the Act
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CSR
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Companies requiring to constitute a CSR committee
◦ Networth of Rs.500 crore or more
◦ Turnover of Rs.1,000 crore or more
◦ Net profit of Rs.5 crore or more in any financial year
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CSR committee to have
◦ Three or more directors
◦ At least one is to be an independent director
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CSR committee will
◦ Formulate CSR policy and recommend to board
◦ Recommend the amount of expenditure to be incurred
◦ Monitor CSR policy from time to time
Schedule VII lists out the activities which can be considered
 Company to give preference to local areas / areas around
which it operates
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Chapter XV
Sec. 234
Cross Border Mergers
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Critical look required into the following
aspects:
◦ India shareholder’s interest
◦ Implications of FEMA and other such
regulations
◦ Indian worker interest
◦ Dual listing
◦ Implication to Indian tax revenue scenario
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Others
Revival and Rehabilitation Provisions for
Sick Companies
 Sickness to be determined not based on
negative networth but based on ability to
repay debts
 Stringent control over Not for profit
companies
 Companies which can raise public
deposits restricted
 Dividend claim not extinguished after 7
years
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Others
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Relaxation that association /
partnerships could have up to 100
persons
◦ No ceiling on partners / members in case
of associations of persons / partnerships
for professionals regulated by special acts
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AS vs. Companies Act
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The definitions in Bill different from Accounting
Standard
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Chapter I
Sec. 2 (6), 2 (27),
2 (76), 2 (87)
Control
Associate
Subsidiary
Related Party
Recommend
◦ For preparation of CFS, definition as per AS will
prevail and
◦ For regulatory purposes definition as per Act will
apply
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New opportunities
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Chapter XVII
Sec. 247
Valuation – Registered Valuers
Introduction of registered valuer
 CA in practice could take benefit of this
requirement
 Also, to look into more areas where such
registered valuer services could be made
mandatory
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Chapter XIV
Sec. 211
Serious Fraud Investigation Office
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ICAI could work with SFIO
◦ Opportunities to work on forensic
investigations
◦ Development of early warning systems for
being implemented for online monitoring and
tracking
◦ SFIO being viewed as a large employment
provider for CA professionals
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Chapter I
Sec. 2 (41)
Uniform Financial Year
Help companies with the transition
 Identify feasibility of a different financial
year where scope exists and the company
would find it beneficial
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Chapter IX
Sec. 129 (3)
Consolidated Financial Statement
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Requirement to file consolidated financial
statements extended to more companies
◦ Opportunity to advice groups into a relook at
their structures and implications
◦ Automatic requirement for more professional
services in view of this
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Chapter XI
Sec. 149 (4)
Independent Directors
More opportunities for independent
directors
 Need to create a database and panel as a
professional development initiative
 Focused training sessions to make CA’s as
the choice for independent directors
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