Transcript Companies Bill, 2012 – Directors & Auditors

Companies Act, 2013
–Accounts and Audit
-
Anand Banka
What is Company?
O Latin word
O Com = with or together
O Pains = bread
O OPC?
Salient Features
COMPANIES ACT 1956
COMPANIES BILL 2013
13 Parts
29 Chapters
658 Sections
470 Clauses
15 Schedules
7 Schedules
Status as of now…
O Companies Act, 2013 issued and finalised
O Effective in phased manner
O 98 sections already applicable from 12
September 2013
O No corresponding rules!!!
O 2 phases of rules issued
O 16 Chapters
O 8 Chapters
Accounts
Financial Statement
O Balance sheet
O Profit and loss account/ income and
expenditure account
O Cash flow statement (except one person
company, small company and dormant
company)
O Statement of change in equity, if applicable
O Notes
Issues
O Companies (AS) Rules, 2006
O Accounting Standards issued by ICAI
SMC Vs. Small Company
Relevant Factor
Rules. 2006
Act, 2013
Turnover
Does not exceed
Rs. 50 Crore
Does not exceed
Rs. 2 Crore
Paid-up share
capital
No such criteria
Does not exceed
Rs. 50 lakh
Listing
Should not be
listed
Should not be
public company
Borrowings
Does not exceed
Rs. 10 Crore
No such criterion
Holding/
Subsidiary
Not a holding/
subsidiary of NonSMC
Not a holding/
subsidiary
Financial Year
O March 31
O In-line with Income Tax Act
O If company formed on or after 1st Jan, the
March 31 of next year
O Existing companies to re-align within 2 years
O Application to be made if different financial
year to be followed
Issues
O Holding/ subsidiary outside India having a
different financial year
O Approval from Tribunal
What’s new!
O Compulsory consolidation of accounts
O Holding Company
O Subsidiaries
O Joint Venture and
O Associates
Consolidation
O Mandated by clause 32 of listing agreement
O AS 21 applicable only if a subsidiary
O Argument 1: AS says only if u have subsidiary,
else AS 21 not applicable. Hence, same will
prevail
O Argument 2: Prepare CFS even if no
subsidiary
O Applicable to PVT LTD COMPANY also (incl.
OPC)
O If OPC is allowed to have a subsidiary!!
Issues
O Companies preparing CFS as per IFRS basis
option in listing agreement
O Definition of ‘Control’
O Control over more than one-half of total share
capital
O Includes Preference Shares?
O Control of more than 50% total shares but
holding of equity less than 50%... Then how
to consolidate?
What’s new!
O Re-opening or re-casting of book of accounts
of the Company
O By order of the court
O Voluntary – by consent of the Tribunal
Re-opening on Court’s or
Tribunal’s Orders
O Relevant earlier accounts were prepared in
fraudulent manner
O The affairs of the company were
mismanaged during the relevant period,
casting a doubt on the reliability of financial
statements
Voluntary Revision
O If it appears to the directors of the Company that
the financial statement of the Company or the
reports of the Board do not comply with the
provisions of section 129 or section 134, the
company can make an application to the
Tribunal
O The order copy passed by the Tribunal shall be
filed with the Registrar
O Such revised financial statement or report shall
not be prepared or filed more than once in a
financial year.
Voluntary Revision
O Max once in a year
O 3 years limit for Voluntary revision
O Reopening of previous to previous year’s
may impact opening balances, mandating
revision of previous year
Issues
O Recently, the SEBI has issued a Circular,
which empowers it to require revision of
financial statements, if the audit report is
qualified
O In Amalgamation/ Merger scheme approved
by the court back-dated, it might help
O Revision in one Subsidiary affects CFS
Depreciation
O Schedule II
O Useful life of assets given
O 3 class of companies
O Ind-AS: Permitted to adopt different rates, if
disclosed justification
O Where authorities prescribe rates
O Others: not longer than that given in Schedule II
O Rs. 5000 criteria removed
Issues
O No separate rate mentioned for intangible
assets (rebuttable 10 yrs as per AS 26)
O Useful life is reduced in Sch II as compared
to Sch XIV for many assets
O Remaining useful life = 0
O Carrying amount adjust with retained
earnings
O Remaining useful life = 1
O Carrying amount taken to P/L
Issues
O Identify significant components separately
with different useful life
O In case of revaluation, depreciation to be
charged on revalued amount
Audit
Appointment of Auditor
O Appointment of auditors for 5 years
O No requirement for annual appointment/ re-
appointment
O Automatic re-appointment if no other auditor
appointed at AGM
O CG approval for removal of auditor before term
O Limited Liability Partnerships may be appointed
as auditors
O Majority partners practicing in India should be
qualified for appointment (old Act – All partners)
Rotation of Auditors
O Compulsory rotation - for Listed Companies
and other prescribed class of companies
(Still under consideration)
O 5 years (individual)
O 10 years (firm)
O Cooling period = 5 years
O Auditor who has COMPLETED his term – not
eligible for reappointment
O Global companies having single auditor
O Whether disqualified across globe!!
Rotation of Auditors
O MCA voluntary code – 5 years
O An analysis of 286 listed companies reveals that
25% have had the same auditor for more than
ten years.
O This includes 56% of the SENSEX companies
and 40% of the NIFTY companies.
O Infact only 131 companies, comprising mostly of
banks, are found to conform to the MCA
guidelines.
Rotation – clarifications
O “Existing companies have to comply with the
requirements within 3 years from the date of
commencement of the Act”
O Retrospective
O RBI and IRDA requirement overrides – 4 years
Disqualification
O Not holding any security of company/subsidiary/holding/
associate/ fellow subsidiary.
O
Relative may hold securities of FV upto Rs. 1 LAKH
O Not indebted to same category of companies for Rs. 1
O
O
O
O
LAKH
Not provided guarantee/ security to same category of
companies – Rs. 1 LAKH
No direct/ indirect business relationship (i.e. any
transaction for a commercial purpose)
A person who is a partner or who is in the employment of
an officer or employee of the company
No Court Conviction in last 10 years
Relative?
O Spouse
O Father/ Mother (incl. step)
O Grandfather/ Grandmother (Father’s side
O
O
O
O
and mother’s side)
Son / Daughter (incl. step)
Son’s wife, Son’s son, Son’s daughter
Daughter’s husband
Brother/ Sister (incl. step)
Disqualification
O Maximum number of companies in which a
person may be appointed as auditor - 20
companies (incl. Pvt Companies?)
O Rotation of auditing partner and his team (in
case of an audit firm) can be imposed by the
company
O Resignation of auditors
O statement in prescribed form to be filed with
company as well as ROC
O indicating reasons and other facts as may be
relevant
O failure to attract fine
Disqualification
O Restrictions on Auditor to provide either directly
or indirectly following services
O accounting and book keeping,
O Internal audit
O design and implementation of any financial
information system,
O management services,
O investment advisory services,
O investment banking services,
O rendering of outsourced financial services
to the company, its holding company and subsidiary
company.
O What happens to global companies?
Disqualification
O Restriction on Common Partner Firms
O Part of same group / network
O Same address
O Common relative
O Disqualified
for providing other
Subsidiary/ Holding/ Associate, etc.
O Also during holiday/ cool – off period
services
to
Disqualification
O Tribunal may direct company to change auditors
O if satisfied that auditor acted in fraudulent
manner or
O abetted or colluded in any fraud by or in relation
to company or its directors or officers
O The Charge of disciplinary committee has been
handed over to NFRA
O Previously with ICAI
Miscellaneous
O Auditing and cost auditing standards made
mandatory
O In case of fraud
O Auditor/secretarial auditor/cost auditor to report
to Central Government
O Internal Audit mandatory for
O Listed company
O Public company with Share capital >= 10 Crs
O Public company with loans/ deposits >= 25 Crs
Miscellaneous
O Cost audit to be mandatory
O Mandatory Secretarial audit
Structure of Auditing Standards
SQC
1-99
Historical financial
statements
e.g. Stat Audit
Audit
100-1999
Review
2000-2699
Other assurance
engagements
e.g. Projections
General
3000-3399
Subject
Specific
3400-3699
Related services
e.g. Accounting
4000-4699
Formulation of Auditing
Standards
Companies Act,
1956
Companies Act,
2013
SA’s Formulation –
ICAI
NACAS- Ratify
NFRA –
Formulation
(in consultation
with ICAI)
Audit Report
O Whether the company has disclosed the
effect, if any, of pending litigations on its
financial position in its financial statement
O Whether the company has made provision
for foreseeable losses, if any, on long term
contracts including derivative contracts
O Whether there has been delay in depositing
money into the Investor Education and
Protection Fund by the company
Liability of Auditors
O Contravention of certain provisions – fine (Rs.
25,000 to Rs. 5 Lakhs)
O Knowingly or willful contravention with the intent to
deceive company, shareholders, creditors, tax
authorities – imprisonment and fine (1 Lakh-25
Lakhs)
O Convicted for offence – liable to refund remuneration
and pay damages for loss arising out of incorrect or
misleading statements in audit report
O In case of audit firm – if proved that audit partner/s
have acted in fraudulent manner or abetted or
colluded in any fraud, the liability, civil or criminal,
would be of audit partner/s concerned as well as of
the firm jointly and severally
Prosecution by NFRA
O Suo moto or on a reference made to it by CG
O Professional or other misconduct
O Penalty
O Individuals – 1 lakh to 5 x fees
O Firm – 10 lakh to 10 x fees
O Debar the member/ firm – 6 months to 10
years
Class Action
O Members/ Depositors
O Claim damages/ compensation from
auditor/ audit firm
O Improper/ misleading statement made in
audit report or for any misconduct
O Liability will be joint and several
O Will benefit of LLP be available in such
scenario??
Anand Banka
Partner,
Talati & Talati
Chartered Accountants
Email: [email protected]
Mob: 98673 53743