Transcript Provisions relating to Accounts and Audit in The Companies

Presentation
By
CA Anil Sharma
Accounts
• Chapter IX
• Sections 128 to 138 (except sections 135 & 138)
• All sections are applicable w.e.f. 1.4.2014 except :
– Sec.130- Revision of accounts on Tribunal’s order
– Sec 131- Voluntary revision of accounts
– Sec 132 - NFRA
• The Companies (Accounts) Rules, 2014
( applicable w.e.f. 1.4.2014)
Tuesday, July 21, 2015
Section 128- Books of Accounts to be
kept by the company
• Prepare and keep at its registered office:
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Books of accounts,
Other relevant books and papers and
Financial statement
For every financial year
To be kept on accrual basis and according to the
Double Entry system of accounting
– Which give a true and fair view of the state of affairs
of the company including its branch office(s)
– May keep in electronic mode in such manner as may
be prescribed.
Tuesday, July 21, 2015
Books of Accounts
• Section 2(13) Books of accounts include
records maintained in respect of:
– All money received and expended
– All sales and purchases of goods and services
– The assets and liabilities and
– The items of cost as may be prescribed under
section 148.
Tuesday, July 21, 2015
Book and Paper
• Section 2(12) - Book and Paper include books
of accounts, deeds, vouchers, writings,
documents, minutes and registers maintained
on paper or in electronics mode.
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Financial Statement
• Section 2(40) defines ‘Financial statement’ to include:
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Balance sheet
Profit and loss Account
Cash Flow Statement
Statement of Changes in Equity , if applicable
Explanatory Notes
• Cash flow statement not applicable to :
– OPC,
– small company and
– dormant company.
Tuesday, July 21, 2015
Financial Year
• Section 2(41) – means the period ending on the
31st March every year
–Exception could be made by a Tribunal if a company
being holding or subsidiary of a company
incorporated abroad and is required to maintain
accounts for a different financial year outside India
• In the first year of incorporation:
–If incorporated before 1st Jan, then period ending 31st
March of the same financial year
–otherwise, period ending 31st March of the next
financial year.
• Existing companies to align within two years.
Tuesday, July 21, 2015
Rules(3)- Manner of Books of account to be kept in
electronic mode
Conditions:
• To remain accessible in India so as to be usable for
subsequent reference.
• To be retained in the same format in which originally
generated sent or received.
• To remain complete and unaltered.
• To be capable of being displayed in a legible form.
• To have proper system for storage, retrieval, display or
printout of electronic records.
• Not to dispose off or rendered unusable, unless permitted by
law.
• Information received from Branch shall not be altered.
• The backup of books of account and other books and paper
shall be kept in servers physically located in India on a
periodical basis.
Tuesday, July 21, 2015
Sec 129- financial Statement
• It shall give true and fair view of the state of
affairs of the company,
• Shall comply with the accounting standards
notified under section 133 and
• Shall be in the form in Schedule III.
• At every AGM of a company, the BOD shall lay
before such meeting Financial statements for
the financial year.
Tuesday, July 21, 2015
CFS
• Sub-section (3) of section 129 provides for
preparation of CFS by a company having one or
more subsidiaries .
• ‘Subsidiary’ for the purpose of this clause
includes ‘ associates’ and ‘joint venture’.
• CFS shall be in addition to stand alone financial
statement.
• Stand alone F/S to include a Statement containing
salient features of F/S of subsidiaries in Form
AOC-1.
• Rule 6 provides for manner of consolidation.
Tuesday, July 21, 2015
Rule 6- Manner of consolidation of accounts
• To be made in accordance with the provisions
of Schedule III and according to the applicable
accounting standards.
• In case not required to apply accounting
standards, compliance of provisions on CFS as
provided in Schedule III would be sufficient.
Tuesday, July 21, 2015
Revision of accounts
• Distinction between reopen and recast and
revision
• Section 130- reopen and recast ( on judicial
directions)– can be done only with approval of Tribunal and no
objections from the Central Government, Income Tax
Authorities, SEBI or any other regulator/authority
– Allowed only if it is established that earlier accounts
were prepared fraudulently or the affairs were
mismanaged during the period casting doubt on the
reliability of financial statement.
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Revision of accounts
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Section 131- revision ( voluntarily by the company with the
approval of the Tribunal)
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For the three preceding financial years
If the Board feels that financial statements are not prepared
according to Section 129 ( accounting standards, format)
Procedure (Draft Rules 9.8)
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While granting approval , Tribunal to issue notice and hear the
auditor of the original financial statement, if the present auditor is
different.
After approval a GM may be called . Notice to include reasons for
change, copy of approval and to accompany revised statement of
directors and auditors.
Notice to be publish in newspaper
Auditor to ensure every shareholder is informed and
After adoption to be filed with Registrar by the company.
To revise all subsequent accounts, if relevant period is in between.
Tuesday, July 21, 2015
National Financial Reporting Authority (NFRA)
•Section 132- Body with advisory role having
quasi-judicial powers for ensuring compliance
•make recommendations to the Central
Government on formulation and laying down
of accounting and auditing policies and
standards for adoption by companies and
their auditors and
•monitor and enforce the compliance with
accounting standards and auditing standards
by companies and their auditors.
Tuesday, July 21, 2015
NFRA- Draft Rules
• The Authority shall have thee Committees :
– (i) Committee on Accounting Standards,
– (ii) Committee on Auditing Standards,
– (iii) Committee on Enforcement.
• Functions of Authority:
– (i) Standard Setting
– (ii) Monitoring, compliance review and overseeing quality of service
– Enforcement
• To conduct quality review of audit of:
– Listed Companies;
– Unlisted companies with net worth not less than Rs.500 crores or paid
up capital not less than Rs.500 crores or annual turnover not less than
Rs.1,000 crores as on 31st March of immediately preceding financial
year; or
– Companies having securities listed outside India
Tuesday, July 21, 2015
Section 133- Accounting Standards
• Rule 7 – Until accounting standards are
specified under section 133, accounting
standards as per Companies (Accounting
Standards) rules, 2006 would be applicable.
• Till NFRA is constituted, Central Govt. may
add, amend and accounting standard as
recommended by ICAI after examining
recommendations of NACAS.
Tuesday, July 21, 2015
Section 134(1)- Approval of financial Statement
• The financial statement, including CFS, if any,
shall be approved by the Board of Directors
before they are signed on behalf of the Board by
– At least by the chairperson of the company where he
is authorised by the Board or
– by two directors out of which one shall be managing
director and the Chief Executive Officer, if he is a
director in the company,
– the Chief Financial Officer and the company secretary
of the company, wherever they are appointed,
– in the case of a One Person Company, only by one
director.
Tuesday, July 21, 2015
Sec 134(3)- Board Report
Report to include:
• Extract of the annual return
• Number of Board meetings
• Directors Responsibility Statement
• Statement of Declaration by Independent directors
• Explanations or comments on every qualification, adverse remarks
or disclaimer by the auditor
• Particulars of loans, guarantees or investment under section 186
• Particulars of related party transactions u/s 188 ( in Form AOC-2)
• State of company’s affair
• Proposed dividend and transfer to reserves
• Material changes and commitments affecting the financial position
of the company
• CSR Policy, ( Refer Rule 9) Risk Management Policy
• Details on conservation of energy, technology absorption, forex
earning and outgo (Refer Rule 8(3))
• Such other matters as may be prescribed.
Tuesday, July 21, 2015
Sec 134(3)- Board Report
• Rule 8(5)- other matters to be included in Report:
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Financial summary
Changes in the nature of business
Details of changes in directors or KMPs
Changes in subsidiaries, associates or JVs
Details of deposits including which are not in compliance with
the requirement of chapter V
– Significant orders passed by the regulator impacting going
concern status
– Details of adequacy of internal financial controls w.r.t. F/S.
• In case of every listed company and every other public
company having paid up share capital of Rs. 25 Crores or
more, a statement indicating the manner in which formal
annual evaluation has been made by the Board of its own
performance and that of its committees and individual
directors.
Tuesday, July 21, 2015
Sec 136- Copies of FS to members
• FS including CFS, if any, auditors report and other
documents required to be part of the Financial statements.
• Rule 10 :Listed companies can sent a statement containing
salient features of financial statement in Form AOC-3.
• Rules 11: In case of listed companies or such public
company having net worth of more than one Crore Rupees
or turnover of more than 10 Crores Rupees, the financial
statement may be sent by:
– Electronic mode to such members whose shareholding is in
DEMAT form and e-mail ID are registered with depositories for
communication purposes
– Electronic mode to those others who agreed to received
– To others physical copies by any recognised mode of delivery
Tuesday, July 21, 2015