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Companies Act, 2013 Practical Aspects Accounts and Auditor & New Provisions Related to Financial Statements – Bhubaneshwar 26 th February,2015 by CA Yagnesh.

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Presentation on theme: "Companies Act, 2013 Practical Aspects Accounts and Auditor & New Provisions Related to Financial Statements – Bhubaneshwar 26 th February,2015 by CA Yagnesh."— Presentation transcript:

1 Companies Act, 2013 Practical Aspects Accounts and Auditor & New Provisions Related to Financial Statements – Bhubaneshwar 26 th February,2015 by CA Yagnesh Desai B.Com. FCA.

2 Financial Statements Financial Statements Sec 2(40): Financial Statements include: Balance sheet as at the end of Financial YearProfit & loss account (SCH-III ?) or Income and Expenditure account -Cash flow statement for the financial yearStatement of changes in Equity, if applicable – (Not yet) Any explanatory note annexed to or forming part of the above

3 Financial Statements Give a True & Fair viewCompliance with Accounting Standards (Sec.133)In the form Specified in Schedule III Insurance company Banking company Company engaged in generation or supply of electricity Company governed by any other law for the time being in force Not Applicable to

4 Cash Flow Statement – V IMP Mandatory for all companies except: ◦ One Person Company, ◦ Small Companies ◦ Dormant Companies ◦ The Act 1956 did not mandate the preparation and presentation of cash Flow Statement

5 Financial Year  Existing Companies ◦ A period ending on the 31st day of March every year  Newly incorporated companies First financial year could be for 15 months

6 Some more details to ROC The company shall intimate to the Registrar on an annual basis at the time of filing of financial statement- (a) the name of the service provider; (b) the internet protocol address of service provider; (c) the location of the service provider (wherever applicable); (d) where the books of account and other books and papers are maintained on cloud, such address as provided by the service provider.

7 Consolidated Financial Statements – CFS Standalone Financial Statement - SFS

8 Consolidations Associates & Joint ventures are considered as “subsidiary” for S 129(3). The requirements concerning preparation, adoption and audit of financial statements will, mutatis mutandis, apply to CFS. Title – CFS & Financial Statement or Standalone Financial Statement

9 No Subsidiary but associates and Joint Ventures – Is consolidation required ? Vide Notification dated 14 th October,2014 – not to consolidate till 31 st March, Companies (Accounts) Amendment Rules, 2014 October,2014 Intermediary wholly owned subsidiary exempt

10 Schedule III V/s Schedule VI New Section added Viz “ GENERAL INSTRUCTIONS FOR THE PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS Page 279”STATEMENTS General Circular 39/2014 about additional Information as envisaged for CFS. General

11  Where a company is required to prepare CFS, it will mutatis mutandis follow the requirements of this Schedule as applicable to a company in the preparation of balance sheet and statement of profit and loss.  In CFS, the following will be disclosed by way of additional information: o In respect of each subsidiary, associate and joint venture, % of net assets as % of consolidated net assets. o In respect of each subsidiary, associate and joint venture, % share in profit or loss as % of consolidated profit or loss. o Disclosures at (i) and (ii) are further sub-categorized into Indian and foreign subsidiaries, associates and joint ventures. o For minority interest in all subsidiaries, % of net assets and % share as in profit or loss as % of consolidated net assets and consolidated profit or loss, separately.  All subsidiaries, associates and joint ventures (both Indian or foreign) will be covered under CFS.  A company will disclose list of subsidiaries, associates or joint ventures which have not been consolidated along with the reasons of non-consolidation.

12 Director’s Responsibility Statement S 134 (3)(c) & (5) ( 5 ) The Directors’ Responsibility Statement referred to in clause ( c ) of sub- section ( 3 ) `shall state that— ( a ) in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures; ( b ) the directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year and of the profit and loss of the company for that period; ( c ) the directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities; ( d ) the directors had prepared the annual accounts on a going concern basis; and

13 Director’s Responsibility Statement (e) the directors, in the case of a listed company, had laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively. Explanation.—For the purposes of this clause, the term “internal financial controls” means the policies and procedures adopted by the company for ensuring the orderly and efficient conduct of its business, including adherence to company’s policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information; (f) the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

14 S 134 : Board’s Report Should be based on which statement – SFS or CFS ? The Board report should be based on the stand alone financial statements. Rule 8 – The Companies (Accounts) Rules Chapter IX It should also contain a separate section wherein a report on the Performance and financial position of each of the : Subsidiaries, Associates, and Joint venture companies included in the Consolidated Financial Statements

15 Approval of Financial Statements – Both or only SFC ? Both stand alone and consolidated financial statements : must be approved by the Board They must be signed on behalf of the Board by :-  When the Chairperson is Authorised by the Board  The Chairperson of the Company.  When the Chairperson is not Authorised by the Board and  By any two directors of the company, out of which one shall be Managing Director and CEO, if he is director and The company secretary wherever they are appointed In case of One person Company ; only by one director. Auditor’s Report must be attached with every financial statements.

16 Auditors

17 ParticularsSectionRuleForm No. Manner and procedure of selection of auditor139(1)3 Conditions for Appointment 139(1), Second to proviso 4 139(2)5 Manner in which the companies to rotate their auditor on the expiry of term 139(4)6 Removal of auditor before expiry of his term140(1)7ADT-2 Resignation of auditor140(2)8ADT-3 Disqualification of auditor 141(3)(d)(i) (3)(d)(ii) (3)(d)(iii) (3)(e)10.4 Other matters to be included in Audit Report143(2)11 Duties and powers of the company’s auditor with reference to the audit of the branch and the branch auditor 143(8)12 Reporting of frauds by auditor143(12)13ADT-4 Remuneration of cost auditor148(3)14

18 Appointment in next AGM Auditor to issue :  A Prior written consent to the appointment; and  A certificate stating that he/she satisfies the criteria specified in Sec.141 and is qualified to be appointed as an Auditor *certificate  Company to intimate- ( as against the auditor) to Registrar; and Auditor in less than 15 days of such appointment, earlier onus was on the Auditor.

19 Certificate by Auditor Under Rule 4 “(1) The auditor appointed under rule 3 shall submit a certificate that - (a) the individual or the firm, as the case may be, is eligible for appointment and is not disqualified for appointment under the Act, the Chartered Accountants Act, 1949 and the rules or regulations made there under; (b) the proposed appointment is as per the term provided under the Act; (c) the proposed appointment is within the limits laid down by or under the authority of the Act; (d) the list of proceedings against the auditor or audit firm or any partner of the audit firm pending with respect to professional matters of conduct, as disclosed in the certificate, is true and correct.”

20 Rotation of the Auditor - Assess the applicability Listed companies Unlisted public companies having paid up share capital of Rs. 10cr or more; Private companies having paid up share capital of Rs. 20cr or more; Any company having public borrowings from financial institutions, banks or public deposit of Rs. 50cr or more

21 Rotation of the Auditor - Not Applicable to Specifically a. One person company b. b. Small companies c. And also not applicable to ?????????

22 Rotation of the Auditor Individual – One Term of 5 consecutive years; Firm - Two terms of 5 consecutive years each; The period for which the auditor has held office prior to commencement of this act shall be considered; Transition period is for 3 years. Rotation of audit partners internally is possible as may be resolved by the members of the Company. In case of Joint auditor, company to ensure that all auditors DO NOT complete their terms in the same year. Explanation II(a) to sub rule 3 of Rule 6 (a) a break in the term for a continuous period of five years shall be considered as fulfilling the requirement of rotation; Refer : International Ethics Board of Accountants.

23 Rotation of the Auditor  Associates – network firm auditor or audit firm under the same network of audit firms no eligible - the term “same network” includes the firms operating or functioning, hitherto or in future, under the same brand name, trade name or common control – explanation I to sub-rule 3 of rule 6.  Audit term tagged to certifying partner The partner, who is in charge of an audit firm and also certifies the financial statements of the company, retires from the said firm and joins another firm of chartered accountants, such other firm shall also be ineligible to be appointed for a period of five years - explanation II (b) to sub-rule 3 of rule 6.

24 Check eligibility w.r.t. S 141(3) (a) a body corporate other than a limited liability partnership registered under the Limited Liability Partnership Act, 2008; (b) an officer or employee of the company; (c) a person who is a partner, or who is in the employment, of an officer or employee of the company;

25 Check eligibility w r t 141(3) Check eligibility w r t 141(3) ( d ) a person who, or his relative or partner—relative ( i ) is holding any security of or interest in the company or its subsidiary, or of its holding or associate company or a subsidiary of such holding company: Provided that the relative may hold security or interest in the company of face value not exceeding one thousand rupees or such sum as may be prescribed; - Rules 10 (1) Prescribed Rs. One lac – sixty days to rectify. ( ii ) is indebted to the company, or its subsidiary, or its holding or associate company or a subsidiary of such holding company, in excess of such amount as may be prescribed; or Rules 10 (2) Prescribed Rs. Five lac (iii ) has given a guarantee or provided any security in connection with the indebtedness of any third person to the company, or its subsidiary, or its holding or associate company or a subsidiary of such holding company, for such amount as may be prescribed; Rules 10 (3) Prescribed Rs. One lac

26 Check eligibility w r t 141(3) (e) a person or a firm who, whether directly or indirectly, has business relationship with the company, or its subsidiary, or its holding or associate company or subsidiary of such holding company or associate company of such nature as may be prescribed; (f) a person whose relative is a director or is in the employment of the company as a director or key managerial personnel;

27 Check the Cap on No. of Audits S 141(3) (g) “a person who is in full time employment elsewhere or a person or a partner of a firm holding appointment as its auditor, if such persons or partner is at the date of such appointment or reappointment holding appointment as auditor of more than twenty companies”  Includes OPC, private and small companies  Companies (Amendment )Act 2000 private limited companies were not considered  Representation made by ICAI vide letter dated April 15,2014 to Hon’ble Minister.  Also proposed to exclude private companies in draft notification dated – no action till date.  Why not transition provision for auditors ? For directors one year transition provision.

28 Who is not Eligible for an appointment as an Auditor S 141(3) (h) a person who has been convicted by a court of an offence involving fraud and a period of ten years has not elapsed from the date of such conviction; (i) any person ( ?) whose subsidiary or associate company or any other form of entity, is engaged as on the date of appointment in consulting and specialised services as provided in section 144. S 141( 4 ) Where a person appointed as an auditor of a company incurs any of the disqualifications mentioned in sub-section ( 3 ) after his appointment, he shall vacate his office as such auditor and such vacation shall be deemed to be a casual vacancy in the office of the auditor.

29 Quiz S 139 (10) Where at any annual general meeting, no auditor is appointed or re-appointed, the existing auditor shall continue to be the auditor of the company.

30 Related Parties Person His Relative His Partner Person His Relative His Partner SubsidiaryAssociate Holding Subsidiary

31 Relax !! Audit Report made easy to some extend

32 Reporting Responsibilities – CARO not applicable any more Whether the transactions of the company are prejudicial in the interest of the company Investigation in case of company not being investment or banking company, whether shares debentures and other securities have been sold at a price not less than the purchase price * - beating FV Incase of government companies the CAG may conduct test audits if considers necessary * Where the shares have been allotted in cash have been actually received

33 Reporting Responsibilities Whether personal expenses have been charges to revenue expenses Whether loans and advances made by the company has been shown as deposits – classification & presentation. Whether loans and advances made by the company on the basis of security has been properly secured Whether the terms on which they have been made are prejudicial to the interests of the company or it’s members

34 Auditor’s Report – Major Concerns Matters which have adverse effect on functioning of the company * The branch auditor shall submit his report to the company’s auditor * SA 600 Whether the company has adequate internal financial controls in place and the operating effectiveness of such control * * This requirement is not applicable till 31 st march,2015

35 Audit Report – Views and Comments – S 143(3)(j) r. w Rule 11 Whether the company has :- disclosed the impact of pending litigations on its financial position in FS made provision for material foreseeable losses if any on long term contracts including derivative contracts * whether there is any delay in transferring amounts required to be transferred to the Investor Education and Protection Fund (IEPF deferred)

36 What are the services which are not to be rendered by Auditor? * Accounting and book keeping services Internal Audit Design and implementation of any financial information system Actuarial services Investment advisory services Investment banking services Rendering of outsourced financial services Management services Any other as may be prescribed (not prescribed till date,i.e., ) Tax audit is not barred – it is not considered as management services

37 Watch Dog to Blood Hound S 143(12) If an auditor of a company has reason to believe that an offence involving fraud is being or has been committed against the company by officers or employees of the company, he shall immediately report the matter to the Central Government. This requirement is not applicable till 31 st March,2015

38 Internal Audit S. 138 read with rule 13, The companies ( Accounts) Rules 2014 The following class of companies shall be required to appoint an internal auditor or a firm of internal auditors, namely:- I Public Company (a) every listed company; (b) every unlisted public company having- (i) paid up share capital of Rs. 50 crore or more during the preceding financial year; or (ii) turnover of Rs 200 crore or more during the preceding financial year; or (iii) outstanding loans or borrowings from banks or public financial institutions exceeding Rs 100 Crore or more at any point of time during the preceding financial year; or (iv) outstanding deposits of Rs 25 crore or more at any point of time during the preceding financial year; and

39 Internal Audit (c) every private company having- (i) turnover of Rs. 200 crore or more during the preceding financial year; or (ii) outstanding loans or borrowings from banks or public financial institutions exceeding Rs. 100 crore or more at any point of time during the preceding financial year: Compliance within Six months from the effective date. S 138 (1) Such class or classes of companies as may be prescribed shall be required to appoint an internal auditor, who shall either be a chartered accountant or a cost accountant, or such other professional as may be decided by the Board to conduct internal audit of the functions and activities of the company. ----Now look at the rules

40 Internal Audit Section 138 refers – Chartered Accountant – Cost Accountant or such other professional as may be decided by the Board to conduct internal audit of the functions and activities of the company. Interestingly, Rule 13 – (Page 9) of Chapter IX does not make s mention ofRule Cost Auditor or Any other professionals. May or may not be the employee of the Company.

41 Thank You.. Now over To Disclosures – Accounting Standards V Companies Act 2013.pptx


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