1. Statutory Auditors Concern Areas with respect to Compliance under Companies Act, 2013 & overview of Secretarial Standards I & II August 26, 2016 New Delhi NIRC OF ICAI Presentation by: Hitender Mehta FCS, FCA, LL.B. Partner, Vaish Associates Advocates

2. Statutory Audit & Compliances under the Companies Act, 2013

3. What are the roles and responsibilities of the Statutory Auditor with regard to the compliance of laws and regulations? Whether it is his primary responsibility? The question is also relevant in the context of the Act, whereby specific duties, responsibilities and liabilities have been cast on Auditors. Role and Responsibility of Statutory Auditor

4. Primary responsibility of the Statutory Auditor is to express an opinion on truth and fairness of the financial statements in accordance with the Accounting and Auditing Standards as notified and prescribed by the Act and the ICAI. Primary Responsibility of the Statutory Auditor

5. SA-250 deals with Consideration of Laws and Regulations in an Audit of Financial Statements. SA-250 is the primary auditing standard which deals with Auditor’s responsibility to consider laws and regulations which are relevant to the auditee company for audit of its financial statements. Standards of Auditing (SAs) Requirement of certain Standards on Auditing (SAs) issued by ICAI, has been made mandatory under the Act.

6. SA-250 envisages: Laws and regulations having direct effect on the financial statements and issue of audit reports and other certificates in respect of the auditee company Laws and regulations not having direct effect on the financial statements but the compliance of which may have a fundamental effect on operations and there may be risk of heavy penalties due to non-compliance. Standards of Auditing (SAs)

7. SA-250 clearly articulates that the primary responsibility for ensuring that the auditee company complies with laws and regulations rests with the “Management and those charged with Governance”. Standards of Auditing (SAs)

8. SA-250 requires the auditor to gather sufficient information, documents and other evidence to obtain reasonable assurance that the auditee company is complying with applicable laws and regulations. Standards of Auditing (SAs)

9. CHECK WHETHER SECRETARIAL AUDIT IS APPLICABLE TO THE AUDITEE COMPANY? COMPLIANCE WITH COMPANIES ACT, 2013 If yes, the Statutory Auditor may place reliance on the report of the Secretarial Auditor, subject to necessary checks.

10. CHECK WHETHER SECRETARIAL AUDIT IS APPLICABLE TO THE AUDITEE COMPANY? Every ‘listed company’; Every public company having a paid-up share capital of Rs.50 crore or more; Every public company having a turnover of Rs.250 crore or more. Every private company which is a subsidiary of a public company, and which meets any of the above criteria (i.e., having paid-up share capital of Rs.50 crore or more, or having turnover of Rs.250 crore of more) shall also be covered for the purpose of secretarial audit. APPLICABILITY OF SECRETARIAL AUDIT

11. THE SCOPE OF SECRETARIAL AUDIT inter alia includes reporting on the compliance of the Companies Act, 2013 and the rules made thereunder, Listing Agreement and Secretarial Standards issued by ICSI. SCOPE OF SECRETARIAL AUDIT

12. The Secretarial Auditor has to report whether- 1.Statutory records, registers, returns and other secretarial records are maintained? 2.There exists an appropriate compliance management system in the company? 3.Proper board processes are in place? SCOPE OF SECRETARIAL AUDIT

13. Whether there are any Alterations in the MOA / AOA viz.,  Change in name  Change in registered office.  Change in object clause. COMPLIANCE OF LAWS Indicative Checklist

14.  Whether there is any issue of shares / debentures during the audit period?  Whether there is any buyback of shares?  Whether the company has accepted deposits? Indicative Checklist COMPLIANCE OF LAWS

15. Whether the company has taken any loans? Whether there are related party transactions? Whether charges have been created by the Company? COMPLIANCE OF LAWS Indicative Checklist

16.  What is the shareholding pattern (particularly, details about majority shareholders)?  What are the implications under Companies Act (i.e., what sections are applicable on a particular shareholding level)? Whether the company becomes subsidiary, associate company due to particular shareholding? COMPLIANCE OF LAWS Indicative Checklist

17.  Check the Board structure;  Whether the company is required to appoint independent directors?  Whether the company is maintaining statutory registers?  Status of filing of forms and returns by the company? COMPLIANCE OF LAWS Indicative Checklist

18.  Minutes of board meetings held during the audit period.  Minutes of general meetings held during the audit period.  Adherence to SS-1 and SS-2SS-1SS-2 COMPLIANCE OF LAWS Indicative Checklist –Meetings

19.  Whether the company is having CSR obligation  Whether the Manner of computation of Net Profit is as per Section 198.  Whether CSR committee has been constituted?  Whether CSR spending is as per prescribed limit Section 135(5)?  Formulation of CSR Policy.  Implementation of CSR projects.  Disclosure in the Board Report. COMPLIANCE OF LAWS Indicative Checklist –CSR

20. If an auditor of a company, in the course of the performance of his duties as an auditor, has reason to believe that an offence of fraud which involves or is expected to involve individually an amount of Rs.1 crores or above is being or has been committed against the company by its officers or employees then the auditor shall report the matter to the Board or Audit Committee within 2 days seeking their reply within 45 days. Upon Receipt of such reply, the auditor shall not later than 15 days forward the same along with his comments to the Central Government. FRAUD REPORTING BY AUDITOR

21. PENAL PROVISIONS

22. SS-1SS-1 and SS-2SS-2 Overview of Secretarial Standards issued by ICSI

23. Disclaimer: While every care has been taken to ensure accuracy of this presentation, Vaish Associates or Mr. Hitender Mehta shall not assume any liability/ responsibility for any errors that might creep in. The material herein does not constitute/ substitute professional advice that may be required before acting on any matter. www.linkedin.com/in/hitendermehta Hitender Mehta FCS, FCA, LL.B 1st, 9th & 11th Floor, Mohan Dev Building 13, Tolstoy Marg New Delhi - 110001, India 106, Peninsula Centre Dr. S. S. Rao Road, Parel Mumbai - 400012, India Unit No. 305, 3rd Floor Prestige Meridian-II, Building No. 30 M.G. Road, Bengaluru - 560001, India DELHI MUMBAIBENGALURU hitender@vaishlaw.com hitendermehta@yahoo.co.in www.facebook.com/hitendermehta