1. Presentation By CA Anil Sharma
Provisions relating to Accounts, Depreciation and Audit in The Companies Act, 2013
Presentation By
CA Anil Sharma

2. Accounts Chapter IX Sections 128 to 138 (except sections 135 and 138)
All sections are applicable w.e.f except :
Sec.130- Revision of accounts on Tribunal’s order
Sec 131- Voluntary revision of accounts
Sec NFRA
The Companies (Accounts) Rules, 2014
( applicable w.e.f )
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3. Section 128- Books of Accounts to be kept by the company
Prepare and keep at its registered office:
Books of accounts (Sec 2(13)
Other relevant books and papers (Sec 2(12) and
Financial statement(Sec 2(40)
For every financial year (Sec 2(41)
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 (Rule 3).
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4. Financial Statement
Section 2(40) defines ‘Financial statement’ to include:
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.
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5. 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.
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6. 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.
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7. Sec 129(1)- 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.
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8. 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.
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9. Schedule III- Format and Instructions for preparation of Balance Sheet and Statement of Profit and Loss
General Instructions
Where compliance with the requirements of the Act including Ass as applicable to the companies require any change in treatment or disclosure including addition, amendment, substitution or deletion in the head or sub-head or any changes, inter se, in the financial statements the same shall be made and the requirements of this schedule shall stand modified accordingly.
Part I- Balance Sheet and General Instructions for its preparation,
Part II- Statement of Profit and Loss and General Instructions for its preparation and
General Instructions for the preparation of CFS.

10. Sec 129(3)- CFS
A company having one or more subsidiaries is required to prepare a CFS
‘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.
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11. 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.
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12. Schedule III-General Instructions for the preparation of CFS
the company shall 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 addition, the CFS shall disclose the information as per the requirements specified in the applicable Accounting Standards.
All subsidiaries, associates and joint ventures (whether Indian or foreign) will be covered under CFS.
An entity shall disclose the list of subsidiaries or associates or joint ventures which have not been consolidated in the consolidated financial statements along with the reasons of not consolidating.

13. Section 134(1)- Approval of financial Statement
The financial statement, including CFS, if any, shall be approved by the BOD 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 CEO, if he is a director in the company and
the Chief Financial Officer and the company secretary of the company, wherever they are appointed.
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14. Depreciation Section 123- Declaration of dividend.
Section 198- computation of net profit for the purpose of calculation of overall maximum managerial remuneration under section 197.
AS 6 - Depreciation accounting.

15. Section 123- Declaration of dividend
Sec 123. (1) No dividend shall be declared or paid by a company for any financial year except—
(a) out of the profits of the company for that year arrived at after providing for depreciation in accordance with the provisions of sub-section (2), or out of the profits of the company for any previous financial year or years arrived at after providing for depreciation in accordance with the provisions of that sub-section and remaining undistributed, or out of both; or…
(2) For the purposes of clause (a) of sub-section (1), depreciation shall be provided in accordance with the provisions of Schedule II.

16. Sec 198- computation of net profits
197. (1) The total managerial remuneration payable by a public company, to its directors, including managing director and whole-time director, and its manager in respect of any financial year shall not exceed eleven per cent. of the net profits of that company for that financial year computed in the manner laid down in section 198 except that the remuneration of the directors shall not be deducted from the gross profits.
198. (1) In computing the net profits of a company in any financial year for the purpose of section 197….
(4) In making the computation aforesaid, the following sums shall be deducted, namely…
(k) depreciation to the extent specified in section 123;

17. Schedule II- Useful Lives to Compute Depreciation
Part A- Depreciation is a systematic allocation of the depreciable amount of an asset over its useful life. Useful life is the period over which an asset is expected to be available for use by an entity or the number of production units expected to be obtained from the asset by the entity.
The useful life of an asset shall not be longer than the useful life specified in Part C.
Residual value shall not be more than 5% of the original cost of the asset.
Where a company uses a useful life which is different from the limits in Part C, justification for the difference shall be disclosed in its financial statement.
For intangible assets, the provision of accounting standards applicable for the time being in force shall apply except for toll roads for which method is prescribed in the Schedule.

18. Schedule II- Useful Lives to Compute Depreciation
Part B-
The useful life and residual value of any specific asset, as notified for accounting purposes by a Regulatory Authority constituted under an Act of Parliament or the Central government shall be applied in calculating the depreciation to be provided for such asset irrespective of the requirement of this Schedule.

19. Schedule II- Useful Lives to Compute Depreciation
Part C-
Nature of asset and their useful life
No extra shift depreciation of certain assets.
For double shift- 50% more for no. of days worked
For triple shift – 100% more
From the date this schedule comes into effect, the carrying amount of asset on that date:
shall be depreciated over the remaining useful life of the asset as per this schedule.
after retaining the residual value, shall be recognised in the opening balance of retained earning where the remaining useful life of an asset is nil.

20. AS 6- Depreciation Accounting
Para 3.1Definition of depreciation:
…Depreciation is allocated so as to charge a fair proportion of the depreciable amount in each accounting period during the expected useful life of the asset.
Para 29- Main Principles:
The depreciable amount of a depreciable asset should be allocated on systematic basis to each accounting period during the useful life of the asset.

21. Internal Audit
Sec 138-Such class of companies as may be prescribed shall be required to appoint an internal auditor to conduct internal audit of the functions and activities of the company.
The Central Govt. to prescribe by Rules, the manner and intervals in which the internal audit shall be conducted and reported to the Board.
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22. Internal Audit
Such class or classes of companies as may be prescribed:
Rule 13 of the Companies (Accounts) Rules, 2014
(a) every listed company
(b) every unlisted public company , during the preceding year:
having paid up share capital of Rs. 50 Crores or more or
Having turnover of Rs. 200 crores or more or
any outstanding loans or borrowings from banks or public financial institutions exceeding Rs. 100 Crore at any point of time or
which has outstanding deposits of Rs. 25 Crores rupees or more at any point of time .
(c) every private company , during the preceding year:
turnover of Rs. 200 Crores or more or
any outstanding loans or borrowings from banks or public financial institutions exceeding Rs. 100 Crore at any point of time
Existing companies to comply with the requirements within 6 months from
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23. Internal Audit Plan
The Central Government may, by rules, prescribe the manner and the intervals in which the internal audit shall be conducted and reported to the Board:
Rule 13 (2):
The Audit Committee of the company or the Board shall, in consultation with the Internal Auditor, formulate the:
scope,
functioning,
periodicity and
methodology for conducting the internal audit.
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24. Internal auditor Section 138: Internal auditor shall either be:
A chartered accountant or
A cost accountant or
Such other professional as may be decided by the Board.

25. Definitions of CAs
Section 2 (17) “chartered accountant” means a chartered accountant as defined in clause (b) of sub-section (1) of section 2 of the Chartered Accountants Act, 1949 who holds a valid certificate of practice under sub-section (1) of section 6 of that Act.
Section 2(28) “cost accountant” means a cost accountant as defined in clause (b) of subsection (1) of section 2 of the Cost and Works Accountants Act, 1959.

26. Internal auditor
Rule 13 of the Companies (Accounts) Rules, 2014 provided that
Internal auditor can be employee of the company,
Chartered Accountant may be the one not engaged in practice.

27. Audit and Auditors Chapter X. Sections 139 to 148.
All sections are applicable w.e.f except :
Second proviso to subsection (4) and Subsection (5) of Sec.140- Removal of auditor
The Companies (Audit and Auditors) Rules, ( applicable w.e.f )
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28. Section 139(6)- First Auditor’s appointment
To be appointed by the BOD with in 30 days of incorporation of the company,
If BOD does not appoint, shall inform the members
Members shall within 90 days appoint first auditors of the company,
First auditor to hold office till the conclusion of first AGM.
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29. Sec 139(1) - Auditors appointment
Auditors to be appointed for 5 years at a time in the AGM
Provided that such appointment shall be subject to ratification in every annual general meeting till the sixth such meeting by way of passing of an ordinary resolution.
Explanation to Rule 3 - For the purposes of this rule, it is hereby clarified that, if the appointment is not ratified by the members of the company, the Board of Directors shall appoint another individual or firm as its auditor or auditors after following the procedure laid down in this behalf under the Act.
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30. Sec 139(1) - Auditors appointment
Manner and procedure of selection prescribed in Rule 3:
Audit Committee, if there or Board to take into consideration before recommending to BOD:
The qualification and experience of the person proposed,
Any pending disciplinary proceedings against the person,
To assess whether commensurate to the size and requirement of the company
BOD to recommend to AGM
BOD may refer back the matter to Audit Committee to reconsider
BOD may not agree to the recommendations of Audit Committee, to explain the reasons in the Board meeting.
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31. Rule 4- Consent/certificate from auditor
Before appointing / reappointing, company to obtain written consent of the auditor and a certificate stating that:
He is not disqualified for appointment under the Act, the CA Act, 1949 and the rules or regulations made thereunder;
the proposed appointment is as per the term provided under the Act;
the proposed appointment is within the limits laid down by or under the authority of the Act;
the list of proceedings pending with respect to professional matters of conduct, as disclosed in the certificate, is true and correct.
After appointment, the company to inform the auditor and to file a notice to this respect with in 15 days with Registrar in Form- ADT-1.
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32. Sec 139(2) - Auditors Rotation
Listed companies and prescribed class of companies cannot have the same auditor
In case of a firm, after two terms of 5 years each
In case of an individual, after one term of 5 years
Such outgoing audit firm cannot become auditor for a period of 5 years.
The prohibition covers firms which have common partners too.
Such rotation will have to be effected by companies covered by this requirement within 3 years of the date of commencement of this section.
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33. Rule 5 – Class of companies for auditor’s rotation
Rule 5 : the class of companies shall mean the following classes of companies excluding one person companies and small companies:-
(a) all unlisted public companies having paid up share capital of rupees ten crore or more;
(b) all private limited companies having paid up share capital of rupees twenty crore or more;
(c) all companies having paid up share capital of below threshold limit mentioned in (a) and (b) above, but having public borrowings from financial institutions, banks or public deposits of rupees fifty crores or more.
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34. Rule 6: Manner of rotation
The period for which he has been holding office as auditor prior to the commencement of the Act shall be taken into account to calculate the period of five consecutive years,
Incoming auditor shall not be eligible if he is associated with the outgoing auditor under the same network of audit firms or is operating under the same trade mark or brand,
Break in term for a continuous period of 5 years only be considered as fulfilling the requirement of eligibility,
if a 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.
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35. Sec 139(8) - casual vacancy In case of a Government company:
To be filled by CAG within 30 days
- If not done by CAG then Board shall fill within next days
In case of other than Government companies:
By the Board,
if caused due to resignation then to be approved by shareholders within three months

36. Sec 140- Auditors Removal / Resignation
Removal of an existing auditor within the 5 years term shall be possible only by
Passing of a special resolution and
Also CG approval ( Form ADT-2 to be filed)
Also, the auditor will have to be heard before the approval is given for the change of auditor.
In case of a resignation by the auditor, there is a need to file (with company, ROC and where applicable, CAG) within 30 days a statement in Form ADT-3 giving the reasons and other facts as may be relevant in regard to the resignation.
NCLT could order for change of auditors when it is satisfied that the auditors have directly or indirectly acted in a fraudulent manner or abetted or colluded in any fraud.
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37. Sec 141-Eligibility of an auditor
To be a chartered accountant or
firm of chartered accountants or
LLP
‘Chartered Accountant’ has been defined -Sec 2(17)
In case of firm, majority of partners practicing in India should be qualified to be appointed as such.( as against all the partners in section 226 of CA, 1956)
In case of firm including LLP, only partners who are Chartered Accountants shall be authorised to act and sign on behalf of firm.

38. Sec 141- Auditors disqualifications
Enhanced disqualifications
If the person holds any security or interest in the Company or its subsidiary, holding, associate or co-subsidiary.
If a relative holds any security in the Company, subsidiary, holding, associate or co-subsidiary in excess of Rs. 1 Lakh , However, the corrective action to maintain the limits shall be taken by the auditor within sixty days of such acquisition or interest. (Rule 10).
Indebtedness of the person or his relative or partner in excess of Rs. 5 Lakhs or has guaranteed or provided security for a third party to the Company, subsidiary, holding, associate or co-subsidiary for an amount in excess of Rs. 1 Lakh (Rule 10).
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39. Sec 141- Auditors disqualifications
New disqualifications
Having direct or indirect business relationship with the Company, subsidiary, holding, associate or co-subsidiary except
(i) commercial transactions which are in the nature of professional services permitted to be rendered by an auditor or audit firm under the Act and the Chartered Accountants Act, 1949 and the rules or the regulations made under those Acts;
(ii) commercial transactions which are in the ordinary course of business of the company at arm’s length price - like sale of products or services to the auditor, as customer, in the ordinary course of business, by companies engaged in the business of telecommunications, airlines, hospitals, hotels and such other similar businesses.
Relative is a director or is employed as a director or KMP in the company.
A person convicted of fraud and 10 years not having elapsed from such conviction.
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40. Sec 141(3)(g)-Cap on number of audits
Provides a cap of twenty companies per partner.
Earlier Act provided for limits only covering public companies. No such reference in the Section.
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41. Sec 143(12)- Reporting of Frauds by Auditors
If the auditor has sufficient 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 report the matter to the Central Government immediately but not later than sixty days of his knowledge and after following the procedure given in Rule 13.
The report shall be sent to the Secretary, MCA in a sealed cover by Registered Post with A/D or by Speed post followed by an in confirmation of the same.
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42. Procedure for reporting fraud by auditors
Rule 13- Report to be submitted in Form ADT-4
(i) auditor shall forward his report to the Board / the Audit Committee, immediately after he comes to knowledge of the fraud, seeking their reply or observations within forty-five days;
(ii) on receipt of such reply or observations the auditor shall forward his report and the reply or observations of the Board or the Audit Committee along with his comments (on such reply) to the Central Government within fifteen days of receipt of such reply or observations;
(iii) in case the auditor fails to get any reply or observations from the Board or the Audit Committee within the stipulated period of forty-five days, he shall forward his report to the Central Government.
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43. Sec 144- Auditors – Prohibited services
Auditors can provide only such services as are approved by the AC / Board, but cannot provide the following either directly or indirectly to the company, its holding and subsidiaries:
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 kind of services as may be prescribed
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44. Sec 144- Auditors – Prohibited services
In case of an audit firm, this prohibition extends to
All its partners
Its parent, subsidiary and associate entity and
Any other entity, whatsoever, in which the firm or any partner of the firm has significant influence or control, or whose name or trade mark or brand is used by the firm or any of its partners.
Any auditor or firm already providing any non- audit services shall comply with the provisions before closure of the first financial year after the date of such commencement.
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45. Auditors - Penalties Contravention of law
Relating to appointment, rotation, powers and duties, prohibited services or signing of audit report –Min Rs.25,000 to Max Rs. 5 Lakhs
If done willfully with an intention to deceive – imprisonment up to 1 year and penalty of Rs. I Lakh to Rs. 25 Lakhs.
Also to refund the audit fee to the Company
Pay damages to those who have lost on account of such incorrect / misleading statements or particulars in his audit report
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46. Auditors - Penalties
Prosecution by NFRA (on suo moto or reference based investigation)
Penalty
Min Rs.1 Lakh to 5 times the fees received, for individuals
Min Rs.10 Lakh to 10 times the fees received, for firms
Debar from practice
Member / firm for a min 6 months to 10 years period
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47. Auditors - Penalties
Class action suit by the members (section 37) or by depositors (section 75)
in case of improper or misleading statements in the audit report or fraudulent, unlawful or wrongful act
Liability against the firm and each partner who was involved
In case of proof of fraud / abetting to fraud, then the liability will be joint and several for the auditor, his partners and firm
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48. General Circular 08/2014 dated 4.4.2014
Commencement of provisions of the CA Act, 2013 with regard to
maintenance of books of accounts,
Preparation/adoption/filing of financial statements
Auditors’ report
Board of Directors’ Report
Provision of Schedule II (useful lives to compute depreciation)
Schedule III (format of Financial Statements)
Related Rules issued
Shall be applicable for financial year that commence after 1st April, 2014 only.

49. THANK YOU Contact me at: 9811320203 anil54@gmail.com
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