1. Audit & Financial Statement Presentation - CA. Bhavani Balasubramanian
THE COIMBATORE BRANCH OF SIRC OF THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
Audit & Financial Statement Presentation - CA. Bhavani Balasubramanian

2. Audit and Financial Statement Presentation
Auditor:
Appointment & Rotation
Services, Powers & Duties
Liabilities
Audit as a service
Reporting requirements governing auditors
Financial Statements :
Books of accounts
Financial Statements
Disclosure
Consolidation

3. Chapter X – Audit & Auditors

4. Appointment & Rotation

5. Appointment - Eligibility
Appointment of individual or firm – not disqualified under CA Act
LLP can be appointed – only partners who are CA’s can sign
Majority partners should be practicing CA’s
Joint audit permitted
Audit committee to consider
Qualifications and experience
Pending proceedings in ICAI, NFRA, Tribunal or Court of Law
Certificate from the auditor that he is eligible for appointment and the proposed appointment is within the term allowed and limit laid down in the Act.

6. Appointment – Eligibility (Contd.)
Certificate that list of proceedings against auditor or audit firm or any partner on professional matters of conduct is true and correct.
Appointment by Audit Committee -> Board -> General Meeting.
If Board disagree – refer back to Committee
If Audit Committee and Board are in disagreement – Matter to be placed to the General Meeting for consideration.
If not ratified – appoint another person.

7. Changes in Limits No. of audits – 20 per partner
No transition provision

8. Provisions for Appointment / rotation
Common conditions for appointment of auditor :
First auditor
First auditor to be appointed by the BOD within 30 days of incorporation of a company.
If the first auditor is not appointed by the BOD as above, the members to appoint the first auditor within 90 days at the EGM
Tenure of the first auditor shall be up to the conclusion of first AGM
First AGM to appoint auditor to hold office till conclusion of Sixth Annual General Meeting; ratification at every AGM
Next Auditors till the conclusion of every Sixth Annual General Meeting
No listed or prescribed companies to appoint:
Individual as auditor for more than five consecutive years
An audit firm for more than two terms of five consecutive years.

9. Provisions for Appointment / rotation (Contd.)
Incoming audit firm should not have any common partners
Members of the company may resolve how the auditing partner and his team may rotate.
Audit conducted by more than one auditor
Every existing company which is required to comply should do so in three years

10. Auditor of Government Company
Appointment by C&AG – 180 days
First Auditor appointment by C&AG – 60 days
If not appointed, Board of Directors – Appointment within 30 days
If Board of Directors do not appoint – Member to appoint in next 60 days.
Casual vacancy to be filled in by C&AG – within 30 days:
If not, filled by Board of Directors – next 30 days

11. Reappointment of Auditors
Retiring auditor to be reappointed
If no notice of unwillingness in writing
No Special Resolution passed for appointing somebody else.
Denial of reappointment
Special notice to be circulated
Copy to be sent to retiring auditor
Retiring auditor to make representation
Representation to be circulated - copy to be filed with Registrar
Not required if Tribunal is satisfied about the abuse by auditor

12. Removal and Resignation of auditor
a special resolution of the company,
obtaining the prior approval of the Central Government
reasonable opportunity of being heard
Resignation
company has to file a statement
auditor shall within 30 days from the date of resignation, file such statement to the company and the registrar indicating reasons for resignation
Penalty – Rs. 50,000 to Rs. 5 Lakhs
Retiring auditor can send representation in writing
Notice to state representation received
Copy of representation to each member
Appointment of auditor in place of retiring auditor by Special Notice

13. Change of auditor by Tribunal
Change can be made by Tribunal or Central Government
Auditor has directly or indirectly acted in a fraudulent manner or abetted or colluded in any fraud – Company Director’s offices
Order by Tribunal to stop functioning as auditor within 15 days
Such auditor –
Not to be appointed as auditor for 5 years
Be liable for action under Section 447

14. Tenure
5 years term, subject to AGM ratification every year – conclusion of 1st AGM to 6th AGM
Compulsory rotation - all companies other than OPC and small companies
Individual – 5 years & Firm – 10 years
Joint auditors
Cooling off period – 5 years
Retrospective applicability
Network of firms to be considered
Transition period – 3 years

15. Rotation of Auditors

16. Class of Companies All listed companies
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.

17. Rotation Are these really required for private companies?
Does rotation really result in independence?
Is there much choice in auditors?
Will this lead to Cartelisation amongst larger firms?
Discourage small and medium firms to invest in technology and training?
How many same size companies in the same industry are there to rotate?

18. Rotation (Contd.)
Smaller firms would face hardship to attract new talent?
Would churn cause hardship in initial years?
Will there be an unintended harm on audit quality?
Risks are increased and time for audit will be more and costs will go up?

19. Rules of rotation
Period prior to commencement of Act considered for tenure
Incoming and outgoing not eligible if they are under the same network
Network means firms operating or functioning hitherto or in future under same brand, trade name or common control
Break in term of five years considered as fulfilling rotation
Partner in charge who signed and joins another firm – that firm is not eligible
Joint auditors – wither one of them continue and not rotate out in the same year

20. Disqualification Body corporate other than LLP A person
Who has direct or indirect business relationship with company/holding/subsidiary/associate
Who is convicted of fraud – 10 years
Whose relative is a director or KMP
Whose subsidiary or associate company is engaged in non audit services
who is in full time employment or auditor of more than twenty companies
Who is or his relative or partner – holds security – Rs.1 Lakh (within sixty-days adjust limits)
Indebted to the company, subsidiary, holding or associate company- Rs.5 Lakhs
Guarantee or security in connection with indebtedness – Rs.1 Lakh
It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently. - Warren Buffett

21. Business Relationship
Direct or indirect business relationship with company, holding, subsidiary, associate and fellow subsidiary is disqualified except commercial transactions:
Professional services under CA Act and Rules
Commercial transactions in the ordinary course of business as a customer - e.g. airlines, hotel, hospitals, telecommunications and similar businesses.

22. Are these covered? Limit
Financial interest in Collective investment fund
Structured deposit accounts with an investment component linked to e.g. a stock index, a company’s equities or bonds, a basket of equities or bonds, a currency rate or an interest rate
Loan (including mortgage loans and credit cards) or a guarantee of a loan
Deposit, Savings, brokerage, future, commodity or similar account
Insurance product

23. Auditors’ Remuneration
The remuneration –
To include all expenses
To include value of facilities extended
To exclude remuneration paid for any other services.
Price is what you pay. Value is what you get - Warren Buffett

24. Services, Powers & Duties

25. Proscribed Services Prohibition on certain non audit services
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; and
services prescribed under the Rules
Rendered directly or indirectly
Individual - either himself or through his relative or any other person connected or associated with such individual or through any other entity, whatsoever, in which such individual has significant influence or control, or whose name or trade mark or brand is used by such individual;
Firm - either itself or through any of its partners or through its parent, subsidiary or associate entity or through 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. Restriction extended to holding & subsidiary companies
Associate companies excluded
Transition period – 1 year
Associate entities of the audit firm also covered
Board / audit committee approval required for appointing auditor to carry on non-prescribed services

26. Powers & Duties of an Auditor
Right to access books of account and seek explanations from officers
Auditor of the holding company has right of access to the records of all its subsidiaries with respect to consolidated financial statements
Mandatory attendance at the AGM – self or representative and right of being heard
Mandatory to comply with the Accounting and Auditing Standards
To report to the Central government on the fraud
If you don't understand it, and nobody can explain it, keep digging until you find out what it means. - D. Katz

27. Auditor’s role under Companies Act - IMPOTENTIA EXCUSAT LEGAM
The auditor should certify proposed or future related party transactions for prospectus, in contrast to the current scope which restricts to such transactions in the financial statements.
The auditor is made responsible, in the case of revision, of financial statements to ensure anyone who is in receipt of the previously issued financial statements together with the report should be informed of this situation.
The auditor has to confirm the adequacy of internal financial controls.
The auditor shall be disqualified for appointment for any legal proceeding against him under any law i.e. tax disputes or tenancy matters, which are irrelevant for being appointed as auditor.

28. Auditor’s role under Companies Act (contd..)
The auditor is expected to report to the Central Government, a fraud that committed against the company. Although the rules give a time limit of 60 days, even to know about frauds, it could take much longer than occurrence and to make an assessment of the fraud and quantity the impact.
Responsibilities beyond the auditing standards in the case of fraud.

29. Liabilities

30. Liability for Company and Officers
Contravention of Sections 139 to 146
Company: Fine Rs to Rs.5 Lakhs
Officer in default: Fine Rs to Rs.1 Lakh
Imprisonment for 1 year.

31. Auditor’s Liability
Professional or other misconduct – empowerment of NFRA – to debar member / firm for 6 months to 10 years
Punishment for Contravention of Law
Willful contraventions – imprisonment for a term of up to one year and fine of 1 lakh to 25 lakhs
Others – Rs.25,000 to Rs.5 lakhs
Penalty for fraud
Penal provisions of Section 447 (notified)
Imprisonment of 6 months to 10 years
Fine – extends to 3 times the amount involved in fraud
Refund of audit fees
Class Action Suit
The auditing profession sits on the razor's edge - Thomas Donohue

32. Class action suits
Such number of member or members, depositor or depositors or any class of them, as the case may be, may, if they are of the opinion that the management or conduct of the affairs of the company are being conducted in a manner prejudicial to the interests of the company or its members or depositors, file an application before the Tribunal on behalf of the members or depositors
Claim damages or compensation or demand any other suitable action from or against the auditors for
improper or misleading statement of particulars made in his audit report
fraudulent, unlawful or wrongful act or conduct
Joint and several liability

33. Impact on firms Indemnity insurance to be more expensive.
Increase in support staff.
Auditors more conservative to ask for details of expenses and statements from managements.
Penalties
Personal risk

34. Joint & several liability
The liability shall be of the firm and that of every partner or partners who acted in a fraudulent manner or abetted or colluded in any fraud by, or in relation to, the company or its director or officers.
Auditor includes Firm for the purpose of Removal. Not just the signing partner!!!

35. Audit as a service
Data bank of specialised qualifications and experience
Restrictions on service :
Eligibility
Tenure
Proscribed services
Number –
Prescribed
Members
Relatives –holding, subsidiary and company
Pecuniary interest

36. Audit as a service Uncertainty Viability Ratification Rotation
Joint audit
Remuneration
Exposure
Risks
Penalty
Imprisonment
Class action

37. Other audits

38. Cost Audit An individual firm to be appointed cost auditor
Remuneration by Audit Committee, Board and Shareholders
No approval of central government is required for appointment of cost auditor
Cost Auditor to submit his report to the Board for forwarding to Central Government
Cost Accounting Standards have been made Compulsory

39. Internal Auditor Appointment
Such class or classes of Companies as may prescribed need to compulsory appoint Internal Auditor to conduct the internal audit of functions and activities of the company.
Qualification
Internal Auditor shall either be a CA or a cost accountant, or such other professional as may be decided by the BOD.
CARO contained provisions requiring auditor’s comments on existence and efficacy of internal audit system in case of listed companies and / or companies having net worth >’50 lakhs or average annual turnover > ‘5 crores for a period of 3 consecutive FY immediately preceding the FY concerned Act contains specific provision of appointment of internal auditor.
Rules
Prescribed class of companies means:
Listed companies; and
Public companies-
* with paid up capital of ‘10 crores or more.
* with outstanding loans or borrowings from banks or public financial institutions exceeding ‘25 crores or which have accepted deposits of ‘25 crores or more at any point of time during the last FY.

40. Reporting requirements
Great questions make great reporting - Diane Sawyer

41. Reporting Auditors’ report Report on internal financial controls
Reporting on fraud

42. Auditors’ Report
Auditor who is a Chartered Accountant should only sign the audit report or any other certificate.
Any qualifications, observations or comments on financial transactions and matters – adversely affecting company –
Read out at General Meeting
Kept open for inspection by members.

43. Auditors’ Inquiry
Whether loans and advances made by the company on the basis of security have been properly secured and whether the terms on which they have been made are prejudicial to the interests of the company or its members.
Whether transactions of the company which are represented merely by book entries are prejudicial to the interests of the company.
Where the company not being an investment company or a banking company, whether so much of the assets of the company as consist of shares, debentures and other securities have been sold at a price less than that at which they were purchased by the company.
Whether loans and advances made by the company have been shown as deposits.
Whether personal expenses have been charged to revenue account.
Where it is stated in the books and documents of the company that any shares have been allotted for cash, whether cash has actually been received in respect of such allotment, and if no cash has actually been so received, whether the position as stated in the account books and the balance sheet is correct, regular and not misleading.

44. Auditors’ Report (contd.)
True and fair view;
Companies Act, Accounting and Auditing Standards;
Whether he has sought and obtained all the information and explanations which to the best of his knowledge and belief were necessary for the purpose of his audit and if not, the details thereof and the effect of such information on the financial institutions;
Whether, in his opinion, proper books of account as required by law have been kept by the company so far as appears from his examination of those books and proper returns adequate for the purposes of his audit have been received from branches not visited by him;
Whether the report on the accounts of any branch office of the company audited under sub-section (8) by a person other than the company’s auditor has been sent to him under the proviso to that sub- section and the manner in which he has dealt with it in preparing his report;

45. Auditors’ Report (contd.)
Whether the company’s balance sheet and profit and loss account dealt with in the report are in agreement with the books of account and returns;
Whether, in his opinion, the financial statements comply with the accounting standards;
The observations or comments of the auditors on financial transactions or mattes which have any adverse effect on the functioning of the company;
Whether any director is disqualified from being appointed as a director under sub-section (2) of section 164;
Any qualification, reservation or adverse remark relating to the maintenance of accounts and other matters connected therewith;
Whether the company has adequate internal financial controls system in place and the operating effectiveness of such controls;
Other matters:
(a) Whether the company has disclosed the impact, if any, of pending litigations on its financial position in its financial statement;
(b) Whether the company has made provision, as required under any law or accounting standards, for material foreseeable losses, if any, on long term contracts including derivative contracts;
(c) Whether there has been any delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the company.

46. Auditors’ Report (contd.)
National Financial Reporting Authority may direct inclusion of specified matters for specified class/description of companies. As per the Act, the auditor has to report:
Where the company has failed to provide any information and explanations, the details of the same and their effect on financial statements.
Whether the company has adequate internal financial controls in place and the operating effectiveness of such controls.
Observations or comments on financial transactions or matters which have any adverse effect on the functioning of the company.

47. Auditors’ Report (contd..)
New reporting requirement – on the company’s internal financial controls system in place and the operating effectiveness of such controls;
The Rules require the auditor to comment:
On the disclosure by the company of effect of pending litigations on financial position, making of provision for foreseeable losses on long- term contracts including derivative contracts, as required by Law or Accounting Standards.
Whether there has been any delay in making deposits in Investor Education and Protection Fund.

48. Impact Certain terms are wide.
Ambiguity defeats purpose of provisions.
Does foreseeable losses mean losses on construction contracts or all losses.
Two provisions already covered in CARO.

49. Internal Control - Responsibilities
Auditors responsibility to comment on adequacy (design) and operating effectives of management controls.
Conduct integrated audit on financial reporting and internal controls.
Unlike SOX covers all areas of internal controls not only financial controls
Similar to SOX and feasible for large companies

50. Internal Control - Scope
Internal financial controls means:
Policies and procedures adopted for efficient and orderly conduct of business
Adherence to policies
Safeguard of assets
Prevention and detection of frauds and errors
Accuracy and completeness of records.
Timely preparation of reliable financial information.

51. Internal Control – Comparison with SOX
Management Report on ICFR
Internal Control over Financial Reporting and assessment of risk of material weakness
Policies and procedures:
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorisations of management and directors of the company; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

52. Internal Control - Challenges
Literature & guidance
Skills, training and accreditation
Curriculum
Regulatory inspections & oversight
Based on US experience, it has to be onerous responsibility of management & auditors
Rules need to be clearly laid down.

53. Reporting in case of fraud
Frauds against the company by officers or employees.
Auditor is required to report directly to CG where he has reason to believe that an offence involving fraud is committed against the company by the officers or employees of the company.
Report not later than sixty days of his knowledge or information.
To send report to audit committee / Board seeking responses within 45 days
On receipt of replies from Audit Committee or Board, forward to Central Government within 15 days
If fails to get responses, send to Central Government along with a note on report forwarded to Committee.
Action not taken / no satisfactory action – report to the CG, even for non material fraud
Applicable to branch audit as well

54. Fraud – Onerous responsibility of auditor
While the current standard requires the auditor to address fraud in relation to financial statements, the proposed Act terms fraud as any act committed to injure the interests of the company, shareholders, creditors, or any other person.
The definition of fraud is too vast, and extends beyond financial statements to cover all fraud, including management fraud, technology fraud, piracy, breach, mass marketing fraud, identity theft, electronic fraud, online fraud, and so on.
The existing standard allows the auditor to use his professional judgment to evaluate the magnitude of suspected fraud, whereas the Act expects the auditor to report to the Central Government any act, omission, concealment of facts, or abuse of position.

55. Fraud – Onerous responsibility of auditor (Contd..)
The present auditing standard requires the auditor to evaluate fraud that could result in material misstatements in the financial statements attested by him; whereas the new legislation requires him to report on frauds where there is an intent to deceive, whether or not it results in a wrongful gain or loss.
Under the present legislation, the auditor reports on fraud in his audit report annually; under the Act, the auditor should report immediately to the Central Government, in the prescribed time and manner, if fraud is being committed or has been committed. Besides, the auditor, cost accountant or company secretary who does not report fraud, if any, would be liable for a fine between Rs.1 lakh and Rs.25 lakh.
It is possible that each of these professionals may come across fraud only when discharging their duty but may not be aware of instances that happened any time during the year. Will they be liable for not reporting the fraud?
At present the auditor is charged for non-performance or negligence in his personal capacity. The Act casts the responsibility on the partner, concerned partners, and joint and several liability on the partners of the firm.

56. Penalties for Fraud
Fraudulent Companies Activity and collusion by auditor:
6 months to 10 years imprisonment
Penalty 3 times of the amount of fraud
Public Interest:
Minimum 3 years imprisonment
Class Action suit:
Damages claimed by promoters and major shareholders

57. Books of accounts

58. Books of accounts Prepare and keep at Registered Office
Books of account, other relevant books and papers & financial statements.
Which give a true and fair view of the state of affairs.
Including branch offices
Explain transactions at head office and branch.
Accrual basis and double entry book keeping.
Maintained in electronic format

59. Books of accounts – electronic format
Format of books of accounts - originally generated, sent or received, or in a format which shall present accurately the information generated, sent or received
Information contained in the electronic records shall remain complete and unaltered.
There shall be a proper system for storage, retrieval, display or printout of the electronic records as the Audit Committee, if any, or the Board may deem appropriate and such records shall not be disposed of or rendered unusable, unless permitted by law:
Provided that the back-up of the books of account and other books and papers of the company maintained in electronic mode, including at a place outside India, if any, shall be kept in servers physically located in India on a periodic basis.
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.

60. Books of accounts
Information received from branch offices shall not be altered and shall be kept in a manner where it shall depict what was originally received from the branches.
Summarized returns of the books of accounts of the company maintained outside India shall be sent to the registered office
A director of the Company can inspect the books of accounts of the subsidiary, only with the authority of the Board of Directors on written request and 15 days time.
Books of account with vouchers to be kept in good order for eight years. If investigation is ordered – Central Government may direct a longer period.
Penalty – for MD, WTD (Finance), CFO - punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees or with both.

61. Financial Year Financial Year
- FY of a company / body corporate means the period ending on 31st March every year – Transition period: 2 years.
- in case a company has been incorporated on or after the 1st day of January of a year, the period ending on the 31st day of March of the following year, will be its first FY.
- Extension of FY – no longer permissible
- Exception – A company or body corporate, which is a holding company or a subsidiary of a company incorporated outside India and is required to follow a different FY for consolidation of its accounts outside India, with NCLT approval.
Aligned with “previous year” under Income Tax Act 1961
Whether an application will be entertained by NCLT for following a different period as FY by company in India which is an associate company or joint venture company of a foreign entity.

62. Financial Statements

63. Financial Statements
“Financial Statement” in relation to a company to include:
i. a balance sheet as at the end of the FY;
ii. a P&L Account / an income and expenditure account for the FY;
iii. cash flow statement for the FY;
iv. a statement of changes in equity, if applicable; and
v. any explanatory note annexed to, or forming part of , any documents
referred to above.
Exceptions:
Insurance company, Banking company or any company engaged in the generation or supply of electricity or other companies where form of FS has been specified
for OPC, small company and dormant company - cash flow statement excluded
Legal recognition under Company Law for financial statements – aligned with Indian GAAP

64. Financial Statements Shall give a true and fair view State of affairs
Comply with Accounting Standards – notified under section 133
In the form prescribed for class of companies in schedule III

65. Financial Statements Consolidation of Financial Statement (CFS)
CFS mandatory for all companies, if a company has a subsidiary / associate / joint venture. CFS to be prepared and laid before an AGM in addition to standalone financial statements.
CFS shall be made in accordance with the provisions of Schedule III of the Act and the applicable accounting standards.
a separate statement containing salient features of the financial statement of subsidiaries to be attached to the holding company’s financial statements.
Company required to place separate audited accounts in respect of each of its subsidiaries on its website
Audited financial statements of foreign subsidiaries are required to be filed with RoC

66. Financial Statements Consolidation of Financial Statement (CFS)
“subsidiary” includes ‘associate company’ and ‘joint venture’ (Associate means a company other than subsidiary company and joint venture company in which the other Company has significant influence
Definition of Subsidiary and Associate Company widened
Subsidiary determined based on holding in the “total share” capital [Chapter 1, Rule 2(r) – paid up equity share capital and convertible preference share capital] and also includes control by virtue of shareholder agreements / voting agreements
Associate Company includes entity on which business decisions are controlled under an agreement
No specific exemption for intermediate holding companies from preparing consolidated financial statements.
Significant influence means control of at least 20% of total share capital or of business decisions under an agreement)

67. Financial Statements Audited Accounts
Audited Accounts of all subsidiaries are required to be prepared and provided to shareholders on request.
Audited accounts of the listed companies along with the subsidiaries to be placed on the website
Subsidiaries have been defined to include Body Corporates i.e. Foreign Companies.
Signing of Financial Statements
Financial Statements to be signed at least by
Chairperson of the company, if authorized by BOD; or
2 directors including MD, where there is one; and
CEO if he is a Director;
CFO and CS, wherever they are appointed
In case of OPC balance sheet and statement of profit and loss to be signed by 1 director only.
Accounts of subsidiary to be made available to shareholders on request – step towards striking balance between transparency and ‘need to know’
CFO where required, to be appointed to sign the financial statements.

68. Financial Statements – Reopening / Voluntary revision
Mandatory re-opening or re-casting of book of accounts by Statutory Authorities (Sec. 130) – Not yet notified
A company can re-open its books of accounts or re-cast its financial statements on the below grounds:
that the relevant earlier accounts were prepared in a fraudulent manner; or
Affairs of the company were mismanaged during the relevant period casting a doubt on the reliability of the financial statements
on an application made by CG, IT authorities, SEBI or any other statutory regulatory body or authority or any person concerned and on an order being made by a Court or NCLT.
Voluntary Revision of Financial Statements or BOD’s report (Sec. 131) – Not yet notified
BOD may prepare revised financial statement or a revised board report in respect of any of the 3 preceding FYs after obtaining approval of NCLT, if it believes that the financial statement or the BOD report do not comply with the relevant provisions.
Draft Rules contain elaborate provisions.

69. Depreciation Accounting
Depreciation on tangible fixed assets on estimated useful life
From a rates regime to useful lives
Useful life:
Assets expected to be available for use
Number of production or similar units
Depreciation based on industry category
Componentization mandated
Separate capitalization and depreciation of a part of asset if cost is significant to total cost and estimated life is different from remaining asset
Justification needs to be made, where useful life or residual value is different from Schedule II
Transitional provisions
Carrying value to be depreciated over remaining useful life
If the remaining revised useful life is nil, the carrying value, net residual value, is to be charged to opening balance of retained earnings

70. Rate of depreciation
Significant increase / (decrease) in rate of depreciation of commonly used assets as compared to Schedule XIV rates under the 1956 Act
*Useful life of CPP have been increased from 18 years to 25 years.
Where a company uses a useful life other than prescribed by Schedule II or residual value other than 5% of the original cost of the asset, justification for the difference shall be disclosed in financial statement.

71. Takeaway - Depreciation Accounting
Changes in depreciation impacts managerial remuneration and profits for dividends
Componentization involves judgment and thresholds
If useful life is less than what is now – impact will be huge

72. Schedule III

73. Penalties for Company and officers
Content of FS
imprisonment for a term which may extend to one year or
with fine which shall not be less than
fifty thousand rupees but which may extend to five lakh rupees, or
with both.
FS approval and filing
the company shall be punishable with fine which shall not be less than fifty thousand rupees but which mayextend to twenty-five lakh rupees
imprisonment for a term which may extend to three years or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees, or with both.

74. The auditing profession sits on a razor edge
The auditing profession sits on a razor edge. One excessive court judgment even if later proven false could destroy one of the remaining major players in the auditing profession and puts financial markets to risk
- Thomas Donohue