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ACCOUNTS AND AUDIT (Companies Bill, 2012 As passed by Lok Sabha )

ACCOUNTS AND AUDIT (Companies Bill, 2012 As passed by Lok Sabha ). Presented By: CA K L Jhanwar Partner Kalani & Co., Jaipur. HIGHLIGHTS. The Bill has 470 clauses and 7 schedules as against 658 Sections and 15 schedules in the existing Companies Act, 1956.

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ACCOUNTS AND AUDIT (Companies Bill, 2012 As passed by Lok Sabha )

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  1. ACCOUNTS AND AUDIT(Companies Bill, 2012 As passed by LokSabha) Presented By: CA K L Jhanwar Partner Kalani & Co., Jaipur Kalani & Company

  2. HIGHLIGHTS • The Bill has 470 clauses and 7 schedules as against 658 Sections • and 15 schedules in the existing Companies Act, 1956. • The entire bill has been divided into 29 chapters. • Following chapters have been introduced, viz. • Registered Valuers (chapter XVII) • Government companies (chapter XXIII) • Companies to furnish information or statistics (chapter XXV) • Nidhis (chapter XXVI) • National Company Law Tribunal & Appellate Tribunal (chapter • XXVII) • Special Courts (chapter XXVIII) Kalani & Company

  3. Some New Concepts • One Person Company [Clause 3] • Key Managerial Personnel [Clause 203(1) & 2(51)] • Chief Financial Officer • Independent Directors [Clause 149] • Participation at board meetings through video/audio visual • means [Clause 173(2)] • Secretarial Standards [Clause 118(10) & 205] • Secretarial Audit [Clause 204] • Insider Trading of Securities [Clause 195] Kalani & Company

  4. Woman Director [Clause 149] • Corporate Social Responsibility [Clause 135] • Related Party Transactions • Serious Fraud Investigation Office (SFIO) [Clause 211] • Financial Statements • Reopening or recasting of financial statements • Revision of financial statements Kalani & Company

  5. Definition • Clause 2(12):- “Book and paper” and “Book or paper” • Includes books of account, deeds, vouchers, writings, documents, minutes and registers maintained on paper or in electronic form • Clause 2(13):- “Books of account” • Includes records maintained in respect of – • All sums of money received and expended by a company and matters in relation to which the receipts and expenditure take place • All sales and purchase of goods and services by the company • All assets and liabilities of the company and • The items of cost as may be prescribed under section 148 in the case a company which belongs to any class of companies specified under that section Kalani & Company

  6. Books of Account • (Clause 128) • Every company shall keep books of account on accrual basis and • with double entry system of accounting. • All companies have to now follow a uniform accounting year ending • 31st march of every year. Time given 2 years to align. • At registered office, branch offices or offices are to be kept. • Books of accounts, relevant books and papers & Financial • Statement of every financial year. • Which gives true & fair view of the state of affairs of the • company. • May be kept in electronic mode or in such manner as may be • prescribed. Kalani & Company

  7. May be kept at other places as board of directors may decide , • with notice to registrar within seven days. • Open for inspection by directors during business hours(clause • 3). The officer of employees shall assist(clause 4) • Books of subsidiary can be inspected only by person authorized • by a resolution of Board. • To be kept not less than 8 years. If investigation has been • ordered then for such longer period as Central Government may • deem fit. • Willful Contravention • Penalty on those who are charged with responsibility by board- • Managing Director, the Whole-time director in charge of • finance or the Chief Financial Officer. • Earlier Managing Director or manager only. Kalani & Company

  8. Financial statement definition – Clause 2(40) • It includes- • Balance sheet as at the end of the financial year • Profit & Loss account / Income & expenditure account • Cash flow statement for the financial year • Statement of changes in equity, if applicable • Any explanatory note annexed or forming part • For One person company clause 2(62), small company clause 2(85) and dormant company clause 455(1) inactive company, no cash flow statement is required. Kalani & Company

  9. Financial Statements(Clause 129) • Financial statements shall give a true and fair view of the state of • affairs of the company or companies. • Financial Statements have to comply with the accounting standards • (clause 133) as defined in clause 2(2). • Shall be in the form or forms as may be provided in schedule III. • However, for insurance company or banking company or • electricity company, forms are prescribed under relevant law, • would apply. • Such companies are required to disclose the items which are • otherwise not covered by relevant law. Kalani & Company

  10. At every AGM, the financial statements shall be laid. • When company has one or more subsidiaries (including associate • company and joint venture) (sub clause 3 & 4): • consolidated financial statements have to be prepared. • a separate statement containing the salient features of the • financial statements of the subsidiary also has to be • attached. • the central government may provide for the consolidation of • accounts in such manner as may be prescribed. • the provisions of preparation, adoption and audit shall apply • mutatis mutandis to consolidated financial statements. Kalani & Company

  11. Reopening and Recast of Financial Statements (Clause 130) • The company shall not reopen its books of accounts and recast its • financial statements unless an order is passed by court or tribunal to • the effect that: • The relevant earlier accounts were prepared in a fraudulent • manner. • The affairs of the company were mismanaged, casting a doubt • on the reliability of the financial statements. • Such Reopening and recasting shall be on application by: • Central government • Income tax authorities Kalani & Company

  12. SEBI • Other statutory regulatory authority or • Any person concerned • The tribunal shall give notice to the Central Government and • Income Tax authorities, take into considerations their • representations if any before passing an order. • Accounts so revised or re-cast shall be final. Kalani & Company

  13. Revision of Financial Statements • (Clause 131) • Directors of a company may revise financial statements or the • boards report: • For any of the three previous financial years • If not in accordance with clause 129(Financial statement) or • 134(BOD report). • After obtaining Approval of tribunal • A copy of order passed by the Tribunal shall be filed with the • Registrar. Kalani & Company

  14. Tribunal has to give notice to Central government & Income • tax department and invite their comments before passing the • order. • Revision can be made once in a financial year. • Detailed reasons for revision has to be given in the Board’s • report. • Revised financial statements to be approved in general • meeting. Kalani & Company

  15. Government is authorized to make rules: • Form in which application is to be made to tribunal • Role of company’s auditors about their report on the • accounts audited by them. • Directors to take steps. Kalani & Company

  16. Accounting Standards (Clause 133) • At present, • The accounting standards to be followed by companies are recommended by ICAI prescribed by Central Government in consultation with and after examination of recommendations of NACAS (Section 211 (3C)) • Now – By NFRA • (Clause 132- Constitution of National Financial Reporting Authority) Kalani & Company

  17. Central Government may, by notification, constitute National Financial Reporting Authority (NFRA), which shall : • Consists of Chairperson & other 15 members appointed by • Government, may be part time or full time. • The chairperson shall be a person of eminence having • expertise in accountancy, auditing, finance, business law, • economics or similar disciplines. • Shall make declaration for conflict of interest not association • with audit firm. • Make recommendations to the Central Government on the • formulation and laying down of accounting and auditing policies • and standards. Kalani & Company

  18. Monitor & enforce compliance with accounting & auditing • standards. • Oversee the quality of professional services of auditors, suggest • matter relating to qualify improvements. • Any other function related to above. • Investigate about the professional or other misconduct of • chartered accountants in practice • Powers of ICAI to take disciplinary action against their members is transferred to NFRA. • NFRA has powers of civil court also to conduct an investigation. Kalani & Company

  19. No other institute or body shall initiate or continue any • proceeding in such matter of misconduct. • Where professional or other misconduct is proved, NFRA has the power to make order for: • impose a minimum penalty of 1 lakh on individual which may • extend 5 times of fees and minimum 10 lakhs on firm which • may extend to 10 times of fees received. • debar the member or the firm from professional practice for a • minimum period of 6 months or such period up to 10 years. • Aggrieved member or firm can file appeal before the Appellate • Authority constituted under sub section (6). Kalani & Company

  20. Professional or other misconduct has same meaning what is u/s 22 • of The CA Act,1949. • Annual report of NFRA will go to central government and laid • before both houses of parliament. Kalani & Company

  21. APPELLATE AUTHORITY (Clause 132 sub clause 6-9) • Central government shall constitute appellate authority consisting chairman and not more than 2 other members. • Purpose – Appeal against order by NFRA. • Fees – As may be prescribed and procedure also shall be prescribed. • Annual report of Appellate authority shall be about its activities forward to central government and laid before both houses of parliament. Kalani & Company

  22. Standard of Auditing • At present • Auditing standards are issued by ICAI • Now[clause 143(10)], • Government will notify auditing standards or any addendum • there to: • As recommended by ICAI in consultation with and after • examination of recommendation made by NFRA. • So the present authority of ICAI to formulate auditing standards • will now taken over by the Government. • Till standards are notified standard specified by ICAI are the • auditing standard. Kalani & Company

  23. Board’s Report (Clause 134) • The BOD has to approve the financial statements including • Consolidated financial statements(if any) for each financial year • and submit to the auditors for report thereon. • Signed on behalf of BOD: • Chairperson where he is authorised OR • Two directors one of them MD and CEO(in case he is • director) • And CFO and Company secretary(if any) • Only by one director in case of one person company • The Board has to prepare its report to the members and submit it at • the AGM. Auditor’s report to be attached. Kalani & Company

  24. Following additional information is required in the BOD report: • Extract of annual return in prescribed form. • Statement of declaration given by Independent Directors u/s • 149(6). • In the case of a listed company or any other company as • specified by the Rules as provided in section 178(1), the • company’s policy on director’s appointment and remuneration, • criteria for determining qualifications, positive attributes, • independence of directors, etc. • Particulars of loans, guarantees or investments in subsidiaries • as provided in section 186. Kalani & Company

  25. Particulars of contracts or arrangements with related parties as • stated in section 188. • A statement indicating development and implementation of • risk management policy for the company which in the opinion • of the Board may threaten the existence of the company. • Details about policy developed and implementation of • corporate social responsibility policy. • In the case of listed and other specified companies a statement • indicating formal annual evaluation made by the Board about • its performance and of its committees and Independent • directors. Kalani & Company

  26. Explanation and comments on every qualification, reservation or • adverse remarks or disclaimer made by auditors in audit report • and by CS in secretarial audit report. • The Director’s Responsibility statement shall state : • All four matters presently reported as required by sec • 217(2AA) • In case of listed company, laid down internal financial control • and that such financial internal control are adequate and are • operating effectively. Internal financial control is defined for • efficient conduct of business, safeguarding of fixed assets , • prevention and detection of fraud and errors, the accuracy and • completeness of accounting records and timely preparation of • reliable financial information. Kalani & Company

  27. Device of proper system to ensure compliance of other laws. • Such other matters as provided in the rules notified by the • Central Government. • Board’s report shall be signed by chairperson if authorised, or by • at least two directors one of them Managing director or by the • director where there is one director. • Signed copy of financial statements including consolidated • financial statements shall be issued, circulated or published along • with any notes to or forming part of financial statements, • auditor’s report and board’s report. Kalani & Company

  28. Corporate Social Responsibility (Clause 135) • Company having: • Net worth of Rs.500 crore or more or • Turnover of Rs.1000 crore or more or • Net profit Rs.5crore or more during any financial year • Board of directors of above company shall constitute a corporate • social responsibility committee. • Consists of 3 or more directors, one should be an independent • director. Kalani & Company

  29. Functions of CSR committee • Formulate & recommend to the board corporate social • responsibility policy. • Recommend about expenditure to be incurred for these • activities. • Supervise the implementation of this policy. • Board should spent at least 2% of the average profits of the • preceding 3 years, if not able to spend then give reasons for the • same. Kalani & Company

  30. Types of activities for which company has to spend for its social • responsibilities are listed in schedule VII. • Company shall give preference to local area and area around it • where it operates Kalani & Company

  31. Laying before Company in general meeting(Clause 136) • Copy of financial statements, consolidated financial statements, • Auditor’s report and other documents to be laid before company • in general meeting. • Shall be sent to every member, every trustee and person entitled • before 21 days of the meeting. • Shall file with registrar within 30 days of the AGM held or to • be held. Kalani & Company

  32. In case of listed company : • Copies of such documents made available at registered • office before 21 days. • A statement sent to members and trustees before 21 days. • Central government may prescribe manner of circulation. Kalani & Company

  33. Internal Audit (Clause 138) • At present, Internal Audit can be conducted by the company's • staff. • Now, clause 138 that such class or classes of companies as may • be prescribed, the BOD have to appoint a Chartered • Accountant, Cost Accountant or other professional, as may be • decided by BOD, for carrying internal Audit. • Government is authorized to make rules on this behalf. Kalani & Company

  34. Appointment of Auditors (Clause 139) For companies other than listed companies (Sub clause 1) • At the 1st AGM, company shall appoint the auditor for a period of 5 • years till the conclusion of 6th AGM and thereafter till the • conclusion of every 6th AGM. • Company shall place matter of appointment of auditors at each • AGM for ratification. • Certificate from auditor complying with the conditions as may be • prescribed and he satisfies the criteria provided in Clause 141. • Company shall inform the auditor and also file a notice of • appointment with the registrar within 15 days. Kalani & Company

  35. For Listed companies (Sub clause 2) • An individual as auditor cannot be appointed for a term of more than • 5 consecutive years and a firm as auditor for two terms of 5 • consecutive years. • After that there is a cooling period of 5 years. • New audit firm shall not have common partner with that of firm • whose tenure has expired. • Every company existing on or before commencement of this Act, • have to comply with the provisions within 3 years. Kalani & Company

  36. Members may resolve the auditing partner and his team, shall • be rotated. • Central Government may prescribe rules for rotation of auditors • for listed companies. • LLP incorporated under LLP Act, 2008 is also included in the • definition of firm. Kalani & Company

  37. First Auditors • First auditor shall be appointed by the Board of Directors within • 30 days of incorporation. If Board fails, then the members at the • EGM will appoint within 90 days. • Auditor is appointed till the conclusion of 1st AGM. • For Government company or company owned or controlled by the • Government: • C&AG shall appoint auditors within 180 days from the • commencement of the year to hold office till conclusion of • next AGM. Kalani & Company

  38. For New Government Company • C&AG will appoint the auditor within 60 days of • incorporation. • Otherwise BOD in next 30 days and if BOD also fails then • by the members of company within 60 days at the EGM. • Auditor will hold office till conclusion of Ist AGM. • Casual vacancy is more or less the same as at present. • In case of Government company, casual vacancy to be filled by C & • AG within 30 days, if not done then BOD will fill the casual vacancy . Kalani & Company

  39. If no auditor appointed at AGM then existing auditor will continue. • Retiring auditor may be re-appointed at an AGM unless : • Auditor is disqualified. • Notice by auditor in writing for unwillingness. • Special resolution providing expressly other auditor be • appointed in place of retiring auditor. Kalani & Company

  40. Removal of Auditor • (Clause 140) • Auditor can be removed by a special resolution obtaining previous • approval of CG in the manner prescribed. Auditor concern to get • reasonable oppurtunity. • Auditor who has resigned is to file within 30 days a statement in • prescribed form with the company & registrar. And if Govt. • company then also to the C&AG. • Minimum fine of Rs.50,000 which may extend up to Rs.5,00,000 on • auditor for not giving notice of resignation. Kalani & Company

  41. Special notice required for a resolution at AGM when retiring auditor • is not appointed, except in case where retiring auditor has completed a • tenure of 5 consecutive years or 10 years as the case may be. • Same procedure is there for notice to change auditors. • If copy of representation is not send to the members being received • late , a copy thereof shall be filed with the registrar. • The tribunal either suo motu or on receipt of application made to it by • CG or concerned person, if satisfied that the auditor has acted in any • fraudulent manner, it may by order direct the company to change its • auditors. The auditor will also be liable for action u/s 447. Kalani & Company

  42. In case of application from CG, if the tribunal is satisfied that the • change of the auditor is required; it shall within 15 days of receipt • of application make a order that he shall not function as auditor & • CG can appoint another person in his place. • The auditor on whom final order has been passed shall not be • eligible to be appointed as an auditor of a company for a period of • 5 years. Kalani & Company

  43. Eligibility & Disqualification of Auditor • (Clause 141) • Eligibility:- • Beside individual, only if he is Chartered Accountant, firm • majority of partners are qualified for appointment as aforesaid • Firm includes LLP. • Only Chartered Accountant shall be authorised to act and sign on • behalf of the firm. • Disqualification:- • Body corporate, officer or employee of the company or his • partner • Indebtness of company or given guarantee against debt, also include its subsidiary or its holding company or associate company or a subsidiary holding company in excess of amount as may be prescribed. Kalani & Company

  44. Holding security in the company, holding or subsidiary • company • Holding security by relative not exceeding Rs. 1000/- or as may • be prescribed. • Following additional persons have been disqualified to become • auditors of a company: • A person or a firm has business relationship with the • company, its subsidiary, its holding or its associate • company directly or indirectly. • A person who is relative of a director or is in the • employment of the company as a director or key • managerial personnel. Kalani & Company

  45. A person who is convicted by any Court of an offence • involving fraud, and a period of 10 years has not elapsed • from the date of such conviction. • Any person, firm or its associate is engaged on the date of • appointment in consulting and specified services as • provided in section 144. Kalani & Company

  46. Remuneration of Auditor • ( Clause 142 ) • Remuneration will be fixed in General Meeting. • Remuneration does not include any remuneration paid to the • auditors for any other service rendered by him at the request of the • company. Kalani & Company

  47. Powers & Duties of Auditor • (Clause 143) • Beside power as at present, in case of auditor of a holding company, • auditor shall have the right to access all the records of its • subsidiaries in so far as it relates to consolidation of financial • statements (Proviso to sub clause 1). • Auditor will comply with auditing standards as defined in Clause • 2(7) read with Clause 143(10) • Auditor’s report (sub clause 2) will be prepared after taking in • account – • provisions of the Companies act,2012 and • the accounting and auditing standards. Kalani & Company

  48. Matters which are required to be included under provisions of this • act and rules there under: • Statement on order made in sub clause 11 • True and fair view of cash flow statement beside state of • affairs as at close of year and profit and loss. • Sub clause 3 requires auditor’s report will also state: • Whether he has sought and obtained information and • explanations, if not got, the details thereof and effect of such • information on financial statements. Kalani & Company

  49. Same what is presently in relation to proper books of account, • balance sheet and profit & loss account dealt are in agreement • of books of account, adequate information received from • branches not visited and report of other auditor for branch • office, if any, compliance of accounting standards and • disqualification of directors under section 164. • The observation or comment on financial transaction or • matters which has any adverse effect on function of the • company. • Any qualification in relation to the maintenance of accounts • and other matters connected therewith. • Whether company has internal control in place and its • effectiveness. Kalani & Company

  50. Such other matters as may be prescribed. • The CG in consultation with NFRA, pass an order that the auditors • report shall also include a statement on such matters as may be • specified therein.(sub clause 11) • If auditor has reason to believe that any fraud is being committed by • the officers or employees against the company, shall immediately • report to CG in the manner prescribed.(sub clause 12) • Provisions of this section shall also apply on Cost Accountants and • Company Secretary. • If the auditor, cost accountant & company secretary do not comply • with the provision of sub section (12), they are punishable with a fine • of minimum Rs1 lac which may extend up to Rs25 lacs. Kalani & Company

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