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COMPANIES ACT, 2013 ACCOUNTS AND AUDIT

COMPANIES ACT, 2013 ACCOUNTS AND AUDIT. CA RAJEEV SOGANI. COMPANIES ACT RE-INCARNATION AFTER 57 YEARS. Satyam case. Corporate Frauds Effectiveness of Audit Function Role of ICAI. Reebok. NSEL. MAINTENANCE OF BOOKS OF ACCOUNTS in E-FORM (S. 128).

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COMPANIES ACT, 2013 ACCOUNTS AND AUDIT

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  1. COMPANIES ACT, 2013 ACCOUNTS AND AUDIT CARAJEEVSOGANI

  2. COMPANIES ACT RE-INCARNATION AFTER 57 YEARS • Satyam case • Corporate Frauds • Effectiveness of Audit Function • Role of ICAI • Reebok • NSEL

  3. MAINTENANCE OF BOOKS OF ACCOUNTS in E-FORM • (S. 128) • Books of accounts and other relevant papers may be kept in electronic mode: • Accessible and usable in India • Information to be complete and unaltered • Shall be in legible form • Proper system of storage and use • Back up of records • Intimation of service provider to Registrar . Continued..

  4. MAINTENANCE OF BOOKS OF ACCOUNTS (S. 128) • CFO also liable for default. • Imprisonment - Max. 1 year, or • Fine – Rs. 50,000 – Rs. 5,00,000

  5. Format of balance sheet and p & l Schedule VI Schedule III NO CHANGE

  6. Not Notified Reopening and Recast of Accounts on Court’s or Tribunal’s order (S.130) • Grounds:- • Accounts prepared fraudulent manner, or • Affairs of the company mismanaged/ doubt on the reliability of financial statements. • On application to tribunal/ court by CG or SEBI or IT Authorities or other authority or any other person concerned • Analysis:- • Opportunity to Company of being heard not given. • Time limit for reopening or recast not specified.

  7. Not Notified Voluntary Revision of Financial Statements or Board’s Report (S. 131) • Directors may revise: • If Financial Statements not in accordance with S. 129 or Board Report with S. 134. • For any of the 3 previous F.Y. • After obtaining approval of Tribunal. • Revision can be made only once for a particular financial year. • Disclosure in the Board’s report

  8. National Financial Reporting Authority (S.132) Not Notified • CG to constitute NFRA, which shall : • Make recommendations to the C.G. - Formulation and laying down of accounting and auditing policies and standards. • Monitor & enforce compliance with accounting & auditing standards. • Oversee the quality of professional services of auditors. Continued..

  9. NFRA • Notwithstanding anything contained in any other law NFRA shall • NFRA either suomoto or reference made by CG, investigate - Professional or other misconduct of any member or firm of chartered accountants • NFRA has powers of civil court to conduct an investigation. • No other institute or body shall initiate or continue any proceeding in such matter of misconduct. Continued..

  10. NFRA • Where professional or other misconduct is proved: • Minimum Penalty and Maximum Penalty • On Individual - 1 lakh - 5 times of fees and • On Firm - 10 lakhs - 10 times of fees received. • Debarring member or firm min. 6 months max. 10 years • Aggrieved member or firm - Appeal before the Appellate Authority .

  11. CONSTITUTION OF NFRA (DRAFT RULES) • Chairperson: • Appointment by CG • Chartered Accountant • Expert in accountancy, auditing, finance or law. • Members: • Not exceeding 15 • Full time members include Accounting, Auditing and Enforcement Members. • Part time members include • One representative of MCA, RBI, SEBI • Retired High Court Judge • President of ICAI (ex-offico)

  12. PRESCRIPTION OF ACCOUNTING AND AUDITING STANDARDS SA AS

  13. The Chartered accountants act, 1949The institute of Chartered AccountantsRegulation of the profession of Chartered Accountants

  14. INSPECTION OF STATEMENT OF PROFIT AND LOSS OF THE PRIVATE COMPANIES Companies Act , 2013 Earlier As Per Companies Act, 1956 As per S 220, only Members can inspect the Statement of Profit and Loss As per S. 137, exemption given to private companies withdrawn

  15. INTERNAL AUDIT NOW MANDATORY BY LAW (S. 138) Listed Company Unlisted Public Company Private Company Requirement as per CARO, 2003 Paid up capital + reserves exceeds Rs 50L or average turnover of 3 consecutive F.Y exceeds 5 crore

  16. Uniform financial year S. 2(41) • Companies Act, 2013 • F.Y. must end on 31st March. • F.Y. period = 12 months • Companies Act, 1956 • No such provision. • F.Y. period = Max. 15 months • Incorporation on or after 1st Jan = F.Y. ends 31st March of following year (15 months).

  17. APPOINTMENT OF AUDITORS (S.139) • Auditor to be appointed – For 5 years. • Ratification at every AGM (ordinary resolution) Appointment • If not ratified: • Removal of auditor • New auditor to be appointed • Special resolution & CG approval is required Expiry Continued…

  18. INDEPENDENCE OF AUDITORS • Enhanced Independence • Auditor to be appointed for a tenure of 5 years • Stringent provisions for removal of auditor before 5 years : • Special resolution • CG approval

  19. NEW LAYER INTRODUCED AUDIT COMMITTEE

  20. ROTATION OF AUDITORS - NEW CONCEPT S. 139(2) • Tenure of Auditor • Individual • Firm Consecutive years Consecutive years Transition period: Company to comply with this provision within 3 years of commencement of this Act

  21. Continued..

  22. RETROSPECTIVE APPLICABILITY- TRANSITION PERIOD

  23. ROTATION WITHIN THE FIRM

  24. RESIGNATION BY AUDITOR S. 140(2) • Impact: • Back dated resignation • Reasons

  25. REMOVAL OF AUDITOR NEW THREAT (S. 140(5)) Not Notified • Action against the auditor • Not eligible for appointment in any Company for 5 years • Liable u/s 447 (Punishment for fraud)

  26. Increase in Auditors’ Responsibility • Auditor needs to report: • Adequacy and effectiveness of Internal Financial Controls • If fraud is being or has been committed against the Company by its own officers or employees, report to CG/BOD/Audit Committee. • Effect of pending litigation, foreseeable losses for long term contracts and derivatives

  27. INTERNAL CONTROL • As per Clause 4 of CARO, 2003 : Is there an adequate internal control procedure commensurate with the size of the company and the nature of its business, for the purchase of inventory and fixed assets and for the sale of goods. Whether there is a continuing failure to correct major weaknesses in internal control. • As per Section 143(3)(i) of Companies Act, 2013: Whether the company has adequate internal financial controls system in place and the operating effectiveness of such controls.

  28. REPORTING ABOUT FRAUD As per Section 143(12)– Companies Act, 2013: If an auditor of the Company in the course of performance of its duties as auditors 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 As per Clause 21 of CARO, 2003: Whether any fraud on or by the company has been noticed or reported during the year; If yes, the nature and the amount involved is to be indicated.

  29. FRAUD Section 447 – Companies Act, 2013 defines “Fraud” as “any act, omission, concealment of any fact or abuse of position committed by any person or any other person with the connivance in any manner, with the intent to deceive, to gain undue advantage from, or to injure the interests of, the Company or its shareholders or its creditors or any other person, whether or not there is any wrongful gain or wrongful loss.” SA 240 – Auditor’s responsibility relating to fraud defines “Fraud” as “an intentional act by one or more individuals among management, those charged with governance, employees or third parties involving the use of deception to obtain an unjust or illegal advantage.”

  30. Auditor, not to render certain services directly/ indirectly (S. 144) • Accounting and book keeping services • Internal audit • Actuarial services • Design and implementation of any financial information system • Investment advisory services • Investment banking services • Rendering of outsourced financial services • Management services Continued..

  31. MANAGEMENT SERVICES Not defined in Companies Act, 2013 Definition provided by ICAI Management Services does not include Tax related services

  32. SERVICES STILL CAN BE RENDERED Income Tax Company Law Service Tax Sales Tax

  33. NEW DISQUALIFICATIONS (S.141) • Business relationship not on arm’s length price • Person or his partner or relative: • Holds any security or interest • Indebted > 5 lakhs • Guarantee/ Security (Third person) > 1 lakh • Relative is director or key managerial person • Auditor > 20 Companies (including Private Companies) • Convicted by court -Fraud • Providing specified services – Section 144

  34. AUDIT FOR FINANCIAL YEAR 2013-14 • Same as Financial Year 2012-13 • As per General Circular No. 08/2014 dated 4th April provisions related to: • Financial Statement • Board’s Report • Auditor’s Report Applicable from Financial Year 2014-15

  35. SMALL COMPANIES (S. 2(85)) • Small Company • Paid up share capital less than Rs. 50 Lakh • OR • Turnover less than Rs. 2 Crore.

  36. OMNIBUS PENAL PROVISION (S. 447) • Fraud means: • Any act of concealment of fact • Abuse of position • With intention to deceive or to injure the interest of any person • Punishment for Fraud • Fine: Amount involved to 3 times of amount involved • Imprisonment: 6 months to 10 years • 3 years to 10 years (Involving public interest) • New Section • Reference of this Section is given in various sections

  37. PENALTIES ON AUDITOR IN SPECIFIC CASES

  38. PENALTIES ON AUDITOR IN SPECIFIC CASES

  39. PENALTIES ON AUDITOR IN SPECIFIC CASES

  40. PENALTIES ON AUDITOR IN SPECIFIC CASES

  41. PENALTIES ON AUDITOR IN SPECIFIC CASES

  42. PENALTIES ON AUDITOR IN SPECIFIC CASES

  43. PENALTIES UNDER SECTION 147 Unknowingly Fine: 25,000 to 5,00,000 Knowingly Fine: 1,00,000 to 25,00,000 Imprisonment : up to 1 year

  44. MCA CIRCULAR DATED 07/05/2014 Where any instance of filing of documents, application or return or petition etc. containing false or misleading information or omission of material fact or incomplete information is observed, the Regional Director or the Registrar as the case may be, shall conduct a quick inquiry against the professionals who certified the form and signatory thereof including an officer in default who appears prima facie responsible for submitting false or misleading or incorrect information pursuant to requirement of above said Rules; 15 days notice may be given for the purpose.

  45. AREAS - DECLARATION GIVEN Penalty under section 447, 448 and 449

  46. THE WAY FORWARD • Revamp Attest Function • Professional Liability/Claims Insurance • LLP Mode

  47. अबतो • मोदी सरकार

  48. THANK YOU…

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