AUDITOR & ACCOUNTS UNDER COMPANIES

ACT 2013

MVSK RUTHVIK

Topics of Discussion• Introduction on CA-2013• Accounts • Important Definitions & Their

Interpretations• New aspects• Auditors• Key Changes & New Additions• Areas which still require clarity • What CA is required to do know???• Conclusion

Introduction• Companies Act 2013 (CA-2013) has bought a lot

of revolutionary changes relating to appointment, disqualification, many other new terms of auditor.• Penalties are something which got a special

status and makes a auditor go bankrupt.• The 3’S behind CA 2013 to come into

enforcement• Satyam Computers• Saradha Scam• Sahara Scam

Comparative AnalysisCOMPANIES ACT 1956

• 656 Sections• 13 Parts• 15 Schedules

COMPANIES ACT 2013

• 470 Sections• 29 Chapters• 07 Schedules

New Concepts in CA 20131. One Person Company2. Women Directors3. Corporate Social Responsibility4. Registered Valuers5. Rotation of Auditors6. Class Action7. Dormant Company8. Fast Track Mergers9. Serious Fraud Investigation Officer (SFIO)

Provisions relating to AccountsSection No Provision

Section 128 Books of accounts

Section 129 Financial Statements

Section 130 Re-opening of Books of accounts

Section 131 Voluntary Revision of Financial Statement or Board’s Report

Section 132 NFRA-National Financial Reporting Authority

Section 134 Financial Statements & Board’s Report

Section 135 Corporate Social Responsibility

KEY DEFINITIONSThere have a some key changes relating to the definitions:-

1. Free Reserves & Net Worth2. Financial Statements3. Financial Year4. Subsidiary company5. Associate company

Section 128-Books of Accounts • Every Company shall Prepare and keep at is

registered office, books of accounts and financial statements on accrual basis for every financial year which give a true and fair view of the state of affairs of the company.

• Books of accounts along with relevant vouchers shall be kept for a period of at least 8 years from immediately preceding the financial year.

Section 130-Reopening of Books of accounts

• Reopening of books of accounts and recast financial statements, if application is made to CG, IT Authorities, SEBI and other statutory regulatory body if any, and an order is made by court of competent jurisdiction or tribunal to that effect that-• Earlier accounts were prepared in a fraudulent

manner• Affairs of the company were mismanaged

during the relevant previous period• This revision is required to disclose in Board’s

report of the financial year in which the revision is made and such a revision shall not be made or filed more than once in a financial year.

Section 132-National Financial Reporting Authority (NFRA)

• The Central Government has introduced a new regulatory authority named as National Financial Reporting Authority (NFRA).• The Authority Shall make recommendations to

central Government on Accounting and auditing policies monitor and enforce the compliance with accounting and auditing standards and oversee the quality of the services provided by the professionals.• It has right to investigate or by reference made by

the CG for bodies corporate or persons, into the matters of professional misconduct committed by members or firm of Chartered Accountants, registered under the Chartered Accountants Act,1949

Section 135 Corporate Social Responsibility(CSR)

The Companies Act mandates the CSR guidelines for the following companies:-1. Having Net worth of INR 500 crores or more (or)2. Turnover of INR 1000 crores or more (or)3. Net profit of INR  5 crores or more.• Such a company shall constitute a CSR Committee of

Board Comprising of 3 or more directors ,1 of whom shall be an Independent Director, the committee shall formulate a policy for the activities specified in Schedule VII of the Companies Act 2013.

• 2% of the average net profits of immediately preceding 3 years shall have t be spent, and if not spent, an explanation with reasons thereof shall be required to be given in the director’s report.

CHANGES RELATING TO AUDITORS

Chapter-X Audit & Auditors ranging from section 139 to 148 has into act from 1st April 2014.

Companies Act, 2013

Section Description

Section 139

Appointment of Auditors

Section 140

Removal, Resignation of auditor and giving of special notice.

Section 141

Eligibility, qualifications and disqualifications of auditors.

Section 142

Remuneration of auditors.

Section 143

Powers and duties of auditors and auditing standards.

Section 144

Auditor not to render certain services.

Section 145

Auditors to sign audit reports, etc.

Section 146

Auditors to attend general meeting.

Section 147

Punishment for contravention.

Section 148

Central Government to specify audit of items of cost in respect of certain companies. (Cost Audit)

Key Changes• A firm/LLP can partner with non-CA’s and still be

appointed as auditor. • Section 144 specifies services which auditor

shouldn’t provide.• Acts of relative included in dis-qualification of

auditor.• Business relationship with a company is bought

within the ambit of disqualification of an auditor (whether direct or indirect)

• Mandatory Compliance of Standards on Auditing• Fraud Reporting – Section 143(12)

Section 139: Appointment of Auditor• Every Company has to appoint the auditor for

period of 5 yrs i.e. till end of 6th AGM• Company will intimate the auditor about his

appointment & Now it is duty of the company to File form ADT-1 relating to auditor appointment.• In every Annual General Meeting, the

appointment of Statutory Auditors should be ratified. If ratification of appointment is not made by the members in the Annual General meeting, the Board shall appoint another individual/Firm as Auditors as per procedures laid down under the Act.

Procedure of appointment if Companies have audit committee

• Where a company is required to constitute an Audit Committee under section 177, all appointments, including the filling of a casual vacancy of an auditor under this section shall be made after taking into account the recommendations of such committee• It is Duty of Audit Committee to go through

the process of selection of Auditors and then recommend to the Board which in turn recommends to the Members for consideration in the AGM.

• If the Board disagrees the recommendation of the Audit committee, it shall refer back again to the said Committee citing reason for disagreement and recommending reconsideration.

Rotation of Auditors• New Concept Where many Chartered Accountants

are in favour & against too. But Law has to be followed…..• Rotation of Auditors is Mandatory only for• listed companies• unlisted companies having paid up share capital of

Rs. 10 crores or more• all private limited companies having paid up share

capital of Rs. 20 crores or more• all other companies (excluding OPC & small

companies) having paid up share capital below threshold limit but having public borrowing financial institutions, banks or public deposits of Rs. 50 crores or more.

• An individual is eligible to be appointed as auditor only for one term of 5 consecutive years while a firm can be appointed as auditor of the same company for two terms of 5 consecutive years i.e 10 years.

COOLING PEROID:-• An individual or audit firm as the case may be

who/which has completed the above mentioned terms shall not be eligible for re-appointment as auditor in the same company for 5 years from the completion of such term.

• Companies incorporated prior to 1st April 2014 have been given 3 years of moratorium period to ensure compliance with the act.

Section 140: Removal & Resignation

• Auditor can be removed by passing a Special resolution after obtaining prior approval of Central Govt. Application to CG in within 30 days of passing board resolution.• Removal of auditor before 5 years would be

considered as removal from his office ,so strict formalities have to followed to protect the interest of auditor.• In case an Auditor resigned within his period of 5

years, he has to file (ADT-3) with ROC within 30 days of removal stating the reasons why resigned else he would punishable with a fine of not less than Rs. 50,000 upto Rs. 5,00,000.

Section 141:Eligibility of Auditor

• Only a Practising Chartered accountant Can be appointed as Auditor for a company.

• It seems Firm/LLP can contain partner’s who

are Non-CA’s. The introduction of LLP as an auditor and ability of a firm/LLP to operate with partners who are not Chartered Accountants is a welcome change and in line with international practices

Disqualification• Body corporate other than LLP• A person who is a partner or who is in the

employment of an officer or employee of the company• A person who, or his relative or partner• Holds a security exceeding Rs. 1,00,000 (Face

value)• Indebtness to company exceeding Rs.5,00,000• Given guarantee in connection with the indebtness

of any 3rd party to company/subisdary/associate in excess of Rs.1,00,000

• A person or a firm who, whether directly or indirectly, has business relationship with the company/associates/subsidaries• Having a relative as director/KMP in such

companies

Ceiling Limit• a person who is in full time employment

elsewhere or a partner of a firm holding appointment as its auditor as on that date of appointment shall not be auditor of more than 20 Companies ( Includes Public + Private).

• However, the MCA Notification on 5th June 2015 brought a huge relief to many CA Firms that auditor ceiling limit excludes one person companies, dormant companies, small companies and Private limited companies who paid up share capital is less than 100 crores.

Section 142: Remuneration• The BOD may fix the remuneration for first

auditor. Subsequently the remuneration shall be fixed in AGM.• Section 142 requires the Company to quantify

the remuneration in the General Meeting.• But as per the new act, the remuneration in

addition to the fee payable to an auditor, include the expenses, if any, incurred by the auditor in connection with the audit of the company and any facility extended to him but does not include any remuneration paid to him for any other service rendered by him at the request of the company. 

Section 143:Powers & Duties of Auditor

1. Right to access of books of accounts, documents, vouchers relating to the company at all times.

2. Report to the company on the accounts examined by him that are required to be laid before the company in general meeting

3. Auditor should report on matters relating to compliance with the accounting & Auditing standards, disqualification relating to the director, reporting the efficiency of the internal financial controls.

4. In case of branch audit, opening the report from such branch auditor if such branch is out of India

5. Reporting of the fraud committed by the employees to audit committee beyond certain limit and beyond such limit to the central govt. Such limit is yet to be notified by the central government.

Section 144: Other Services by Auditor• New concept introduced in Companies act 2013 stating

services which the auditor are not entitled to provide. Auditor can provide such other services as approved by BOD.

Services which an auditor cannot provide:-1. Accounting and Book keeping services2. Internal audit3. Design and implementation of any financial information

system4. Actuarial services5. Investment advisory services & Investment banking services6. Rendering of outsourced financial services7. Management services any other kind of services as may be

prescribed

Section 145-Auditor to Sign report• The person appointed as an auditor of the company

shall have to sign the audit report or certify any document in accordance with the section 141 of the act.• The qualifications, observations or comment on

functioning of the company in the auditor’s report shall be read before the general meeting

Section 146-Auditor to attend AGMAll the notices and communications related to AGM shall be forwarded to the auditor. The auditor shall attend AGM either himself or through representative and have the right to be heard at the meeting.

Section 147-Punishment for ContraventionCompany-Punishable with fine (Rs. 25,000 to Rs. 5,00,000). Officer in charge-Punishable with imprisonment maximum for 1 year or with fine (Rs.10,000 to Rs. 1,00,000). Auditor-Punishable with fine (Rs. 25,000 to Rs. 5,00,000). If an auditor has contravened such provisions knowingly or willfully with the intention to deceive the company or its shareholders or creditors or tax authorities, he shall be punishable with imprisonment for a term which may extend to one year and with fine (Rs. 1,00,000 to Rs. 25,00,000).

ConclusionThe companies’ act 2013 has bought a few drastic changes which require the attention of the auditors so as to ensure compliance with them. The some key definitions needs to be relooked before we advise the client and we should keep ourselves updated on daily basis as the notifications and circulars been released by MCA on various aspects which bring a lot amount of clarity.