1

COMPANIES ACT, 2013

ACCOUNTS AND AUDIT

CA RAJEEV SOGANI

2

Satyam case

Corporate Frauds Effectiveness of Audit

Function Role of ICAI

Reebok NSEL

COMPANIES ACT

RE-INCARNATION AFTER 57 YEARS

3

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 .

MAINTENANCE OF BOOKS OF ACCOUNTS IN E-FORM

(S. 128)

Continued..

4

CFO also liable for default.

- Imprisonment - Max. 1 year, or- Fine – Rs. 50,000 – Rs. 5,00,000

MAINTENANCE OF BOOKS OF ACCOUNTS (S.

128)

5

Schedule VI

Schedule III

NO CHANGE

FORMAT OF BALANCE SHEET AND P & L

6

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.

Not

Notified

7

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

Not

Notified

8

CG to constitute NFRA, which shall :

a) Make recommendations to the C.G. - Formulation and laying down of accounting and auditing policies and standards.

b) Monitor & enforce compliance with accounting & auditing standards.

c) Oversee the quality of professional services of auditors.

NATIONAL FINANCIAL REPORTING AUTHORITY

(S.132)

Continued..

Not

Notified

9

Notwithstanding anything contained in any other law NFRA shall

NFRA either suo moto 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.

NFRA

Continued..

10

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 .

NFRA

11

PRESCRIPTION OF ACCOUNTING AND AUDITING STANDARDS

Central Government to prescribe

Standards of Auditing

S. 143(10)

Accounting Standards

S. 133

ASSA

12

THE CHARTERED ACCOUNTANTS ACT, 1949

THE INSTITUTE OF CHARTERED ACCOUNTANTS

REGULATION OF THE PROFESSION OF CHARTERED ACCOUNTANTS

13

INSPECTION OF STATEMENT OF PROFIT AND LOSS OF THE PRIVATE COMPANIES

Earlier As Per Companies Act,

1956

As per S 220, only Members can inspect the

Statement of Profit and Loss

Companies Act , 2013

As per S. 137, exemption given

to private companies withdrawn

14

INTERNAL AUDIT NOW MANDATORY BY LAW

(S. 138)

ListedCompany

Unlisted Public

Company

Private Company

Particulars Unlisted Public Com.

Private Com.

Paid up Share Capital > 50 Crores

N.A.

Turnover > 200 Crores > 200 Crores

O/S loans or borrowings

> 100 Crores

> 100 Crores

O/S Deposit > 25 Crores N.A.

Requirement as per CARO, 2003

Paid up capital + reserves exceeds Rs 50L or average turnover of 3 consecutive F.Y exceeds 5 crore

15

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

UNIFORM FINANCIAL YEAR

S. 2(41)

Incorporation on or after 1st Jan = F.Y. ends 31st March of following year (15 months).

16

APPOINTMENT OF AUDITORS (S.139)

• Auditor to be appointed – For 5 years.•Ratification at every AGM (ordinary resolution)

AppointmentExpiryIf not ratified:

• Removal of auditor

• New auditor to be

appointed

• Special resolution & CG

approval is required

Continued…

17

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

18

NEW LAYER INTRODUCED AUDIT COMMITTEE

Evaluation of auditors’ competence by Audit Committee

Recommendation to Board

Evaluation of

experience and

qualification

Pending proceeding

s : profession

al misconduc

t

19

ROTATION OF AUDITORS - NEW CONCEPTS. 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

20

Applicability

Listed Companies Unlisted Companies (Rule 5)

Public

Companies

having

share

capital ≥ 10

Crore

Private

Companies

having

share

capital ≥ 20

crore

All Companies

having

borrowing ≥ 50

crore

Continued..

21

RETROSPECTIVE APPLICABILITY- TRANSITION PERIOD

22

Resignation (with reasons)

ROC CompanyCAG

(In case of Govt. Companies)

RESIGNATION BY AUDITORS. 140(2)

Penalty : 50,000 to 5,00,000

Impact:o Back dated resignationo Reasons

23

Tribunal

Either Suo moto Application by CG Application by person concerned

Satisfied that auditor of a Company has acted in

fraudulent manner directly or indirectly

REMOVAL OF AUDITOR NEW THREAT(S. 140(5))

Action against the auditor Not eligible for appointment in any Company for 5 years

Liable u/s 447 (Punishment for fraud)

Not

Notifie

d

24

Auditor needs to report:

1. Adequacy and effectiveness of Internal Financial Control

2. If fraud is being or has been committed against the Company by its own officers or employees, report to CG.

3. Effect of pending litigation, foreseeable losses for long term contracts and derivatives

INCREASE IN AUDITORS’ RESPONSIBILITY

25

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.

26

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.

27

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.”

28

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..

29

MANAGEMENT SERVICES

Definition provided by ICAI Management Services

does not includeTax related services

Not defined in Companies Act,

2013

30

SERVICES STILL CAN BE RENDERED

Income Tax

Sales Tax

Company Law

Service Tax

31

Relative is director or key managerial person

Auditor > 20 Companies (including Private Companies)

Convicted by court -Fraud

Providing specified services – Section 144

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

NEW DISQUALIFICATIONS

(S.141)

32

CLASS ACTION (S. 245)

Who can file?• Members• Depositors

Against whom?• Auditor

Reason?• Improper/

Misleading statement in audit report

• Fraudulent or unlawful act

33

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

AUDIT FOR FINANCIAL YEAR 2013-14

34

LIABILITY INSURANCE

FOR AUDITORS

35

अबकी� ब�र

मोदी� सरकी�र

THANK YOU…

36