1_134 - Baroda ICAI

Report
Companies Act, 2013
Accounts and Auditor & New
Provisions Related to Financial
Statements – 19TH April,2014
Baroda Branch of WIRC of India
by CA Yagnesh Desai
B.Com, FCA , CPA (USA)
Financial Statements
Sec 2(40): Financial Statements include:
Balance sheet as at the end of Financial Year
Profit & loss account or Income and Expenditure account
Cash flow statement for the financial year
Statement of changes in Equity, if applicable ****
Any explanatory note annexed to or forming part of the above
Financial Statements
Give a True & Fair view
Compliance with Accounting Standards (Sec.133)
In the form Specified in Schedule III
Not Applicable to
• Insurance company
• Banking company
• Company engaged in generation or supply of electricity
• Company governed by any other law for the time being
in force
Financial Year
• A period ending on the 31st day of March every year
• If the company is incorporated on or after 1st day of
January of a year, the period ending on the 31st day of
March of the following year
• If the company is a holding or subsidiary of a
company incorporated outside India, tribunal may
allow them to follow a different financial year it is
satisfied
• Transitional period of three years .
Cash Flow Statement
• Mandatory for all companies except:
– One Person Company,
– Small Companies
– Dormant Companies
– The Act 1956 does not mandate the preparation and
presentation of cash Flow Statement
Requirement as per AS 3
Listed enterprises in India or abroad – ( Definition)
A company which is in process of getting listed
Banks including co-operative banks., Financial institutions
Enterprises carrying on insurance business
All commercial, industrial and business reporting enterprises whose
:turnover for the immediately preceding accounting period on
the basis audited financial statement exceeds Rs. 50 cr OR

borrowings including public depositing excess of Rs.
10cr
at any time during the accounting year
 Holding and subsidiary of any of the above during the accounting
period.





Books of Accounts in electronic
mode
Rule 3 of The Companies (Accounts) Rules, 2014
deals with books of accounts to be kept in electronic
mode.
- Records should be accessible in India & usable for
subsequent purpose
- 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.
Accounting Standards S 133
• Based on recommendation of ICAI and
• In consultation and after recommendation
made by NFRA , The Central Government
may prescribe standards of accounting or
any addendum there to.
• Till any such standards are announced , The
standards of accounting as specified under
the Companies Act, 1956 (1 of 1956) shall be
deemed to be the accounting standards
Consolidations – Depreciation
• Associates & Joint ventures are considered
as “ subsidiaries ” for S 129(3)
• Useful life concept for depreciation of
tangible & Intangible assets in schedule II
• Depreciating parts separately
Reopening of accounts on Court’s
or tribunal’s order.
• Normally company is not permitted to reopen or re-cast its financial statements
• Only on order of competent court or tribunal
• On application made by
•
Income tax Authorities
•
SEBI
•
Any other authority
•
or any person concerned
Voluntary revision of Financial
Statements or Board Report
•
•
After obtaining permission of the Tribunal
on application made by the company.
for any of the three preceding financial year
• Such revised statement not more than one in a year.
• It is not clear – immediate preceding or any three years ?
• No such provision U/s 130.
Auditors
Particulars
Section
Rule
Form
No.
Manner and procedure of selection of auditor
139(1)
3
4
Conditions for Appointment
139(1),
Second to
proviso
139(2)
5
Manner in which the companies to rotate their auditor 139(4)
on the expiry of term
6
Removal of auditor before expiry of his term
140(1)
7
ADT-2
Resignation of auditor
140(2)
8
ADT-3
141(3)(d)(i)
10.1
141(3)(d)(ii)
10.2
Disqualification of auditor
141(3)(d)(iii) 10.3
141(3)(e)
10.4
Other matters to be included in Audit Report
143(2)
11
Duties and powers of the company’s auditor with
reference to the audit of the branch and the branch
auditor
143(8)
12
Reporting of frauds by auditor
143(12)
13
ADT-4
Manner and procedure of selection and
appointment of auditors -
• Audit Committee , if required to be
constituted ,or else the board considers :• the qualifications and experience of the
proposed individual or the firm
are
commensurate
with
the
size
and
requirements of the company
• Pendency of proceedings for professional
misconduct
• And call for other information as it may
deem fit.
Manner and procedure of selection and
appointment of Auditors -
• The Audit committee shall recommend
the name of an individual or a firm as
auditor to the Board and if the board
agrees or If no such committee is required
, or if the Board agrees ,the Board shall :• Consider and recommend to the member
in annual general meeting for
appointment
Manner and procedure of selection and
appointment of auditors • If the Board disagrees it cites the reasons for disagreement
and refer back to Audit committee.
• If Audit committee decides not to reconsider its original
recommendation – the board records the reasons – send its
own recommendation for consideration of members in
annual general meeting
• Auditor to hold office from the conclusion of that meeting
till the conclusion of the sixth annual general meeting, with
the meeting wherein such appointment has been made
being counted as the first meeting:
Appointment of Auditors
 Company to appoint auditor in the First AGM
 Auditor to continue from 2nd AGM through to 6th
AGM
 The company shall place matter relating to such
appointment for ratification by members at every
general meeting *
Auditor to issue:
 A Prior written consent to the appointment; and
 A certificate stating that he/she satisfies the criteria
specified in Sec.141 and is qualified to be appointed as
an Auditor *
 Company to intimate- ( as against the auditor)
 Registrar; and Auditor in less than 15 days of such
appointment , earlier onus was on the Auditor.
Certificate by Auditor Under Rule 4
“(1) The auditor appointed under rule 3 shall submit a certificate that (a) the individual or the firm, as the case may be, is eligible for
appointment and is not disqualified for appointment under the Act, the
Chartered Accountants Act, 1949 and the rules or regulations made
thereunder;
(b) the proposed appointment is as per the term provided under the Act;
(c) the proposed appointment is within the limits laid down by or
under the authority of the Act;
(d) the list of proceedings against the auditor or audit firm or any
partner of the audit firm pending with respect to professional matters
of conduct, as disclosed in the certificate, is true and correct.”
First Auditor -139(6)
• First auditor of companies , other than Government
Companies , shall be appointed by board within 30
days of incorporation, failing which , the members
in EGM should appoint the auditor within 90 days
of incorporation.
• First auditor for Government companies , shall be
appointed by CAG within 60 days, failing which
the Board to appoint within next 30 days, failing
which members at an EGM will appoint within
60 days.
Casual Vacancy
• The companies covered under audit and where the
auditor is appointed by CAG, any casual vacancy will
be filled by CAG within 30 days, failing which the
Board will appoint in next 30 days.
• For others the vacancy should be filled in by Board
within 30 days , and in case of vacancy due to
resignation it shall be approved by the company at a
general meeting within 3 months of the
recommendation by Board.
• 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 U/s. 139 shall be made after taking into account the
recommendations of such committee.
Rotation of the Auditor *Applicability
• Listed companies
• Unlisted public companies having paid up share capital
of Rs. 10cr or more;
• Private companies having paid up share capital of Rs.
20cr or more;
• Any company having public borrowings from financial
institutions, banks or public deposit of Rs. 50cr or more
Rotation of the Auditor *- Not
Applicable to
Specifically
a. One person company
b.
b. Small companies
c. And also not applicable to ?????????
Rotation of the Auditor *
•
Individual – One Term of 5 consecutive years;
•
Firm - Two terms of 5 consecutive years each;
•
The period for which the auditor has held office prior to commencement of
this act shall be considered;
•
Transition period three years
•
Rotation of audit partners internally is possible as may be resolved by the
members
•
In case of Joint auditor, company to ensure that all auditors DO NOT
complete their terms in the same year.
• Explanation II(a) to sub rule 3 of Rule 6 (a) a break in the term for a
continuous period of five years shall be considered as fulfilling the
requirement of rotation;
Rotation of the Auditor *
 Associates – network firm
auditor or audit firm under the same network of audit
firms no eligible - the term “same network” includes
the firms operating or functioning, hitherto or in
future, under the same brand name, trade name or
common control – explanation I to sub-rule 3 of rule 6.
 Audit term tagged to certifying partner
The partner, who is in charge of an audit firm and also
certifies the financial statements of the company, retires from
the said firm and joins another firm of chartered accountants,
such other firm shall also be ineligible to be appointed for a
period of five years - explanation II (b) to sub-rule 3 of rule 6.
Resignation & Removal of Auditor
• Resignation
The auditor resigning from the office (other than from
government companies) is required to file a statement ,
containing reasons and facts, in a prescribed form within 30
days with the company and ROC , In case of government
companies it has to be filed with CAG.
• Removal
Only on approval of central Government , pursuant to
application made within 30 days of Board meeting made to
Central Government. And after giving reasonable opportunity
of being heard. Removal by passing Special Resolution in
general meeting.
Who is not Eligible for an appointment as an Auditor S
143(3)
(a) a body corporate other than a limited liability
partnership registered under the Limited Liability
Partnership Act, 2008;
(b) an officer or employee of the company;
(c) a person who is a partner, or who is in the
employment, of an officer or employee of the company;
Who is not Eligible for an appointment as an Auditor
(d) a person who, or his relative or partner—
(i) is holding any security of or interest in the company or its
subsidiary, or of its holding or associate company or a subsidiary of
such holding company:
Provided that the relative may hold security or interest in the company
of face value not exceeding one thousand rupees or such sum as may
be prescribed; - Rules 10 (1) Prescribed Rs. One lac
(ii) is indebted to the company, or its subsidiary, or its holding or
associate company or a subsidiary of such holding company, in excess
of such amount as may be prescribed; or Rules 10 (2) Prescribed Rs.
Five lac
(iii) has given a guarantee or provided any security in connection with
the indebtedness of any third person to the company, or its subsidiary,
or its holding or associate company or a subsidiary of such holding
company, for such amount as may be prescribed; Rules 10 (3)
Prescribed Rs. Five lac
Who is not Eligible for an appointment as an Auditor S
143(3)
(e) a person or a firm who, whether directly or indirectly, has
business relationship with the company, or its subsidiary, or its
holding or associate company or subsidiary of such holding
company or associate company of such nature as may be
prescribed;
(f) a person whose relative is a director or is in the employment
of the company as a director or key managerial personnel;
(g) a person who is in full time employment elsewhere or a
person or a partner of a firm holding appointment as its
auditor, if such persons or partner is at the date of such
appointment or reappointment holding appointment as auditor
of more than twenty companies;
Who is not Eligible for an appointment as an Auditor
S 143(3) (h) a person who has been convicted by a court of an
offence involving fraud and a period of ten years has not elapsed
from the date of such conviction;
(i) any person whose subsidiary or associate company or any
other form of entity, is engaged as on the date of appointment in
consulting and specialised services as provided in section 144.
S 143(4) Where a person appointed as an auditor of a company
incurs any of the disqualifications mentioned in sub-section (3)
after his appointment, he shall vacate his office as such auditor
and such vacation shall be deemed to be a casual vacancy in the
office of the auditor.
Related Parties
Associate
Person
His Relative
His Partner
Subsidiary
Holding
Subsidiar
y
Cap on No. of Audits
S 141(3) (g) “a person who is in full time employment
elsewhere or a person or a partner of a firm holding
appointment as its auditor, if such persons or partner is at
the date of such appointment or reappointment holding
appointment as auditor of more than twenty companies”
 Includes OPC & small companies
 Companies (Amendment )Act 2000 private limited
companies were not considered
 Representation made by ICAI vide letter dated April
15,2014 to Hon’ble Minister.
Powers and Responsibilities
To access books of the branch so far it relates to consolidation *
To report cases of fraud to the Central government and to the
Board / Audit committee *
To Attend all the General meetings by himself or his
representative who is qualified to an auditor *
To comply with the Auditing Standards *
To sign the audit report and certify any other documents of
the company,
Powers and Responsibilities
• Whether revenue expenses have been charges to revenue
expenses
• Whether loans and advances made by the company has
been shown as deposits
• Whether loans and advances made by the company on the
basis of security has been properly secured
• Whether the terms on which they have been made are
prejudicial to the interests of the company or it’s members
Powers and Responsibilities
• Whether the transactions of the company are
prejudicial in the interest of the company
• Investigation in case of company not being investment
or banking company, whether shares debentures and
other securities have been sold at a price not less than
the purchase price *
• Incase of government companies the CAG may
conduct test audits if considers necessary *
• Where the shares have been allotted in cash have been
actually received
Auditor’s Report – Major Concerns
• Matters which have adverse effect on functioning of
the company *
• The branch auditor shall submit his report to the
company’s auditor *
• Whether the company has adequate internal financial
controls in place and the operating effectiveness of
such control *
• Under SOX and as per AICPA opinion on operative
effectiveness of control is covered in an exclusive and
separate report and not covered in normal audit – (this
is covered in Directors report too – confined to listed
companies only)
Audit Report – Views and
Comments – S 143(3)(j) r. w Rule 11
• Whether the company has disclosed the impact,
if any, of pending litigations on its financial
position in its financial statement;
• Whether the company has made provision as
required under any law or accounting standard
for material foreseeable losses if any on long
term contracts including derivative contracts *
• Whether there is any delay in transferring
amounts required to be transferred to the
Investor Education and Protection Fund *
What are the services which are not
to be rendered by Auditor? *
• 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
• Any other as may be prescribed (not yet prescribed)
Punishment for contravention *
If any provision of Section 139, 143, 144 or 145 is
contravened by the auditor then :
• He shall be punishable with fine which shall not be
less than Rs. 20,000 but may extend to Rs. 5 lacs
If the auditor has done so intentionally then:
• Imprisonment which may extend to 1 year with fine
not less than Rs. 1 lac but may extend to Rs. 25 lac
Punishment for contravention *
In such cases the auditor has to :
• Refund the remuneration received by him
and
• Pay the damages to the company arrived by the
misleading audit statements made in his audit report
In case of audit firms the partners will be jointly or
severally liable as the case maybe
End of Session

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