accountsauditofcompanyl-140609120833-phpapp02.pdf
- 2. ACCOUNTS OF COMPANY CHAPTER IX SECTION(S) 128-138
- 3. 1. BOOKS OF ACCOUNTS. 2. FINANCIAL STATEMENT(FS) 3. BOARD REPORT. 4. CORPORATE SOCIAL RESPONSIBILITY. 5. FS TO BE SENT TO MEMBERS/FILED WITH REGISTRAR. 6. INTERNAL AUDIT. 7. APPOINTMENT OF FIRST AUDITOR. 8. SUBSEQUENT APPOINTMENT IN SPECIFIED/NON-SPECIFIED COMPANY. 9. VACANCY IN THE OFFICE OF AUDITOR. 10.ELIGIBILTY, QUALIFICATION & DISQUALIFICATION OF AUDITOR. 11.POWERS AND DUTY OF AUDITOR. 12.PUNISHMENT .
- 4. Items of cost prescribed under section 148 BOOKS OF ACCOUNTS Sale & purchase of goods & services by a company Assets and liabilities of the company Money received & expended by a company
- 5. Every company shall: prepare and keep at its registered office books of account and other relevant books and papers and financial statement for every financial year. give a true and fair view of the state of the affairs of the company, including that of its branch office, if any, and explain the transactions effected both at the registered office and its branches and such books shall be kept on accrual basis and according to the double entry system of accounting Inspection in respect of any subsidiary of the company shall be done only by any person authorised in this behalf by a resolution of the Board of directors.
- 6. Every Company may keep such books of account or other relevant papers in electronic mode. The company shall intimate to the Registrar on an annual basis at the time of filing of financial statement- the name of the service provider; the internet protocol address of service provider; the location of the service provider (wherever applicable); where the books of account and other books and papers are maintained on cloud, such address as provided by the service provider. The summarised returns of the books of account kept and maintained outside India, shall be sent to the registered office at quarterly intervals.
- 7. 7 WHAT ARE THEY? Balance Sheet at the end of the financial year; Profit or loss account / Income & expenditure Account; Cash flow statement; Notes forming part of the Accounts. True and fair view. Consolidated financial statements.
- 8. HOLDING COMPANY Total share capital in the context of subsidiary and associate company includes equity and convertible preference share capital. Owns / Control ≥ 50% total share capital or exercises control of Board Owns / Control 20% total share capital or business decisions under Agreement Subsidiary Company Associate Company
- 9. Non Compliance with Accounting standards. Financial year (1st April to 31st March). Exception:- Companies which are holding/ subsidiaries of Companies incorporated outside India may have a different financial year with the permission of NCLT. Approval of Financial Statements. Mandatory restatement of accounts. Voluntary revision of Financial statements or Board Report
- 10. Extract of Annual Return Number of Board Meetings Directors’ Responsibility Statement Nomination & Remuneration Committee Comments / Explanation by BOD on Audit Report Particulars of Loan / Guarantee / Investment Related Party Contracts Material changes from end of FY to date of Report Statement on Risk Management Policy Details of CSR Policy BOD/ Committee Performance Evaluation Other Such Matters Declaration by Independent Director
- 11. Extract of the Annual Return. Number of meetings of the Board. Directors’ Responsibility Statement Applicable accounting standard has been followed; Accounting policies selected have been applied consistently, judgment and estimation made are reasonable; Maintenance of adequate accounting records, safeguarding the assets, prevention and detecting of fraud; Annual Accounts prepared on a going concern basis; Internal financial control have been laid; Compliance of all applicable laws and that systems are adequate.
- 12. Declaration by Independent Directors. Nomination and Remuneration Committee. Comments on reservation or Adverse remark made by the Auditors. Particulars of loans, guarantees or investments. Particulars of contracts or arrangements with related party transaction along with the justification. State of the company’s affairs. Amount towards reserves.
- 13. Amount which it recommends should be paid by way of dividend. Material changes and commitments, if any. Conservation of energy: Steps taken / impact on conservation of energy; Efforts in brief, made towards technology absorption; Expenditure incurred on Research and Development; Foreign exchange earning and outgo. Risk management policy of Company. CSR Policy Formal evaluation of Board’s performance.
- 14. Other matters: Financial summary / highlights; Change in nature of business, if any; Details of directors or key managerial person appointed or resigned during the year; Name of companies which have become or cease to become its subsidiaries, joint venture or associate companies; Details relating to Deposits under Chapter V;
- 15. Other matters: Deposits which are not in compliance with the requirements of Chapter V; Details of significant and material orders passed by the Regulators or courts or tribunals; Details in respect of adequacy of internal financial controls. Restriction on purchase by Company or giving of loans by it for purchase of its shares.
- 16. Appointment for five consecutive years. Reappointment for next five years by Special Resolution in General Meeting. Cooling period of three years. DIFFICULTIES ENVISAGED 1. Are they really independent? 2. No. of companies in which they are director? 3. Availability of Independent Director? APPLICABILITY PUBLIC COMPANY LISTED COMPANY Paid-up Capital Turnover Loans/Debenture ≥ Rs. 10 Cr. ≥ Rs. 100 Cr. ≥ Rs. 50 Cr.
- 17. Composition of Audit Committee / Recommendations not accepted. Vigil Mechanism Managerial Remuneration Every listed company shall disclose in the Board’s report The ratio of the remuneration of each director to the median remuneration of the employees of the Company for the financial year For calculating median of salaries:- Arrange the salary data for all the employees (falling under one category) in ascending order. (Salary shall be inclusive of all perquisites and allowances calculated on the basis of cost to the Company.) If the number of employees is even then, Median = Average of the salaries of nth and (n+1)th employee where n = total number of employees / 2.
- 18. In example, shown in Table above, number of employees is six, Median will be average of salaries of 3rd and 4th employee. Hence the median will be INR 20,500 (average of INR 16,000 and INR 25,000; Percentage increase in remuneration of CFO,CEO,CS Explanation on the relationship between average increase in remuneration and company performance; Comparison of the remuneration of the Key Managerial Personnel against the performance of the company; Table: 1 SALARY (INR) Employee 1 10,000 Employee 2 15,000 Employee 3 16,000 Employee 4 25,000 Employee 5 30,000 Employee 6 35,000
- 19. Statement of Employees. Managerial Remuneration. Secretarial audit Report. Report on Associate Companies. Report on OPC. Approval of Financial Statements and Board’s Report. Signing of Board’s report
- 20. 20
- 21. Net Worth ≥ Rs. 500 Cr. Turnover ≥ Rs. 1,000 Cr. Net Profit ≥ Rs. 5 Cr. CSR COMMITTEE ROLE OF THE BOARD Three or more directors with atleast one independent director Formulate &recommend a CSR Policy Recommend CSR Initiatives Monitor CSR expenditure Form CSR Committee Approve CSR Policy Ensure Implementation of activities under CSR Ensure 2% spend of net profit of preceding 3 years. Disclose reasons for not spending amount
- 22. Eradication of Hunger & Poverty Protection of National Heritage, Art & Culture Environment Sustainability Benefit of Armed Forces Veterans Training to Promote Rural Sport Contribution to PM National Relief Fund Rural Development Project Gender Equality & Women Empowerment
- 23. CSR activities are the ones confined to the amended Schedule VII to the CA, 2013. CSR activities and the expenditure thereto will have to be carried out only in India. Activities which benefit the Company’s own employees or their families will not be counted for CSR activities. Change in criteria for a Company. Contribution to political party whether directly or indirectly will not count for CSR activity. CSR expenditure would also exclude those on activities undertaken in the normal course of business of a company. Companies belonging to the same group can set up a registered trust or a registered society or a company established under section 8 of the Act, to undertake CSR activities.
- 24. 1. Explanation to section 135 states that for the purposes of this section “average net profit” shall be calculated in accordance with the provisions of section 198. Rule 2(f) provides that “Net profit” shall not include the following: i. Any profit arising from any overseas branch or branches of the company, whether operated as a separate company or otherwise and ii. Any dividend received from other companies in India which are covered under and complying with the provisions of section 135 of the Act. 2. Ambiguity in the new law that was expected to be corrected through the rules was the ‘local area preference’. 3. Whether or not social activities falling outside the purview of the schedule from a part of CSR activities still remains doubtful. 4. Tax treatment to be accorded to CSR spends. 5. Approval required under the Foreign Contribution Regulation Act, 2010 (FCRA). Will trigger amendments in FEMA and may require approval RBI.
- 25. FINANCIAL STATEMENT ANNEXEDWITH SENDTO Every member Auditor Report Other documents Consolidated financial statements Every trustee for the debenture-holder Any other person entitled In case of listed Company, the documents shall be Availability for inspection at registered office and a statement containing the salient features of such documents can be sent to the member in Form AOC-3 . 21days
- 26. SUBSIDIARY COMPANY Separate Audited Financial Statements Separate Audited Accounts Shareholders Website PENATY Default by Company- Rs. 25,000. Officer in default-Rs. 5000.
- 27. A copy of the financial statements, consolidated financial statement shall be filed with the Registrar in Form AOC-4 within 30 days of AGM. Unadopted financial statements along with the required documents shall be filed with the Registrar within thirty days of AGM. Adoption of financial statement in adjourned G.M shall be filed with Registrar within 30 days. OPC shall file financial statement with all documents within 180 days from closure of financial year. Financial statements shall also have accounts of its subsidiary or subsidiaries which have been incorporated outside India. In case of no AGM held during the year, statements of facts and reasons should be filed with Registrar within 30 days.
- 28. PENALTY OFFICER IN DEFAULT MD/ CFO Director All Director COMPANY Fine of Rs. 1,000 which shall not exceeds Rs. 10 lakhs Imprisonment which may extends to 6 months Fine not less than Rs. 1 lakhs but may extends to Rs. 5 lakh OR BOTH
- 29. APPLICABILITY LISTED COMPANY UN-LISTED COMPANY PRIVATE LTD. COMPANY Outstanding Loan / Borrowing ≥ Rs. 100 cr. Turnover ≥ Rs. 200 cr. Paid-Up Capital ≥ Rs. 50 cr. Turnover ≥ Rs. 200 cr. Outstanding Loan / Borrowing ≥ Rs. 200 cr. Outstanding Deposits ≥ Rs. 25 cr.
- 30. AUDIT & AUDITORS CHAPTER X SECTION(S) 139 - 148
- 31. BY GOVERNMENT COMPANY BY COMPANY Extra Ordinary General Meeting within 60 days. Board of Directors Within 30 days. Comptroller and Auditor General within 60 days. Extra Ordinary General Meeting within 90 days. Board of Directors within 30 days.
- 32. SUBSEQUENT AUDITOR LISTED COMPANY PUB. CO PUC ≥ Rs.10 Cr. PVT. CO. PUC ≥ Rs. 20 Cr. ALL COS. BORROWING ≥ RS. 50 Cr. NON SPECIFIED CLASS AUDIT FIRMS INDIVIDUAL AUDITOR AUDITORS TO HOLD OFFICE FOR A PERIOD OF FIVE YEARS RATIFICATION AT EACH AGM APPOINTMENT FOR ONE TERM OF FIVE YEARS COOLING PERIOD OF FIVE YEARS TWO CONSECUTIVE TERMS OF FIVE YEARS
- 33. Illustration 1:- Number of consecutive years for which an individual auditor has been functioning as auditor in the same company I Maximum number of consecutive years for which he may be appointed in the same company (including transitional period) Aggregate period which the auditor would complete in the same company in view of column I and II I II III 5 years (or more than 5 years) 3 years 8 years or more 4 years 3 years 7 years 3 years 3 years 6 years 2 years 3 years 5 years 1 year 4 years 5 years Illustration explaining rotation in case of individual auditor
- 34. Illustration explaining rotation in case of audit firm Number of consecutive years for which an audit firm has been functioning as auditor in the same company Maximum number of consecutive years for which the firm may be appointed in the same company Aggregate period which the firm would complete in the same company in view of column I and II I II III 10 years (or more than 10 years) 3 years 13 years or more 9 years 3 years 12 years 8 years 3 years 11 years 7 years 3 years 10 years 6 years 4 years 10 years 5 years 5 years 10 years 4 years 6 years 10 years 3 years 7 years 10 years 2 years 8 years 10 years
- 35. Audit Committee should recommend the incoming Auditor. No common partner between incoming and outgoing firm. During the tenure the auditor can resign or may be removed. Members in General Meeting may decide the rotation of the audit partner and his team or may appoint joint auditor. Auditor to give his consent for appointment. Company to inform to the auditor and the Registrar. ACTION STEPS Companies should assess as to whether a change in auditors is required and prepare for the transition accordingly. This may result in increased cost.
- 36. 50 35 30 25 23 20 Hindalco Industries Reliance Industries Larsen & Toubro Jaiprakash Associates Mahindra & Mahindra Procter & Gamble Auditors' tenure (in years) at Company
- 37. 0 10 20 30 40 50 60 Deloitte E&Y PWC KPMG 2012-13 2012-13 51 37 25 14 0 50 100 150 Big 4 Others 100 200 127 94
- 38. VACANCY IN THE OFFICE OF AUDITOR CASUAL VACANCY REMOVAL BY COMPANY BY SPECIAL RESOLUTION AFTER OBTAINING PRIOR APPROVAL OF C.G SECTION 140(1) REMOVAL BY TRIBUNAL SECTION 140(5) ANY PERSON CONCERNED APPLICATION BY CG SUO MOTU DEATH / INCAPACITY / DIS- QUALIFICIAITON RESIGNATION WITHIN 30 DAYS BY BOD WITHIN 90 DAYS IN GM WITHIN 30 DAYS BY BOD
- 39. A retiring auditor may be re-appointed at an Annual General Meeting, if he is not disqualified for re- appointment; he has not given the company a notice in writing of his unwillingness to be re- appointed; and a special resolution has not been passed at that meeting appointing some other auditor or providing expressly that he shall not be re- appointed. RE-APPOINTMENT OF RETIRING AUDITOR
- 40. RE-APPOINTMENT OF RETIRING AUDITOR Action steps Companies to make an assessment of the timing for change of existing auditors in line with the amendments; Companies to involve audit committees up-front in developing an internal system for assessment of eligible firms for appointment; Management and audit committee to plan for seamless transition of auditors.
- 41. A limited liability partnership registered under the Limited Liability Partnership Act’ 2008 will be eligible for appointment as an auditor. Persons who shall not be eligible for appointment as an auditor of a Company, namely: A person who is a relative or partner; Is holding any security or interest in excess one Lac rupees in the Company*; Is indebted in excess or Rupees Five Lacs to the Company*; or Has given a guarantee or provided any security in connection with the indebtedness of any third person in excess of one Lac rupees to the Company *Company includes subsidiary, holding, associate company or subsidiary of such holding company. Any person who has a business relationship with the Company of commercial nature except transaction of professional service rendered by an auditor or transactions which are in the ordinary course of business and on arms length.
- 42. A person whose relative is a director or is in the employment of the company as a director or key managerial personnel; A person who is holding appointment as auditor of more than twenty companies; 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; Any person whose subsidiary or associate company or any other form of entity, is engaged as on the date of appointment in consulting and specialized services as provided in section 144.
- 43. POWER & DUTIES OF AUDITORS Right of access to records of all its subsidiaries. Auditors Report on Accounts, Financial Statements, Auditing and Accounting Standards. Auditor’s Report shall state about Adequate internal financial controls systems. Effect of pending litigation on its financial position. Provision for material foreseeable losses. Delay in depositing money in IEPF.
- 44. FRAUD BY THE COMPANY AUDITOR within 45 days Report to the Audit Committee/Board Central Government Form ADT-4 Reply NoReply
- 45. An auditor shall provide only such services as are approved by the Board of Directors / Audit Committee, but which shall not include the following services: 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; and Auditor’s Remuneration Auditor to sign Auditor’s Report. Auditor to attend General Meeting. Class Action Suits AUDITOR NOT TO RENDER CERTAIN SERVICES
- 46. AUDITOR -- PENALTY Nature of Contravention Who is Punishable Punishment Default in provisions pertaining to appointment, removal / resignation, eligibility / qualification, remuneration, power and duties. Signing of audit report not rendering certain services Company Officer Fine: Rs. 25,000/- to Rs. 5 Lacs Imprisonment upto 1 year OR Fine: Rs. 10,000/- to Rs. 1 Lac or both Default in provisions pertaining to Appointment of Auditors, power and duties of director, Auditor not to render certain services Auditor Fine: Rs. 25,000/- to Rs. 5 Lacs
- 47. AUDITOR -- PENALTY Nature of Contravention Who is Punishable Punishment Intention to deceive Company / Shareholders / Creditors / Tax Authorities Auditor Fine: Rs. 1 Lac to Rs. 25 Lacs Imprisonment upto 1 year If convicted Auditor Fine: Refund the remuneration Pay damages to Company, Statutory Authorities.
- 48. AUDITOR -- PENALTY Nature of Contravention Who is Punishable Punishment Fraud Section 147 (5) r/w Rule 9 of Companies (Audit & Auditors) Rules’ 2014 Auditor Fine: Upto thrice the amount involved in the fraud. Imprisonment for a term of 6 months to 10 years
- 49. The term "intention to deceive" or ‘improper or mis-leading statement of particulars’, wrongful act or conduct’ are vague. Definition of fraud is very wide and ambiguous. Impossible to detect all frauds. Likely difference of opinion as to existence of frauds. Potential unlimited liability on auditor may result in adverse impact on auditing profession and may give rise to long disputes. Auditors may have to take indemnity insurance cover against third party liability which might be expensive. Audit firms will have to increase the support staff to do a more rigorous checking of the accounts. Auditors are more likely to become conservative and ask for more details of expenses and statements from managements. ISSUES
- 50. THANK YOU! G.P.SAHI, Vice President(legal) & Company Secretary Hotel Le Meridien, New Delhi. gpsahi@lemeridien-newdelhi.com