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Accounts, Audit, Auditors and CSR

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Definitions

Company A Company BAssociate of

Significant Influence

Control of ≥ 20% Share

Capital

Control of Business

Decisions Under AgreementOR

Associate Company is not a subsidiary, but includes a joint

venture company

• Associate Companies to be disclosed in annual report

• Definition exists under AS – 18, now brought under

Companies Act

• RPT dealings extended to Associate Companies

Associate Company – Section (6)

through

At variance with AS

18 definition

Monitoring?

Discussion Point

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Definitions

Subsidiary – Section 2(87)

Control through one half of the total

share capital either at its own or together

with one or more of its subsidiary

Holding Co

Subsidiary Subsidiary

Subsidiary

20%

51%

20%20%

51%

However

Layers of

subsidiaries

also restricted

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Definitions

Financial Statement

Balance Sheet

Includes

explanatory

notes

Profit & Loss

Account

Cashflow

Statement

Statement of

changes in Equity

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Definitions

Financial Year – Section 2(41)

Incorporated before 1st Jan

31st March of Current Year 31st March of next Year

Yes No

• Transition period of 2 years for existing Cos

• Cos having foreign holding or subsidiary cos can follow different year with prior approval of

tribunal

Appointment for a term of 5 years and rectification in every AGM

Requirement for rotation of Auditor introduced.

Applicable to all companies except small companies and one person company

Rotation of Auditor after two terms of 5 consecutive years.

Cooling period of 5 years before the reappointment of the same firm.

Transition period of three years for complying the requirement.

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Rotation of Auditors

Whether rotation shall bring independence?

Whether rotation is desirable when no public interest is involved?

Exposure to two audit firms- whether in the interest of company?

Discussion Point

Company

Holding Co

Subsidiary

AssociateF Subsidiary

Auditor PartnerRelative OR OR

Securities Indebted Guarantee

Person FirmOR

Business Relation

Direct

Indirect

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Disqualification of Auditors

Relative

Person

KMPDirector

Company

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Disqualification of Auditors

Actuarial

services

Investment

advisory

services

Management

services

Internal Audit

Design and

implementation

of any financial

information

system

Rendering of

outsourced

financial

services

Accounting

and book

keeping

services

Investment

banking

services

Restriction for the auditors to undertake following specialized services by himself or his

subsidiary or associate company or any other form of entity

Whether following services may be undertaken ?

o Tax consultancy and representation

o Project financing assignment

o Restructuring assignment

Restrictions for the Auditors

Audit Report to contain:

• Qualification, reservation or adverse

remark and reasons thereof

Whether company has internal controls

and operating effectiveness of internal

financial control system

• Report on Cash Flow and such other

matters as prescribed

• Reasons for required matters not included

or included with qualification

• Qualification, observation or comments on financial transactions or matters mentioned in

Audit Report, which have adverse effect on functioning of Company, shall be read in GM

• Any fraud detected immediately to report to CG

Auditors Report

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Fine may be imposed from Rs. 25,000/- to Rs. 5,00,000/-

Appointment, Reporting, Signing of audit report

Criminal liability of imprisonment upto 1 year

Fine from Rs. 1,00,000/- to Rs. 25,00,000/-

Contravention has been made knowingly and willfully

Further an auditor convicted as above shall be liable to:-

Refund the remuneration received from the company.

Pay for damages for loss arising out of incorrect/misleading statement of particulars made in the

audit report.

Punishment for Contravention

Books of accounts or other relevant papers may be kept in electronic

mode.

Books of accounts to be kept for preceding 8 financial years.

Consolidated financial statement to be prepared by all companies

(Including private limited companies) having subsidiary. For this purpose

the word subsidiary shall include Associate company and Joint Venture.

Disclosure in the financial statement any deviation from the Accounting

standards, the reasons for such deviation and financial effect, if any,

arising out of such deviation.

Statutory recognition of CFO

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Maintenance of Books of Accounts

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Every Listed

Company

Every public company

having paid-share capital

of Rs. 10 crores or more

Any other public company

having borrowings from

banks/financial institutions/

deposits of Rs. 25 crores

or more

Mandatory Internal Audit

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Re-opening and Revision - Sec 130 &131

Application for re-opening of books of accounts or recasting of financial statement can be

made by in case financial statements prepared in fraudulent manner/ affairs mismanaged

CG

IT Authority

SEBI

Any other statutory body or authority or person concerned

Order by Tribunal or Court of competent jurisdiction

Tribunal or Court to give notice to authority making application and to consider their

representation before passing order

Re-casted or revised accounts shall be final

Man

dato

ry

No time limit

Cascading effect

Whether Income Tax return to be revised

Imp

licati

on

s

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Re-opening and Revision - Sec 130 &131

Voluntary revision of financial statement by BOD permitted, subject to Tribunal approval,

in case financial statement not prepared as per Companies Act / AS

After receiving approval from Tribunal, BOD may prepare revised Financial Statement or

Board’s Report for preceding 3 FYs

Tribunal to give notice to CG and IT Authorities before allowing revision in Financial

Statement or Board’s Report

Detailed reasons for revision in Financial Statement or Board’s Report to be disclosed in

Board’s Report for FY in which the revision is being made

Vo

lun

tary

Any Qualification by auditor may trigger re-casting

Reopening does not mean correction

Imp

licati

on

s

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Depreciation

No Separate depreciation rate including for extra shift

Depreciation of assets over its useful life

Depreciable Amount = Amount of an Asset or amount substituted for cost Less its

residual value

Useful life has been differently prescribed in Schedule II to Companies Act, 2013

and Schedule XIV of Companies Act, 1956

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CSR – Sec 135

Networth ≥ 500 Crs or

Turnover ≥ 1000 Crs or

Net Profits ≥ 5 Crs

CSR Committee to beconstituted (3+ Dir incl. at least1 ID)

Committee shall formulate andrecommend CSR policy andamount of expenditure as wellas monitor CSR activities (CSRpolicy on web)

Preference to local areas inwhich the company operates

Areas specified in Schedule VII

CSR spend of at least 2% of avg. net

profits made during 3 immediately

preceding FYs

COMPLY

OR

EXPLAIN

To promote welfare Initiatives

• Applicable to all types of companies including private

companies

• Net profits before tax to be considered

• Applicable from F/Y 14-15

• Income tax Act does not provide any deduction so far

• Surplus Income generated out of CSR activities not

part of business profits of company

• No penalty for noncompliance of the provision

CSR – Promoting Welfare Initiatives

• CSR Activities to be undertaken as projects or

programmes

• Excluding activities undertaken in pursuance of the

normal course of business of a company

• In the area nearby the operations of the company

• May implement the same through trust/society set up by

company or otherwise having track record of three years

• Activities to be undertaken within India

• Activities not exclusively for the benefit of employees or

their family members

• Nature of projects/programmes to be covered for

eradicating extreme hunger and Poverty, for promotion

of education…..etc as given in schedule VII

CSR – Promoting Welfare Initiatives

• Objective para entirely different from the manner

of implementation of CSR prescribed

• Rationale of CSR spend – Whether another tax?

• Amounts not spent in earlier year whether to be

accumulated ?

• Whether provision for threshold limit to be made

in the books

• Whether fund to be created

• Whether applicable for FY 2013-14

CSR – Issues

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Thank You