Rajeev Pai,
Chief Financial Officer
JSW Steel Limited
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Setting of Enterprise Resource Planning (ERP) based
system and key challenges
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Accounting Standards and Regulatory compliance and
Challenges thereof
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Reporting to owners / shareholders
Setting of ERP based Financial
system and challenges
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An ERP system is an attempt to integrate all functions
across a company to a single computer system to serve
all functions’ specific needs.
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It provides integrated database and custom-designed
report systems.
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It adopts a set of “best practices” for carrying out all
business processes.
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Integrated financial information
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Integrated customer order information
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Standardization and optimization of operational
processes
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Standardization of various information and report
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Internal Benefits
◦ Integration of information enhances financial and internal
controls
◦ A real-time system
◦ Increased productivity and reduced operating costs
◦ Improved internal communication
◦ Foundation for future improvement
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External Benefits
◦ Improved customer service and order fulfillment
◦ Improved communication with suppliers and customers
◦ Enhanced competitive position
◦ Increased sales and profits
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Resistance to change
Limitation on customization of ERP system due to
inconsistency with existing business processes
Cost of implementation (hardware, software, training,
consulting) and maintenance
Impact on organizational structure (front office vs. back
office, product lines, etc.)
Interface to other software systems
Implementation timelines
Availability of internal technical knowledge and resources
Education and training
Implementation strategy and execution
Accounting Standards (AS),
Regulatory compliance and Key
Challenges
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Why Accounting Standards?
- To harmonize the diverse accounting policies and practices in
use in India
- To enables the users to interpret the reported information in
a better way.
- Uniform adoption and disclosure of accounting policies
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AS consists of detailed rules to be adopted for accounting treatment
of various items before the presentation of financial statements.
AS 1 to 15
1979 to 1995
AS 16 to 29
2000 to 2007
(7)
As 30 to 32
After 2007 (Yet to
be notified)
Statutes e.g. Companies Act, etc.
- Schedule VI, Companies (Accounting Standards) Rules, 2006, etc.
 SEBI / RBI Regulations , etc.
 Accounting Standard Board (ASB) of Institute of Chartered Accountants of
India (ICAI)
◦ Framework
◦ Accounting Standards (AS)
◦ Accounting Standard Interpretations (ASI)
◦ Guidance notes (GN)
◦ Various accounting announcements
◦ Expert Advisory Opinion (EAC)
◦ ICAI Technical Guides
◦ ICAI Monographs
◦ ICAI Research publications
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Section 210A – Constitution of National Advisory Committee on
Accounting Standards (NACAS)
Section 211
◦ P&L, Balance Sheet to comply with the Accounting Standards
◦ Accounting Standards as may be prescribed by the Central
Government
◦ Till that time, standards issued by ICAI to be followed
Formation of NACAS Committee - Headed by Shri Y. H. Malegam as
Chairman and representatives from various bodies viz. ICAI, ICSI,
RBI, SEBI etc.
NACAS recommended Standards 1 to 7 and 9 to 29 (AS 8 – R&D
part of AS 26)
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IND-AS accounting standard equivalent to IFRS have been issued
by NACAS in India however the adoption of these standards have
been postponed.
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Companies Act has amended the presentation of financials
statements by issuing Revised Schedule VI for the financial years
beginning from 1.4.2011. Revised Schedule VI has brought the
disclosure of financial statements more or less in accordance with
IFRS.
Other Regulatory compliances
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Key Compliances:
Adoption of audited annual accounts at AGM and filing (XBRL)
thereof within 30 days of AGM
Maintenance of register under various section of the Companies Act
(example - register of investments, charges etc)
Filing of various forms with ROC (like appointment of directors,
allotment of shares etc)
Compliance with minimum number of board meetings, audit
committee (if applicable), shareholder meetings etc. and
maintenance of various records thereof
Defines power within which Board of directors to act upon
Cost Audit Report, if applicable, to be filed within 180 days from end
of financial year.
Key Compliances:
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Transfer pricing – International & Domestic Transfer
Pricing
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Tax audit and Filing of Annual Income Tax return
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Payment of Advance Tax
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TDS Compliance
Transfer Pricing
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What is Transfer Pricing Analysis
• The process of determining what is the arm’s length
price for a transaction (or a group of similar
transactions)
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TP was earlier limited to ‘International Transactions’
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The Finance Act 2012, extends the scope of TP provision to
‘Specified Domestic Transactions’ between related parties w.e.f. 1
April 2012
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Obligation now on taxpayer to report/ document and substantiate the
arm’s length nature of such transactions
Transfer Pricing - Domestic
Intent of Indian TP Regulations…
(Domestic transactions)
India
India
Shifting of expenses/losses
Indian Co.
Tax Holiday
undertaking
Tax Exemption
Related Enterprise in
Domestic Tariff Area
(DTA)
Tax @33.99%
Shifting of income/profits
Tax Saving for the Group – Loss to Indian revenue
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Section 92BA – Meaning of Specified Domestic Transactions (SDT)
(inserted by Finance Act, 2012 w.e.f. AY 2013-14 i.e. current FY)
For the purposes of this section and sections 92, 92C, 92D and 92E, “specified domestic
transaction” in case of an assessee means any of the following transactions, not being an
international transaction, namely:(i) any expenditure in respect of which payment has been made or is to be made to a person
referred to in section 40A(2)(b);
(ii) any transaction referred to in section 80A;
(iii) any transfer of goods or services referred to in sub-section (8) of section 80-IA;
(iv) any business transacted between the assessee and other person as referred to in section
80-IA (10);
(v) any transaction, referred to in any other section under Chapter VIA or section 10AA, to
which provisions of section 80-IA(8) or section 80-IA(10) are applicable; or
(vi) any other transaction as may be prescribed,
and where the aggregate of such transactions entered into by the assessee in the previous
year exceeds a sum of five crore rupees.
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• Computation of Arm’s Length Price by applying
the ‘most appropriate’ method out of
– Comparable Uncontrolled Price (CUP)
– Resale Price Method (RPM)
– Cost Plus Method (CPM)
– Transaction Net Margin Method (TNMM)
– Profit Split Method (PSM)
Challenges
Type of payments/ transactions
• Salary and Bonuses paid to the
partners
Challenges
• Benchmarking?
• Whether the limit as mentioned in section
40 (b) would be the ALP?
• Remuneration paid to the Directors • Benchmarking?
• Whether the limit as mentioned in Schedule
XIII would be the ALP?
• Transfer of land
• Whether the rates mentioned in the ready
reckoner be considered as ALP?
• Joint Development agreements
• Benchmarking?
• Project management fees
• Benchmarking?
• Allocation of expenses between the • Whether these allocation would be SDT –
same taxpayer having an eligible
Sec 80-IA(10)?
unit and non-eligible unit
• Directly v/s Indirectly
• Definition of Related Party
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Key Compliances
• Service Tax – Applicable on all services except negative list
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Excise Duty – Applicable on goods manufactured
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Custom Duty – Applicable on import of goods
•
Sales Tax/VAT – Applicable on Sale of goods (inter state and intra
state)
Compliance includes timely filing of returns, payment of taxes etc
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Payment of Service Tax
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by 5th of succeeding month
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For March month by 31st March
ST 3 Returns has to be e-filed half-yearly
Period
Due Date
April to September
25th October
October to March
25th April
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Form
Description
Who is require to file
Time limit
ER-1
Monthly return by large
units
Manufacturers not eligible
for SSI concession
10th of following mth.
ER-2
Return by EOU
EOU units
10th of following mth.
ER-3
Quarterly return by SSI
Assesses availing SSI
concession
20th of following qtr.
ER-4
Annual financial information
statement
Assesses paying duty of
Rs. One crore or more
per annum through PLA .
Annually, by 30th Nov.
of succeeding year.
ER-5
Information relating to
principal inputs
Assesses paying duty of
Rs. One crore or more
per annum through PLA
and manufacturing goods
under specified tariff
heading
Annually, by 30th
April of current year.
ER-6
Monthly return of receipts &
consumption of each of
Principal Inputs
Assesses who is required
to submit ER-5 return
10th of following
month
ER-7
Annual Install capacity
statement
All assessee
Annually on or before
30th April.
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SEBI Act (Applicable to listed entities )
- Corporate Governance Report (Clause 49)
- Quarterly standalone and consolidated financial statements (clause
41)
- Shareholding pattern (Clause 35)
Others
- Compliance with respect to compliance with Factories Act and other
applicable labor legislations.
- Compliance with Foreign Exchange Management Act.
- Compliance with Environment Laws.
- Compliance with Employers Provident Fund and Miscellaneous
Provisions Act, 1952, Payment of Bonus Act, Payment of Gratuity
Act etc.
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Ensuring that the financials are prepared in accordance with the
measurement and disclosures requirement of accounting standards
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Various Assumptions made in preparation of financial statements
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Frequent changes in rules and regulations
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Multiple Acts/ regulators increase cost of compliance and litigations.
For example in case indirect tax, tax is levied at various instances
such excise on manufactured, service tax on services and
VAT/Sales Tax on sale of goods which can be substituted by a
single act like Goods and Service Tax (GST) Act. Govt. of India is
already contemplating for implementation of the same.
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To submit annual report containing Corporate Governance,
Business Sustainability Report, Management Discussion and
Analysis alongwith audited financial statements.
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Intimation to shareholders on key updates through press release,
advertisement in newspapers etc
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Maintenance and making available to shareholders of various
statutory registers and documents as defined under various laws.
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Voluntary disclosures like
◦ Guidance on profitability of the company
◦ Current status and key updates to Investor and
Analyst through meet.
Thank You.