COMPANIES ACT, 2013
ACCOUNTS
AND AUDIT
1
CA RAJEEV SOGANI
COMPANIES ACT
RE-INCARNATION AFTER 57

Satyam case

Reebok
Corporate Frauds
 Effectiveness of Audit
Function
 Role of ICAI

YEARS
NSEL

2
MAINTENANCE OF BOOKS OF
ACCOUNTS IN E-FORM
(S. 128)
 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
3
Continued..
MAINTENANCE OF BOOKS
OF ACCOUNTS (S. 128)
CFO also liable for
default.
-Imprisonment - Max. 1 year, or
-Fine – Rs. 50,000 – Rs. 5,00,000
4
FORMAT
OF BALANCE SHEET AND P
Schedule VI
&
L
Schedule III
NO CHANGE
5
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.
6
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
7
NATIONAL FINANCIAL REPORTING
AUTHORITY (S.132 )

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.
8
Continued..
NFRA


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.
9
Continued..
NFRA

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 .
10
PRESCRIPTION OF ACCOUNTING AND
AUDITING STANDARDS
Central
Government to
prescribe
Standards of
Auditing
Accounting
Standards
S. 143(10)
S. 133
11
THE CHARTERED ACCOUNTANTS ACT, 1949
THE INSTITUTE OF CHARTERED ACCOUNTANTS
REGULATION
OF THE PROFESSION OF
CHARTERED ACCOUNTANTS
12
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
13
INTERNAL AUDIT NOW MANDATORY BY LAW
(S. 138)
Listed
Company
Requirement as
per CARO, 2003
Paid up capital +
reserves exceeds Rs
50L
or
average turnover of
3 consecutive F.Y
exceeds 5 crore
Unlisted
Public
Company
Particulars
Private
Company
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
Crores14
O/S Deposit
N.A.
> 25 Crores
UNIFORM FINANCIAL
S. 2(41)

Companies Act, 2013


F.Y. must end on
31st March.
F.Y. period
months
=
12

YEAR
Companies Act, 1956


No such provision.
F.Y. period = Max. 15
months
Incorporation on or after 1st Jan = F.Y. ends 31st
March of following year (15 months).
15
APPOINTMENT OF AUDITORS (S.139)
• Auditor to be appointed – For 5 years.
• Ratification at every AGM (ordinary resolution)
R Sogani & Associates
Chartered Accountants
Appointment
“Shree Dham”
R-20, Yudhishter Marg, ‘C’-Scheme, Jaipur - 302005
Tel: 2222734, 2220735, 2220736
E-mail: rsa@soganiprofessionals.com
Website: www.soganiprofessionals.com
If not ratified:
Expiry
• Removal of auditor
• New auditor to be appointed
• Special resolution & CG
approval is required
16
Continued…
INDEPENDENCE OF
AUDITORS
Enhanced Independence
 Auditor to be appointed for a tenure of 5
years
 Stringent provisions for
auditor before 5 years :
 Special resolution
 CG approval
removal
of
17
NEW LAYER INTRODUCED
AUDIT COMMITTEE
Evaluation of auditors’
competence by Audit
Committee
Recommendation
to Board
Evaluation of
experience and
qualification
Pending
proceedings :
professional
misconduct
18
ROTATION OF AUDITORS - NEW CONCEPT
S. 139(2)
Individual
Consecutive years
Firm
Consecutive years
Transition period:
Company to comply with this provision within 3
years of commencement of this Act
19
Applicability
Unlisted
Companies
(Rule 5)
Listed
Companies
Public Companies
having share capital
≥ 10 Crore
Private Companies
having share capital
≥ 20 crore
All Companies
having
borrowing ≥
50 crore
Continued..
20
RETROSPECTIVE APPLICABILITYTRANSITION PERIOD
Auditor since 2004
1st April, 2014 : Commencement of Companies Act, 2014
31st March, 2017: Expiry of three years
30th September, 2017: Appointment of new auditor
21
RESIGNATION BY AUDITOR
S. 140(2)
Resignation
(with reasons)
ROC
Company
Impact:
o Back dated resignation
o Reasons

Penalty : 50,000 to 5,00,000
CAG
(In case of Govt.
Companies)
22
REMOVAL OF AUDITOR
NEW THREAT
(S. 140(5))
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
Action against the auditor
 Not eligible for appointment in any Company for 5 years
 Liable u/s 447 (Punishment for fraud)
23
INCREASE IN AUDITORS’ RESPONSIBILITY

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
24
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.

As per Clause
CARO, 2003 :
4
of
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.
25
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
CARO, 2003:
21
of
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.
26
FRAUD

Section 447 – Companies Act,
2013 defines
“Fraud”
as

SA
240
–
Auditor’s
responsibility relating to
“any
act,
omission,
fraud defines
concealment of any fact or abuse of
position committed by any person or
“Fraud” as “an intentional act
any other person with the connivance
by one or more individuals
in any manner, with the intent to
among management, those
deceive, to gain undue advantage
charged
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.”
with
governance,
employees or third parties
involving the use of deception
to obtain an unjust or illegal
advantage.”
27
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
28
Continued..
MANAGEMENT SERVICES
Not defined in
Companies Act,
2013
Definition provided by ICAI
Management Services
does not include
Tax related services
29
SERVICES STILL CAN BE
RENDERED
Income
Tax
Company
Law
Service
Tax
Sales
Tax
30
NEW DISQUALIFICATIONS
(S.141)
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

31
CLASS ACTION
(S. 245)
Who can
file?
• Members
Against
whom?
• Auditor
Reason?
• Improper/
Misleading
statement in audit
report
• Depositors
• Fraudulent or
unlawful act
32
AUDIT FOR FINANCIAL YEAR
2013-14

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
33
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