Wednesday, 24 August 2016

AMENDMENT IN RULES - Companies Act 2013



 
BY:
CA VINOD JAIN
FCA, FCS, FCWA, LL.B, DISA
Phone: +91 98 11 040 004
Amendments
  1.  Accounts of Companies
  2. Corporate Social Responsibility
  3. Cost Records and Audit 
  4. Appointment and Remuneration of Managerial Personnel  


Books of Accounts (Section 128)


·        Prepare and keep at registered office:

o   Books of accounts,
o   Other relevant books and papers and
o   Financial statement
o   For every financial year
o   To be kept on accrual basis and according to the Double Entry system of accounting
o   Which give a true and fair view of the state of affairs of the company including its branch office(s).
·        Permits the maintenance of books of A/c’s & other books & papers in electronic mode
·        Shall remain accessible in India
o   Retained completely in the format in which they were originally generated, sent or received
o   Back up of books in server located in India
o   To intimate to ROC along with FS
§  Name of the service provider;
§  IP address of service provider;
§  Location of the service provider (wherever applicable);
§  Where the books maintained on cloud, such address as provided by the service provider.

Financial Statement (Section 129) :

·        Financial Year of a company / body corporate means the period    ending on 31st March every year.
·        Company incorporated on or after the 1st January, the period ending on the 31st March of the following year, will be its first financial year.
o   Financial Statement includes:
o   Balance sheet
o   Notes on B/S,
o   Profit & Loss statement,
o   Cash Flow(Except One Person Company, Small Company*, Dormant Company)
*Small company- Rs.50 Lakh to Rs.500 Lakhs paid up capital  or turnover Rs.2 Crores to Rs.20 Crores                                                                                                                          
·        BOD shall lay before AGM
·        Shall give true and fair view as per Form in Schedule III
·        Shall comply with the Accounting Standards.
·        In case of failure :
o   Financial Statement to disclose deviation from  Accounting Standards
o   Reason for deviation
o   Financial effect arising out of deviation
·        Schedule III Provision not applicable on
o   Banking Company
o   Insurance Company
o   Company engaged in generation or supply of electricity
·        Non- compliance of above provision :
·        Managing Director/ Whole Time Director
o   Chief Financial Officer
o   Any other person charged by Board
o   All directors in the absence of above mentioned officer
§  Punishable with : Imprisonment :up to 1 year or
§  Fine:  Not less than Rs. 50,000 but may extend to Rs. 5,00,000 or both

Financial Statements (FS) AND Directors’ Report (DR) lying in AGM

·        FS & CF to be approved before signed by BOD by:
o   Chairperson or two directors out of which 1MD
o   CEO if he is director
o   CFO
o   CS
·        Every FS to be issued, circulated, published with:
o   Notes
o   Auditors report
o   Board Report
·        Non- compliance – Co- 25K to 2500K; OID – Imp. upto 3 yrs or fine – 50K to 500k or both

Consolidated Financial Statement - Section 129(3)

·        Company having one or more subsidiaries prepare Consolidated Financial Statement in addition to Financial Statement .
·        Subsidiary includes ‘ associates’ and ‘joint venture’.
·        Has to laid in AGM
·        Statement to be filed in AOC-1 (Rule 5)
·        Comply with the Accounting Standards and manner and format as specified under Schedule III (Rule 6)*
·        Preparation and adoption of financial statements of a holding company shall apply mutatis mutandis  to CFS (Section 129(4))

Companies (Accounts) Amendment Rules, 2016
(Dated - 27th July, 2016)

·        RULE-6 Second Proviso has been Replaced
The Rule shall not apply if all the following conditions are fulfilled
                          (i)          it is a wholly-owned subsidiary,- 100% held by a company or partially-owned subsidiary of a company –more than 50% and All its other members having been intimated in writing, do not object to the company not presenting consolidated financial statements;- consent not needed only proof of intimation sent
                        (ii)          it is unlisted Company and are not in the process of listing on any stock exchange, whether in India or outside India; and
                       (iii)          its ultimate or any intermediate holding company files consolidated financial statements with the Registrar in compliance with the applicable Accounting Standards.  
·        Rule 8: The Board’s Report
o   shall be prepared based on the stand alone financial statements of the company and
o   shall report on the highlights of performance of
§  subsidiaries,
§  associates and
§  Joint Venture companies and
§  their contribution to the overall performance of the company during the period under report.
·        Rule 13: Internal auditor may be either an individual or a partnership firm or a body corporate.

Internal Audit ( Section 138)

  • Appointment mandatory of (Rule 13)
·        internal auditor
o   which may be either an individual or
o   a partnership firm or a body corporate.
·        CA or CMA or other prescribed professionals –may not hold Certificate of Practice
·        for listed  companies,
·        public company >Rs.50Cr Capital, >Rs.200 Cr. Turnover, > 100 Cr. Bank/FI Borrowing, >Rs.25 Cr deposit.
·        Private Company > 200 Cr. Turnover, , > 100 Cr. Bank/FI Borrowing, 
     Existing Companies to appoint within 6 months
®    Opportunity

REOPENING OF ACCOUNTS (SECTION 130)

    * Reopening of accounts are allowed in following cases:
·        Earlier accounts were prepared fraudulently or
·        Mismanagement of accounts  casting doubt on the reliability
·        Prior approval of Tribunal  required and
·        No objections or on the basis of  report from the Central Government, Income Tax Authorities, SEBI or any other regulator/authority- NCLT may order
* Enforced with effect from 01-06-2016

VOLUNTARY REVISION OF ACCOUNTS (Section 131)

·        Voluntarily revision
o   For the three preceding financial years
o   Financial statements (Section 129) and Board report (Section 134) are not prepared as per legal provision
§  Prior approval of Tribunal  required
·        Detail reason for revision shall be disclosed in Board report
·        The above law do not stop companies in preparing accounts or financial statements and get them audited as per international GAAP or for Taxation or for different special purposes as disclosed.
* Enforced with effect from 01-06-2016

Voluntary Revision Of Accounts – Procedure for Applying for Tribunal

  • If the financial statement of the company or report of the Board do not comply with the provisions of section 129 or section 134 ,
  • The Board can file application an with the Tribunal in Form No. NCT. 1 within 14 days of the decision of the board.
  • In case the
    • Majority of the directors of company or
    • the auditors of the company
has been changed immediately before the decision is taken to apply under section 131, the company shall disclose such facts in the application.
  • The application shall, inter alia, set forth the following particulars:
    • Financial year or period to which such accounts relates to
    • The name and contact details of the MD, CFO ,directors, Company Secretary and officer of the company responsible for making and maintaining such books of accounts and financial statement;
    • The name and contact details of the auditor or any former auditor who audited such accounts
    • Copy of the Board resolution passed by the Board of Directors
    • Ground for seeking revision of financial statement or Board’s Report.
  • Advertisement in Form NCLT -3A at least 14 days before the date of hearing.
  • The Tribunal shall issue notice and hear the auditor of the original financial statement.
  • If present auditor is different and after considering the application and hearing the new auditor and any other person as the Tribunal may deem fit, may pass appropriate order in the matter.
  • Filing of certified copy of the order of the Tribunal with the Registrar of Companies in Form INC – 28 within thirty days of the date of receipt of the certified copy.
  • On receipt of approval from the Tribunal
    • A general meeting to be called and
    • Notice of such general meeting along with reasons for change in financial statements may be published in newspaper in English and in vernacular language.
  • In the meeting the revised financials, statement of directors and the statement of auditors is to be put up for consideration before a decision is taken on adoption of revised accounts.
  • On approval by Members the revised financials statements along with the statement of auditors or revised report of the Board shall be filed with registrar within 30 days of date of approval by the general Meeting.

*National Financial Reporting Authority (NFRA) (Section 132)

                                             *Not yet Enforced
·        National Advisory Committee on Accounting Standards has been replaced with NFRA.
·        To recommend auditing and accounting standards applicable to companies to the Central government.
·        Control of Audit quality also delegated to NFRA – in addition to QRB and FRRB
·        Monitor and enforce the compliance with accounting standards and standards on auditing.
·        NFRA has also been empowered to prosecute Auditors in notified cases.

Central Government to prescribe Accounting Standards (Section 133)

·        The Central Government may prescribe the standards of Accounting or addendum
o   As recommended by The Institute of Chartered Accountants of India and
o   In consultation with and recommendations received from NFRA.
·        Provided that until NFRA is constituted the Central Government  may prescribe the Accounting  Standards  or addendum as recommended by a committee formed by MCA headed by JS and representative of ICAI & National Advisory committee on Accounting Standard.- Companies (Removal of Difficulties) Second Order, 2016

Financial Statements Circulation ( Section 136)

Circulation of Financial Statement  /Consolidated Financial Statement 

  •  For all listed co. & public co.
  • which have net worth >1Cr & turnover > 10 Cr:
    • by electronic mode who holds shares in De-mat form
    • by electronic mode who consented in writing
    • by despatch of physical copies
    • by any other recognised mode of delivery in all other cases
·        Penalty for Non-compliance :
o   Company - Rs 25000;
o   Officer In Default  - Rs 5000

Filing of Financial Statement (Section 137)

  • To be filed with ROC in Form AOC -4 (Rule 12)
  • Within 30 days of AGM – TO BE CERTIFIED BY CA ONLY
  • In case of failure i.e. After 300 days punishable with fine
    • For Company – 1000 per day maximum upto 10 L; and
    • Managing Director
    • Chief Financial Officer
    • Any other director charged with such responsibility
    • All directors in the absence of above persons punishable       
      • with:
        • Imprisonment  - up to 6months or
        • Fine –  Minimum 1L : Maximum up to 5L or Both

Companies (Accounts) Second Amendment Rules, 2015. (4th September, 2015)

  • The financial statements shall be in the form specified in Schedule III to the Act and comply with Accounting Standards or Indian Accounting Standards as applicable:
Provided that the items contained in the financial statements          shall be prepared in accordance with the definitions and          other     requirements specified in the Accounting Standards            or the    Indian Accounting Standards, as the case may be.

What is the change?
    • Every company shall file the financial statements with Registrar together with Form AOC-4 and the consolidated financial statement, if any, with Form AOC-4 CFS.
    • The financial statements shall be in the form specified in Schedule III to the Act and comply with Accounting Standards or Indian Accounting Standards as applicable.
    • Provided that the items contained in the financial statements shall be prepared in accordance with the definitions and other requirements specified in the     Accounting Standards or the Indian Accounting Standards,      as the case may be.
*Schedule III Replaced recently
Changes in AOC 4- Notification dated 27.07.2016
Comprehensive Changes have been made in AOC 4 : Further Disclosures have been required as below
  • Disclosure relating to maintenance of books of account  is mandatory
a)      Whether company is maintaining Books of Account and other   relevant books & papers in electronic form                                    o Yes      o No
b)      Complete Postal Address of the place of maintenance of computer servers( Storing Accounting Data)
c)      Particulars of the Service Provider(if any)
  • Reporting of Corporate Social Responsibility (CSR)
                           i.          Whether CSR is applicable as per section 135                        o Yes      o No
                          ii.          turnover (in Rs.)
                         iii.          Net worth (in Rs.)
        Net profits for last three financial years
        Explanation for not spending
        Whether a responsibility statement of the CSR Committee on the  implementation and monitoring of CSR Policy is enclosed to the Board’s Report                     o Yes      o No
  • Auditors' comment on the items specified under Companies(Auditors‘ Report) Order (CARO)
Particulars
Auditors' comments on the report
Fixed assets
Inventories
Loans given by the company
Acceptance of Public Deposits
Maintenance of Cost records
Statutory dues
Term loans
Fraud noticed
Others

  • Disclosure relating to Unhedged Foreign Exchange Exposure is  mandatory
Financial Parameters- Balance Sheet items (Amount in Rupees)       as on financial year end date
                              47. Unhedged Foreign Exchange Exposure
The AOC 4 format is comprehensively upgraded and now very detailed
CHANGES IN AOC 1
Ø  Mandatory to specify the date since subsidiary /associate Joint venture was associated or acquired
The AOC 1 format is comprehensively upgraded

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