Companies Act 2013 - ACCOUNTS & AUDIT

1. ACCOUNTS
OF
COMPANY
AUDIT
&
AUDITORS
G.P.SAHI

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
ShareholdersWebsite
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 AGMAPPOINTMENT 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 GovernmentForm
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