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Accounts of the Company

Chapter -IX
Audit & Auditors
Chapter - X
Books of Accounts
CG to Prescribe Accounting standards
Re-opening of Accounts
Voluntary Revision of financial statement
NFRA
Financial Statement , Boards Report etc
Right of members to copies of FS
FS to be filled with ROC
Financial Statement
Internal Audit
Section 128
Section 129
Section 131
Section 133
Section 136
Section 130
Section 132
Section 134
Section 137
Section 138
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Main sections in the chapter
Books and Paper Sec 2(12)
Books of Accounts Sec 2(13)
Book and paper and Book or paper include books of account, deeds,
vouchers, writings, documents, minutes and registers maintained on paper or in
electronic form
books of account includes records maintained in respect of
(i) all sums of money received and expended by a company and matters in
relation to which the receipts and expenditure take place;
(ii) all sales and purchases of goods and services by the company;
(iii) the assets and liabilities of the company; and
(iv) the items of cost as prescribed under section 148 in the case of a company
which belongs to any class of companies specified under that section;
Section 128 Books of Accounts to be kept by Company
Books of Accounts to be kept at registered office of the Company;

Books of Accounts & relevant papers, books & financial
statements shall give a true fair view of the financial position of
the Company including that of its branch offices or other offices ,
if any ;

Books of accounts shall also explain the transactions at registered
office and branch offices, if any ;

Books of Accounts shall be kept on accrual basis and according to
the double entry system;


What if, Company wants to keep its Books of Accounts at a place
other than Registered office ...??
Books of Accounts & other relevant papers, can be kept at such other
place in India as the Board of Directors may decide;

The Company shall within seven days , file with the registrar a notice in
writing giving full address of that other place ;

Proviso to section 128(1)
Companies may also keep their books of
accounts or other relevant papers in electronic
mode ;
(explained in next slide)
Manner of keeping books of Accounts in Electronic Mode Rule 3
Chapter IX .
The Books of Accounts maintained in electronic mode shall remain accessible in India as to
be usable for subsequent reference ;
The Books of Accounts shall be retained in completely in a format in which they were
originally generated or received ;
The information received from the branch offices shall not be altered and shall be kept in
manner where it shall depict what was originally received from the branches ;
The information in electronic record shall be capable of being displayed in a legible form;
There shall be proper system for storage , retrieval , display or printout of the electronic
records ;
If the Audit Committee or Board , may deem appropriate , such records , shall not be
disposed off or made unusable, unless permitted by law ;
Back up of the books of accounts and other books & papers of the Company , maintained in
electronic mode , including a place outside India , if any, shall be kept in servers physically
located in India on a periodic basis .
The Co. shall intimate to the Registrar on an annual basis at the time of filling FS
The name of the service provider ;
IP address of the Service provider ;
Location of the Service Provider; etc.




The books of accounts shall remain open for inspection by directors of
the Company or such other place , during business hours ;
Inspection of books of accounts of the subsidiary of the company ,
shall only be done by a person authorised in this behalf by a resolution
of the Board of directors ;
The books of accounts relating to a period not less than eight
preceding financial years , shall be kept in good order ;
Penalty for contravention : Officer in default under this section shall
be punishable with imprisonment for a term which may extend to one
year or with a fine minimum of 50,000 and maximum of 5 lakhs .

Officer in default for this section ; managing director, the whole-time director in charge
of finance, the Chief Financial Officer or any other person of a company charged by the
Board with the duty of complying with the provisions of this section


Section 128 Books of Accounts to be kept by Company
Financial statement- Sec 2(40)
Financial statement in relation to a company
includes :
A balance sheet as at the end of the FY ;
A profit & loss account , or in case of a company
carrying on any activity not for profit , an income &
exp. Account for the FY;
Cash flow statement for the FY;
A statement of changes in equity, if applicable ; and
Any explanatory note annexed to , or forming part
of , any document referred above.

Financial statement Sec 2(40)
The books of account and other relevant papers are
to be kept at the registered office or such other place
in India as BOD may decide and such books can
also be kept in electronic mode .

The information contained in the electronic records
shall remain complete and unaltered. (Section 128:
Books of account, etc., to be kept by company read
with Rule No 3(1)& 3(2))


Financial Year Sec 2(41)

Uniform financial year in Companies Act,2013.

Financial year in relation to a company means the period ending on
31st day of March every year.

Incorporated on or after 1st January - Period ending on 31st March of
the following year.

Relaxation for Foreign Holding or Subsidiary Approval of NCLT.

Transition period of 2 (Two) Years to align with the provisions.



Section 129- Financial Statement

FS for the FY shall be prepared as per Schedule III and laid
before the AGM.
Consolidated FS of the company and of all the subsidiaries
to be laid before the AGM.
A company is required to attach with its FS, a separate
statement in Form AOC-1 containing the salient features of
the FS of its subsidiaries.
Subsidiary shall include Associate Company and Joint
Venture
Schedule III of Companies Act, 2013
Schedule I I I of the Companies Act 2013, is same as Revised Schedule VI of the Companies
Act, 1956 except that it contains general instructions for preparation of Consolidated
Financial Statements (CFS) of Company and its subsidiaries, as the same has been
mandated by the new Act.
I f company is required to prepare CFS, i.e., consolidated balance sheet and consolidated
statement of profit and loss, the company shall mutatis mutandis follow the requirements of
Schedule I I I .
I n addition, the CFS shall disclose the information as per the requirements specified in the
applicable Accounting Standards including:
Profit or loss attributable to minority interest and to owners of the parent in the
statement of profit and loss shall be presented as allocation for the period.
Minority interests in the balance sheet within equity shall be presente separately from
the equity of the owners of the parent.
All subsidiaries, associates and joint ventures (whether I ndian or foreign) will be covered
under CFS.
An entity shall disclose the list of subsidiaries or associates or joint ventures which have
not been consolidated in the consolidated financial statements along with the reasons of
not consolidating.
Schedule I I I of the Act, does not have format for the Cash Flow Statemen and Statement
for Changes in Equity
Signing of Financial Statements Sec.134(1)
FS shall be approved by the board and than signed
on behalf of the Board at least by the:-
chairperson of the company where he is authorised
by the Board; or
two directors out of which one shall be MD and the
CEO, if director in the company; and
chief financial officer; and
company secretary


Re-opening of Accounts (Sec-130)

Concept of Re-casting of Accounts introduced.

The Company may, if it appears to the directors that the Financial
Statements or Boards Report are not in compliance with the
provisions of the Act, may prepare revised financial statement or a
revised Boards Report with the approval of Tribunal

Accounts can be re-opened /re-casted:
If Prepared in fraudulent manner, affairs are mismanaged (Casting
a doubt on its relevancy),
Application to be made by CG, IT Authorities, SEBI or other
regulatory body or authority to Court or tribunal.
An order has been passed by Tribunal / Court.



Voluntary Revision of Accounts (Sec-131)


Concept of Voluntary Revision of Accounts /Board Report
introduced ( Section 131):

Board may pass resolution to revise accounts, if not made as
per requirement of Section 129:
not giving True and Fair view.
Accounting Standard not followed,

Can be done for preceding 3 FYs One FY at a time.

Prior Approval of NCLT is required;

Detailed reasons for revision to be disclosed in Board
Report.






Voluntary Revision of Accounts - (Sec-131)



Application to NCLT within 2 weeks;

Hearing to be given to Auditor of original financial statement;

Order of Tribunal to be filed with ROC within 30 days;

General Meeting to be called Notice of GM to be published in NP;

Revised Financial Statement to be filed to RoC;

If revision done by new Auditors consent of previous auditors to be
obtained;




National Financial Reporting Authority (NFRA)
(Sec-132)



CG to constitute NFRA.

NFRA to:
Recommend formulation of Accounting and Auditing policies and
standard for Companies and Auditors.
Monitor and Enforce Compliance of Accounting and Auditing
Standard.
Oversee the quality of concerned professions.
Perform such other functions as may be prescribed.

It has he power to investigate, suo moto or on reference made by Central
Government in matters of professional or other misconduct by CA or firm. No other
institute or body shall initiate or continue any proceedings in matters where NFRA
has initiated an investigation






National Financial Reporting Authority (NFRA)
(Sec-132)



Powers of NFRA:
Investigate Company / Professionals.
Order discovery or production of books of accounts
Summon or enforce attendance
Order inspection of books, registers, other documents
Issue commission for examination of witness or documents
Impose penalty 1 Lac or 5 times fees received / 10 L or 10 times
Debarring members from doing practice.

Orders passed by NFRA are appealable to Appellate
Authority.
NFRA to prepare its Annual Report and Accounts of NFRA
shall be subject to CAG Audit.




.

Section 133 CG to prescribe Accounting Standards :
CG may prescribe Accounting Standards or any
addendum to it with the recommendation of the
ICAI.

NFRA will also be Consulted and ;

Accounting Standards to be prescribed with after
examination of the recommendations made by
the NFRA

Director Responsibility statement &
Board of Directors Report
Boards Report (Section 134)
Existing requirements:
State of the Companys affairs.
Amounts proposed to be carried
to reserves.
Amount recommended by way of
dividend.
Material changes and
commitments affecting the
financial position.
Statement of employees
receiving remuneration above a
certain limit (Dropped).
Directors Responsibility
statement.

New Additions:
Extract of Annual Return.
No. of Board meetings.
Ratio of remuneration of each director to
median employees remuneration
Companys policy on directors appointment
& remuneration.
Explanation to qualification / remarks of
auditors /PCS in auditors report or
secretarial audit report.
Statement on declaration by IDs.
Particulars of loans , Guarantees or
investments.
Particulars of contract or arrangement with
related party.
Annual evaluation of its own & Board
committees performance.
Implementation of risk management policy.
Policy on CSR initiatives (Including reasons
for unspent amount on CSR)
Directors Responsibility statement ( Sec 134(5) )
Applicable accounting
Standards duly followed ,
With explanations for
Material departures.
Prudent judgment and
Estimates made so as
To give true & fair
View of the state of
Affairs of the Co.
Proper and sufficient
Care for the mainte-
Nance of adequate
Accounting records
& safeguarding of
Assets
Annual accounts
Prepared on going
Concern basis

Adequate Internal
Financial controls,
In case of listed Co.
Proper systems to
Ensure compliance
With all applicable
Laws
Additional Responsibility statement
Section 136 Right of the member to copies of audited
financial statement.
Audited Financial Statements with auditors report & every other document which is
required to be annexed to the financial statement, Shall be sent to every person entitled
to receive the same; not less than 21 days before the date of general meeting ;

Listed Companies to shall also place its financial statements , on its website , which is
maintained by or on behalf of the Company;

Companies having subsidiary shall also place separate audited accounts of its
subsidiaries on its website

Companies shall also allow every member or trustee of the holder of debentures to
inspect the documents at its registered office during business hours ;

Penalty for Contravention of this section : Company shall be liable to a penalty of 25
thousand rupees and every officer of the company who is in default shall be liable to a
penalty of 5 thousand rupees.
Filling of Financial statement & Internal
Audit
Financial statement to
Be filled with ROC
( Sec- 137)
Internal Audit
(Sec-138)
FS to be filled within 30 days of adoption of the
AGM
In case of non- adoption , un adopted FS to be
Filled with ROC as provisional till FS are filled
after adoption.
In case AGM not held, FS with reason for not
holding AGM to be filled with ROC with 30 days.
Every Listed Co.
Every Public Co. having PSC of 50 Crore rs or more /Turn
-over of 200 crore rs or more /O/s loans & borrowing from
banks & Public financial institutions exceeding 100 crore.
Every Pvt Co. having turnover of 200 crore rs or more /
O/s loans & borrowing from banks & Public financial
institutions exceeding 100 crore
Above Companies are required to appoint Internal
Auditors
Audit committee in consultation with IA formulates the scope,
functioning and methodology for internal audit.

Appointment of Auditors Section 139
Removal, resignation of auditor Section 140
Qualification & disqualifications
Remuneration of auditors
Powers & duties of auditors
Auditor not to render certain services
Auditor to sign audit reports
Auditor to attend general meeting
Punishment for contravention
Section 141
Section 143
Section 145
Section 147
Section 142
Section 144
Section 146
CG to specify audit of items of cost Section 148
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Main sections in the chapter
Audit and Auditors
Appointment of 1
st
Auditor-Sec 139
Board to appoint 1
st
auditor within 30
days of incorporation, otherwise
members to appoint within next 90 days.


Appointment of Auditors
-Auditors to be appointed at 1st AGM for
Period of 5 years .
-Ratification of appointment of auditors
At each AGM
-Consent of Auditor required.
-Auditors to attend AGM (have right to be
heard in matters concerning him)

Rotation of Auditors :
-Individual auditors : one term of 5 years
-Audit firm : Two terms of 5 years each.
NO REPPOINTMENT FOR 5 YEARS
FROM EXPIRY OF TERM.
Rotation of Audit partner within a Firm:
Members to resolve the time period when
Audit partner may b rotated.




Removal of Auditors - Sec 140 :
-Auditor to be given reasonable opportunity
to be heard.
-Prior approval of CG required.
-SR in GM
-Special notice to be given in case retiring
auditor is not appointed in AGM.



Section 141 : Eligibility , Qualification & Disqualifications of
auditors
Eligibility & Qualification of Auditors
He should be Chartered Accountant ;

Incase of a firm where majority of partners practising in India are
qualified for appointment as aforesaid may be appointed by its firm
name, to be auditor of a company

Where a firm or LLP is appointed as auditor ; then only the partners
who are Chartered Accountants shall be authorized to act and sign on
behalf of the firm..

Section 141 : Eligibility , Qualification & Disqualifications of
auditors
Disqualifications :
The following persons inter alia shall not eligible for appointment as an
auditor:
a person who, or his relative or partner
(i) is holding any security of or interest in the company or its subsidiary, or of its
holding or associate company or a subsidiary of such holding company:
Provided that the relative may hold security or interest in the company of face
value not exceeding rupees one lakh

(ii) is indebted to the company, or its subsidiary, or its holding or associate company or
a subsidiary of such holding company, in excess rupees five lakhs shall not be eligible
for appointment ;

(iii) has given a guarantee or provided any security in connection with then
indebtedness of any third person to the company, or its subsidiary, or its holding or
associate company or a subsidiary of such holding company, in excess of one lakh
rupees shall not eligible for appointment;
Section 141 : Eligibility , Qualification & Disqualifications of
auditors
Disqualifications (contd.):

person or a firm who, whether directly or indirectly, has business relationship with
the company, or its subsidiary, or its holding or associate company or subsidiary of such
holding company or associate company of such nature as per rule 10- Disqualifications
of the Auditor (explained in next slide) ;
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 in full time employment elsewhere or a person or a partner of a firm
holding appointment as its auditor, if such persons or partner is at the date of such
appointment or reappointment 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 specialised services as
provided in section 144
Section 141 : Eligibility , Qualification & Disqualifications of
auditors
The term business relationship shall be construed as any transaction entered into for a
commercial purpose, except

(i) commercial transactions which are in the nature of professional services permitted
to be rendered by an auditor or audit firm under the Act and the Chartered
Accountants Act, 1949 and the rules or the regulations made under those Acts;

(ii) commercial transactions which are in the ordinary course of business of the
company at arms length price - like sale of products or services to the auditor, as
customer, in the ordinary course of business, by companies engaged in the business of
telecommunications, airlines, hospitals, hotels and such other similar businesses.
Section 142 Remuneration of Auditors
The remuneration of the auditor of a Company shall be fixed in its
general meeting ;

Board may fix remuneration of the first auditor appointed by it;

The remuneration mentioned above shall include , expenses
incurred by the auditor in connection with the audit of the company &
any facility extended to him ;

But does not include any remuneration paid to him for any other
service rendered by him at the request of the Company.
Section 143 Powers & duties of Auditors and
Accounting standards .
Powers of Auditors

Every auditor of a company shall have a right of access at all times to the
books of account and vouchers of the company, whether kept at the registered office of
the company or at any other place and shall be entitled to require from the officers of
the company such information and explanation as he may consider necessary for the
performance of his duties
as auditor

The auditor of a company which is a holding company shall also have the
right of access to the records of all its subsidiaries in so far as it relates to
the consolidation of its financial statements with that of its subsidiaries
Section 143 Powers & duties of Auditors and
Accounting standards
Reporting Requirements

Matters to be stated in Auditors Report:

(a) whether he has sought and obtained all the information and explanations which to
the best of his knowledge and belief were necessary for the purpose of his audit and if
not, the details thereof and the effect of such information on the financial statements
(b) whether, in his opinion, proper books of account as required by law have been kept
by the company so far as appears from his examination of those books and proper
returns adequate for the purposes of his audit have been received from branches not
visited by him
(c) whether the report on the accounts of any branch office of the company audited by a
person other than the companys auditor has been sent to him and the manner in which
he has dealt with it in preparing his report
(d) whether the companys balance sheet and profit and loss account dealt with in the
report are in agreement with the books of account and returns;

Section 143 Powers & duties of Auditors and
Accounting standards
(e) whether, in his opinion, the financial statements comply with the
accounting standards
(f) the observations or comments of the auditors on financial transactions
or matters which have any adverse effect on the functioning of the
company
(g) whether any director is disqualified from being appointed as a
director under sub-section (2) of section 164
(h) any qualification, reservation or adverse remark relating to the
maintenance of accounts and other matters connected therewith
(i) whether the company has adequate internal financial controls system
in place and the operating effectiveness of such controls
(j) such other matters prescribed.



Reporting Requirements (Contd.):

Matters to be stated in Auditors Report
The auditor shall also report on Whether the company has disclosed
the effect, if any, of pending litigations on its financial position in its
financial statement ;

Whether the company has made provision for foreseeable losses, if
any, on
long term contracts including derivative contracts ;

Whether there has been delay in depositing money into the Investor
Education and Protection Fund by the company;
Section 143 Powers & duties of Auditors and
Accounting standards
Auditor not to render certain services- Sec 144
Accounting and book keeping services
Internal Audit
Design and implementation of any financial information system.
Actuarial services
Investment banking services.
Investment advisory services.
Rendering of outsourced financial services.
Management service

Duty of Auditor to report to CG immediately but not later than 60 days, If has reason to
believe that fraud is / being committed by officers/ Employees .

Auditor to report the fraud to audit committee /Board seeking their reply within 45 days.

Forward his report to CG with observation of Audit committee /Board within 15 days

Sec- 145 : Auditor to sign Audit Reports
Sec 146 : Auditor to attend AGM
The Auditor shall sign the auditors report or certify any other document of the Company;
The auditors shall also make qualifications ,observations or comments on the financial
matters or transactions , which have any adverse effect on the functioning of the company
mentioned in auditors report ;
Auditors report shall be read before the Company in general meeting ;
Auditors report shall be open for inspection by any member of the Company .
Notice of general meeting shall be forwarded to auditor of the Company;
If not exempted , Auditor shall attend the meeting himself or through his authorised
representative , who shall also be qualified to be an auditor ;
Auditors shall also have a right to be heard at General Meeting , on any part of the business
which concerns him as the auditor.
Sec- 147 : Punishment for Contravention
If any section of this chapter is contravened ; the Company shall be punishable with
fine which shall not be less than 25 thousand rupees but which may extend to 5 lakhs
rupees ;
Any officer of the company , who is in default , shall be punishable with
imprisonment for a term which may extend to one year or with fine which shall not be
less than ten thousand rupees or with both.
If auditor contravenes any provision of this section , then he shall be punishable with
fine, which shall not be less than 25 thousand rupees but which may extend to 5 lakhs
rupees .
If Auditor contravenes the provisions knowingly or wilfully , with the intention to
deceive the company or shareholders or creditors or tax authorities , then he shall be
punishable with a imprisonment for a term which may extend to one year and and with a
fine from 1 lakh to 25 lakhs .

Further , he shall also be liable to refund the remuneration and pay for damages to the
Company , statutory bodies or to any other person for loss arising out of incorrect or
misleading statements .
Companies Act,2013
ACCOUNTS AND AUDIT
Financial
Statements

Financial Statements defined- B/S, P&L, CFS, Statement
of changes in equity, any Explanatory Note.
No definition
Financial Year Defined as period ending on 31
st
March of every year may or may not be a year
Books Of
Accounts
BOA may be kept in electronic mode No concept
Consolidated
Financial
Statements (CFS)

Ccompany having subsidiaries (associate co. and JV)
shall prepare CFS and lay such CFS before AGM along
with standalone Financial Statements.

However, certain company is exempted to prepare CFS
under Accounting Standards subject to providing
information under Schedule III (Sec 129, Rule 6 Chp.
IX)
certain documents to be
attached and information to
be included to the balance
sheet of holding company.
Revision in
Financial
Statement or
Boards Report(sec
131)
After Tribunals approval, may prepare revised financial
statement or Boards Report for any of three preceding
year(s). Members to approve such revision in general
meeting.
Not provided under
NFRA (Section 132 -Ensure monitoring and compliance of accounting and
auditing standards
- Oversee quality of services by professionals
- Recommend Central Govt. on formulation of
accounting and auditing policies.
- To have power to check no-compliance same as civil
court
National Advisory
Committee on
Accounting Standards
(NACAS)
Signing of Financial
Statement

Sec 134, by the Chairperson, if authorised, or by 2
directors , out of which one to be MD or CEO, the CFO
and Company Secretary.
2 Directors, one MD, if
there is one , and
manager or Secretary
Filing of Financial
Statement
Sec 137 , Unadopted Financial Statement to be filed with
ROC within 30 days of date of AGM as provisional.
No provision under old
Act.
ACCOUNTS AND AUDIT
Internal Audit Section 138- Prescribed Companies to appoint Internal auditor to
conduct internal audit of functions and activities.
No provision under
companies act 1956,
Required under CARO
Appointment of Auditors

Section 139- to be appointed till the conclusion of 6
th
AGM ,
- Appointment to be ratified by members at every AGM
- Listed Company or other prescribed companies not to appoint
1) An individual as auditor for more than 5 consecutive year.
2) Audit firm for more than 2 terms of 5 consecutive years
- Every Company to comply with this provision within 3 years
from date of commencement of Act.
- Section 224
- Appointment at AGM
every year
- No provision for
appointment for 2terms
of 5 consecutive years
Power and duties of
Auditors

Section 143, Auditors to report additionally on:
-Effect of pending litigations on its financial position in Financial
Statement
- Report to Central Government , any offense involving Fraud
likely to materially effect the company.
- Company has adequate internal financial control systems and
operating effectiveness of such controls.
Section 227 provides for
the powers and duties of
auditors
ACCOUNTS AND AUDIT
End of Presentation ..!!

Thank You for your Attention..!!

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