CA Final Course paper 4 Corporate and Allied Laws

S Sundar Raman, FCA

© The Institute of Chartered Accountants of India Recorded on: 20-October-2014

 • This lecture has been delivered by faculty members to supplement the
Study Material, Practice Manual and other content
1

• The views expressed in this lecture are of the Faculty Member.

2
• The content of this video lecture has not been specifically discussed
by the Council of the Institute or any of its Committees and the views
expressed herein may not be taken to necessarily represent the views
3 of the Council or any of its committees

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The e-Lectures, PPT, Podcasts
and Video lectures on ICAI
Cloud Campus aim to
supplement the Study Material,
Practice Manual and
Supplementary Study Material
Due to changes in law, there is
likely to be some time gap
between these changes and the
recording of updated lectures.
© ICAI
This e-Lecture was Recorded on:
October 20, 2014
The lecture recordings are made
according to the syllabus and
laws existing/ applicable as on
the date of recording.
Hence, students are advised to
refer to the Study Material
including Supplementary Study
Material, if any, and other
relevant legislation for latest
provisions/ amendments
required for forthcoming
examination.
3
 Every company shall prepare and keep at its
registered office
• Books of Accounts
• Other relevant Books and Papers
• Financial Statements

for every FY which give true and fair view, including that
of its branch,
• To explain the transactions (Both of RO / BO)
• On accrual basis
• According to double entry.

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 A holding or subsidiary
company of a Foreign
Financial Year means, IN
company shall apply to
ANY CASE, the period
the tribunal and shall be
ending on 31 MARCH.
allowed to follow any
period as FY.

Existing companies
following different FY
shall be given 2 years
time to comply with
this provision.

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 “Book and Paper” and “Book or Paper” includes
 Books of Account,
 Deeds,
 Vouchers,
Maintained on paper or in
 Writings,
Electronic form
 Documents,
 Minutes and registers

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 It Includes:-
• A Balance Sheet as at the end of the FY
• A P&L A/c or an Income and Expenditure A/c (in the case not
for profit company) for the FY,
• Cash Flow Statement for the Financial Year,
• A Statement of Changes in Equity, if applicable,
• Any Explanatory Note annexed to, or forming part of, any
document referred to above.

Note 2: Financial Statement

Note 1: The Financial
shall include any Notes
Statement, with respect to One
annexed to or forming part of
Person Company, Small
Financial Statements, giving
Company and Dormant
information required to be
Company, may not include the
given and allowed to be given
Cash Flow Statement.
in the form of such notes

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 It includes records maintained in respect of-
• All sums of money received and expended by a company and
matters in relation to which the receipts and expenditure take
place;
• All sales and purchases of goods and services by the company;
• The assets and liabilities of the company; and
• the items of cost u/s 148

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 Board Resolution and

notice in writing with full address

to ROC within 7 days

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 The Books/Papers can be in electronic form also.

Rules in relation to electronic BOA:

• BOA shall be accessible
• Shall be retained in the same format
• Shall be displayed in a legible form
• Proper system for storage/Printing is required
• Back up shall be kept in Indian Servers periodically and annual
intimation to ROC about Name, IP Address,Location of Service
Provider

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 Every branch shall maintain books and send returns periodically to the
Company (Quarterly)

BOA can be inspected by director at RO/ other place during business

hours

BOA outside India – Director shall request the company full details of info
required and the company shall produce the same within 15 days.

Director himself shall seek this information and not through his
attorney/representative

Subsidiary can be inspected only through a Board Resolution

Officers and employees shall co-operate

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 Time Limit:
• Past 8 FYs or less in case of new coys
• In case of investigation under chapter XIV – longer period

Penalty: For MD, Director in charge of Finance, CFO or any

other person charged with duty of complying with this sec:
• One year Imprisonment and/or
• Rs.50,000 – Rs.5,00,000 Fine

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 Inspection can be only of books and accounts and papers connected
with them. In case any person requires to inspect books other than
books of account, he should seek a direction from the Court.

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 A Director is entitled to inspect the accounts personally or through an
agent provided that – (a) there is no reasonable objection to the person
chosen, and (b) the agent undertakes not to use the information
obtained by him for any purpose other than the purpose of his principal.

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 Financial Statement shall:

• Give True & Fair View

• Comply with notified AS u/s 133
• Be in prescribed form – Sch III

Note Applicable to Insurance, Banking, Electricity and other Companies

Financials shall be considered true and fair even if they don’t contain
matters which is no required to be disclosed under the respective statute.
Eg: Insurance Act 1938, Banking Regulation Act, 1949

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  At every AGM – Board shall lay the Financials pertaining to
the FY
 In case of one or more subsidiaries (includes Associate
Company and Joint Venture) – Financials of the company,
consolidated financials and salient features of subsidiary in
Form AOC-1
Particulars Manner of Consolidation
Required to prepare CFS under AS Sch III and Applicable AS
Not Required to prepare CFS under Only Sch III
AS

 Provisions of the act applicable to holding company

financials shall apply to consolidated financials

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 Non compliance of AS shall be disclosed along with
reasons and financial effects

CG shall exempt any coy from this Section

• Penalty: For MD, Director in charge of Finance, CFO or any
other person charged with duty of complying with this sec:
• One year Imprisonment and/or
• Rs.50,000 – Rs.5,00,000 Fine

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 The Central Government may
prescribe AS or any addendum
“AS” under COA 1956 shall be
thereto, as recommended by the
deemed to be the AS until it is
ICAI, constituted u/s 3 of the CA
specified by the CG u/s 133.
Act, 1949, in consultation with
[These are recommended by
and after examination of the
ICAI / examined by NACAS]
recommendations made by the
NAFRA

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Approva The Financial Statement, including Consolidated Financial
l Statement, shall be approved by the Board of Directors.
The signing requirements of Financial Statement are as below –
(a) By the Chairperson of the (a) CEO, if he is a Director
Company, where he is authorised (b) CFO, and
Signing by the Board, or AND (c) The Company Secretary,
(b) By two Directors out of which Wherever Appointed
one
shall be Managing Director,
Note: In case of a One Person Company, the Financial Statement shall be
signed only by one Director.

Auditor’s Report & Board Report shall be attached to the Financial Statements.

Penalty for Company: Rs.50,000 – Rs.25,00,000

Officer: 3 years imprisonment and/or Fine Rs.50,000 – Rs.5,00,000

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 Board Report shall be attached to FS

Prepared based on Stand Alone FS

Shall contain a separate section on performance and financial

position of entities included in CFS
• Shall be signed by:
• (a) Chairperson, authorized by the board
• (b) Where not authorized, by atleast two Directors, one of whom shall be a
Managing Director, or
• (c) by the Director where there is one Director.

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 Directors’ Responsibility
Extract of Annual Return; No. of Board Meetings;
Statement;

Company’s policy on
directors’ appointment and
remuneration including
Declaration by Independent
criteria for determining
Directors u/s 149
qualifications, positive
attributes, independence of a
director u/s 178

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 Explanations or comments by the Board on every qualification, reservation or
adverse remark or disclaimer made by Auditor/CS.

Particulars of loans, guarantees or investments u/s 186

Particulars of Related party transactions u/s 188 in Form AOC-2

State of the company’s affairs

Amounts proposed to carry to any reserves

Dividend Recommendation

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 Material Changes and commitments – from the end of the F.yr to the
date of audit report - affecting the financial position (Subsequent Events)

Conservation of energy, technology absorption, foreign exchange

earnings and outgo,

Risk Management Policy

CSR Policy / CSR Initiatives taken during the year

Formal Evaluation Policy of the Board / Committees (Listed and Public

Co’s – Paid up capital of Rs.25 crs or more, prec. F.Yr)

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 Financial Summary or Highlights

Change in the Nature of Business

Change in composition of directors / KMP

Co’s ceased to be Sub / Associate / JV

Deposits accepted / unpaid / unclaimed / Default Summary / ineligible deposits

Impact on going concern due to court / tribunal orders

Adequacy of Internal Financial Controls

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 FS Preparation = AS
Proper selection of
Complied = Explanation
Accounting Policies /
relating to material
Application consistently
departures;.

Proper and sufficient care

for the maintenance of
Reasonable and Prudent adequate accounting
judgments and estimates to records = Safeguarding the
give a true and fair view assets / for preventing and
detecting fraud and other
irregularities;

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 Annual accounts = Going concern basis

Listed company = Adequacy of internal financial controls.

Directors had devised proper systems to ensure compliance with the

provisions of all applicable laws and that such systems were adequate and
operating effectively.

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 Covered Companies

CSR Committee

CSR Policy

CSR Activities

CSR Expenditure (Min 2% of Avg Net Profit for

the Past 3 years)

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 Means and includes but is not limited to Projects or programs

relating to activities specified in Schedule VII to the Act; or

Projects or programs relating to activities undertaken by the board of a

company (Board) in pursuance of recommendations of the CSR
Committee based on subjects enumerated in Schedule VII of the Act.

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  Applicability: Every Company having:
a) Net worth >= 500 crs
b) Turnover >= 1000 crs
c) Net Profit >= 5 crs
 CSR committee: 3 or more directors with at least one independent
director, which shall formulate CSR policy, recommend amount of
expenditure and monitor the same
 Board’s Report shall disclose composition of CSR Committee
 Company shall give preference to the local area and areas
around it where it operates, for spending the amount earmarked for
CSR Activities.
 Every Company which ceases to be a covered company for 3
consecutive financial years shall not be required to constitute a
CSR Committee and comply with these provisions till such time it
meets the criteria specified.

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 Particulars
An unlisted public company or a
private company – does not
required an Independent
director u/s 149
A Private company having only 2
directors on its Board
Foreign Company
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CSR Committee Composition
Committee can be constituted
without such director
2 Directors
2 Person (1 shall be nominated by
Foreign Company)
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 Promoting education,
including special education
Eradicating Hunger,
and employment
Poverty and Malnutrition,
enhancing vocation skills
Promoting Preventive
especially among children,
Health Care and Sanitation
women, elderly, and the
and making available Safe
differently abled and
Drinking Water;
livelihood enhancement
projects;

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 Promoting gender equality,
empowering women, setting up
homes and hostels for women
and orphans; setting up old age
homes, day care centres and
such other facilities for senior
citizens and measures for
reducing inequalites faced by
socially and economically
backward groups;
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Ensuring environmental
sustainability, ecological
balance, protection of flora and
fauna, animal welfare,
agroforestry, conservation of
natural resources and
maintaining quality of soil, air
and water;
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 Protection of national heritage , art and culture including restoration of
buildings and site of historical importance and works of art; setting up
public libraries; promotion and development of traditional arts and
handicrafts;

Measures for the benefit of armed forces veterans, war widows and
their dependents;

Training to promote rural sports, nationally recognised sports,

paralympic sports and Olympic sports;

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 Contribution to the Prime Minister’s National Relief Fund or any other
fund set up by the Central Government for socio-economic
development and relief and welfare of the Scheduled Castes, the
Scheduled Tribes, other backward classes, minorities and women;

Contributions or funds provided to technology incubators located

within academic institutions which are approved by the Central
Government;

Rural development projects.

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 Disclose CSR policy on Undertake activities in
company website the policy

Spend at least 2% of
the average net profits To mention the reason
of the company made in the board report if not
during the 3 spent as mentioned
immediately preceding above
financial years

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 Net Profit as per its financial statement, but shall not
include the following, namely:-
• Any profit arising from any overseas branch or branches of the
company, whether operated as a separate company or otherwise;
and
• Any dividend received from other companies in India, which
are covered under and complying with the provisions of section
135:
Net profit as per COA 1956 not required to be re-
calculated.

Foreign Company = As per profit and loss account

prepared in terms of Section 381.

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 As per CSR Policy.

Executed as projects or programs or activities (either new or

ongoing), minus normal course of business activities.

Execute through a registered trustee or a registered society or a

Company established by the Company or its holding or subsidiary
or associate company u/s 8 of the Act or otherwise.

Not Floated by above co’s => Prove an established track record

of 3 years in undertaking similar programs or projects

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 Collaborate with other companies.

Projects undertaken in India

Benefit only to employees / Families = Not considered as

CSR.

Improvisation of CSR capacities of their own personnel

(Shall not exceed 5% of total CSR expenditure)

Contribution political party = Not CSR.

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 Financials/Reports and other documents are to be sent to
members, debenture holders etc not less than 21 days
before the date of meeting

Listed companies:

• Financials/Reports shall be made avbl at RO & company website

• Features of the documents shall be sent to members/debenture
holders in Form AOC-3
• Same shall be followed for subsidiaries

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 All members/debenture holders allowed inspect
financials/reports at registered office during business hours.

Penalty for Company : Rs. 25,000

Penalty for Officer : Rs. 5,000

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 Financials & Reports(incl foreign subsidiary) shall be filed with ROC - 30
days of the date of AGM in Form AOC – 4

If not finalized, provisional FS to be filed and the Finalised FS shall be

filed 30 days after adjourned AGM

In case of OPC – 180 days from end of FY

In case of no AGM – 30 days from actual last date with reasons

Penalty : Company – 1000 p.d max of 10 Lakh

MD/CFO/Other Director – Imprisonment 6m &/or fine of Rs.1 lakh to Rs. 5

lakhs

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 Following companies shall appoint Internal Auditor –
CA/CWA/others to conduct Internal Audit:
1. Listed Companies
2. Unlisted Public Companies, during Prev FY,
having:
a) Paid-up SC>=50Cr
b) Turnover>=200Cr
c) Loans from Bank/PFI>=100Cr(Any pt of time)
d) O/s Deposits>=25Cr(Any pt of time)
3. Every Private Company, during Prev FY, having:
a) Turnover>=200Cr
b) Loans from Bank/PFI>=100Cr(Any pt of time)

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 Existing Existing Company covered under any of the above criteria
Companies shall appoint Internal Auditor within the month of Sep 2014
(i.e. 6 months from the commencement of this section)
Conditions as 1. Internal Auditor may be an Individual or a Firm.
to appointment 2. Internal Auditor, shall either be a Chartered Accountant or a
Cost Accountant, or such other Professional as may be decided
by the Board to conduct internal audit of the functions and
activities of the Company.
3. The term Chartered Accountant shall mean a CA, whether
engaged in practice or not.
4. The Internal Auditor may or may not be an Employee of the
Company.
Other Points 1. The Audit Committee or the Board shall, in consultation with
the Internal Auditor, formulate the scope, functioning, periodicity
and methodology for conducting the internal audit.
2. Manner and Intervals of Internal Audit shall be prescribed by
the Central Government.

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