Companies Act- 2013: Provisions affecting CA Profession

Transcription

1 Companies Act- 2013: Provisions affecting CA Profession CA. KIRAN KUNTE A] ACCOUNTING STANDARDS: Sec.133 of Companies Act-2013.[ Sec211(3C) of old law ] General Circular No 15/ : Clarification about Accounting Standards B] AUDITING STANDARDS: Sec.2 (7) of Companies Act Statutory Recognition given to Auditing standards for the first time. No such recognition was there in old law. Sec.143 (9) of Companies Act EVERY Auditor SHALL comply with auditing standards. C] CLARIFICATION ABOUT PREPARATION AND PRESENTATION OF FINANCIAL INFORMATION: MCA/ Gen.Circular/ 8/2014/ 04 April 2014: Schedule II and Schedule III to come into effect from 01/04/2014 hence, new formats needs to be adopted for the Statements in respect of Financial Period commencing on or after 01/04/2014. D] BOOKS OFACCOUNTS IN ELECTRONIC MODE: Companies ( Account) Rules 2014 dated

2 Elaborate rules prescribed Back Up to be kept in servers physically located in India If books of accounts are maintained on Cloud Computing, address of service provider/internet Protocol address etc. E] AUDITORS APPOINTMENT: Sec.139 of Companies Act Rotation Companies ( Audit and Auditors ) Rule 2014 dated Illustration explaining rotation of Auditors;[ for guidance only] included in above rules Form No: ADT 1- Notice of appointment of auditor by Company to ROC. Form 23 B no more in place. CLASS OF COMPANIES: All unlisted Public Companies having paid up share capital Rs 10 Cr or more All Private Limited Companies having paid up share capital Rs 20 Cr or more All Companies having share capital below above limits but having borrowings from banks/fi/public deposits of Rs 50 Cr or more Number of consecutive years for which a Proprietor has been auditor in the same Company ADDITIONAL TENURE INCLUDING Transitional period in years 5 or more Aggregate period for which he can hold office in years

3 IN RESPECT OF A FIRM: Number of consecutive years for which a Partnership Firm has been auditor in the same Company ADDITIONAL TENURE INCLUDING Transitional period in years 10 or more 3 13 or more Aggregate period for which he can hold office in years F] AUDITORS RESPONSIBILITIES: Companies ( Audit and Auditors ) Rule 2014 dated : Clause13.Reporting on Fraud Sec.143(12) of Companies Act Reporting on Fraud Sec.143(15) of Companies Act 2013: Failure to report fraud SA 240 Form- ADT 4 Clause 11 of Companies ( Audit and Auditors ) Rule 2014 dated Additional coverage: Whether the Company has disclosed the impact if any of the pending litigations on its financial position in its statements? Whether the Company has made provisions required under respective law/ Accounting standard for material foreseeable losses if any on long term contracts including derivative contracts o Whether there are any delays in transferring the due amount to Investor Education and protection fund

4 G] DEPRECIATION AND COMPANIES ACT, IMPACT STUDY Legal Resources Schedule II of the Companies Act, Schedule showing Useful life of an asset. NOTE No 07 of the above schedule. AS 6 issued by ICAI- Accounting Standard Depreciation Accounting AS 1 issued by ICAI- Disclosure of accounting Policies COMPARISION: No Under Companies Act, 1956 Under Companies Act, Schedule XIV governed the same Schedule II is the governing schedule 2 Schedule XIV specifies the rate of depreciation Schedule II does not specify the rate of depreciation 3 Schedule XIV has no reference of Schedule II has specific reference of Concepts like: Useful Working Life, Residual value Concepts like: Useful Working Life, Residual value 4 Schedule XIV mandated charging 100% No such reference is there in Schedule II depreciation on assets individually costing Rs 5000 or less 5 Depreciation is to be charged on the cost of asset as a whole with no consideration to costs of Individual component 6 Definition of Building under Schedule Vi was generic and with no specifications 7 Purely temporary erections such as wooden structures were being 100% on SLM 8 Data Processing machines including Computers were 16.21% on SLM Basis. This may take around 6 years to write off even computers 9 General Furniture and fittings were being written 6.33% on SLM. Practically it takes more than 15 years to retire a furniture item from Books Schedule II talks about Complex Component accounting In Schedule II, Building has been elaborated to cover RCC Frame Structure In Schedule II, useful working life of the Temporary structures has been increased to 3 years leading to charging of 33.33% PA on SLM basis Detailed break up is given. Servers and Networks are under category of 6 years while end user devises like Desktop/ Laptop etc are under category of 3 years as useful life. In respect of General Furniture and fittings, the useful working life is specified as 10 years which means that now those items will be written off over a period of 10 years.. Commercial Impact: It makes sense to adopt the concept of Commercial depreciation rather than Book Depreciation., This would result into faithful presentation rather than True and fair view alone. Accounting Impact: Increase in Complexity

5 Schedule II gives an exhaustive list of useful working life of the asset. Based upon various text matters governing depreciation as per schedule II, a simple formula can be derived which is as below: ANNUAL DEPRECIATION = COST of the asset LESS Estimated Residual value DIVIDED BY Number of useful working life expressed in Years See explanation This cannot be more than 5% of the total cost As mentioned in Part C of schedule II COST = generally cost of the asset as a whole. HOWEVER IF cost of the one of the Components of that asset is SIGNIFICANT to the cost of the asset as a whole, AND the useful working life of that component is DIFFERRENT From the life of the asset as a whole, then : COST OF THE ASSET AS A WHOLE [C] LESS COST OF THE COMPONENT [B] = COST OF THE ASSET. [A] Now this asset gets bifurcated into 2 cost segment namely A and B.. Segment A less estimated residual value of that segment Useful life of the segment A Segment B less estimated residual value of that segment Useful life of the segment A = Depreciation of Segment A = Depreciation of Segment B Financial Impact: As a result of lowering of useful working life in respect of certain assets, the charge of depreciation may go up substantially leading to a substantial hit to the bottom line of the Corporate. Implementation impact: As on date of this schedule becoming effective, the carrying amount of that particular asset is to be written off over remaining useful life. The formula would be: Find out the acquisition date: DD/MM/YYYY Add: Useful working life in terms of number of years Find out the date of Accounting retirement of that asset Find out the remaining useful life

6 DEPRECIATION IMPACT FOR FY 14-15= only as an example WDV as on Remaining useful life Thus as on if the useful remaining left, is 2 years only [IRRESPECTIVE OF THE FACT THAT ASSET CAN BE STIIL USED FOR A LONGER DURATION] the unamortized amount will have to be written off over 2 years only. IF AS ON , it is observed that the useful working life was over well before , the accounting entry would be: Opening Reserves and Surplus A/c DEBIT: WDV as on To Asset account Credit This may have serious Impact on Opening Reserves and Surplus and this may be treated as if the results of previous year are restated. However this restatement is not intended to undo a past error but to fall in line with changed Legal provision. Impact on Disclosure: If the Company adopts a useful working life which is different than what is mentioned in Part C of Schedule II, it shall disclose the justification for the same. A change in the method of Depreciation amounts to change in method of accounting. This change can be made only if such change is necessitated by a Statue or a Standard. Adequate disclosure as per AS 1 would be required along with quantification of the Impact. The same asset will even be disclosed under 2 Segments especially when one of the components of that asset has a different useful life than that of the asset as a whole. In Schedule III, this will have to presented properly. General instructions to schedule III: Disclose useful working life of the asset in respect of each of the asset falling under that head. H] AUDITOR TO ATTEND AGM: Legal Resource: Sec.146 of Companies Act 2013

7 I] INTERNAL AUDIT Legal Resource: Sec.138 of Companies Act 2013 CLASS OF COMPANIES All Listed companies All unlisted public companies having: - Paid up share capital of Rs. 50 Crore or more during the preceding Financial year; - Turnover of Rs. 200 Crore or more during the preceding Financial year; - Outstanding loans or borrowings from banks/public financial institutions exceeding Rs. 100 Crore at any point of time during the preceding Financial year; - Outstanding deposits of Rs. 25 Crore or more at any point of time during the preceding Financial year. All Private companies having: - Turnover of Rs. 200 Crore or more during the preceding Financial year; - Outstanding loans or borrowings from banks/public financial institutions exceeding Rs. 100 Crore at any point of time during the preceding Financial year; J] CONVERGENCE OF COMPANIES ACT 2013 WITH TAX LAWS: Legal Resource: Sec.2(41) Financial Year at par with Previous Year under IT Act Sec of Companies Act 1956 [Still in force] Sec.232 (7) of Companies Act-2013 Instructions to RD to seek report from income tax Authorities Sec.188 of Companies Act Arms length pricing for related party transactions. Mergers and arrangements to comply with accounting standards. Referral of the scheme to Income Tax department. Arms Length Pricing. Same concepts as are used in Income Tax Act are to be used.. CA.KiranKunte kirankunte@rediffmail.com