Changes in Financial Statements and Auditor s Report Presentation By CA Anil Sharma
Sec 129- Financial Statement The financial statement shall : be in the form in Schedule III and comply with the accounting standards notified under section 133 Monday, September 04, 2017
Financial Reporting Requirements Sec 129(2)- At every AGM of a company, the BOD of the company shall lay before such meeting financial statements for the financial year. Sec 134(2) The auditors report shall be attached to every financial statement. Sec 134(7): A signed copy of every financial statement, including CFS, if any, shall be issued, circulated or published along with a copy of each of the auditor s report and the Board s report.
Consolidated Financial Statements (CFS) Sub-section (3) of section 129 - preparation of CFS by a company having one or more subsidiaries. Subsidiary for the purpose of this clause includes associates and joint venture. CFS shall be in addition to stand alone financial statement. Sec 129 (4) -The provision of this Act applicable for preparation, audit and adoption of the financial statements of the holding company shall, mutatis mutandis, apply to the CFS also. Rule 6 The consolidation of financial statements of the company shall be made in accordance with the provisions of the Schedule III of the Act and the applicable accounting standards. Monday, September 04, 2017 4
Duties of Auditors and Auditing Standards Sec 143 (2) :The auditor shall make a report to the members of the company on the accounts examined by him and on every financial statements which are required by or under this Act to be laid before the company in general meeting and the report shall after taking into account the provisions of this Act, the accounting and auditing standards.. Sec 143 (10): The Central Government may prescribe the standards of auditing or any addendum thereto, Provided that until any auditing standards are notified, any standard or standards of auditing specified by the Institute of Chartered Accountants of India shall be deemed to be the auditing standards.
Changes applicable for Financial year 2016-17 1. Changes in Financial Statements 2. Changes in Accounting Standards 3. Changes in Auditor s Reports 4. New Auditing Pronouncements
Changes in Financial Statements Amendment in Schedule III- Notification dated 6.4.2016 (relating to introduction of Div. II in the Schedule ) The Companies (Accounts) Amendment Rules, 2016- Notification dated 27.7.2016 ( relating to CFS) Amendment in Schedule III- Notification dated 30.3.2017 (relating to SBNs) Amendment in Section 2(40)- cash flow statement not mandatory for start-up private company- Notification dated 13 th June, 2017.
Changes in Accounting Standards The Companies (Indian Accounting Standards) Rules, 2015 notified on 16.2.2015 and as amended by Notification dated 30.3.2016. The Companies ( Accounting Standards) Amendment Rules, 2016- Notification dated 30.3.2016 read with General Circular No.4/2016 dated 27.4.2016.
Changes in Auditor s Report The Companies (Audit & Auditors) Rules 2014 read with notification 5.9.2016 and IEPF Rules, 2016 effective 7.9.2016. The Companies (Audit and Auditors) Amendment Rules, 2016 Notification dated 30.3.2017 (relating to SBNs). Exemptions to Private Limited Companies- Notifications dated 13.6.2017 and 13.7.2017 ( amendment relating to Sec 143(3)(i)) and clarification dated 25.7.2017.
New Auditing Pronouncements Revised SA-610- Relying on Work of Internal Auditors ( effective for accounting period starting on or after 1.4.2016) Implementation Guide issued by ICAI relating to reporting on SBNs
Schedule-III to the CA, 2013-Notification dated 6.4.2016. Schedule III was revised. Schedule III- Division I Financial Statements for a company whose Financial Statements are required to comply with the Companies (Accounting Standards) Rules, 2006. Schedule III- Division II Financial Statements for a company whose financial statements are drawn up in compliance of the Companies (Indian Accounting Standards) Rules, 2015.
The Companies (Accounts) Amendment Rules, 2016- Notification dated 27.7.2016 In rule 6, for the second proviso, the following proviso shall be substituted namely:- Provided further that nothing in this rule shall apply in respect of preparation of consolidated financial statements by a company if it meets the following conditions:- (i) it is a wholly-owned subsidiary, or is a partially-owned subsidiary of another company and all its other members, including those not otherwise entitled to vote, having been intimated in writing and for which the proof of delivery of such intimation is available with the company, do not object to the company not presenting consolidated financial statements; (ii) it is a company whose securities are not listed or 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 which are in compliance with the applicable Accounting Standards.
The Companies (Accounts) Amendment Rules, 2016- Notification dated 27.7.2016 In rule 8 of the principal rules, in sub-rule (1), for the words and the report shall contain a separate section wherein a report on the performance and financial position of each of the subsidiaries, associates and joint venture companies included in the consolidated financial statement is presented, the words and 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 shall be substituted.
Amendment in Schedule III- Notification dated 30.3.2017 X. Every company shall disclose the details of Specified Bank Notes (SBN) held and transacted during the period from 8th November, 2016 to 30th December, 2016 as provided in the Table below:- Closing cash in hand as on 08.11.2016 (+) Permitted receipts SBNs Other denomination notes Total (-) Permitted payments (-) Amount deposited in Banks Closing cash in hand as on 30.12.2016
Section 143 (3)(j) read with Rule 11 Other matters to be included in Auditors Report: (c) Whether there has been any delay in transferring the amounts, required to be transferred to the Investor Education and Protection Fund by the Company? Section 124 (5) and (6)- unpaid dividend and all shares in respect of which dividend is unpaid Section 125 (2)- (h) to (m)- share application money received for allotment and due for refund, matured deposits, matured debentures, sale proceeds of fractional shares arising on issue of bonus shares or on amalgamation, redemption amount of preference shares ( if these amounts remain unpaid or unclaimed for seven or more years)
Exemption to prepare Cash Flow Statement for start-up private company Notification dated 13.06.2017. One more category- in addition to OPC, Small Co and Dormant Co which would not require to prepare Cash flow statement. Definition of Start-up company - a private company recognised as startup in accordance with notification issued by DIPP, Ministry of Commerce. Startup means an entity, incorporated or registered in India : Not prior to seven years, however for Biotechnology Startups not prior to ten years, With annual turnover not exceeding INR 25 crore in any preceding financial year, and Working towards innovation, development or improvement of products or processes or services, or if it is a scalable business model with a high potential of employment generation or wealth creation Provided that such entity is not formed by splitting up, or reconstruction, of a business already in existence, Provided also that an entity shall cease to be a Startup if its turnover for the previous financial years has exceeded INR 25 crore, Provided further that a Startup shall be eligible for tax benefits only after it has obtained certification from the Inter-Ministerial Board, setup for such purpose.
The Companies (Audit & Auditors) Rules 2014 read with notification 5.9.2016 and IEPF Rules, 2016 effective 7.9.2016 These rules may be called the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016. They shall come into force with effect from the 7 September 2016. Rule 3 : Fund: the amounts to be credited, inter alia, include: (a) all amounts payable as mentioned in clause (a) to (n) of sub-section (2) of section 125, (b) all shares in accordance with sub-section (6) of section 124, (c) In case of term deposits and debentures of companies, due unpaid or unclaimed interest shall be transferred to the Fund along with the transfer of the matured amount of such term deposits and debentures.
The Companies (Audit and Auditors) Amendment Rules, 2016 Notification dated 30.3.2017 In the Companies (Audit and Auditors) Rules, 2014, in rule 11, after clause (c), the following clause shall be inserted, namely: (d) whether the company had provided requisite disclosures in its financial statements as to holdings as well as dealings in Specified Bank Notes during the period from 8 th November,2016 to 30 th December, 2016 and if so, whether these are in accordance with the books of accounts maintained by the company..
Implementation Guide issued by ICAI for Section 143(3)(j) read with Rule 11(d)- Audit Procedures Obtain closing cash balance certificate with denominations from the Management as at 8th November 2016 and as at 30th December 2016 in respect of Specified bank notes (SBNs) and other denomination notes. Confirm the balances as certified by the Management from the books of accounts as at those dates. Obtain a listing from the Management as to how the SBNs available with the company as at closing on 8th November 2016 were dealt with. Obtain a listing from the Management if there were any receipts of the SBNs during the period from 9th November 2016 to 30th December 2016, including the nature of transaction and amount with denominations. For the details of payments given by the company, verify the (i) Payments for permitted transactions and the purpose for which payments were made. Obtain a reconciliation of the cash balance from the Management. Obtain management representation.
Implementation Guide issued by ICAI for Section 143(3)(j) read with Rule 11(d)- reporting The Company has provided requisite disclosures in the financial statements as to holdings as well as dealings in Specified Bank Notes during the period from 8th November, 2016 to 30th December, 2016. Based on audit procedures and relying on the management representation we report that the disclosures are in accordance with books of account maintained by the Company and as produced to us by the Management Refer Note [*]. The disclosure requirement as envisaged in Notification G.S.R 308(E) dated 30th March 2017 is not applicable to the Company - Refer Note [* ]. The Company has provided requisite disclosures in the financial statements as to holdings as well as dealings in Specified Bank Notes during the period from 8th November, 2016 to 30th December, 2016. However, we are unable to obtain sufficient and appropriate audit evidence to report on whether the disclosures are in accordance with books of account maintained by the Company and as produced to us by the Management Refer Note [*].
Implementation Guide issued by ICAI for Section 143(3)(j) read with Rule 11(d)- main report Where instance of non-compliance with relevant notifications are noted by the auditor and where in the auditor s professional judgement it is concluded that the non- compliance is of such nature that it has an impact on the true and fair view of the financial statements, the auditor should consider modifying his report in accordance with SA 705, Modifications to the Opinion in the Independent Auditor s Report.
Indian Accounting Standards (Ind AS) MCA on 16 th February, 2015 notified the Companies (Indian Accounting Standards) Rules, 2015. Applicable to class of companies specified in Rule 4. Companies (Accounting Standards) Rules, 2006 shall be the accounting standards applicable to the companies other than the classes of companies specified in rule 4.
Rule 4 the following companies shall comply Ind AS for the accounting periods beginning on or after 1st April, 2016, with the comparatives for the periods ending on 31st March, 2016, or thereafter, namely:- (a) companies whose equity or debt securities are listed or are in the process of being listed on any stock exchange (other than SME Exchange) in India or outside India and having net worth of rupees five hundred crore or more; (b) unlisted companies having net worth of rupees five hundred crore or more; (c) holding, subsidiary, joint venture or associate companies of companies covered by sub-clause (a) and sub-clause (b) as the case may be.
Rule 4 the following companies shall comply with the Ind AS for the accounting periods beginning on or after 1st April, 2017, with the comparatives for the periods ending on 31st March, 2017, or thereafter, namely:- (a) companies whose equity or debt securities are listed or are in the process of being listed on any stock exchange in India or outside India and having net worth of less than rupees five hundred crore; (b) unlisted companies having net worth of rupees two hundred and fifty crore or more but less than rupees five hundred crore. (c) holding, subsidiary, joint venture or associate companies of companies covered under sub-clause (a) and sub-clause (b) as the case may be.
The Companies ( Accounting Standards) Amendment Rules, 2016- Notification dated 30.3.2016 Accounting Standards replaced: AS-2 Valuation of Inventories AS-4 Contingencies & Events Occuring After the Balance Sheet Date AS-10 Property, Plant & Equipment AS-13 Accounting For Investments AS-14 Accounting For Amalgamations AS-21 Consolidated Financial Statements AS-29 Provisions, Contingent Liabilities and Contingent Assets Accounting Standard omitted: AS-6 Depreciation Accounting Applicable date : Accounting period starting after 30.3.2016 General circular no 4/2016 dated 27.4.2016
New AS-2 Valuation of Inventories 4. Inventories encompass goods purchased and held for resale, for example, merchandise purchased by a retailer and held for resale, computer software held for resale, or land and other property held for resale. Inventories also encompass finished goods produced, or work in progress being produced, by the enterprise and include materials, maintenance supplies, consumables and loose tools awaiting use in the production process. Inventories do not include spare parts, servicing equipment and standby equipment which meet the definition of property, plant and equipment as per AS 10, Property, Plant and Equipment. Such items are accounted for in accordance with Accounting Standard (AS) 10, Property, Plant and Equipment.
New AS-2 Valuation of Inventories 27. Information about the carrying amounts held in different classifications of inventories and the extent of the changes in these assets is useful to financial statement users. Common classifications of inventories are: (a) Raw materials and components, (b) Work-in-progress, (c) Finished goods, (d) Stock-in-trade (in respect of goods acquired for trading), (e) Stores and spares, (f) Loose tools and (g) Others (specify nature),
New AS-4 Contingencies & Events Occuring After the Balance Sheet Date 8.5 There are events which, although they take place after the balance sheet date, are sometimes reflected in the financial statements because of statutory requirements or because of their special nature. For example, if dividends are declared after the balance sheet date but before the financial statements are approved for issue, the dividends are not recognised as a liability at the balance sheet date because no obligation exists at that time unless a statute requires otherwise. Such dividends are disclosed in the notes. 14. If an enterprise declares dividends to shareholders after the balance sheet date, the enterprise should not recognise those dividends as a liability at the balance sheet date unless a statute requires otherwise. Such dividends should be disclosed in notes.
Accounting Standard omitted AS-6- Depreciation Accounting.
New AS-10 Property, Plant & Equipment Earlier AS -10- Accounting for Fixed Assets fully replaced. The principal issues in accounting for property, plant and equipment are the recognition of the assets, the determination of their carrying amounts and the depreciation charges and impairment losses to be recognised in relation to them. Property, plant and equipment are tangible items that: (a) are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and (b) are expected to be used during more than a period of twelve months. Includes bearer plant and livestock. Covers on tangible assets. Investment property, as defined in AS 13, should be accounted for only in accordance with the cost model prescribed in this standard. AS 19, Leases, requires an enterprise to evaluate its recognition of an item of leased property, plant and equipment on the basis of the transfer of risks and rewards. However, in such cases other aspects of the accounting treatment for these assets, including depreciation, are prescribed by this Standard.
New AS-10 Property, Plant & Equipment Recognition: The cost of an item of property, plant and equipment should be recognised as an asset if, and only if: (a) it is probable that future economic benefits associated with the item will flow to the enterprise; and (b) the cost of the item can be measured reliably. Measurement at Recognition at cost Initial cost Estimated dismantling, removing, restoration cost Subsequent cost Measurement after Recognition: to choose: Cost Model: After recognition as an asset, an item of property, plant and equipment should be carried at its cost less any accumulated depreciation and any accumulated impairment losses. Revaluation Model: After recognition as an asset, an item of property, plant and equipment whose fair value can be measured reliably should be carried at a revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Revaluations should be made with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the balance sheet date.
New AS-10 Property, Plant & Equipment Depreciation Definitions: Depreciation Depreciable mount Useful life Residual Value Depreciation in terms of Schedule II to the CA, 2013 Component approach (Para 46) Depreciation as cost of inventory (Para 51) Depreciation method Changes in existing decommissioning and restoration costs Impairment : to be determined by applying AS 28. Retirement Derecognition
AS 10- Property, Plant & Equipment Transitional Provisions 88. Where an entity has in past recognized an expenditure in the statement of profit and loss which is eligible to be included as a part of the cost of a project for construction of property, plant and equipment in accordance with the requirements of paragraph 9, it may do so retrospectively for such a project. The effect of such retrospective application of this requirement, should be recognised net-of-tax in revenue reserves. 90. On the date of this Standard becoming mandatory, the spare parts, which hitherto were being treated as inventory under AS 2and are now required to be capitalised in accordance with the requirements of this Standard, should be capitalised at their respective carrying amounts. The spare parts so capitalised should be depreciated over their remaining useful lives prospectively as per the requirements of this Standard.
New AS-13 Accounting For Investments Investment Properties 20. An investment property is accounted for in accordance with cost model as prescribed in Accounting Standard (AS) 10, Property, Plant and Equipment. The cost of any shares in a co-operative society or a company, the holding of which is directly related to the right to hold the investment property, is added to the carrying amount of the investment property. Investment Properties 30. An enterprise holding investment properties should account for them in accordance with cost model as prescribed in AS 10, Property, Plant and Equipment. ( Replaced 30. An enterprise holding investment properties should account for them as long term investments )
The Purchase Method New AS-14 Accounting For Amalgamations 39. Where the requirements of the relevant statute for recording the statutory reserves in the books of the transferee company are complied with, statutory reserves of the transferor company should be recorded in the financial statements of the transferee company. The corresponding debit should be given to a suitable account head (e.g., Amalgamation Adjustment Reserve ) which should be presented as a separate line item. When the identity of the statutory reserves is no longer required to be maintained, both the reserves and the aforesaid account should be reversed. (Replaced : - -which should be disclosed as a part of Miscellaneous Expenditure or other similar category in the balance sheet.)
New AS-21 Consolidated Financial Statements Scope of Consolidated Financial Statements 9. A parent which presents consolidated financial statements should consolidate all subsidiaries, domestic as well as foreign, other than those referred to in paragraph 11. Where an enterprise does not have a subsidiary but has an associate and/or a joint venture such an enterprise should also prepare consolidated financial statements in accordance with Accounting Standard (AS) 23, Accounting for Associates in Consolidated Financial Statements, and Accounting Standard (AS) 27, Financial Reporting of Interests in Joint Ventures respectively.
New AS-29 Provisions, Contingent Liabilities and Contingent Assets Measurement- Best Estimate 35.The amount recognised as a provision should be the best estimate of the expenditure required to settle the present obligation at the balance sheet date. The amount of a provision should not be discounted to its present value except in case of decommissioning, restoration and similar liabilities that are recognised as cost of Property, Plant and Equipment. The discount rate (or rates) should be a pre-tax rate (or rates) that reflect(s) current market assessments of the time value of money and the risks specific to the liability. The discount rate(s) should not reflect risks for which future cash flow estimates have been adjusted. Periodic unwinding of discount should be recognised in the statement of profit and loss. Transitional Provisions 73. All the existing provisions for decommissioning, restoration and similar liabilities (see paragraph 35) should be discounted prospectively, with the corresponding effect to the related item of property, plant and equipment.
Revised SA-610- Relying on Work of Internal Auditors Effective for audits of F/S for periods beginning on or after 01st April, 2016. The external auditor shall read the reports of the internal audit function relating to the work of the function that the external auditor plans to use to obtain an understanding of the nature and extent of audit procedures it performed and the related findings. The external auditor shall not use the work of the internal audit function if the external auditor determines that: (a) The function s organizational status and relevant policies and procedures do not adequately support the objectivity of internal auditors; (b) The function lacks sufficient competence; or (c) The function does not apply a systematic and disciplined approach, including quality control. If the external auditor uses the work of the internal audit function, the external auditor shall include the related plan, reports, responses in the audit documentation.
Auditor s report on Internal financial controls Section 143(3)(i)- The auditors report shall also state whether the company has adequate internal financial control system in place and the operating effectiveness of such controls. Notifications dt.13.6.2017 and 13.7.2017- amendment made in Notification dt 5.6.2015 relating to exemptions to private limited companies 1 2 3 9A. Chapter X, clause (i) of subsection (3) of section 143. Shall not apply to a private company:- (i) which is a one person company or a small company; or (ii) which has turnover less than rupees fifty crores as per latest audited financial statement and which has aggregate borrowings from banks or financial institutions or any body corporate at any point of time during the financial year less than rupees twenty five crore..
Coverage of Notification dated 13.6.2017 Date of applicability- General Circular 8/2017 dated 25.7.2017- exemption shall be applicable for those audit reports in respect of financial statements pertaining to financial year commencing on or after 1st Aprll,2016, which are made on or after the date of the sald notification. Companies covered: Private company- OPC (Sec 2(62)- (Paid up Rs 50 lakhs, turnover Rs 2 Crores) Private company- Small company ( Sec 2(85 )- (paid up Rs 50 Lakhs, turnover Rs. 2 Crores, not a holding or subsidiary co or Sec 8 co) Private company- turnover as per latest available audited financial statement does not exceed Rs. 50 Crores and aggregate borrowings including ICDs does not exceed Rs. 25 Crores at any time during the financial year.
Reporting if Sec 143(3)(i) is not applicable As required by section 143(3) of the Act, we report that: Since neither the turnover of the company as per latest audited financial statement was Rs 50 Crores or more nor aggregate borrowings from banks or financial institutions or any body-corporate at any point of time during the financial year was Rs twenty five crores or more, therefore, the reporting on adequacy of the internal financial controls over financial reporting of the Company and the operating effectiveness of such controls, is not applicable in terms of Notification GSR 583 (E) dated 13 th June, 2017 issued by Ministry of Corporate Affairs. Another example: As required by section 143(3) of the Act, we report that: Since the company is a small company as defined in section 2(85) of the Companies Act,2013, the reporting on adequacy of the internal financial controls over financial reporting of the Company and the operating effectiveness of such controls, is not applicable in terms of Notification GSR 583 (E) dated 13 th June, 2017 issued by Ministry of Corporate Affairs.
Reopening of accounts Distinction between reopen and recast and revision Section 130- reopen and recast ( on judicial directions)- can be done only with approval of Tribunal and no objections from the Central Government, Income Tax Authorities, SEBI or any other regulator/authority Allowed only if it is established that earlier accounts were prepared fraudulently or the affairs were mismanaged during the period casting doubt on the reliability of financial statement. Notified w.e.f. 1.6.2016. Monday, September 04, 2017
Revision of accounts Section 131- revision ( voluntarily by the company with the approval of the Tribunal) For the three preceding financial years If the Board feels that financial statements are not prepared according to Section 129 ( accounting standards, format). Notified w.e.f. 1.6.2016. For Application and fee, NCLT Rules, 2016 shall be applicable. Monday, September 04, 2017
Section 137- Copy of F/S to be filed with Registrar Sub-section (1) when duly adopted in AGM. Second proviso to sub-sec (1)- when adopted in adjourned AGM. First proviso to sub-sec (1)- when F/S are not adopted either in AGM or adjourned AGM- F/S are still to be filed as provisional. Sub-section (2)- where F/S could not be adopted as AGM has not been held- still these are to be filed.
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