COMPANIES ACT 2013 & AUDITORS BY CA P.ANAND PROGRAMME OF S I R C OF I C A I ON 4 TH JULY 2014 7/15/2014 1
APPOINTMENT OF AUDITORS: CHANGES IN THE 2013 ACT: QUALIFICATIONS Limited Liability Partnership is qualified Holding of security limit enhanced by rules Indebtedness to the company limit enhanced Business Relationship Limitation on the number of Audits applicable to all Companies including Private Companies. Providing Consulting and specialised services as provided in Sec.144 either by himself or subsidiary or associate 7/15/2014 2
APPOINTMENT PERIOD & ROTATION Five years or it can be lesser: Sec. 139 speaks for an appointment of five years but ratification of the same every year. Law prevails. Hence appointment has to be for a period of five years but in between when ratification comes annually can withdraw re appointment with steps prescribed for removal to be followed. 7/15/2014 3
RULES PRESCRIBED FOR APPOINTMENT & ROTATION : Rule 3 of The Companies (Audit & Auditors) Rules 2014 speaks of appointment. Explanation to the said rule prescribes that if the appointment is not ratified by the members, the Board has the power to appoint. Sec.139(10) prescribes that the auditor is not appointed,the existing auditor shall continue to be the auditor of the company. 7/15/2014 4
CONCEPT OF SIGNING PARTNER Though the Act is silent of signing partner or partner in charge of an audit Explanation to Rule 6 of The Companies (Audit& Auditors )Rules 2014 speaks as follows: if a partner who is in charge of an audit firm and also certifies the financial statements of the company, retires from the said firm and joins another firm of chartered accountants, such other firm also be ineligible to be appointed for a period of five years. 7/15/2014 5
RELATIONSHIP WITH THE CLIENT Sec.141(3)(e),(f) talks of relationship of the auditor with the client and prohibits him being appointed as auditor. (e) talks of business relationship (f) talks of relative being director or in employment of the company as a director or key management personnel. 7/15/2014 6
Business relationship is defined in the Rules as follows: Transaction entered into for a commercial purpose, except- 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; 7/15/2014 7
commercial transactions which are in the ordinary course of business of the company at arm s length price-like sale of products or service 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 business. 7/15/2014 8
PROHIBITED SERVICES BY AN AUDITOR AS PER COMPANIES ACT 2013 Accounting and Book Keeping Services Internal Audit Design and implementation of and any financial information system Actuarial services Investment Advisory services Rendering of outsourced financial services Management Services Any other kind of services as may be prescribed. 7/15/2014 9
SERVICES THAT CAN BE OFFERED BY A C A. As per the publication of the ICAI a chartered accountant can offer the following services: Statutory Audit Internal Audit Tax Audit Other Audits and certification work Tax practice Management Consultancy services Secretarial Work Liquidators work 7/15/2014 10
PENALTIES FOR CONDUCTING THE PROHIBITED SERVICES: Sec.147 (2) of the Companies Act 2013 prescribes the following deterrents for not complying with the prescribed Services: 0.25lac to 5 lac. Willingly done, then imprisonment for one year and fine from 1lac to 25 lacs. Entire remuneration to be refunded Pay for damages. 7/15/2014 11
QUESTIONS: Wife rendering Accounting Services for a Company of which you are the Auditor. Forms within the definition of relative. Hence in my opinion cannot be done If not wife but a brother Same as above If it is brother in law Not in the list of relative but may fall under indirectly VAT return and Statutory Audit In my opinion it does not contravene the Act. 7/15/2014 12
Indirectly meaning : Covers a wider area by including an organisation on which I am able to have influence not of a direct nature but an indirect nature like carrying on the work not with the list of relatives prescribed but just of that net relative. 7/15/2014 13
When do I stop the services which are part of prescribed services which I cannot offer? Time frame given under the Act Internal Audit and Tax Returns As there is no conflict of interest it can be carried on Appearance before Tax Authorities This is not in conflict with the services that can be offered by a Statutory Auditor. Hence in my opinion it can be carried on. 7/15/2014 14
THANK YOU 7/15/2014 15