CHANGES IN AUDIT AND AUDITOR-COMPANIES ACT 2013

The companies act, 2013 has come into existence on 29.08.2013 that replaces a nearly six decade-old legislation and overhauls the way corporate function and are regulated in the country.

This article contains the description of some provisions related to audit and auditors which have been modified in companies Act, 2013.

1).       Appointment of first auditor in case of every company except govt. company or company owned/ controlled by CG/SG/CG and SG [139(6)]:-

Appointment of first auditor shall be made by board within 30 days of registration of company. If Board fails to appoint the first auditor within given time then it shall inform to members and members shall make the appointment of first auditor within 90 days of information at an EGM. The First Auditor shall hold office till the conclusion of first AGM. NOTE: No time period is mentioned for Board to inform the members about the Non appointment of first auditor.

2).       Appointment of first auditor in case of govt. company or company owned/ controlled by CG/SG/CG and SG139(7):-

Appointment of first auditor shall be made by CAG within 60 days of registration of the company. If CAG fails to appoint the first auditor within given time then Board of such company shall appoint first auditor within 30 days. If Board fails to appoint the first auditor within given time then it shall inform to members and members shall make the appointment of first auditor within 60 days of information at an EGM. The First Auditor shall hold office till the conclusion of first AGM. NOTE: No time period is mentioned for Board to inform the members about the Non appointment of first auditor.

3).       Appointment of Subsequent Auditor in case of every company except Govt. Company or company owned/ controlled by CG/SG/CG and SG[139(1)]:-

Appointment of auditor shall be made by members at First AGM and every subsequent 6th AGM. Company shall intimate the auditor about appointment. After intimating, company shall obtain written consent and certificate (in accordance with the conditions prescribed in section 141) from auditor. Then, company is required to file a notice with the registrar about the appointment within 15 Days of the meeting. Note: The Auditor shall hold office for a period of 5 Years. Note: Company can ratify such appointment at any AGM falling between 5 years from such appointment.

               

4).       Conditions for appointment of Subsequent Auditor in case of Listed Companies or companies of such class [139(2)]:-

If an individual is appointed as an auditor for 1 term i.e. for 5 consecutive years then that individual will not be eligible for reappointment for next 5 years from the expiry of his term as an auditor of company. Whereas, if an audit firm is appointed as auditor for 2 term i.e. for 10 consecutive years then that audit firm will not be eligible for reappointment for next 5 years from the expiry of its term as an auditor of company Note: Audit firm having common partner to the old audit firm of the company will not be eligible for appointment. Note: Any existing listed company is required to comply with the above mentioned provisions within 3 years from the commencement of this act.

6).       Appointment of Subsequent Auditor in case of Govt. Company or company owned/ controlled by CG/SG/CG and SG [139(5)]:-

Appointment of auditor shall be made by CAG within 180 days from the commencement of financial year. The Auditor shall hold office for a till the conclusion of AGM.

7).       Appointment of auditor in Casual Vacancy in every company except Govt. Company or company owned/ controlled by CG/SG/CG and SG [Section 139(8)(i)]:-

If casual vacancy is arising by resignation then vacancy shall be filled by the Company in its meeting within 3 months from the date of recommendation of the Board. Whereas casual vacancy is arising by other than resignation then vacancy shall be filled the Board within 30 days.

8).       Appointment of auditor in Casual Vacancy in case of Govt. Company or company owned/ controlled by CG/SG/CG and SG [Section 139(8)(ii)]:-

Casual vacancy shall be filled by CAG within 30 days. If CAG fails to fill the vacancy within given time then BOD shall fill the vacancy within 30 days.

9).       Rotation of Auditors [ 139(3)]:-

·         Member can rotate auditing partner and his team for any interval ·         Audit can be conducted by 1 or more auditor

10).    Audit Committee [177] and  Role Audit Committee  in appointment of auditors[139(11)]:-

Every Listed Company shall form Audit Committee consisting of minimum 3 directors.Whereas,Majority of directors should be independent and ability to read & understand financial statement Role: Appointment, remuneration and term of appointment of auditor shall be made after considering the recommendations of the Audit Committee Note: Committee existing before commencement of this act shall be reconstitute within 1 year of commencement in accordance of above mentioned provisions

11).    Duty of auditor when he or itresign [140(2)]:-

Auditor is required to file a statement specifying the reasons and fact of resignation within 30 days of resignation with ROC and company or CAG in case of Govt. Companies. If auditor fails to comply with above mentioned provisions then he shall be punishable with fee of Rs. 50,000- Rs. 500,000.

12).    Duty of Company in case of representation received from auditor [140(4)]:-

Company is required to send a copy of the representation to every member and if copy of representation is not sent then a copy shall be filed with registrar.

13).    Role of Tribunal in case auditor found guilty of fraud [140(5)]:

Tribunal may by itself or on application by CG/any concerned person order to change the auditor. And if the application is made by CG then tribunal shall pass an order within 15 days of application. In case of final order is passed then the auditor shall not be appointed for a period of five years in any other company and be further liable for monetary as well as penal punishment.

14).    Eligibility LLP’s as auditors [141(2):

LLP’s can be appointed as auditors of company but only chartered accountant partners are authorized to act and sign on behalf of firm.

15).    Disqualifications of Auditors [141(3)]:

I.            If any partner of the person  holding  interest  or  security  in  the  company  or  its subsidiary,  or  of  its  holding  or  associate  company  or  a  subsidiary  of  such  holding company       II.            If any  relative  of the person holding  interest  or  security whose face value exceeds Rs. 1000 or such sum as may be prescribed in  the  company  or  its subsidiary,  or  of  its  holding  or  associate  company  or  a  subsidiary  of  such  holding company. Note: Relative means member of HUF, Husband and wife or related with person as may be prescribed     III.            If any  relative  of the person is a director or employee of director or key managerial personnel Note: Director means a director appointed to board of the company. Note: Key managerial personnelmeans CEO/MD/Manager, CS, WTD, CFO and such other officer as may be prescribed     IV.            Limit of indebt or guarantee is not mentioned and specified that any amount which may be prescribed       V.            If person or firm has business relationship with in  the  company  or  its subsidiary,  or  of  its  holding  or  associate  company  or  a  subsidiary  of  such  holding company or associate company     VI.            Any person whose subsidiary or associate company or any other form of entity, is engaged as on the date of appointment in consulting and specialized services Note: consulting and specialized services means- a)      accounting and book keeping services; b)      internal audit; c)      design and implementation of any financial information system; d)      actuarial services; e)       investment advisory services; f)       investment banking services; g)      rendering of outsourced financial services; h)      management services; and i)        any other kind of services as may be prescribed     VII.            Any person convicted by court of offence involving fraudand 10 years has not elapsed from the date of such conviction   VIII.            Person holding appointment as auditor of more than 20 companies.        IX.            Person in full time employment

16).    Remuneration of Auditors [142(1)]:-

Remuneration shall be decided by members at a general meeting except for the remuneration of first auditor which shall be decided by board.

17).    Power of Auditor [143(1) Proviso]:-

Auditor of holding company has the right of access to the records of all subsidiaries in so far as it relates to the consolidation of its financial statements with that of its subsidiaries.

18).    Duties of Auditor [143(9),(12),(13),(15) and 146]:-

                    i.            Every auditor need to comply with auditing standard [143(9)].

                  ii.            Auditor shall report the fraud to the CG within prescribed time and manner and the same shall not be construed as breach of duty[143(12) & (13)]

                iii.            If auditor fails to comply with above mentioned provisions then he shall be punishable with fee of Rs. 100,000 Rs. 500,000 [143(15)].

                 iv.            Auditor has to attend general meeting unless exempted by the company [146].

19).    Auditor not to render certain services [144]:-

Auditor cannot provide following services to the company, its holding company or its subsidiaries, or associate company:                        i.            Accounting and book keeping service; Internal audit;                      ii.            Design and implementation of any financial information system;                    iii.            Actuarial services;                     iv.            Investment advisory services;                       v.            Investment banking services;                     vi.            Rendering of outsourced financial services;                   vii.            Management services; and                 viii.            Any other kind of consultancy services. Note: If auditor is providing such services before the commencement of this act then he has to comply with the above mentioned provision before the closure of the first financial year after the date of such commencement.

Refund of share application money isn’t a loan or advance for sec. 2(22)(e), unless malafide intention is there

Where share application money is returned without any allotment of shares, such refund cannot be classified as loan or advance under section 2(22)(e), unless mala fide intentions of assessee are proved

The Tribunal held as under:

1) The share application money or share application advance is distinct from the 'loan or advance'. Although the share application money is one kind of advance given with the intention to obtain the allotment of shares, yet such advance is innately different from the normal loan or advance specified in 2(22)(e);

2) In the instant case, the refund of the amount was made for commercial reasons and also in the best interests of the prospective share applicants. Further, it was self explanatory that the assessee being a 'beneficial shareholder', derived no benefit whatsoever, when the impugned 'share application money' was finally returned without any allotment of shares for commercial reasons;

3) Therefore, the share application money might have been an advance but it was not advance which was referred to in section 2(22)(e). Such advances, when returned without any allotment or part allotment of shares to the applicants, would not take a nature of the loan merely because the same was repaid or returned or refunded in the same year or later on after keeping the money for some time with the company;

4) As the original intention of payment of share application money was towards the allotment of shares of any kind, the same couldn’t be deemed as 'loan or advance', unless the mala fide intentions were proved by the AO with evidence. Accordingly, the grounds raised by the revenue were to be dismissed - VIKAS OBEROI V. DY. CIT (2013) 37

What is Demat? How to open Demat account?

Demat refers to a dematerialised account. Though the company is under obligation to offer the securities in both physical anddemat mode, you have the choice to receive the securities in either mode. If you wish to have securities in demat mode, you need to indicate the name of the depository and also of the depository participant with whom you have depository account in your application.  It is, however desirable that you hold securities in demat form as physical securities carry the risk of being fake, forged or stolen. Just as you have to open an account with a bank if you want to save your money, make cheque payments etc, Nowadays, you need to open a demat account if you want to buy or sell stocks. HOW TO OPEN A DEMAT ACCOUNT ? Opening an individual Demat account is a two-step process: You approach a DP and fill up the Demat account-opening booklet. The Web sites of the NSDL and the CDSL list the approved DPs. You will then receive an account number and a DP ID number for the account. Quote both the numbers in all future correspondence with your DPs. So it is just like a bank account where actual money is replaced by shares. You have to approach the DPs (remember, they are like bank branches), to open yourdemat account. Let's say your portfolio of shares looks like this: 150 of Infosys, 50 of Wipro, 200 of HLL and 100 of ACC. All these will show in your demat account. So you don't have to possess any physical certificates showing that you own these shares. They are all held electronically in your account. As you buy and sell the shares, they are adjusted in your account. Just like a bank passbook or statement, the DP will provide you with periodic statements of holdings and transactions. Is a demat account a must?  Nowadays, practically all trades have to be settled in dematerialised form. Although the market regulator, the Securities and Exchange Board of India (SEBI), has allowed trades of upto 500 shares to be settled in physical form, nobody wants physical shares any more. So a demat account is a must for trading and investing. Most banks are also DP participants, as are many brokers. You can choose your very own DP. To get a list, visit the NSDL and CDSL websites and see who the registered DPs are. A broker is separate from a DP. A broker is a member of the stock exchange, who buys and sells shares on his behalf and on behalf of his clients. A DP will just give you an account to hold those shares. You do not have to take the same DP that your broker takes. You can choose your own.

What is share ? How does one trade in shares ? In finance a share is a unit of account for various financial instruments including stocks, mutual funds, limited partnerships, and REIT's. In British English, the usage of the word share alone to refer solely to stocks is so common that it almost replaces the word stock itself. In simple Words, a share or stock is a document issued by a company, which entitles its holder to be one of the owners of the company. A share is issued by a company or can be purchased from the stock market. By owning a share you can earn a portion and selling shares you get capital gain. So, your return is the dividend plus the capital gain. However, you also run a risk of making a capital loss if you have sold the share at a price below your buying price. A company's stock price reflects what investors think about the stock, not necessarily what the company is "worth." For example, companies that are growing quickly often trade at a higher price than the company might currently be "worth." Stock prices are also affected by all forms of company and market news. Publicly traded companies are required to report quarterly on their financial status and earnings. Market forces and general investor opinions can also affect share price. Quick Facts on Stocks and Shares Owning a stock or a share means you are a partial owner of the company, and you get voting rights in certain company issues Over the long run, stocks have historically averaged about 10% annual returns However, stocks offer no guarantee of any returns and can lose value, even in the long run Investments in stocks can generate returns through dividends, even if the price How does one trade in shares ? Every transaction in the stock exchange is carried out through licensed members called brokers.To trade in shares, you have to approach a broker However, since most stock exchange brokers deal in very high volumes, they generally do not entertain small investors. These brokers have a network of sub-brokers who provide them with orders. The general investors should identify a sub-broker for regular trading in shares and palce his order for purchase and sale through the sub-broker. The sub/broker will transmit the order to his broker who will then execute it .

Applicable Sections of Companies Act 2013 from 12th September, 2013.

Applicable Sections of Companies Act 2013 from 12th  September, 2013. As per the notification issued by the Ministry of Corporate Affairs on 12th September 2013, following provisions of Companies Act 2013 shall come in to force from 12th September 2013. (Click on the link to read the sections)  Sl No. Section 1 Section 2 Clause (1); Clause (3) to (6) (both inclusive); Clause (8) to (12) (both inclusive); Clause (14) to (22) (both inclusive); Clause (24) to (28) (both inclusive); Clause (29) [except sub-clause(iv)]; Clause (30); Clause (32) to (40) (both inclusive); Clause (43) to (46) (both inclusive); Clause (49) to (61) (both inclusive); Clause (63) to (66) (both inclusive); Clause (67) [except sub-clause(ix)]; Clause (68) to (82) (both inclusive); Clause (84); Clause (86); Clause (87) [except proviso and Explanation (d)]; Clause (88) and (89); Clause (90) to (95) (both inclusive); 2 Section 19; 3 Section 21; 4 Section 22; 5 Section 23 [except clause (b) of sub-section (1) and sub-section (2)]; 6 Section 24; 7 Section 25 [except sub-section (3)]; 8 Sections 29 to 32 (both inclusive); 9 Section 33 [except sub-section (3)]; 10 Section 34; 11 Section 35 [except clause (e) of sub-section (1)]; 12 Sections 36 to 38 (both inclusive); 13 Section 39 (except sub-section (4)]; 14 Section 40 [except sub-section (6)]; 15 Sections 44 and 45; 16 Sections 49 to 51 (both inclusive); 17 Sections 57 to 60 (both inclusive); 18 Section 65; 19 Section 69; 20 Section 70 [except sub-section (2)]; 21 Section 86; 22 Section 91; 23 Section 100 [except sub-section (6)]; 24 Section 102; 25 Section 103; 26 Section 104; 27 Section 105 [except the third and fourth proviso of sub-section (1) and sub-section (7)]; 28 Section 106; 29 Section 107; 30 Section 111; 31 Section 112; 32 Section 113 [except clause (b) of sub-section (1)]; 33 Section 114; 34 Section 116; 35 Section 127; 36 Section 133; 37 Section 161 [except sub-section (2)]; 38 Sections 162 and 163; 39 Section 176; 40 Sections 180 to 183 (both inclusive); 41 Section 185; 42 Section 192; 43 Section 194; 44 Section 195; 45 Section 202; 46 Section 379; 47 Sections 382 and 383; 48 Section 386 [except clause (a)]; 49 Section 394; 50 Section 405; 51 Sections 407 to 414 (both inclusive); 52 Section 439; 53 Sections 443 to 453 (both inclusive); 54 Sections 456 to 463 (both inclusive); 55 Sections 467 to 470 (both inclusive).

Sections 467 to 470 of the Companies Act 2013. Section 467. Power of Central Government to amend Schedules. (1)     Subject to the provisions of this section, the Central Government may, by notification, alter any of the regulations, rules, Tables, forms and other provisions contained in any of the Schedules to this Act. (2)     Any alteration notified under sub-section (1) shall have effect as if enacted in this Act and shall come into force on the date of the notification, unless the notification otherwise directs: Provided that no such alteration in Table F of Schedule I shall apply to any company registered before the date of such alteration. (3)     Every alteration made by the Central Government under sub-section (1) shall be laid as soon as may be after it is made before each House of Parliament while it is in session for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the alteration, or both Houses agree that the alteration should not be made, the alteration shall thereafter have effect only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done in pursuance of that alteration. Section 468. Powers of Central Government to make rules relating to winding up. 1)       The Central Government shall, make rules consistent with the Code of Civil Procedure, 1908 providing for all matters relating to the winding up of companies, which by this Act, are to be prescribed, and may make rules providing for all such matters, as may be prescribed. 2)       In particular, and without prejudice to the generality of the foregoing power, such rules may provide for all or any of the following matters, namely:— i)         as to the mode of proceedings to be held for winding up of a company by the Tribunal; ii)       for the voluntary winding up of companies, whether by members or by creditors; iii)      for the holding of meetings of creditors and members in connection with proceedings under section 230; iv)      for giving effect to the provisions of this Act as to the reduction of the capital; v)       generally for all applications to be made to the Tribunal under the provisions of