Companies Act 2013 envisages the concept of corporate governance, transparency, Accountability, responsibilities on directors, auditors. It has been enacted in light of preventing corporate scams and ensure smooth functioning of companies in time bound manner. It was enacted in September 2013 however it became applicable only from 1/4/2014. Therefore Company rules 2014 came and to add feather to its caps Companies Amendment Act 2017 was also enforced
It add onerous responsibilities on part of directors, Auditors(more particularly statutory auditors), consultants last but not the least 'Key managerial personnel'.
The term Key Managerial personnel includes
- Managing director
- Whole time director
- Company Secretary
- Chief financial officer
- Any officer.
The act at the time of inception had huge fine, penalties, imprisonment. At the inception majority were criminal but slowly the shift is towards civil(mostly fine, penalties) due to representation from various professional bodies and to prevent fear in minds of genuine people. The objective of act is to ensure that over a period of time all the unlisted public companies becomes listed over a period of time.
Crucial section still at its midst
Section 144 of companies Act 2013 states a statutory auditor to the company (whether individual or practicing in firm/LLP) is prohibiting from rendering certain services
- Carry out outsourced financial services.
- Actuarial services
- Design implementation of financial system
- Investment banking
- Investment advisory services
- Internal Audit
- Management consultancy services.
- Carry out any other services as may be prescribed
Linking this section and Chartered accountancy Act 1949 as prescribed under code of ethics a statutory auditor can take the assignment of both the Tax audit under 44 Ab of Income Act 1961 as well as GST audit under section 35 of CGST act 2017.
However it is known long back that a statutory auditor cannot be internal Auditor for (company subsidiary, holding associate). This is also very clear as defined under Schedule 2 part 1 clause 4 Which states that ‘’A Chartered in practice is deemed to be guilty of professional misconduct if he expresses his opinion in the financial statement of business /enterprise in which he /his firm/ his relative hold substantial interest in it.
It implies a Chartered Accountant/ his partners /relative in practice who is trustee of trust /member of club / faculty of institution / member of seminar forum/author of book (publisher) cannot do statutory audit. But however for the above mentioned all other functions can be performed except statutory audit. Even at ICAI central /regional / branch/coopted member firm cannot do statutory audit for ICAI.
There is a provision which has been in force from long back that internal auditor cannot be tax auditor (44ab of income tax act 1961). The council of ICAI in the Council meeting in September has taken a decision that internal auditor cannot be the GST auditor. However as per code of ethics of ICAI a chartered accountant in practice is guilty of professional misconduct in government company/Public sector undertaking/listed company where by turnover exceeds 50 crores whereby other services (apart from statutory audit) rendered by statutory auditors exceed the statutory audit fee. however the exemption has been granted with respect to the following services
- Certification work
- Audit required by another statute
- Representation before regulatory authorities
Hence forth combining the above aspects a statutory auditor to company can only apart from statutory audit do only certification, tax audit (direct/indirect), representation before authorities
Now let get into applicability of limits
The limits wherever referred are based on latest audited financial statement of respective entity.
One person company can be formed with one member A private company can be formed with two members , A public company can be formed with seven members. A one person company need to have one director(sole nomine in memorandum of association) a private company can be formed with 2 directors and public companies can be formed with 3 directors The maximum no of directors can be 15. in order to increase it above 15 the following are to be done
Alter the articles of association of company in accordance with companies act 2013.
. Pass a special resolution in accordance with Companies act 2013.
The above steps is not applicable for section 8 company, government company which has not defaulted in filing financial statement and annual return
There is concept which is largely emphasized in companies act about "Resident director". Every company need to have one resident director (stay in India for a period of 182 days or more during previous financial year). Even as per code of ethics in CA act 1949 a chartered accountant while being a director simpliciter has to be resident director.
The concept of independent director plays critical role in companies Act 2013.
Independent director means other than nominee director, whole time director. It is applicable for
- Listed company
- Unlisted public company in which
Paid up share capital director exceed 10 crores or more or
Borrowings public deposit from bank financial institutions exceeds 50 crores or more or
Turnover exceeds 100 crores or more
In case of listed company not less than 1/3 shall be Independent director and in public company minimum 2 shall be independent director.
The Audit committee role has been largely highlighted in 177 of Companies Act 2013
It is applicable for
- Listed company
- Unlisted public company in which
- Paid up share capital director exceed 10 crores or more or
- Borrowings public deposit from bank financial institutions exceeds 50 crores or more or
- Turnover exceeds 100 crores or more
For a listed company governed under SEBI norm the provision states that Audit committee shall consist of 3 directors of which not less than 75% shall be independent directors.
For other class of company governed above the audit committee shall consist of 3 directors of which not less than 51% shall be independent directors.
In both cases the chairman of audit committee shall be independent director the secretary to committee shall be company Secretary.
The audit committee is responsible for review internal audit report, ensuring effective internal financial control review of financials before submission to board.
Women director is an important concept of Companies act 2013. The class of companies mentioned should have atleast one women director. It applies to
. Listed Company (all class)
. Unlisted public company in which
. Paid up share capital exceeds 100 crores or more or
. Turnover exceeds 300 crores or more.
As per section 173 of Companies act 2013 There are minimum 4 board meetings which are to be conducted 4 times in a year. The gap between the meeting shall be not more than 120 days. In case of newly incorporated company the first board meeting shall be conducted within 30 days from date of incorporation. In case of section 8 company, one person company only 2 board meetings need to be conducted at a minimum,gap between shall be more than 90 days.
The quorum in case of section 8 shall be 25% of members or 8 which ever is lower. in other companies it shall be 1/3 of member or 2 directors which is higher.
The company secretary role (both practicing and service ) has significantly increased in order to ensure efficient effective corporate governance as being prescribed under Companies act 2013 and LODR (listing obligation disclosure requirement)
The Provisions with regard to secretarial audit done by full time practicing company secretary is applicable for
- Listed Company
- Public Company in which
- Paid up share capital exceeds 50 crore or more or
- Turnover exceeds 250 crores or more
Every listed company and every other company in which paid up share capital exceeds Rs 5 crore or more should have whole time company secretary (member under company secretaries act 1980).
.Every listed company and public company in which paid up share capital exceeds Rs 10 crore or more should have a whole time key managerial personnel
Key points for statutory audit
1). CSR is a new concept introduced in companies act 2013.based on recent notification CSR is applicable for companies having
- Turnover exceeds 100 crore or more.
- Net worth exceeds 500 crore or more
- Net profit exceeds 5 crores or more
Based on last FY.
It is also applicable for Section 8 company. Every company covered under this clause should contribute 2% or more of Net profit of preceding financial year.
2) The no of company audit by one chartered accountant in practice is 20.
However the 20 does not include the following:
One person company, small company, dormant company, Private company in which paid up share capital does not exceed 100 crore.
3) The provision of Rotation of auditors is applicable for
- Listed company of all class
- Public company in which paid up share capital exceeds 10 crore or more
- Private company in which paid up share capital exceeds 50 crore or more
- Companies mentioned in class above having borrowings from bank, public financial institutions exceeds 50 crore or more.
The rotation of auditors is not applicable for one person company small company and companies not mentioned in above category.
4) CARO (company auditor reporting order) is covered under 2016 which covers 16 clauses. The provision is not applicable for
- Banking Company
- Insurance company
- Electricity company
- One person company
- Small company
- Section 8 company
- Private company not being a subsidiary of Public company in which paid up share capital free reserves does not exceed 1 crore and turnover (Revenue from operations does not exceed 10 crores).
It applies to a foreign Company It is only reported in stand alone financial statement and not on consolidated financial statements
Due to Companies act 2013 there is paradigm shift in role of three professionals (service /practice). Even syllabus of all three courses are unique and to create competent skilled versatile professionals There were days (atleast 10 years back where by finishing CA can complete other two course. Now it is not the case due to requirement of companies act 2013). Therefore every commerce student aspiring and having keen interest to do finance course should have single clear cut mind to do only ‘’ONE’’ course and excel in it thereby doing other qualifications (other than remaining two but any other) as may be necessary.
Company secretary course largely covers company law matters and other laws (business, economic, civil)
Cost and work Accountant course largely covers costing management accounting.(more of managerial function)
Chartered Accountancy course largely covers Accounting, Auditing and taxation. It even all other traditional and emerging areas in field of Finance.
Erstwhile (atleast 7 years before ICSI,ICWA did not have practical training mandatorily ) but now like chartered accountancy other two professional courses have recognized and made practical training mandatory by norms).
These three courses conducts GMCS Courses (twice ) conducts information technology training(twice) As a matter of welcoming new professional all three institutes conducts convocation twice a year.
These three courses are dynamic extensive but worth doing.
These three courses are cost effective where cost attributable to course is reimbursed in form of Stipend (at least 60% minimum). They are the only courses where by there is no bias in respect of caste, gender, mark. The rule applies to all. Generally a course which is done in India by students of India. these courses have benchmarked globally.