♣ Rule 11 of the Companies (Audit and Auditors) Rules, 2014 is related to other matters to be included in audit report. The amendment states that there is an additional matter the auditor should report
“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 8th November, 2016 to 30th December, 2016 and if so, whether these are in accordance with the books of accounts maintained by the company.”
♣ Sec 139 (2) states the companies which cannot appoint an auditor for more than 5 consecutive years ( 2 terms of 5 years for audit firm)
There is an amendment in this clause in class of companies. The limit of paid up share capital requirement for private limited company is raised from 20 crores to 50 crores i.e. the line reads as “all private limited companies having paid up share capital of rupees fifty crores or more shall not appoint or reappoint the auditor for more than 5 consecutive years (2 terms of 5 years for audit firm).”
For example, a company having paid up share capital of 30 crore can now appoint auditor for 6 years and this limit do not apply to them.
♣ Sec 143(3)(i) refers to reporting by auditor towards Internal Financial Control System are applicable to companies commencing on or after 1st April 2016 (This is just a clarification issued that the amendment is not retrospective but is applicable after notification date).
♣ In next amendment it is clarified as “internal financial controls with reference to financial statements” i.e. this amendment limits the scope of Internal Financial Reporting.
♣ Another amendment in the same provision is for providing exemption from Internal Financial Controls to following private companies which is
- one person Company (OPC) or a Small Company; or
- Which has turnover less than Rs. 50 Crores
- Which has aggregate borrowings from banks or financial institutions or any body-corporate at any point of time during the financial year less than Rs. 25 Crore.
- (Only if a private company which has not committed a default in filing its financial statements or annual return)
♣ Sec 141 (3) a person who is in full time employment elsewhere or a person or a partner of a firm holding appointment as its auditor, if such person or partner is at the date of such appointment or reappointment holding appointment as auditor of more than 20 companies other than one person companies, dormant companies, small companies and private companies having paid-up share capital < Rs. 100 crore. (only if such company has not committed any default in filing)
For Example, if the auditor already has 19 audits including a private company who have not complied with filing requirements then the auditor would be considered to be holding 20 (19+1) companies and would be disqualified for next appointment.
♣ Further, in section 143 Auditor is given right to access books of accounts of subsidiary as well as all associates of a company by substituting word “its subsidiaries”, with the words “its subsidiaries and associate companies”; this amendment extends the rights of auditor to inspect books of associates and provides clarification to the clause.
♣ Sec 143 clause 14 for the words “cost accountant in practice”, the words “cost accountant” shall be substituted.
♣ In case of failure by auditor regarding filing of ADT-3 (form after resignation creating casual vacancy), the auditor shall be punishable with fine not less than Rs 50,000 or REMUNERATION OF AUDITOR whichever is less but may extend to Rs. 5,00,000 whereby reducing the minimum penalty to remuneration of auditors.
Other sectors under consideration (Amendments due to Companies Act)
♣ A person who, directly or indirectly, renders any service referred to in section 144 to the company or its holding company or its subsidiary company shall not be eligible for appointment as an auditor of a company. This point clarifies the position of auditor by covering all kinds of activities by the auditor in related concern.
♣ The Central Government has exempted the companies engaged in defence production to the extent of application of relevant Accounting Standard on segment reporting.
♣ The Order for reopening of accounts not to be made beyond eight financial years immediately preceding the current financial year unless and until Government has, under Section 128(5) issued a direction for keeping books of account longer than 8 years, reopening of accounts can be made for such longer period.
♣ Section 147 of the Companies Act, 2013 prescribes following punishments for contravention:
♣ If any of the provisions of sections 139 to 146 (both inclusive) is contravened,
- the company shall be punishable with fine which shall not be less than 25000 rupees but which may extend to 5,00,000 rupees and
- every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than ten thousand rupees but which may extend to one lakh rupees, or with both.
♣ If an auditor of a company contravenes any of the provisions of section 139,section 143, section 144 or section 145, the auditor shall be punishable with fine which shall not be less than 25,000 rupees but which may extend to 5,00,000 rupees or four times the remuneration of the auditor, whichever is less.
For Example, If the auditor’s remuneration is Rs. 1,00,000 than maximum penalty can be (4×100000) i.e. Rs. 400000 thereby reducing the upper limit.
- It may be noted that if an auditor has contravened such provisions knowingly or willfully with the intention to deceive the company or its shareholders or creditors or tax authorities, he shall be punishable with imprisonment for a term which may extend to 1 year and with fine which shall not be less than 50,000 rupees but which may extend to 25,00,000 rupees or eight times the remuneration of the auditor, which every is less.
- (Provided that in case of criminal liability of an audit firm, in respect of liability other than fine, the concerned partner or partners, who acted in a fraudulent manner or abetted or, as the case may be, colluded in any fraud shall only be liable.)
- In case of contravention of 147 (2) where auditor needs to pay damages, auditor liability is further extended to member or creditors of the company in addition to statutory bodies.
All the best for your exams !!