The MCA vide its Notification No. G.S.R. 206(E), dtd. 24th March, 2021, notified a new set of Rules i.e., Companies (Audit and Auditors) Amendment Rules, 2021 to further amend the existing Companies (Audit and Auditors) Rules, 2014.

The said notification came into force w.e.f. 1st April, 2021.

1. Insertion of clauses (e), (f) & (g) in Rule 11:

(e) (i) Whether the management has represented that, to the best of its knowledge and belief, other than as disclosed in the notes to the accounts, no funds have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the company to or in any other person(s) or entity(ies), including foreign entities (“Intermediaries”), with the understanding, whether recorded in writing or otherwise, that the Intermediary shall, whether, directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the company (“Ultimate Beneficiaries”) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries;

(ii) Whether the management has represented, that, to the best of its knowledge and belief, other than as disclosed in the notes to the accounts, no funds have been received by the company from any person(s) or entity(ies), including foreign entities (“Funding Parties”), with the understanding, whether recorded in writing or otherwise, that the company shall, whether, directly or indirectly, lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party (“Ultimate Beneficiaries”) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries; and

(iii) Based on such audit procedures that the auditor has considered reasonable and appropriate in the circumstances, nothing has come to their notice that has caused them to believe that the representations under sub-clause (i) and (ii) contain any material mis-statement.

(f) Whether the dividend declared or paid during the year by the company is in compliance with section 123 of the Companies Act, 2013.

(g) Whether the company has used such accounting software for maintaining its books of account which has a feature of recording audit trail (edit log) facility and the same has been operated throughout the year for all transactions recorded in the software and the audit trail feature has not been tampered with and the audit trail has been preserved by the company as per the statutory requirements for record retention.”

Vide this notification, the MCA introduced 3 new matters to be included in the Auditor’s Report.

2. Omission of clause (d) of Rule 11:

Omitted provision:

“(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 8th November, 2016 to 30th December, 2016 and if so, whether these are in accordance with the books of accounts maintained by the company.”

Vide this amendment, the MCA omitted clause (d), which is of no essence in the present time.

CONCLUSION: As it can be clearly noted that this notification was ought to come into force w.e.f. 1st April, 2021, however, the MCA vide its Notification No. G.S.R. 248(E), dtd. 01st April, 2021, notified Companies (Audit and Auditors) Second Amendment Rules, 2021, and amended clause (g) of Rule 11 by substituting the words “Whether the company”, with the words, figures and letters “Whether the company, in respect of financial years commencing on or after the 1st April, 2022,” This amendment was made so as to bring the same in line with the Companies (Accounts) Second Amendment Rules, 2021.

Keeping in view the above points in consideration, it can be concluded that the provisions of Companies (Audit and Auditors) Amendment Rules, 2021 are applicable w.e.f. 1st April, 2021 except for clause (g) which will be applicable w.e.f. 1st April, 2022.

Whether the newly introduced matters are to be included in the Auditor’s Report for the F.Y. 2021-22?

Here, it is very clear from the language of the provision itself, that the amendments in Auditor’s Report are applicable w.e.f. 1st April, 2021 [except for clause (g) which is applicable w.e.f. 1st April, 2022]. So, for the Auditor’s Report which is to be prepared for F.Y. 2021-22, clauses (e) & (f) shall be included.

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