In this article, we will have insight over the applicable provisions of certain most common sections (yet vital) of the Companies Act 2013, which we come through day in and day out during Audit and Assurance assignments.
CARO 2020
CARO 2020 is applicable to all companies including foreign companies w.e.f 1st April 2021. Following are the exceptions: –
- One person company.
- Small companies (see below definitions).
- Banking and Insurance companies.
- Companies registered for charitable purposes.
- The following private companies (not being a holding or subsidiary of a Public company) are also exempt from the requirements of CARO, 2020 if all following three conditions are satisfied:-
- Whose gross receipts or revenue (including revenue from discontinuing operations) is less than or equal to Rs 10 crore during the financial year.
- Whose paid-up share capital + free reserves is less than or equal to Rs 1 crore as on the balance sheet date (i.e. usually at the end of the FY).
- Whose borrowings is less than or equal to Rs 1 crore at any time during the Financial Year.
For details analysis on CARO 2020 :- Read my analysis – CARO 2020 Key Analysis and Changes for more understanding.
Small Company
As per section 2(85) of the companies act 2013, a small company is a company which satisfies all the following conditions:-
1. It is not a public company;
2. It is not a holding and subsidiary company of any company;
3. It is not a company under section 8 of Companies act 2013 or is not governed by special Act like insurance act 1938, Banking regulation act 1949 etc.
4. And whose:-
| Particulars | For 2020-21 | For 2021-22 and onwards |
| Paid up share capital as on reporting date; and | Does not exceed 50 lakhs | Does not exceed 2 crores |
| Turnover for immediately preceding financial year. | Does not exceed 2 crores | Does not exceed 20 crores |
Internal Financial Control
As per Section 143(3)(i) of the Companies Act 2013, Auditors for the companies have to report whether the company has adequate Internal Financial Controls and also comment upon the operating effectiveness of such controls if the company is not:-
1. Small company, and
2. One person company, and
3. Private Company which is :-
1. having turnover less than 50 Crores as per latest audited financial statements; and
2. aggregate borrowings from banks, Financial institution and body corporate at any point in time during the financial year is less than 25 crores.
Internal Audit
According to Rule 13 of the Companies (Accounts) Rules, 2014, the following classes of companies are mandated to appoint an internal auditor or a firm of internal auditors:
- All listed companies,
- Unlisted public companies that meet either of the below criteria:
- Have outstanding deposits of Rs. 25 crores or more at any point of time during the immediately preceding financial year
- Have a paid-up share capital of Rs. 50 crores or more during the immediately preceding financial year, or
- Have outstanding loans or borrowings from banks or financial institutions with a balance exceeding Rs. 100 crores at any point of time during the immediately preceding financial year; or
- Have a turnover of Rs. 200 crores or more during the immediately preceding financial year.
- Private companies that meet either of the below criteria:
- Have a turnover of Rs. 200 crores or more during the immediately preceding financial year; or
- Have outstanding loans or borrowings from banks or financial institutions with a balance exceeding Rs. 100 crores at any point of time during the immediately preceding financial year
- (All the companies covered under any of the above conditions will need to comply with the requirements of section 138 and rules specified under the Companies (Accounts) Rules, 2014.)
Indian Accounting Standard
MCA has notified a phase-wise convergence to IND AS from current accounting standards. IND AS shall be adopted by specific classes of companies based on their Net worth and listing status. Let’s see the each of the phases in detail below:
Phase I
Mandatory applicability of IND AS to all companies from 1st April 2016, provided:
It is a listed or unlisted company
Its Net worth is greater than or equal to Rs. 500 crore*
*Net worth shall be checked for the previous three Financial Years (2013-14, 2014-15, and 2015-16).
Phase II
Mandatory applicability of IND AS to all companies from 1st April 2017, provided:
It is a listed company or is in the process of being listed (as on 31.03.2016)
Its Net worth is greater than or equal to Rs. 250 crore but less than Rs. 500 crore (for any of the below mentioned periods).
Net worth shall be checked for the previous four Financial Years (2014-14, 2014-15, 2015-16, and 2016-17)
Phase III
Mandatory applicability of IND AS to all Banks, NBFCs, and Insurance companies from 1st April 2018, whose:
Net worth is more than or equal to INR 500 crore with effect from 1st April 2018.
IRDA (Insurance Regulatory and Development Authority) of India shall notify the separate set of IND AS for Banks & Insurance Companies with effect from 1st April 2018. NBFCs include core investment companies, stock brokers, venture capitalists, etc. Net Worth shall be checked for the past 3 financial years (2015-16, 2016-17, and 2017-18)
Phase IV
All NBFCs whose Net worth is more than or equal to INR 250 crore but less than INR 500 crore shall have IND AS mandatorily applicable to them with effect from 1st April 2019.
Please Note:
If IND AS becomes applicable to any company, then IND AS shall automatically be made applicable to all the subsidiaries, holding companies, associated companies, and joint ventures of that company, irrespective of individual qualification of such companies. In case of foreign operations of an Indian Company, the preparation of stand-alone financial statements may continue with its jurisdictional requirements and need not be prepared as per the IND AS. However, these entities will still have to report their IND AS adjusted numbers for their Indian parent company to prepare consolidated IND AS accounts.
Others
Small and Medium Sized Companies (SMCs)
An SMC is a Company –
- whose equity/ or debt securities are not listed or are not in the process of listing on any stock exchange, whether in India or outside India;
- which is not a bank, financial institution or an insurance company;
- whose turnover (excluding other income) does not exceed Rs. 250 crores in the immediately preceding accounting year;
- which does not have borrowings (including public deposits) in excess of Rs. 50 crores at any time during the immediately preceding accounting year; and
- which is not a holding or subsidiary company of a company that is not an SMC.
Cash Flow
According to Section 2(40) of Companies Act, 2013, The Financial statements of a company must include Cash Flow Statement. Cash Flow Statement is governed by The Companies (Accounting Standards) Rules, 2006 (AS 3) and The Companies (Indian Accounting Standards) Rules, 2015 (Ind AS 7), as applicable.
The following companies are given exemption from filing Cash Flow Statement: –
- One Person Company
- Dormant Company
- Small Company
- Small and Medium Sized company.
*****
Disclaimer: The above discussion mentioned above cannot be assumed as professional advice and I assume no responsibility for the above. The content is for knowledge purposes only and has been updated as of date when the post ha been published.
Author Bio
wonderful work on the areas where professionals are generally confused about their applicability.