Guidance Note on Reports in Company Prospectuses (Revised 2016)
Issued by- Auditing and Assurance Standards Board
Applicability of the guidance note
This Guidance Note is issued for providing guidance to the practitioners in reporting requirements that are required in relation to financial information to be included in the prospectus in case of initial public offering (IPO). This Guidance Note, apart from the IPO, is also applicable to other type of filings for the issue of securities (equity shares, debentures and notes etc.) such as letter of offer (in case of right issue), placement document (in case of Qualified Institutional Buyers ‘QIBs’) etc. and filings for the issue of units under Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014, as amended and Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations, 2014, as amended to the extent applicable. The Guidance Note is drafted considering the offer or sale of the securities in India. Accordingly, the guidance or formats included may need to be modified based on other international guidance or practices, in case an offer or sale of the securities is made outside India. This Guidance Note will be applicable in relation to initial offer document such as DRHP/ DLoF/ PPD and others which are filed on or after January 1, 2017. Earlier application is voluntary.
1.1 The purpose of this Guidance Note is to provide guidance on compliance with the provisions of the Companies Act, 20131 (hereinafter referred to as “the Act” unless otherwise specified), and the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009, as amended (herein after referred to as the “ICDR Regulations2”), relating to the reports required to be issued by chartered accountants in prospectus issued by the companies for the offerings made in India.
1.2 The relevant provisions of the Act dealt within this Guidance Note are:Online GST Certification Course by TaxGuru & MSME- Click here to Join
(a) Section 2(70) – definition of prospectus;
(b) Section 14 – requirements to be complied with by a private company which becomes a public company by altering its Articles of Association;
(c) Sections 23 to 42 – relating to prospectus and allotment of securities for public offer and private placement;
(d) Sections 387 to 393 – relating to prospectus issued by companies incorporated outside India; and
(e) Companies (Prospectus and Allotment of Securities) Rules, 2014 containing guidelines for information to be stated and reports to be set out in prospectus and other matters and reports to be stated in prospectus.
The Guidance Note also deals with relevant aspects of the ICDR Regulations.
1.3 Section 2(70) of the Companies Act, 2013 defines ‘Prospectus’ as any document described or issued as a prospectus and includes a red herring prospectus referred to in Section 32 or shelf prospectus referred to in Section 31 or any notice, circular, advertisement or other document inviting offers from the public for the subscription or purchase of any securities of a body corporate. The object of issuing a prospectus is, therefore, to invite the public to invest their moneys in the company. In order to enable the potential investors to take a well-informed decision in the matter, the Act and chapter V of the ICDR Regulations spell out, in details, the information to be given in a prospectus. Furthermore, to ensure that the information required to be stated in a prospectus is truthfully disclosed, the relevant statutes prescribe severe penalties for untrue statements in a prospectus, the object of the law being to protect the potential investors.
1.4 Section 26 to the Act read with Companies (Prospectus and Allotment of Securities) Rules, 2014 deals with the matters to be stated in the prospectus and the reports to be set out therein. Requirements of Section 26 to the Act read with Companies (Prospectus and Allotment of Securities) Rules, 2014 and Chapter V of the ICDR Regulations are to be complied with when a company invites the public to subscribe for its shares or debentures.
1.5 Companies (Prospectus and Allotment of Securities) Rules, 2014 deal with the reports to be set out in a prospectus. Rule 4 of the Companies (Prospectus and Allotment of Securities) Rules, 2014 requires a report by the auditors of the company, containing the particulars specified in the said rule. Sub rule (1) and (2) of Rule 5 of the Companies (Prospectus and Allotment of Securities) Rules, 2014 under the circumstances specified therein require a report, containing the specified particulars, by chartered accountants, as named in the prospectus. Further paragraphs (1) to (5) of sub-item (B) of Item (IX) of Part A of Schedule VIII to the ICDR Regulations require the same reports to be set out in the prospectus as provided in Rules 4 and 5 of the Companies (Prospectus and Allotment of Securities) Rules, 2014.
Link to Download Guidance Note on Reports in Company Prospectuses-