Changes in Companies Act
A little more than a half of the provisions of Companies Act, 2013 (Act) came into force from 1st April 2014. Following this, several communications were received in the Ministry of Corporate Affairs from bodies such as industry associations, chambers of commerce and professional institutes drawing attention to certain practical difficulties concerning these provisions or seeking clarifications about the same.
There was also an interactive session on these issues with the stakeholders on 21st June 2014. Pursuant to this Government have issued suitable circulars, statutory orders and amendments in the Rules to provide transitional time, remove doubts or practical difficulties. Amendments in the Act will be considered if measures out-lined above prove inadequate.
Specifically for the difficulties expressed regarding communication of irregularities, embezzlements etc. to the Government through auditors’ reports, the Institute of Chartered Accountants of India has been asked to give its comments on the feasibility of having some criteria to determine the thresholds of the quantum of a fraud/suspected fraud for mandatory reporting to the Government by the Auditors. Section 149(12) of the Act already grants protection to Independent directors (IDs) from prosecution in matters which had not occurred with their knowledge, consent, connivance or where they had acted diligently.
This was stated by Smt. Nirmala Sitharaman, MoS in the Ministry of Corporate Affairs in written reply to a question in the Rajya Sabha today.
It is a bitter pill but auditors like doctors and lawyers have all the information with them. They will be the first to know of the irregularity/possible irregularity/money involved etc. Infact as the patient goes to doctor and aggrieved goes to lawyer to specifically to address to their problem, auditors are engaged to attend to the financial problems as the businessman need not be a professional.
having known the inside info of the concerned auditors had the choice to hold on the info with themselves till now.
This provision makes them more responsible towards the public good and makes it mandatory to report to the concerned.
Welcome step; Govt has redefined the priorities of the Auditors/professional bodies to take care of public as also themselves.