Towards the implementation of the Companies Act, 2013, the Ministry of Corporate Affairs notified another 183 sections of the Act which will be made applicable from 1st April, 2014. As of now ,a total of 282 sections ( 99 sections were notified earlier) have been cleared along with the Set of Rules for operationalization of the Act and to make law at par with the International best practices and procedures.
Though there are some important provisions relating to setting up of Regulatory bodies (such as NFRA, NCLT, etc) which have been put on hold for the time being, the new law will bring more transparency in corporate governance, while allowing flexibility to companies in exceptional situations.The audit system, internal control systems and procedures are some of the exemplary provisions of the new law.
ICAI appreciates the fact that Ministry of Corporate Affairs has also notified the sections that are in the best interest of stakeholders at large. Further, new concepts which have been made applicable from 1st April, 2014 like definition of Independent Directors alongwith the Code for Independent Directors and the Concept of Corporate Social Responsibility in the Indian context are not only remarkable but would also set a tone for making our Law at par with the best International Standards and Practices.
With the notification of aforesaid sections, the Rules for some of the chapters have also been notified and now the scope for internal audit has been extended to prescribed class of private companies as well as unlisted public companies.
CA. K. Raghu, President, ICAI said, “ ICAI welcomes the changes in the Companies Act which have been long pending. The efforts of the MCA in achieving this milestone are quite laudable and appreciable in a democratic set-up with wide and varied interests of stakeholders. We do believe that anything new would pose certain difficulties but we expect to overcome these challenges.”
Rotation of Auditors which has not been accepted across the world is now only restricted to certain class of companies leaving close to 90% of the Companies outside the scope of rotation. This will benefit small and medium practitioners and corporates.
CA. K. Raghu, President, ICAI added “As far as the limit of 20 audits is concerned, this is likely to create practical difficulties for the profession. With the technological advancement both in Accounting and Auditing, the Chartered Accountants can serve and bestow personal attention to a much larger population than the limit prescribed.”
CA. K. Raghu further stated “We are very hopeful that government having recognised “public interest” as the criteria for the rotation, will also apply the same for specifying the limit of 20 audits .”
We also understand that there are going to be practical difficulties in dealing with reporting on every fraud. However, the silverlining in the Final rules on reporting of fraud is that now the auditor need not report the fraud directly to the Central Government in the first instance, the report would have to be given to the Board & the Audit Committee and within next 60 days, the report on fraud shall have to be submitted to the Central Government. We are looking at various possibilities and hope to resolve this issue in a practical manner soon.
Also, while defining fraud, Serious Fraud Investigation Office has come into force, the provisions relating to damages for fraud in case of deposits have not been notified. The MCA in its wisdom and as a regulator have carefully thought to keep in abeyance the notification of sections relating to Re-opening of Accounts on Court's or Tribunal's order, Voluntary Revision of financial statements or Board's Report, National Financial Reporting Authority, Class Action Suits, Registered Valuers, Investor and Education Protection Fund, Compromise and Arrangement, Oppression and Mismanagement, Winding up, Sick Companies, Special Courts, National Company Law Tribunal.
The deferring of the Constitution of National Financial Reporting Authority has come as solace to the profession.
While ICAI welcome changes, we do anticipate various challenges in implementing this act for the first time. The ICAI would extend all support to help the Ministry for smooth implementation of the Companies Act by offering suitable clarifications and would issue guidance for the benefit of the members of the profession and Corporates.