Audit Report- Reporting Challenges Companies Act 2013

Transcription

1 Audit Report- Reporting Challenges Companies Act 2013

2 Agenda Page 2 Presentation title

3 Agenda Additional reporting requirement under Rule 11 of the Companies (Audit and Auditors) Rules, 2014 under section 143(3)(f) and 143 (3)(h) of the Act Fraud reporting under section 143 (12) of the Act and under CARO, 2015 Page 3 Presentation title

4 Reporting under Rule 11 of the Companies (Audit and Auditors) Rules, 2014 Other matters to be included in auditors report.- The auditor s report NOW shall also include their views and comments on the following matters, namely:- (a) whether the company has disclosed the impact, if any, of pending litigations on its financial position in its financial statement; (b) whether the company has made provision, as required under any law or accounting standards, for material foreseeable losses, if any, on long term contracts including derivative contracts; (c) whether there has been any delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the company. Page 4

5 Reporting in respect of sections 143(3)(f) and 143(3)(h) of the Act In addition to the previous requirements, Section 143(3) NOW requires that the auditor s report also state (f) the observations or comments of the auditors on financial transactions or matters which have any adverse effect on the functioning of the company; (h) any qualification, reservation or adverse remark relating to the maintenance of accounts and other matters connected therewith; Page 5

6 Reporting under Rule 11 of the Companies (Audit and Auditors) Rules, 2014 Reporting on the impact of pending litigations:- Assessment consideration- we continue to perform audit procedures on contingencies and commitments outlined in: Accounting Standard (AS) 29: Provisions, Contingent Liabilities and Contingent Assets; Procedures required under SA 250, Consideration of Laws and Regulations in an Audit of Financial Statements Reporting consideration- three possible outcomes The Company does not have any pending litigations which would impact its financial position. Clean/unmodified reporting, i.e., the company has provided for and/or disclosed the impact, if any, of pending litigations on its financial position in the financial statements; or Modified reporting, i.e., the company has not provided for and/or disclosed the impact of pending litigations on its financial position in the financial statements or such disclosure or provisioning is incomplete. Page 6

7 Reporting under Rule 11 of the Companies (Audit and Auditors) Rules, 2014 Reporting on the provision for material foreseeable losses on long term contracts:- Assessment consideration- This clause requires reporting in relation to provisions on long-term contracts (including derivative contracts) that is required to be made by law or accounting standards. We also consider the requirements of specific accounting standards, such as AS 7, Construction Contracts, AS 9, Revenue Recognition and AS 29, Provisions, Contingent Liabilities and Contingent Assets in determining whether provisions are required for material losses on long-term contracts. Reporting consideration- three possible outcomes The Company did not have any long-term contracts, including derivative contracts, for which there were any material foreseeable losses; Clean/unmodified reporting, i.e., the company has made the necessary provisions; or Modified reporting, i.e., the company has not made the necessary provisions or such provisions are either incomplete or incorrect. Page 7

8 Reporting under Rule 11 of the Companies (Audit and Auditors) Rules, 2014 Reporting on the transferring amount to IEPF:- Assessment consideration- A company needs to transfer specific amounts to the IEPF, which include unpaid dividend, share application money, debentures, redeemable preference shares etc. Reporting consideration- three possible outcomes No amounts are required to be transferred to the IEPF; Clean/unmodified reporting, i.e., the company transferred amounts to the IEPF on a timely basis; or There have been delays in transferring amounts to the IEPF. Page 8

9 Reporting under Rule 11 of the Companies (Audit and Auditors) Rules, 2014 Reporting on the adverse effect on the functioning of the company :- Assessment consideration- Our observations and conclusions, as auditors, are included in the auditor s report. These modifications may have an adverse effect on the functioning of the company. our reporting on clause 143(3)(f) should be based on the work performed and conclusions reached in the context of audit of financial statements. Reporting consideration- Our approach to reporting under this clause, in general, is to refer to: All qualifications, basis for disclaimer of opinion and basis for adverse opinion paragraphs, if any; Emphasis of matter paragraph on going concern, if any; and Other emphasis of matter paragraphs such as a material uncertainty regarding the outcome of a litigation etc. Serious delay in payment of statutory dues, continuing default in lender s repayment etc Page 9

10 Reporting under Rule 11 of the Companies (Audit and Auditors) Rules, 2014 Reporting on the adverse remark relating to the maintenance of accounts:- Assessment consideration- Our observations and conclusions, as auditors, are included in the auditor s report. our reporting on clause 143(3)(h) should be based on the work performed and conclusions reached in the context of audit of financial statements. Reporting consideration- Our approach to reporting under this clause, in general, is to refer to: All qualifications, basis for disclaimer of opinion and basis for adverse opinion paragraphs, in respect of our opinion on the financial statements or on internal financial controls, if any. If there are no modifications to our report, there is no requirement to report on this clause. Page 10

11 Fraud reporting Fraud Reporting- U/s 143(12) of CA 2013: Notwithstanding anything contained in this section, if an auditor of a Company, in the course of the performance of his duties as auditor, has reason to believe that an offence involving fraud is being or has been committed against the Company by officers or employees of the company, he shall immediately report the matter to the Central Government within such time and in such manner as may be prescribed. Page 11

12 Fraud reporting ICAI Guidance Note: It may be considered that Section 143(12) envisages the auditor to report to the management and thereafter to the Central Government an offence involving fraud against the company by its officers or employees only if he is the first person to identify/ note such instance in the course of performance of his duties as an auditor. In case a fraud has already been reported or has been identified/ detected by the management or through the company s vigil/ whistle blower mechanism and has been/is being remediated/ dealt with by them and such case is informed to the auditor, he will not be required to report the same under Section 143(12) since he has not per se identified the fraud. CARO 2015 on Fraud reporting: (xii) whether any fraud on or by the company has been noticed or reported during the year; If yes, the nature and the amount involved is to be indicated. Page 12

13 Services by the auditors Management services have not been defined in the Act or in IESBA Code or ICAI Code. IESBA Code provides some guidance on management responsibilities Management of an entity performs many activities in managing the entity in the best interests of stakeholders of the entity. It is not Thank possible to specify you every activity that is a management responsibility. However, management responsibilities involve leading and directing an entity, including making significant decisions regarding the acquisition, deployment and control of human, financial, physical and intangible resources Whether an activity is a management responsibility depends on the circumstances and requires the exercise of judgment. Examples of activities that would generally be considered a management responsibility include: Setting policies and strategic direction; Directing and taking responsibility for the actions of the entity s employees; Authorizing transactions; Deciding which recommendations of the firm or other third parties to implement; Taking responsibility for the preparation and fair presentation of the financial statements in accordance with the applicable financial reporting framework; and Taking responsibility for designing, implementing and maintaining internal control. Attendance of the auditor at AGM is stated to be mandatory in nature, unless exempted by the company (i.e. shareholders) Page 13