Fundamental Shifts in The Companies Act
Changes in Auditor’s Responsibility
Process flow for Appointment
Highlights of Appointment Process
Appended Engagement Letter
Key Points in Audit Report
Key Additions to Audit Report
Applicability of CARO, 2015
Changes in CARO, 2015
Tips for Implementation
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Matters Covered
I. Fundamental Shifts in The Companies
Act
II. Changes in Auditor’s Responsibility
III. Process flow for Appointment
IV. Highlights of Appointment Process
V. Appended Engagement Letter
VI. Key Points in Audit Report
VII. Key Additions to Audit Report
VIII.Applicability of CARO, 2015
IX. Changes in CARO, 2015
X. Tips for Implementation
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Fundamental shift in Companies
Act
Driving through rules model instead of hard
coded Act.
◦ Sections to be read with Rules and thereby circulars
to form a view.
Standards on Auditing prescribed in the Act for
Auditors
New-age transaction models taken into
consideration.
◦ One Person Company (OPC)
◦ Small Company
◦ Disclosures enhanced
in Directors Report
Cashflow part of Financial Statements
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Changes in Auditor’s
Responsibility
Operational parameters made
important for Auditors
◦ Controls
◦ Systems
◦ Processes
Certification of the Financial
Statements which includes the Cash
flow statements
Fraud Detection
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Process flow for appointment
Board / Audit Committee recommends
the Auditor
Auditor communicates the qualification
about the Companies Act and limits
specified for Audits
EGM / AGM is called for and Auditor is
informed about his “appointment” via a
letter
Auditor shares the engagement terms
with the members through “Engagement
letter”
Company intimates the MCA
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Highlights of appointment
process
Sections applicable for Auditors appointment
Sec 139
Qualification of Auditor (take this every year)
as per Sec 141
Appointment for 5 years at a time with
ratification in each meeting – for specific
companies (Form ADT1 every 5 years only
on fresh appointment)
Remuneration has be approved in the
shareholders meeting specifically
Intimation to MCA of the Auditors’
appointment by the Company NOT by Auditor
himself
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Appended engagement letters
Cashflow is part of Financial
Statements – Exempt for OPC & small
companies
Internal Financial Controls w.e.f. from
FY 15-16 (optional for FY 14-15
report)
Update sections of Companies Act
2013
Reporting of Frauds Sec 143 (12)
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“Key Points” in the Audit Report
Director’s responsibility has increased
drastically while some supplementary
relief comes on way for the Auditors in
CARO.
Enabling section 143 (1) instead of Sec
227 (1A) of the Companies Act.
Directors’ declaration for not being
disqualified – Form DIR 8.
Existence of Internal Financial Control
with Operating Effectiveness
Receipt Branch Audit Report by the
Statutory Auditor
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Management Responsibility
◦ Safeguarding of assets
◦ Preventing and detecting Frauds and
other Irregularities
◦ Judgements and Estimates
◦ Internal Financial Controls
◦ Selection and application of Accounting
policies
Key additions to Auditors’ report
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Key additions to Auditors’ report
Auditors Responsibility
◦ Reporting of Frauds
◦ Adherence to Standards on Auditing thereby
Quality Control standards as well
Changes in Reporting as per Sec 143(3)
◦ Information - Sought AND Obtained
Companies Audit and Auditors Rules,
2014 Dt. 31st March 2014
◦ Impact of Litigations
◦ Impact of Long term contract including
derivatives
◦ IEPF
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Applicability of CARO, 2015
Includes:
Foreign Companies under Section 2(42)
Excludes:
Banking and Insurance Companies
One Person Company [OPC u/s 2(62)]
Companies with Charitable Objects u/s 8
Private Companies (AND condition)
◦ Capital + Reserve < Rs. 50 Lakhs
◦ Outstanding Loans < Rs. 25 Lakhs
◦ Turnover < Rs. 5 Crores (Any given point in
time)
Small Companies u/s 2(85)
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Continued with Modifications
Related Party Loans
◦ Only Granted NOT Taken
Internal Control – includes services and
talks about systems apart from Controls
Deposits : Previously order was being
passed by company law board, now RBI,
National Company Law Tribunal or any
other Board or Tribunal.
Statutory Dues Section both for routine
and Disputes
◦ Should include Service Tax and VAT
◦ An additional point for Investor Education
Protection Fund (IEPF) is added
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Deletions / Removal
Substantial part of Fixed Assets disposed,
whether it affects the going concern
Related Parties
◦ Rate of interest are Prima-Facie prejudicial to the
interest of the Company
◦ Related parties dropped for Loans or Contracts
(u/s 301)even if transaction > 5Lakhs
Maintenance of documents and records for
grant of loans & Advances
Internal Audit System Commensurate with
size and Nature(Share holders fund>50L or
Turnover> 5CR for 3 preceding FY.
Requirement specific to Chit-
Fund/Nidhi/Mutual Benefit Fund/Societies
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Tips for Implementation in
Spirit
Upgrade the Quality Control manual
Upgrade the Audit Program
◦ Team Training
◦ Categorize you Audits in ‘A’, ‘B’, ‘C’ and divide
attention accordingly. ‘A’s may need dual reviews
+ expert review.
◦ Update checklists for the team
◦ Update the standards Management
Representation letter formats MRL
◦ Include a review from inhouse Company Law
expert
Client Awareness program
◦ Change in Responsibility of Directors
◦ New Audit Report requirements