Tuesday, January 13, 2009

Highlights of the Companies Bill, 2008

Following are the highlights of the Companies Bill 2008 - Accounts and Audit:
  1. Central government can now direct companies under investigation to maintain their books of accounts for a period exceeding 8 years.
  2. The requirement of mens rea for penal provisions has been removed.
  3. The definition of 'financial statements' now includes Cash Flow Statement
  4. The definition of 'financial year' makes it mandatory for all companies to follow a financial year ending on 31st March. Corporates can follow a different financial year only with the prior approval of the National Company Law Tribunal ('NCLT').
  5. A holding company is required to prepare consolidated financial statements for all subsidiaries. This requirement was hitherto applicable only for listed companies under the Listing agreement.
  6. A holding company need not append the annual reports of its subsidiaries with its own annual report.
  7. National Advisory Committee's scope has been enlarged to cover auditing standards.
  8. Financial statements can now be signed by the Chairman of the Board, if so authorised by the Board
  9. In case of a One Person Company, a single director can sign the Financial statements.
  10. Financial statements should be compulsorily approved at a Board meeting. Approval by Resolution by circulation is not permitted.
  11. For signing the Financial statements, if only one director is present in India, relaxation was provided under the old law. It is now proposed to remove the relaxation. This is probably because the directors abroad could use their digital signature for the purpose.
  12. Contents of the Directors report now include, inter alia, number of Board meetings, inter-corporate loans / guarantees / investments and related party contracts.
  13. Particulars of employees and energy conversation are not required to be given.
  14. Notice of AGM and other documents are now required to be sent to each of the joint shareholders irrespective of the person whose name appears first
  15. Notice of AGM must be mandatorily sent at least 21 days prior to the date of the meeting. AGM cannot be convened at a shorter duration even if it receives unanimous approval of members present and voting at the meeting.
  16. The existing section 224 requires a company to appoint at each AGM, an auditor or auditors. The new section 123(1) requires every company to appoint an individual or a firm as an auditor. Since the word "auditors is not present in the new provision, it could be literally interpreted that a company cannot appoint Joint auditors as the legislature has deliberately dropped the word "auditors". On the other hand, could be argued that such an interpretation is absurd and not intended by the legislature. The General Clauses Act states that singular includes plural and hence the word "auditor" under the new provision should be interpreted as 'auditor or auditors'.
  17. The onus of informing the ROC the fact of appointment of an auditor has been shifted from the auditor to the company. Company should now inform the above fact within 15 days from the date of the AGM. This information is required to be filed for every appointment or reappointment of the auditor.
  18. Time limit has been set for the CAG to appoint the auditors of a Government company.
  19. Section 224A regarding appointment of auditors by special resolution has been scrapped
  20. Casual vacancy in the office of an auditor arising due to resignation can be filled by the Board subject to approval by the general meeting within 3 months.
  21. If the AGM fails to appoint the auditor, the retiring auditor could continue to act as an auditor. The power of the Central Government to appoint an auditor in such as case has been withdrawn.
  22. Removal of an auditor or appointment of an auditor in place of one retiring now mandatorily requires a special resolution.
  23. NCLT empowered to remove an auditor in case of fraud or collusion.
  24. A CA firm registered as a Limited Liability Partnership ('LLP') acquires the status of a body corporate. Such a firm, it appears, would be disqualified from being appointed as an auditor of a company in the absence of an enabling provision.
  25. No bar on auditor's relatives having business relationship with the company.
  26. Notwithstanding the mode of appointment, auditor's remuneration shall be fixed by the company in the general meeting.
  27. Auditor to have the right of access of books of subsidiary company for the purposes of consolidation.
  28. Auditing standards have been made mandatory.
  29. Auditors report shall inter alia include observations and comments on the adverse functioning of the company and on accounts maintenance and connected matters
  30. The new law requires that only the statutory auditor can sign or certify the Auditor's report or any other document of the company. From a plain reading of the new provision, it appears that the company can get certification for its any requirement only from the statutory auditors.
  31. Section 127 provides a negative list of 8 services that the auditor cannot provide to the company.
  32. The auditor is now entitled as well as obligated to attend the general meetings unless exempted by the company.
  33. The provisions for imprisonment have now been provided for contravention by the auditor.
  34. Section 233A relating to special audit has been deleted.
  35. Infrastructure companies are required to maintain cost records
  36. Only a Cost Accountant can be appointed as a Cost Auditor. Earlier even a Chartered Accountant could be so appointed.
  37. Central Government approval for appointment of a cost auditor is no longer required.
  38. The new law does not provide for the power of the Central Government to direct the circulation of the cost audit report to the members.