AMMENDMENTS IN AUDITING FOR CA-IPCC MAY 2015: PAPER – 6: AUDITING AND ASSURANCE PART – I : ACADEMIC UPDATE (Legislative Amendments as per the Companies Act, 2013) 1) Payments controlled by the Companies Act, 2013: a) Under section 180, the Board of Directors of a company except with the consent of the company by a special resolution exercises the following powers. i) to sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking of the company or where the company owns more than one undertaking, of the whole or substantially the whole of any of such undertakings. ii) to invest otherwise in trust securities the amount of compensation received by it as a result of any merger or amalgamation; iii) to borrow money, where the money to be borrowed, together with the money already borrowed by the company will exceed aggregate of its paid-up share capital and free reserves, apart from temporary loans obtained from the company’s bankers in the ordinary course of business: Provided that the acceptance by a banking company, in the ordinary course of its business, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise, shall not be deemed to be a borrowing of monies by the banking company within the meaning of this clause. iv) to remit, or give time for the repayment of, any debt due from a director. b) Under section 181, the Board of Directors of a company can contribute to the bonafide charitable and other funds any amount in any financial year. Prior permission of the company in general meeting is required in case if the aggregate of such contribution exceeds 5% of its average net profits for the three immediately preceding financial years. c) Section 182 deals with prohibition and restriction regarding political contributions. According to this section, a government company or any other company which has been in existence for less than three financial years cannot contribute any amount directly or indirectly to any political party. In other cases, contribution in any financial year should not exceed 7½ % of average net profits during the three immediately preceding financial years. d) Section 183 permits the Board and other person to make contributions to the National Defence Fund or any other Fund approved by the Central Government for the purpose of National Defence to any extent as it thinks fit. 2) Allotment of shares and receipt of Allotment: (Section 39 of the Companies Act, 2013) i) Director’s Minutes Book to verify approval of allotments. ii) Compare copies of letters of allotment with entries in the Application and Allotment Book. iii) Trace entries in the Cash book into the Application and Allotment Book for the verification of amounts collected on allotment. iv) Trace the amount collected on application as well as those on allotment from the Application and Allotment Book into the Share Register. v) Check whether the amount stated in the prospectus as the minimum amount has been subscribed and the sums payable on such application have been received by the company. vi) Check that the amount payable on the application on every security is not less than five percent of the nominal amount of security or such other percentage or amount as may be prescribed by the SEBI. vii) If the stated minimum amount has not been subscribed and the sum payable on subscription is not received within a period of thirty days from the date of issue of the prospectus or such period as my be specified by the SEBI, check that the amount received above is returned within a period of fifteen days from the closure of the issue and if in case the amount is not repaid within such period, the directors in default shall jointly and severally be liable to repay that amount with interest at the rate of fifteen percent per annum. viii) Check totals of amounts payable on allotment and verify the journal entry debiting Share Allotment Account and crediting Share Capital Account. 3) Prohibition for buy back in certain circumstances : Section 70 of the Companies Act, 2013. i) No company shall directly or indirectly purchase its own shares or other specified securities— (a) through any subsidiary company including its own subsidiary companies; or (b) through any investment company or group of investment companies; or (c) if a default, by the company, in repayment of deposit or interest payable thereon, redemption of debentures or preference shares or payment of dividend to any shareholder or repayment of any term loan or interest payable thereon to any financial institutions or bank, is subsisting. Provided that the buy – back is not prohibited if the default is remedied and a period of three years has elapsed since the cessation of the default. ii) No company shall directly or indirectly purchase its owns of Sections 92,123, 127 and 129. Section 92 relates to the filing of Annual Return, Section 123 and 127 to declaration and payment of dividend and Section 129 to the financial statement of the company. 4) Central Government to prescribe Accounting Standards (Section 133 of the Companies Act, 2013): Section 133 of the Companies Act, 2013 provides the provisions for Central Government to prescribe accounting standards. According to section 133 of the Companies Act, 2013: “Accounting Standards” means the standards of accounting or any addendum thereto as recommended by the Institute of Chartered Accountants of India (ICAI) constituted under section 3 of the Chartered Accountants Act, 1949, as may be prescribed by the Central Government in consultation with and after examination of the recommendations made by the National Financial Reporting Authority constituted under section 132 of the Companies Act, 2013. In respect of accounting standards, the role of National Financial Reporting Authority is limited to advise the Central Government on the accounting standards recommended by ICAI for adoption by companies. The Ministry of Corporate Affairs (MCA) vide General Circular No. 15/2013 dated 13th September, 2013 has clarified that till the Standards of Accounting or any addendum thereto are prescribed by Central Government in consultation and recommendation of the National Financial Reporting Authority, the existing Accounting Standards notified under the Companies Act, 1956 shall continue to apply. 5) Payment of Dividend in proportion to amount paid-up (Section 51 of the Companies Act, 2013): A company, if so authorised by its Articles, may pay dividend in proportion to the amount paid-up on each share. Must share it to all, Thanks, Regards, Pankaj Singhal ©CA and CS HUB