ICAI issues stricter guideline for CAs

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Putting in place a stricter compliance mechanism, chartered accountants apex body ICAI has barred members from participating in tenders for assignments that can be performed only by CAs. However, ICAI members can participate in such tenders if the minimum fee for the assignment has been prescribed by the entity concerned. The Institute of Chartered Accountants of India (ICAI) has said a practising member “shall not respond to any tender issued by an organisation or user of professional services in areas of services which are exclusively reserved for chartered accountants, such as audit and attestation services”. According to the institute, the restriction would not be applicable in instances where the minimum fee of the assignment is prescribed in the tender document itself. CAs would be free to participate in the tenders where “areas are open to other professionals along with the chartered accountants”, a recent ICAI notification said. Members can avail the multipurpose empanelment data available with it in cases where the assignments mentioned in the tender can be done only chartered accountants, the institute said in a separate communication posted on its website. Further, ICAI has cautioned that members who violate the guidelines with respect to participating in tendering process would be liable for disciplinary action.

PTI RAM SA

Source: http://indiatoday.intoday.in/story/icai-issues-stricter-guideline-for-cas/1/641877.html

Mallya default singes top auditing companies

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Some of world’s top auditing firms, including Price Waterhouse, Grant Thornton, Deloitte LLP and Walker Chandiok & Co, are under scrutiny with a slew of regulators seeking answers on their valuation, auditing and due diligence of UB Group companies over the last few years.

Deloitte LLP conducted the financial and tax due diligence for Diageo of United Spirits Ltd (USL) which led to the $2.1 billion acquisition of the company, but could not detect the problems in annual accounts. These accounts, in turn, were prepared by PW, which was the auditor for USL between 2010 and 2011, and later by Walker & Chandiok & Co.

The accounts were disputed by Diageo in April 2015 after it found a Rs 2,100 crore hole and sought Vijay Mallya’s ouster from the USL board. Questions have also been raised by lenders on what basis Grant Thornton valued the Kingfisher brand at Rs 4,100 crore. This is now being probed by the Serious Fraud Investigation office (SFIO).

When contacted, a Grant Thornton spokesperson said the firm fully stood by its brand valuation report on Kingfisher. “We believe it was appropriate in the context of when it was done and the purpose for which it was done,” the spokesperson said.

PW declined comment but an external spokesperson said the firm had not received any communication from either the Securities and Exchange Board of India or the Enforcement Directorate. “Deloitte does not comment on client confidential matters,” its spokesperson said.

Diageo had invested in USL after the British company was given express representations that all of the receivables from Mallya entities were recoverable in full. The fund diversion worth Rs 2,100 crore from USL was later raised when KPMG, the new auditor appointed by Diageo, discovered discrepancies when it was finalising USL’s 2014 accounts. All the three years’ accounts will now have to be re-stated, according to listing norms.

In the same year, the new USL management called in PW UK for a forensic audit of the previous three years (which included auditing by its own India unit) and passed on the reports to the regulators including the Sebi, the ministry of corporate affairs and the Institute of Chartered Accountants of India.

The ICAI, sources said, had asked both PW and Walker Chandiok to explain the discrepancy. An ED official said it was surprising that none of the auditors or valuers for Diageo raised flags over the accounts manipulation or the Rs 4,000 crore diversion by USL to the British Virgin Islands in 2007.

While the auditors of USL are in the dock for cooking accounts, another marquee auditing firm — Grant Thornton is under investigation by the SFIO for its Rs 4,100 crore brand valuation of Kingfisher Airlines. It was based on this brand valuation in 2011 that Mallya raised Rs 9,100 crore from government-owned banks by offering the brand as collateral. The lenders are now holding a dud Kingfisher brand, which is finding no takers.

Sources in the ICAI said it was a redux of the Satyam scam, when some of the world’s top auditors overvalued assets before the Maytas and Satyam merger, which led to the unravelling of the scam. In the Satyam case, the ICAI had debarred two auditors from Price Waterhouse who were found guilty of professional misconduct. S Gopalakrishnan and T Srinivas were struck off the ICAI’s rolls and fined Rs 5 lakh each. A Central Bureau of Investigation court later convicted them of fraud.

Source: http://www.business-standard.com/article/current-affairs/mallya-default-singes-top-auditing-companies-116031900495_1.html

The Companies (Amendment) Bill, 2016 introduced in Loksabha

by | posted in: Company Incorporations, e-filing of MCA Returns, Corporate Updates | 0

On 16th March 2016 Lok Sabha has passed the Companies (Amendment) Bill 2016 to further amend the Companies Act, 2013

The Act introduced significant changes related to disclosures to stakeholders, accountability of directors, auditors and key managerial personnel, investor protection and corporate governance. However, Government received number of representations from industry Chambers, Professional Institutes, legal experts and Ministries/Departments regarding difficulties faced in compliance of certain provisions. Amendments of the Act were carried out through the Companies (Amendment) Act, 2015 to address the immediate difficulties arising out of the initial experience of the working of the Act, and to facilitate “ease of doing business”.

The changes introduced are broadly aimed at addressing difficulties in implementation owing to stringency of compliance requirements; facilitating ease of doing business in order to promote growth with employment; harmonization with accounting standards, the regulations of Securities and Exchange Board of India Act, 1992 and the Reserve Bank of India Act, 1934; rectifying omissions and inconsistencies in the Act, and carrying out amendments in the provisions relating to qualifications and selection of members of the National Company Law Tribunal and the National Company Law Appellate Tribunal in accordance with the directions of the Supreme Court.

The Companies (Amendment) Bill, 2016, inter alia, proposes the following, namely:—

  • Simplification of the private placements: Simplification of the private placement process by doing away with separate offer letter, by making filing of details or records of applicants to be part of return of allotment only, and reducing number of filings to Registrar;

Earlier, there was significant difficulty was created by the Companies Act, with the unduly restrictive set of provisions pertaining to private placements. This over-ambitious scheme of regulation was a direct result of some incidents in the past. One such provision requires every private placement to be routed through a separate bank account opened for this purpose, and a bar on utilization of the money until allotment. More often than not, the amount received in private placement is large, and companies cannot afford to keep the amount idle.

Now, this private placements process has been simplified with the Companies (Amendment) Bill, 2016.

(b) Allow unrestricted object clause in the Memorandum of Association dispensing with detailed listing of objects, self-declarations to replace affidavits from subscribers to memorandum and first directors;

(c) Provisions relating to forward dealing and insider trading to be omitted from the Act;

(d) Requirement of approval of the Central Government for Managerial remuneration done away with:

Requirement of approval of the Central Government for Managerial remuneration above prescribed limits is replaced by approval through special resolution by shareholders;

Central Government control on managerial remuneration is eliminated. Section 197, which places limits on managerial remuneration, will now require special resolution only, if the limits placed under the law are exceeded.

(e) Loans to entities in which directors are interested:

A company may give loans to entities in which directors are interested after passing special resolution and adhering to disclosure requirement;

 (f) Provisions easing business by overseas entities

In support of the “Make in India” policy, it is quite appropriate that the Companies (Amendment) Bill, 2016 must have enabled foreign owned businesses to form companies in India. Accordingly, there are several provisions to facilitate foreign-owned businesses:

– EGM of a wholly-owned subsidiary of a foreign company may be called anywhere in India.

– The requirement for a resident director provided in section 149 is sought to be amended to provide that in case of newly incorporated companies the condition may be satisfied subsequent to incorporation, rather than before incorporation.

– Remove restrictions on layers of subsidiaries and investment companies

(g) Allow for exempting class of foreign companies from registering and compliance regime under the Act;

(h) Align prescription for companies to have Audit Committee and Nomination and Remuneration Committee with that of Independent Directors;

(i) Test of materiality to be introduced for pecuniary interest for testing independence of Independent Directors;

(j) Disclosures in the prospectus required under the Companies Act and the Securities and Exchange Board of India Act, 1992 and the regulations made thereunder to be aligned by omitting prescriptions in the Companies Act and allowing these prescriptions to be made by the Securities and Exchange Board of India in consultation with the Central Government;

(k) Provide for maintenance of register of significant beneficial owners by a company, and filing of returns in this regard to the Registrar;

(l) Removal of requirement for annual ratification of appointment or continuance of auditor;

(m) Amend provisions relating to Corporate Social Responsibility to bring greater clarity.

http://www.prsindia.org/uploads/media/Companies,%202016/Companies%20bill,%202016.pdf

SEBI board clears wilful defaulter rules; clarifies on definition of control

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SEBI says wilful defaulters would also be not allowed to take control of any other listed company.

India’s market regulator Securities and Exchange Board of India (SEBI), on Saturday, tightened the rules for so-called wilful defaulters preventing them from raising funds through public issues. The rules, however, are applicable prospectively which suggests that those who have already been termed wilful defaulters may not come within the ambit of these strictures.

Following a board meeting in Delhi, on Saturday, SEBI said that entities declared as wilful defaulters will not be allowed to raise money through sale of shares, debt securities and non-convertible preference redeemable shares to the public.

“No issuer shall make a public issue of equity securities/debt securities/non-convertible redeemable preference shares, if the issuer company or its promoter or its director is in the list of the wilful defaulters,” said a press release issued by SEBI.

Such entities will not be allowed to take control of another listed entity, SEBI said. These firms will also not be allowed to set up market entities like mutual funds. The rules are applicable prospectively, said the regulator.

At a press conference in New Delhi, UK Sinha, chairman of SEBI said that all rules made by the regulator are prospective in nature.

In January 2015, SEBI issued a draft paper proposing that wilful defaulters would not be allowed to sell shares, debt securities and non-convertible preference redeemable shares to the public. The paper had suggested that wilful defaulters be barred from taking control of another listed entity, but that they be allowed to participate in counter offers to deal with hostile takeover bids. Each of these restrictions would be applicable if the issuer, its promoter, group company or director of the issuer of such securities were in the list of wilful defaulters published by RBI, the stock market regulator had said.

The final regulations announced on Saturday are along the same lines.

Policy makers have toughened their stance against wilful defaulters as they try and improve the asset quality of the banking sector. While defaulters who are hit by external factors such as weakness in economic conditions may deserve some help from the system, policy makers feel that wilful defaulters must not be spared.

RBI has been asking banks to get tough on wilful defaulters and has a tough set of rules in place which say that anyone tagged a wilful defaulter cannot raise fresh funds from the banking system. The banking regulator, however, has been of the view that such defaulters also need to have their access to capital markets restricted. This has now happened with SEBI tightening its rules as well.

While RBI has not disclosed the quantum of loans that fall under the wilful default category, data has emerged from some large public sector banks.

Loans worth Rs.11,700 crore given by State Bank of India have been locked up as non-performing assets as nearly 1,160 defaulters have wilfully decided not to repay, PTI reported on 24 February.

Another state-owned lender, Punjab National Bank (PNB), declared 904 borrowers who owed it a combined Rs.10,869.71 crore as of December-end as wilful defaulters. PNB added 140 companies to the list of wilful defaulters in the December quarter alone.

The most prominent case in this regard is the attempt by banks and investigative agencies to recover dues from UB Group chairman Vijay Mallya, who has been declared a wilful defaulter by lenders like State Bank of India. The country’s largest lender had moved the Bangalore debt recovery tribunal (DRT) seeking an arrest warrant against Mallya. On Friday, the Enforcement Directorate (ED) issued summons to Mallya, asking him to be personally present before it on 18 March. The summons is part of ED’s probe into a money laundering case against the former liquor baron.

Definition of control

Separately, the market regulator clarified what the term ‘control’ means in the context of mergers and acquisitions (M&As) by pegging the shareholding threshold of an acquirer at 25%.

“Considering the international practices and the current regulatory environment in India, the definition of control may be amended such that control is defined as (a) the right or entitlement to exercise at least 25% of voting rights of a company irrespective of whether such holding gives de facto control and/or (b) the right to appoint majority of the non-independent directors of a company,” said SEBI in its press release.

The move is aimed at removing ambiguities that companies currently confront during takeovers. Currently, the definition of ‘control’ under the Substantial Acquisition of Shares and Takeovers (SAST) Regulations, 2011—popularly known as the Takeover Code—doesn’t specify a threshold for shareholding.

The current takeover code states that an acquirer is in ‘control’ only if the board of the company that’s being acquired gives the former the right to appoint a majority of the directors, and have the final say on management and policy decisions.

The control of management or policy decisions is through shareholding or management rights or shareholders’ agreement or voting agreements.

SEBI has also cleared a framework for protective rights with an exhaustive list of rights that do not lead to acquisition of control.

“An illustrative list of protective rights which would not amount to acquisition of control may be issued. Grant of such protective rights to an investor may be subject to obtaining the public shareholders’ approval (majority of minority),” SEBI said.

Somasekhar Sundaresan, partner, J Sagar Associates, said “The company that is declared to be a willful defaulter ought to be left out of the severity of SEBI’s measures, and instead those in control of the company alone should have been targeted. A defaulter, whether willful or not, requires restructuring, and imposing prohibitions on the business entity could in fact hurt lenders for whose benefit the policy on willful defaulters has been developed. Expanding the scope to directors would also mean that turning around a company that is accused of being a willful defaulter would become impossible since no one would join the board even after throwing out the old promoters. Detailed provisions on when a borrowing entity ceases to be a willful defaulter would be needed—it cannot be after the board is replaced since, so long as it is a willful defaulter, no one would be able to join the board.”

“The move to allow shareholders to confer the power to exercise veto rights to selected investors without getting into whether they mean “control” is a positive measure. Open offers are for the benefit of public shareholders and they must have the power to waive an open offer. This is a very mature measure of reform. Market players would keenly await what SEBI puts out as a list of veto rights aimed at investor protection will not constitute control,” added Sundaresan.

Source: http://www.livemint.com/Money/LSmk1XiZ26pZnyGj5m4ufP/Sebi-bars-wilful-defaulters-from-markets-posts-at-listed-fi.html

India’s ranking on global corruption index improves

by | posted in: Corporate Updates, Economy, Business Updates, Corporate Affairs, India & International - Corporate updates | 0
India has showed some improvement in addressing corruption this year, ranking 85th among 175 countries as against 94th last year, graft watchdog Transparency International India (TII) said on Wednesday.
Denmark retained its position as the least corrupt country in 2014 with a score of 92 while North Korea and Somalia shared the last place, scoring just 8, it said.In India’s neighbourhood, China moved to 100th place, down from 80th last year, while Pakistan and Nepal were at 126th position. Bangladesh was 145th and Bhutan 30th in the ranking. Sri Lanka was ranked 85th with India. Afghanistan was at a bleak 172.According to the Corruption Perception Index (CPI) report by TII, “the CPI score for India increased by 2 points in 2014 from its 2013 score, helping India’s rank move up to 85 in 2014 from 94 in 2013”. India’s score stood at 38 as compared to 36 last year.

The improvement in CPI for India was driven primarily by two data sources — from the World Economic Forum and World Justice Project’s (WJP) index.

“A score increase on WEF suggested businesses in India were viewing the environment favourably with regards to their perception of corruption and bribery in the country”.

The WJP score also went up reflecting the perceptions of public sector corruption coming down slightly in India, the report said.

The report noted that in terms of the new government, the CPI possibly captured the anti-corruption mandate on which the new government was elected and the possibility of some new reforms in this area.

“However, the data used for CPI mostly was collected prior to the change of government and therefore this will not reflect directly into any of the CPI sources,” it said.

To calculate India’s position this year, 9 out of 12 independent data sources specialising in governance and business climate analysis were also used.
These included Bertelsmann Foundation, World Bank and World Economic Forum. They helped in measuring perceptions of corruption in public sector and cross country comparability.

In his reaction, chairman of TII S K Agarwal, said the “new Government has got fully majority on agenda of good governance and now it’s high time to act and pass all pending anti corruption bills including the right of citizens for time bound delivery of goods and services and Redressal of their Grievances Bill”.

Source: http://timesofindia.indiatimes.com/india/Indias-ranking-on-global-corruption-index-improves/articleshow/45358144.cms

Bank Branch Auditors’ Panel for the year 2015-16 – (11-01-2016)

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MEFICAI Bank Branch Auditors Panel 2015-16

The ICAI has announced Draft Bank Branch Auditors’ Panel for the year 2015-16 and the same is hosted at MEFICAI website(http://www.meficai.org). To view the category of firm, please click on the relevant range of MEFICAI Acknowledgement number:

The draft Bank Branch Auditor’s Panel 2015-16 will be available on MEFICAI website http://www.meficai.org.

Also, for any query / issue relating to MEFICAI Bank Branch Auditor’s empanelment for 2015-16, you may please contact with PDC Secretariat on 011-30110444, 30110438,30110440, 30110451, 30110480 and 30110508.

Regards,

CA. Anuj Goel

Chairman, Professional Development Committee

Source: http://www.meficai.org/CoveringLetterforHostingMEF2015-16.htm

Fraud reporting norms increase responsibility on auditors: Report

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Immaterial frauds will now form a part of the annual report, and the requirement to report immaterial frauds to the central government has been done away with, it noted.

Statutory auditors will now have to mandatorily report to the Centre all corporate frauds amounting to Rs. 1 crore or above.

 

By specifying a threshold of Rs. 1 crore, the Corporate Affairs Ministry (MCA) has now done away with the requirement to report immaterial frauds to the Centre.

 

The Ministry has also now spelt out the procedure for fraud reporting to the Centre. First, the auditor has to inform the Board or audit committee and seek their views within 45 days.

 

On receipt of audit committee’s views, the auditor would have to within 15 days send his report to the Centre.

 

For frauds involving amounts lower than Rs. 1 crore, statutory auditors now need to report this matter only to the audit committee of the company, the Ministry has said amending rules for this purpose.

 

The reporting to the audit committee would have to be done not later than two days of his knowledge of the fraud.

 

Prior to this Ministry move, the company law required statutory auditors to report to the Centre all frauds by the company or against it.

 

Vishal Seth. Managing Director and National Leader IFRS and Financial Reporting Advisory, Protiviti India, Indian arm of a global consulting firm, said this threshold of Rs. 1 crore was a “fairly reasonable” given the magnitude of transactions in India.

 

“This is a big change in India. There was a need for a threshold and the Ministry has now specified it,” Seth told Business Line here.

 

Meanwhile, KPMG in India said in a note that the Ministry’s move on fraud reporting would increase responsibility of auditors. The amended rule prescribing the timelines for fraud reporting indicates the effort the Ministry is putting to increase the efficiency and timelines of such reporting, KPMG has said.

 

Related party transactions

 

The Ministry has now amended rules to specify that an audit committee would be empowered to provide “omnibus approvals” for related party transactions (RPTs) so long as certain conditions are met.

 

The conditions specified by the Ministry are largely similar to the Listing Regulations.

 

Yogesh Sharma, Partner, Grant Thornton India LLP, said this will certainly assist in ease of doing business without compromising the intent of the law.

 

Moreover, omnibus approval process was already included in the SEBI listing guidelines and hence this change will align the two requirements, he added.

 

For RPTs, the Company Law enacted in 2013 required every individual transaction to be approved by the Audit Committee. This made the approval process inefficient and delayed the decision making. For instance, each repeat transaction also required a separate approval.

 

The company law amendments in 2015 enabled “omnibus approval” for RPTs on annual basis that meet specified conditions prescribed in rules. The Ministry has now specified the conditions under which such omnibus approvals could be provided.

 

Reacting to the Ministry’s move, CA Institute President Manoj Fadnis welcomed the threshold specified by the Ministry. “This will bring certainty to the auditors as to the frauds that are to be reported to the central government and those that are to be reported to the audit committee,” he told Business Line .

Greater vigil

  • The auditor must first report the fraud to the company’s audit panel
  • The audit panel will have to give its views in 45 days
  • Within 15 days of that, the auditor will have to send his report to the Centre
  • Frauds amounting to less that Rs. 1 crore will need to be reported only to the company’s audit panel

Source: http://www.thehindubusinessline.com/todays-paper/tp-news/rules-eased-auditors-need-to-report-to-centre-corporate-frauds-of-over-rs-1-cr/article8029996.ece