MCA amends Audit Rules and MBP Rules: its impact and analysis by Trupti Upadhyay
The Ministry of Corporate Affairs (‘MCA’) has come up with amendments in the Companies (Audit and Auditors) Rules, 2014 (“ADT Rules”) and the Companies (Meetings of Board and its Powers) Rules, 2014 (“MBP Rules”) vide notification(s) G.S.R. 307(E)[1] and G.S.R. 309(E)[2] dated 30th March, 2017. The same shall come into force from the date of their publication in the Official Gazette viz, 30th March, 2017. In this write up both the amendments has been covered along with its implications.
[1] The Companies (Audit and Auditors) Amendment Rules, 2017: http://egazette.nic.in/WriteReadData/2017/175074.pdf enforced w.e.f 30th March, 2017
[2] The Companies (Meetings of Board and its Powers) Amendment Rules, 2017.: http://egazette.nic.in/WriteReadData/2017/175078.pdf enforced w.e.f 30th March, 2017
| Companies (Audit and Auditors) Amendment Rules, 2017 | ||
| Rule Reference | Description | Remarks |
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In Rule 11 after clause (c), clause (d) to be inserted |
Rule 11: Other matters to be included in auditors report-
The auditor’s report shall also include their views and comments on the following matters, namely:-
“(d) whether the company had provided requisite disclosures in its financial statements as to holdings as well as dealings in Specified Bank Notes during the period from 8th November, 2016 to 30th December, 2016 and if so, whether these are in accordance with the books of accounts maintained by the company.” |
After the insertion of the adjacent provision, the responsibility of the statutory auditors has been increased.
The amendment is primarily linked to the move of the Government of India on “Demonitization of Specified Bank Notes (‘SBN’) (Rs. 500 and Rs. 1,000 notes) on 8th November, 2016.
As per the newly inserted clause d; auditors have to certify in their audit report whether the disclosures done by the company in its financial statements as to holdings as well as dealings in SBN during the period from 8th November, 2016 to 30th December, 2016 (“demonitization period”) are in accordance with the books of accounts maintained by the company.
Simultaneous amendments have also been made in Schedule III of the Act.
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| Companies (Meetings of Board and its Powers) Amendment Rules, 2017 | |||
| Rule Reference | Description | Remarks | |
| Rule 15(3)(a)- in item (i), item (ii), item (iii) and item (iv) to be substituted | Rule 15: Contract or arrangement with a related party-
Item (i): sale, purchase or supply of any goods or materials, directly or through appointment of agent, exceeding ten per cent. amounting to ten per cent. or more of the turnover of the company or rupees one hundred crore, whichever is lower, as mentioned in clause (a) and clause (e) respectively of sub-section (1) of section 188;
Item (ii): selling or otherwise disposing of or buying property of any kind, directly or through appointment of agent, exceeding ten per cent. amounting to ten per cent. or more of net worth of the company or rupees one hundred crore, whichever is lower, as mentioned in clause (b) and clause (e) respectively of sub-section (1) of section 188; |
In terms of the said Rule read with section 188, prior approval of the company by means of an ordinary resolution is required, if the transaction crosses a certain limits as prescribed thereunder.
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| (i)sale, purchase or supply of any goods or materials directly or through appointment of agents-
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Lower of the following-
(a)10% or more of the turnover; or (b)Rs. 100 crore
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| (ii) selling or otherwise disposing of, or buying, property of any kind directly or through appointment of agents | Lower of the following-
(a)10% or more of the net worth; or (b)Rs. 100 crore |
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| (iii)Leasing of property of any kind | Lower of the following-
(a)10% or more of the net worth; or (b)10% or more of the turnover; or (c)Rs. 100 crore |
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| (iv)availing or rendering of any services directly or through appointment of agents
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Lower of the following-
(a)10% or more of the net worth; or (b)Rs. 50 crore.
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| Item (iii):
leasing of property of any kind exceeding ten per cent. amounting to ten per cent. or more of the net worth of the company or ten per cent. or more of turnover of the company or rupees one hundred crore, whichever is lower, as mentioned in clause (c) of sub-section (1) of section 188;
Item (iv): availing or rendering of any services, directly or through appointment of agent, exceeding ten per cent. amounting to ten per cent. or more of the turnover of the company or rupees fifty crore, whichever is lower, as mentioned in clause (d) and clause (e) respectively of sub-section (1) of section 188: |
Earlier the threshold limited was triggered when the turnover or net worth as the case may be was exceeding 10%. As per the amended provisions the threshold limits will trigger as soon as the turnover or net worth as the case may be will amount to 10%.
This may lead companies to revisit their existing policies framed for RPTs. |
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By: Trupti Upadhyay: trupti@vinodkothari.com
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