Independence of Auditors & compulsory RotationAn auditor shall not directly or indirectly provide any of the following services to auditee – company or its holding company or subsidiary company
(a) accounting and book keeping services;
(b) internal audit;
(c) design and implementation of any financial information system;
(d) actuarial services;
(e) investment advisory services;
(f) investment banking services;
(g) rendering of outsourced financial services;
(h) management services; and
(i) any other kind of services as may be prescribed
Rotation of Auditors
Ø Not to be appointed for more than a term of 5 years in case of individual and for more than two terms of 5 years
Ø Eligible for appointment after expiration of 5 years of completion of such term/s.
Ø Every company to comply with the terms within 3 years from the date of commencement of this Act.
Mandatory CSR
Ø Every company having Net worth of Rs. 500 crore or more, or Turnover of Rs. 100 crore or more or a Net Profit of Rs. 5 crore or more during any financial year shall constitute a Corporate Social Responsibility Committee
Ø Composition : 3 or more directors, out of which at least one independent director.
Ø To spend in every financial year, at least 2% of the average net profits of the company made during the 3 immediately preceding financial years,
Ø If the company fails to spend such amount, the Board to mention in its report with the reasons for not spending the amount.
Independent Director composition, restriction on remuneration and compulsory rotation
Ø Every Listed company and prescribed class of companies :- at least 1/3 of total number of directors as independent directors (any fraction to be rounded off to 1)
Ø Existing company to comply with the requirements within 1 year from the date of commence.
Ø An independent director shall not be entitled to any stock option, he may receive remuneration by way of:
– A sitting fee
– Reimbursement of expenses for participation in the Board and other meetings
– Profit related commission as may be approved by the members.
Tenure and Rotation of Independent Directors
Ø Not to be appointed for a tenure exceeding aggregate period of 5 consecutive years
Ø Eligible for reappointment on passing special resolution
Ø Not more than two consecutive terms
Ø Eligible for appointment after expiration of 3 years of ceasing to become an independent director
Ø Any tenure as an independent director on the date of commencement of this Act, shall not be counted as a term
Class Action Suit
Ø Member/s or depositor/s or any class of them, if they are of the opinion that the management or conduct of the affairs of the company are being conducted in a manner prejudicial to the interest of the company or its members or depositors, file an application before Tribunal
Ø They can claim damages or compensation or demand any other suitable action from oragainst the company or its directors or the auditor including audit firm of the company or any expert or advisor or consultant or any other person for any incorrect or misleading statement made to the company or for any fraudulent, unlawful or wrongful act or conduct or any likely act or conduct on his part;
Consolidation of Financials
Ø If the company has one or more subsidiaries, the company shall also prepare a Consolidated Financial Statement of the company and all the subsidiary/ies.
Ø The word Subsidiary shall include associate company and joint venture.
NFRA
Ø Central Government to constitute National Financial Reporting Authority for matters relating to accounting and auditing standards
Ø NFRA has Powers
– To investigate into the matters of professional or other misconduct committed by any member or firm of chartered accountants, registered under Chartered Accountant Act, 1949
– Have same powers as vested in Civil Court in certain cases
– Where professional or other misconduct is proved, have power to make order for
(A) Imposing penalty of (i) not less than one lakh rupees, but which may extend to five times of the fees received, in case of individuals; and
(II) not less than ten lakh rupees, but which may extend to ten times of the fees received, in case of firms;
(B) debarring the member or the firm from engaging himself or itself from practice as member of ICAI for a minimum period of six months or for such higher period not exceeding ten years
