Important Transactions / Activities vis-a-vis Companies Act, 2013
Financial statements are arrived at after recording all the transactions that have taken place during the year. The transactions once recorded cannot be reversed so it is important that due consideration is paid at the time of recording. In the course of our compliance management of various client companies, we have noticed that they miss recording some of the essential transactions which leads to non-compliance/gaps. The rectification of these non-compliances not only becomes a challenge but also leads to these being reported by the Auditors in their report as a qualification and also reported in the Director’s Report which forms part of the Annual Report to the shareholders. In this context, we have tried to bring out the transactions which are essential from the Companies Act, 2013 (Act) perspective to be considered before the close of the Financial year:
Related Party Transactions (RPTs) refer to transactions between two entities that have a close relationship, such as a parentcompany and a subsidiary, two companies under common ownership, or between companies and their executives or directors.
- Transactions between related parties which are not in the ordinary course of business, or which are not transacted at arm’s length will require prior approval from the Board.
- In addition to the Board’s approval, a special resolution from shareholders is also required if a transaction between related parties exceeds the threshold limit as per the definition of RPTs.
- It is mandatory to take approval from the Audit Committee for all the RPTs in case Audit Committee is applicable to the Company.
“deposit” includes any receipt of money by way of deposit or loan or in any other form, by a company. Also, there are
transactions which are not reckoned as deposits viz.,
- Any amount received by the company from any other company.
- Any amount received from a person who, at the time of the receipt of the amount, was a director of the company or the relative of the director of a private company.
- Any amount brought in by promoters of the company by way of unsecured loans in pursuance of the stipulation of any
lending financial institution.
And such other various transactions prescribed under the Companies (Acceptance of Deposits) Rules, 2014 (rules), the same shall be disclosed in the financial statements of the company. If the Company is receiving any amount from the other sources apart from the prescribed transactions it is to be considered as deposit and hence shall comply with the provisions prescribed under the act
Cash flow statement is required to be disclosed and forms part of financial statements of every company except for OPC, small company and dormant company.
Corporate social responsibility is applicable to every Company having/meeting any of the following criteria during the immediate preceding financial year
- Net Worth exceeding Rs. 500 cr or
- Turnover exceeding Rs.1000 cr or
- Profit exceeding Rs.5 cr
Such companies are required to spend two percent of the average net profits of the company made during the three immediately preceding financial years in pursuance of its Corporate Social Responsibility Policy. The Company shall spend the amount towards the funds prescribed in schedule VII of the Act by 31st March. In case the Company doesn’t spend the amount within stipulated time, they shall open a CSR Unspent account and transfer such amount within 30 days i.e., by 30th April.
Note: Net profits as mentioned above shall be calculated in accordance with Section 198 of the Act.
Ind AS applicability is prescribed under Companies (Indian Accounting Standards) Rules, 2015. Some of the categories of Companies which are exempt from the applicability of Ind As are as follows:
- Small Companies
- Insurance Companies
- Banking companies
- Non-Banking finance companies
- Such other companies as per the prescribed rules
The company shall do so as per Schedule III and Division II of the Act and Companies (Indian Accounting Standards) Rules, 2015.
reports order 2020
Companies Audit Reports Order 2020 (CARO) specifies the information that must be included in the auditor’s report based on its applicability. Such information must be included in the audit report of prescribed entities by the auditor.
Applicable to all company including a foreign company except:
(1) Banking Company
(2) Insurance Company
(3) Section 8 Company
(5) Small Company and
(6) Private Companies which is not a holding or subsidiary of Public Company
- The paid-up capital including reserves and surplus shall not exceed 1 Crore and
- loans not more than 1 Crore and
- Turnover not more than 10 Crore Rupees for the financial year ended 31st March.
If CARO applies to the Company, they must include all of the items listed under Rule 3 of Companies Audit reports order 2020 (CARO)
Companies having one or more subsidiaries or associate companies prepare consolidated financial statements of its subsidiaries or associate companies along with the standalone financial statements
Micro, Small and
MSME stands for Micro, Small and Medium Enterprises. According to the provisions of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 the MSMEs are classified into two categories: Manufacturing Enterprises and Service Enterprises
- Companies have to provide information to the Registrar of Companies regarding outstanding payments as well as delays in payment to any MSME enterprise for a period exceeding 45 days in the Form MSME-1(Half yearly return – March/September)
- Hence all the companies must ensure to make the payments within the stipulated time not exceeding 45 days from the date of acceptance or deemed acceptance.
Vigil Mechanism is for the directors and employees of the company to report their genuine concerns or grievances.
The companies belonging to the following class or classes shall establish a vigil mechanism.
(a) Every Listed Company
(b) Companies which accept deposits from the public
(c) Companies which have borrowed money from banks and public financial institutions in excess of fifty crore rupees.
Loans to directors
No company shall, directly or indirectly, advance any loan, including any loan represented by a book debt to, or give any guarantee or provide any security in connection with any loan taken by-
(a) any director of company, or of a company which is its holding company or any partner or relative of any such director; or
(b) any firm in which any such director or relative is a partner.
However, the below mentioned relaxation has been provided to a company to advance any loan including any loan represented by a book debt, or give any guarantee or provide any security in connection with any loan taken by any person in whom any of the director of the company is interested:
- A special resolution is to be passed by the company in general meeting
- The loans are to be utilised by the borrowing company for its principal business activities.
Extensible Business Reporting Language (XBRL) is a standardised communication language to expediate filing financial statements of the company.
Note: As per the Rule 12 (2) of Companies (Accounts) Rules, 2014 XBRL is be applicable to below mentioned criteria:
- Listed Company and its subsidiaries
- Companies having paid up share capital of Rs.5 crores or more
- Companies having Turnover of Rs.100 crores or more
- Companies except NBFC which are required to follow Ind AS
The above mentioned companies must ensure to file the financial statements in XBRL format.
Every Listed Company and every other company having paid up capital of Rs.10 crores or more is required to have Whole-time company secretary.
Secretarial Audit is applicable to below mentioned companies:
(1) Every listed company and
(2) Every public company having
- Paid-up share capital of Rs. 50 crore rupees or more; or
- Turnover of Rs. 250 crores or more [or]
(3) Every company having outstanding loans or borrowings from banks or public financial institutions of Rs. 100 crore or more
- In case the company falls within the above-mentioned prescribed limits they shall obtain a Secretarial audit report from Company Secretary in practice.
- To avoid any observations/remarks the company shall be in compliance with the have up to date bookkeeping maintained as per secretarial standards prescribed by Institute of company secretaries of India. (ICSI)
Internal audit shall be applicable to:
1) Every listed company
2) Every unlisted public company having
- paid up share capital of Rs.50 crores or more or
- turnover Rs.200 crores or more or
- outstanding loans exceeding Rs.100 crores or more or
- outstanding deposits of Rs.25 crores or more.
3) Every private company having
- turnover of Rs.200 crores or more or
- outstanding loans exceeding Rs.100 crore or more.
Every company where internal audit is applicable shall ensure to comply with the Act and relevant provisions.
The Audit Committee of the company or the Board shall, in consultation with the Internal Auditor, formulate the scope, functioning, periodicity and methodology for conducting the internal audit.