What All Has Changed After Changing The Company Law
Author : Savigya Bhadauria
“I was riding on a tiger and I did not know how to get off without being eaten.” This is the famous statement from the confession letter of B. Ramalinga Raju former CEO and Chairman of Satyam Computers.
January 7, 2009 became a historic day when the chairman of Satyam resigned, confessing that he has done a fraud with company accounts of over 14,000 crores.
This incident had a global impact and Indian Laws were once again in palisade.
This is a classic example of how ‘Loop Holes’ in a law can lead to such devastating incidents. And this became one of the major reasons and wake-up call for our government to finally update our 57 years old ‘Company Law’.
On 12th September, 2013 new Company Law came into force. Which became the inception of the new era of how our companies are going to be governed.
But what all has changed which will indemnify the interest of stakeholders?
In this whole incident the role of external auditors were questioned.
Thereafter major changes in the Role of external Auditors were enforced. Key changes are as follows:-
As per Section 139 of the Companies Law, 2013 no auditor can be appointed for more than 5 years of tenure consecutively, followed by a cooling period of 5 years after retiring. This will ensure that the auditor is not giving biased opinion just to secure his post.
In addition to this, under Section 143, Powers and Duties of the Auditor has been mentioned so that no given power is being misused in the term of audit.
Certain Qualifications and Disqualifications on appointment of auditor is given under Section 141, has been imposed, which will look after that no personal interest of the auditor is fulfilled in the veil of auditing.
Also, in 2016, Ministry of Corporate Affairs {MCA} issued Companies Auditor’s Report Order (CARO) with the objective that certain particular and vital issues are mandatorily reported with the financial statements of the company. Some of them are:-
~ Fixed Assets
~ Inventory
~ Loans given by Company
~ Statutory Dues
~ The utilisation of funds
~ Reporting of Fraud
~ Approval of Managerial Remuneration
~Related Party Transactions
~ Non-Cash Transactions etc.
Although CARO is restricted to a certain number of entities, companies which are vulnerable to frauds and are included within the clauses so that nothing important is being missed out by the auditor. The responsibility of any misstatement or fraud in financial statements of the company has been increased on the auditor’s shoulder.
Previously there was no body superior to ICAI, The Institute of Chartered Accountants of India, which can punish the Chartered Accountant’s of the fraudulent entity. But now, MCA has established a new separate entity National Financial Reporting Authority(NFRA), under Section 132, of The Companies Act, 2013 with the aim of :
~Setting up of a separate and independent regulatory body to assist in the framing and enforcement of legislation relating to accounting & auditing and;
~Improving investor and public confidence in the financial reporting of an entity.
NFRA has certain superior powers, which includes looking after any matter of professional or other misconduct committed by the auditors of the respected firm.
These steps were pretty much important to be adhered to as it was necessary to bring back the faith of crores of stakeholders on the Indian Administration.
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