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TECHNICAL SESSION 3 DEPRECIATION, INTERNAL AUDIT, VOLUNTARY REVISION OF FINANCIAL STATEMENTS ,ICFR & CONSOLIDATION UNDER THE COMPANIES ACT, 2013. CA (DR.) SANJEEV SINGHAL HEAD: CENTRE OF EXCELLENCE FOR ACCOUNTING AND MANAGEMENT ASSURANCE JUBILANT LIFE SCIENCES LTD. DEPRECIATION.
TECHNICAL SESSION 3DEPRECIATION, INTERNAL AUDIT, VOLUNTARY REVISION OF FINANCIAL STATEMENTS ,ICFR & CONSOLIDATION UNDER THE COMPANIES ACT, 2013
CA (DR.) SANJEEV SINGHAL
HEAD: CENTRE OF EXCELLENCE FOR ACCOUNTING AND MANAGEMENT ASSURANCE
JUBILANT LIFE SCIENCES LTD.
Classification of companies as per the Companies Act, 2013 to decide the application of depreciation rates
II. Class of companies or class of assets where useful lives or residual value are prescribed by a regulatory authority constituted under an act of the Parliament or by the Central Government:
*Residual value was inbuilt in depreciation rates prescribed under Schedule XIV
BasedonthisthechargeforfirstyearwouldbeRs. 4.16Crore(approximately)(i.e.,Rs. 5/Rs. 600XRs.500Crores)whichwouldbechargedtoprofitandlossand0.83%(i.e., Rs. 4.16 crore /500 crore *100) is the amortisation rate for the first year.
‘*’will be actual at the end of financial year
e) According to the Schedule II of the Companies Act, 2013, entities may charge a lower depreciation than the rate envisaged in Schedule II on disclosing justified reasons of the differences. In case the entity goes with the option of charging depreciation at the rates lower than the prescribed rates, the rates will be as follows:
“Buildings" include roads, bridges, culverts, wells & tube-wells and "factory buildings" does not include offices, godowns, officers & employees' quarters, roads, bridges, culverts, wells & tube-wells according to the Schedule XIV of the Companies Act, 1956. Hence, the corresponding schedule XIV rates considered for comparison are those of ‘buildings (other than factory buildings) NESD’ specified in Schedule XIV.
Give the impact of component accounting on replacement of components after introduction of the Companies Act, 2013 and compare with the earlier situation under the Companies Act, 1956. Residual value may be assumed to be nil.
Statement showing component wise annual depreciation
When at the end of the respective useful lives of the components, the components will be replaced, the replacement cost should be capitalised because by that time, they are fully depreciated and the carrying value at the end of their respective useful lives is nil.
There is no specific requirement of 100% depreciation on assets whose actual cost does not exceed Rs. 5,000 in the Companies Act, 2013. However, under the Companies Act, 1956, assets whose actual cost does not exceed Rs. 5 thousand are depreciated @ 100%.
Carrying value as on 1st April, 2014 of Rs. 4,45,80,000 would be recognised in the opening balance of retained earnings. (assuming residual value to be nil)
The remaining useful life as per new Schedule is (20-9) 11 years. Accordingly, depreciable amount of Rs. 2,77,600 will be depreciated over 11 years. So, annual depreciation to be charged to Profit and loss account from FY 2014-15 onwards would be Rs. 2,77,600/11 yrs , i.e., Rs. 25,236. (assuming residual value to be nil)
INTERNAL AUDIT (Section 138 of the Companies Act, 2013)(Rule 13 of Companies (Accounts) Rules, 2014)(Provisions to be complied within 6 months of commencement of section)(No provision for mandatory audit in the 1956 Act)
Prescribed class of companies would be required to appoint an internal auditor, who shall either be a chartered accountant or a cost accountant, or such other professional as may be decided by the Board to conduct internal audit of the functions and activities of the company.
>=Rs. 200 cr
>=Rs. 100 cr
>=Rs. 25 cr
>=Rs. 200 cr
>=Rs. 100 cr
The Central Government may, by rules, prescribe the manner and the intervals in which the internal audit shall be conducted and reported to the Board.
(Section 138(2) of the Companies Act, 2013)
Audit Committee/Board shall, in consultation with the Internal Auditor, formulate the scope, functioning, periodicity and methodology for conducting the internal audit.
(Rule 13(2) of Companies (Accounts) Rules, 2014)
VOLUNTARY REVISION OF FINANCIAL STATEMENTS OR BOARD’S REPORT(Section 131 of the Companies Act, 2013)(Section yet to be notified) (No such provision in the Companies Act, 1956)
Provisions in case the copies of the previous financial statement or report have been sent out to members or delivered to the Registrar or laid before the company in general meeting
d) whether the company’s balance sheet and profit and loss account dealt with in the report are in agreement with the books of account and returns;
the observations or comments of the auditors on financial transactions or matters which have any adverse effect on the functioning of the company
(i) The auditor’s report shall state whether the company has adequate internal financial controls system (IFCS) in place and the operating effectiveness of such controls.
SOX Act, 2002
Focused representations by certifying officers linked to criminal provisions of the Act
Assessment of the
effectiveness of internal controls and attestation from independent public accountants
COSO is applied at two levels – at the entity level and at the process or activity level.
Entity Level Controls (Company level controls)
ExplanationAssertions - Understanding “What can go Wrong”
Assets and liabilities actually exist and transactions as well as accounting events have actually occurred.
All assets, liabilities, transactions, and accounting events that should be included have been recorded.
The assets and liabilities are presented at appropriate valuations.
Transactions and accounting events are recorded at their appropriate valuations, and income and expenses are allocated to the appropriate time periods.
Transactions and accounting events are properly presented.
Presentation and Disclosure
An assertion that an asset or liability pertains to the company at a point in time.
Rights and Obligations
The requirements concerning preparation, adoption and audit will, mutatis mutandis, apply to CFS.
Earlier, only clause 32 of the listing agreement mandated listed companies to publish Consolidated Financial Statements. Neither the Companies Act, 1956 nor AS 21 required other companies to prepare CFS.
a) Where a company is required to prepare CFS, the company will mutatis mutandis follow the requirements of this Schedule.
b) All subsidiaries, associates and joint ventures (whether Indian or foreign should be covered under consolidated financial statements.
Earlier, the MCA circular required information, such as, capital, reserves, total assets and liabilities, details of investment, turnover and profit before and after taxation, to be disclosed for subsidiaries only.
The Companies Act, 1956 does not define the term “control.” It explains the meaning of terms “holding company” and “subsidiary” as below:
The Companies Act, 1956 does not define the term ‘associate’ or ‘associate company’.