Companies Act, 2013

Key Topics &

Important Updates

September, 2018

NJP Advisors
Act with excellence
 Updates on Companies Act, 2013

Table of Contents

A. Loans and Investments by Companies …………………………………………… 2

B. Private Companies – Norms and Relaxations …………………………….……... 4

C. Acceptance of Deposits ……………………………………………………............ 7

D. Audit under Companies Act ………………………………………………………. 10

E. Related Party …………………………………………………………………………. 12

F. Corporate Social Responsibility …………………………………………………… 15

G. Section wise list of Companies (Amendment) Act, 2017 ……………............ 18

H. Other Important Updates ………………………………………………................. 21

I. Annexure – A : Sample Audit Report …………………………………………….. 23

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Updates on Companies Act, 2013

A. Loans and investments by companies

Inter-corporate loans and investments are important sources of funds for every company.
Companies Act, 2013 contains stringent provisions as compared to Companies Act, 1956 for
providing loans to directors and companies with interested directors.
Additional guidance is provided w.r.t. loans and guarantees given to subsidiaries. Companies can
also make investments in other entities as per Section 186 of the 2013 Act.

Restriction on loans to directors by a company (Section 185)

A company can not advance any loan, including loan represented by a book debt, directly or
indirectly to any of its directors. Such a restriction also extends to any guarantee given or security
provided in connection with a loan. However, in certain situations, companies are allowed to
advance loan or provide guarantee/security.

 Loan given by a private company: No restriction on loan given by a private company, if it

meets all the given conditions (w.e.f. 7th May, 2018):
a. No other body corporate has invested in its share capital
b. Its borrowings from banks/financial institutions/any Body Corporate is less than twice of
its paid-up share capital or Rs. 50 crore, whichever is lower
No default in repayment of such borrowings exist at the time of making transactions under
Section 185 of the 2013 Act.
 Loan to MD/WTD: Any loan given to a Managing Director (MD) or a Whole-Time Director (WTD)
provided the amount of loan has been given as a part of conditions of service extended by
the company to all its employees or has been given in pursuance of any scheme approved by
the members by a special resolution.

 Loan/guarantee by a holding company to its wholly-owned subsidiary: Any loan, guarantee or

security given by a holding company to its wholly owned subsidiary subject to the condition
that the amount of loan should be utilised by the subsidiary only for its principal business
activities.

 Guarantee for loan taken by a subsidiary from bank: Any guarantee given or security provided
by a holding company in respect of loan made by any bank or financial institution to its
subsidiary subject to the condition that the amount of loan should be utilised by the subsidiary
only for its principal business activities.

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Updates on Companies Act, 2013

A Brief Comparison between Current and amended provisions of Section 185

Sr. Who can avail Loan/Guarantee/Security of the Co. Act, 2013 Amendment Act, 2017
No. Company (Old) (Effective w.e.f. 7th May,
2018)
Director of the Company Prohibited Prohibited
1

Director of the holding company Prohibited Prohibited

2

Any partner or relative of any such director Prohibited Prohibited

3

Any firm in which any such Director or Relative Prohibited Prohibited

4 is a partner
MD/WTD Yes (Subject to Yes (Subject to
5 conditions) conditions)
Any private company of which any such Prohibited Requires passing of a
6 director is a director or member special resolution
Any Body Corporate at a general meeting of Prohibited Requires passing of a
7 which not less than twenty-five percent of the special resolution
total voting power may be exercised or
controlled by any such director, or by two or
more such directors, together.
Any Body Corporate, the Board of directors, Prohibited Requires passing of a
8 managing director or manager, whereof is special resolution
accustomed to act in accordance with the
directions or instructions of the Board, or of any
director or directors, of the lending company
Loans to be utilised by the borrower for its No Such Newly inserted
9 principal activities Provision
By a holding company to its wholly owned Exempted Exempted
10 subsidiary company
By a holding company in respect of any loan Exempted Exempted
11 made to its wholly owned subsidiary company.
Guarantee given or security provided by a Exempted Exempted
12 holding company in respect of loan made by
any bank or financial institution to its subsidiary
company.

Investments by a company (Section 186)

Companies may make investments in assets or other entities subject to the requirements of the
Companies Act 2013.
The following are the conditions:
1. Investments through two layers of investment companies: A company is not allowed to make
investment through more than two layers of investment companies. However, the restriction of two
layers of investment companies is not applicable in the following cases:

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Updates on Companies Act, 2013

i. A company acquires any other company incorporated outside India if such other company
has investment subsidiaries beyond two layers as per the laws of such country
ii. ii. A subsidiary company with any investment subsidiary for the purposes of meeting the
requirements under any law for the time being in force.
2. Loans can be advanced to any person in whom a director is interested under the Companies
(Amendment) Act, 2017
Companies are allowed to give loans (including loan represented by a book debt), any guarantee
or can provide any security in connection with any loan, to any person in whom any of the director
is interested, subject to prior approval by a special resolution and loans should be utilised by the
borrowing company for its principal business activities.
3. Revised norm for loan given in normal course of business as per the Companies (Amendment)
Act, 2017
A company is allowed to provide loans or give guarantees or securities in its ordinary course of
business for the due repayment of any loan at an interest rate not less than the rate of prevailing
yield of one year, three year, five year or 10 year government security closest to the tenure of the
loan.

B. Private companies - Norms under Companies Act, 2013

The relaxations provided to private companies have been categorised under the given heads:
1. Provisions that are subsequently amended for private companies
2. Provisions that would not apply to any private company
3. Provisions that would not apply to certain private companies.

1. Provisions that are subsequently amended for private companies

 Cash flow Statement exemption
Definition of financial statements for one Person Company, small company, dormant
company and a private company which is a start-up company not required to include
a cash flow statement. (w.e.f. 13th June 2017)

 Time period of Right Issue of shares reduced

In case a private company, reduce the time period for the rights issue to less than the period
prescribed in Section 62(1)(a)(i) and Section 62(2), it can do so provided 90 per cent of its
members have given their consent in writing or via an electronic mode.

 ESOP – relaxation from special resolution

Section 62(1)(b), for private companies, passing of an ordinary resolution would be sufficient
instead of Special Resolution for issuing ESOP as per the amendment to the 2013 Act.
 Annual return : disclosure/information reduced:
Private companies which are small companies are required to provide details of aggregate
amount of remuneration drawn by directors instead of providing details of remuneration of
directors and KMP of the company.

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Updates on Companies Act, 2013

Additionally, the annual return of a private company which is a start-up is required to be signed
by the company secretary, or where there is no company secretary, by the director of the
company. (Section 92)

 Mandatory rotation of auditors:

Section 139(2) of the 2013 Act read with Rule 5 of the Companies (Audit and Auditors)
Rules, 2014 provides that All private limited companies with paid-up share capital of Rs.
50 crore (earlier Rs. 20 crore) or more cannot appoint or reappoint an individual as an
auditor for more than one term of five years or an audit firm as an auditor for more than
two consecutive terms of five years each.

 Disqualifications of auditors:
The MCA provided relaxation while calculating the maximum limit of 20 companies and
following companies would be excluded:
a. One person company
b. Dormant companies
c. Small companies and
d. Private companies having paid-up share capital less than Rs. 100 crores.

 Meetings of board:
Every company is required to hold first meeting of its BoD within 30 days of the date of its
incorporation and thereafter required to hold a minimum number of four board meetings every
year in such a manner that not more than 120 days should intervene between two consecutive
board meetings.
However, in case of a one person company, small company, dormant company and a private
company which is a start-up, a relaxation has been given. They need to hold at least one board
meeting in each half of a calendar year.

 Important Definitions
1. Start-up or Start-up Company means a private company incorporated under the 2013 Act
or the Companies Act, 1956 and recognised as start-up in accordance with the notification
issued by the Department of Industrial Policy and Promotion, Ministry of Commerce and
Industry.
2. Small company means a company, other than a public company which meets both the
given conditions:
a) Paid-up share capital does not exceed RS. 50 lakh or such higher amount as may be
prescribed which should not be more than Rs. 5 crore and
b) Turnover as per last statement of profit and loss does not exceed Rs. 2 crore or such
higher amount as may be prescribed which should not be more than Rs. 20 crore.

2. Provisions that would not apply to any private company

 RPTs: Exemption for private companies
The Companies (Amendment) Act, 2017 has amended the definition of related party (as given
in Section 2(76)(viii)). According to it, any Body Corporate which is a:
a. Holding, subsidiary or an associate company of such company

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Updates on Companies Act, 2013

b. Subsidiary of a holding company to which it is also a subsidiary or

c. An investing company or the venturer of the company is a related party.
In case of private companies, the above mentioned class of body corporates would not be
considered as related parties.
 Resolutions and agreements to be filed:
Section 117 pertains to resolutions and agreements to be filed with the ROC.
Private companies are not required to file with the ROC resolutions passed by the board which
are covered in Section 179(3) of the 2013 Act.
Following are the resolutions that are not required to be filed:
 To make calls on shareholders in respect of money unpaid on their shares
 To authorise buy-back of securities under Section
 To issue securities, including debentures, whether in or outside India
 To borrow monies
 To invest the funds of the company
 To grant loans or give guarantee or provide security in respect of loans
 To approve financial statements and the board’s report
 To diversify the business of the company
 To approve amalgamation, merger or reconstruction
 To take over a company or acquire a controlling or substantial stake in another company,
 Any other matter which may be prescribed.
(*w.e.f. 5th June 2015)
 Rights of persons other than retiring directors to stand for directorship:
Section 160 relates to right of persons other than retiring directors (i.e. not liable to retire by
rotation) to stand for directorship. This Section is not applicable to private companies with
effect from 5th June 2015.
 Appointment of directors to be voted individually:
Section 162 deals with the manner of appointing two or more persons as directors of a
company by a single resolution. This section is not applicable to private companies with effect
from 5th June 2015.
 Restriction on powers of board:
Section 180 that deals with the restrictions on the powers of the board is not applicable to the
private companies with effect from 5th June 2015.
 Appointment and remuneration of managerial personnel:
The provisions of Section 196(4) and 196(5) are not applicable to the private companies with
effect from 5th June 2015.

3. Provisions not applicable to certain class of private companies

 Prohibition on acceptance of deposits from public:
Clauses (a) to (e) of the Section 73(2) deal with the conditions to be fulfilled by the companies
for accepting deposits from the public or from its members.
The provisions of clauses (a) to (e) of Section 73(2) of the 2013 Act would not be applicable to
a private company subject to certain conditions

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Updates on Companies Act, 2013

 IFC:
An auditor of a private company is not required to report on the adequacy and operating
effectiveness of IFC in the auditor’s report (as required under Section 143(3)(i) of the 2013 Act)
provided such a private company which is a Small Company or OPC or turnover less than 50
crore in previous financial year.
 Type of share capital:
Section 43 deals with the kinds of share capital namely equity and preference shares. This
section will not apply to a private company if memorandum or articles of association of the
private company provide that Section 43 would not apply.
 Voting rights:
Section 47 on voting rights attached to shares would not apply to a private company if
memorandum or articles of association of the private company provides that Section 47 would
not apply.
 Restrictions on purchase by company or giving of loans by it for purchase of its shares:
Section 67 provides certain restrictions on companies for buyback of its shares or to give loans
for purchase of its shares. These restrictions would not apply to private companies provided
certain conditions are met.

 Loans to directors: Section 185 of the 2013 deals with loans to directors and companies
in which directors are interested. This section does not apply to a private company if it
meets certain conditions.

C. Acceptance of deposits
A mode through which companies can fulfil their financial needs is
through acceptance of deposits from its members or public.
The 2013 Act prescribes certain provisions to be complied with by
companies while accepting deposits.
The deposit related provisions are applicable to the following classes
of companies:
• A company that accepts deposits from its members. Such a
company has to pass a resolution in its general meeting according to
the Rules prescribed and subject to the fulfilment of the specified
conditions (Section 73(2)) (discussed under the head ‘Conditions for acceptance of deposits’)
• A company that is eligible to accept deposits from the public (Section 76) (i.e. eligible
company as defined under the Companies (Acceptance of Deposits) Rules, 2014 (Deposits
Rules)).

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Updates on Companies Act, 2013

An eligible company means a public company fulfilling the following conditions:

 Net worth of not less than RS. 100 crore or a turnover of not less than RS. 500 crore
 Obtained prior consent of the company in the general meeting by means of a special
resolution*, and
 Filed the said resolution with the ROC before making any invitation to the public for
acceptance of deposits.

(*In case, deposit is with respect to the limits specified under Section 180(1)(c) of the 2013 Act, an
ordinary resolution may suffice the requirement.)
However, certain companies are exempted from the deposit related provisions and they are as
follows:
 A banking company
 An Non-Banking Financial Company (NBFC)
 A housing finance company
 A company as may be specified by the CG after consultation with the Reserve Bank of
India (RBI).
Deposits have been defined as, It includes any receipt of money by way of deposit or loan or in
any other form by a company, but does not include such categories of amount as may be
prescribed in consultation with RBI.
Further, the Deposits Rules provide various categories and items that are excluded from the
definition of deposits. Some of the significant items which are not to be categorised as deposits
are as follows:
1. Receipt of amount towards subscription of securities in certain situations:
An amount received towards subscription of securities would not be treated as a deposit
except in following situations:
• The securities against which amount has been received could not be allotted within 60 days
from the date of receipt of the application money, or
• Advance for such securities and such application money or advance has not been
refunded to the subscribers within 15 days from the date of completion of 60 days.

2. Receipt of amount from directors: Any amount received from a person who, at the time of the
receipt of the amount, was a director of the company or a relative of the director of the private
company.
However, such a director or a relative of a director (in case of private company) is required to
furnish a declaration in writing to the effect that such an amount has not been given out of
funds acquired by him through borrowing or accepting loans or deposits from others.
Additionally, the company should disclose the details of money so accepted in its board’s
report.
3. Receipt of amount from an employee: An amount received from an employee of the company
would not be considered as a deposit if it does not exceed his/ her annual salary under a
contract of employment, and should be in the nature of non-interest bearing security deposit.

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Updates on Companies Act, 2013

4. Receipt of amount for the purpose of business: Any amount received in the course of, or
for the purposes of, the business of the company. For example, amount received as:
a. An advance for the supply of goods or provision of services provided that such an
advance is appropriated against supply of goods or provision of services within a period
of 365 days from the date of acceptance of such advance.
b. An advance received in connection with consideration for an immovable property
under an agreement/arrangement, provided that such advance is adjusted against
such property in accordance with the terms of the agreement/ arrangement.
c. An advance received under long-term projects for supply of capital goods except those
covered under (b) above.
d. An advance towards consideration for providing future services in the form of a warranty
or maintenance contract as per the written agreement/arrangement, if the period for
providing such services does not exceed the period prevalent as per common business
practice, or five years from the date of acceptance of such service, whichever is less.

The above amounts would be deemed to be deposits on the expiry of 15 days from the date they
become due for refund.
Further, if the amount (given in point (a), (b) and (c) above) become refundable (with or without
interest) due to the reasons that the company accepting the money does not have necessary
permission or approval, wherever required, to deal in the goods or properties or services for which
the money was taken, then the amount received would be deemed to be a deposit.

5. Debentures
Secured:
Secured debentures (including optionally convertible, compulsorily convertible and
nonconvertible) are not to be considered as deposits.
Unsecured:
a. Compulsorily convertible debentures: If compulsorily convertible debentures are issued to
a company, then these are not to be classified as deposits.
b. Similarly, if these debentures are issued to a resident, these are not to be considered as
deposits if debentures are convertible within 10 years.
c. Optionally convertible debentures and nonconvertible debentures: If optionally convertible
debentures and non-convertible debentures are issued to a company or a foreign body,
then these are not to be classified as deposits.
However, if such debentures are issued to a resident, then these will be considered as
deposits unless the debentures are listed on the stock exchange.

6. Receipt of amount from another company:

Any amount received by a company from any other company would be excluded from the
definition of deposit.

Permissible amount of deposits

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Updates on Companies Act, 2013

The 2013 Act along with the Deposits Rules, prescribes the following limits for acceptance of
deposits from members and the public:
Eligible company (excluding Government Company):
 An eligible company is allowed to accept deposits of up to 10 per cent of the aggregate of its
paid-up share capital, free reserves and securities premium account from its members.
 In case of any other deposits, deposits of up to 35 per cent of the aggregate of the paid-up
share capital, free reserves and securities premium account are permitted.

Noteworthy Points
 Deposits Rules specify items or categories which are specifically excluded from the term
‘deposits’. However, certain companies that may have received a consideration for more than
365 days for providing services would need to consider the requirements of the deposits rules.
 Deposits should not be repayable within a period of less than six months or more than 36 months
from the date of acceptance or renewal.
 The rate of interest on deposits should not exceed the maximum rate of interest prescribed by
RBI for acceptance of deposits by NBFCs.
 The 2013 Act contained a requirement that companies accepting deposits should invest in
deposit insurance contract. The Companies (Amendment) Act, 2017 has omitted this
requirement.
 Companies were required to deposit an amount equal to 15 per cent of the amount of deposits
maturing during a FY and the following FY in a deposit repayment reserve account up to 30
April of each year.
 The Companies (Amendment) Act, 2017 changes the above requirement and now a
company would need to maintain a deposit repayment reserve account in a scheduled bank
up to 20 per cent of the amount of deposits maturing during the following FY.

D. Audit under Companies Act

The Companies Act 2013 has entrusted auditors with responsibilities to enhance transparency in
reporting and good governance.
Provisions w.r.t. Audit in Companies Act, 2013
Auditor appointment
An individual or a firm would be appointed as an auditor for a five-year term at the AGM of the
company. The 2013 Act read with the Companies (Audit and Auditors) Rules, 2014 provides that
the following class of companies (except small companies and one person companies), cannot
appoint or reappoint an individual as an auditor for more than one term of five years or an audit
firm (including LLP) as an auditor for more than two consecutive terms of five years each:
a. Listed companies
b. All unlisted public companies having paid up share capital of RS. 10 crore or more
c. All private limited companies having paid up share capital of RS. 50 crore or more

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d. All other companies having paid up share capital below the threshold limit mentioned in (b)
and (c) above, but with public borrowings from financial institutions, banks or public deposits
of RS. 50 crore or more.

MCA notification dated 22 June 2017.

There is a cooling off period of five years for both individual auditors and audit firm within which
an auditor/ audit firm cannot be reappointed. Audit firms with a common partner(s) or
operating under the same trademark or brand will also not be eligible.

Removal of an auditor
An auditor could be removed before expiry of his/her term by passing a special resolution and
after obtaining prior approval of the CG in the manner prescribed.
Disqualification of an auditor
Companies Act prohibits a person from being appointment as an auditor if he/she:
 Holds any security of or interest in the company or its subsidiary/holding company/associate
company/ fellow subsidiary
 Is indebted to the company in excess of Rs. 5 lakh along with his/her relative
 Has a relative as a director or in the employment of the company as a director or KMP or
 Is in full-time employment elsewhere or a person or a partner of a firm holding appointment as
its auditor,
 if such persons or partner is at the date of such appointment or reappointment holding
appointment as auditor of more than 20 companies (except one person companies, dormant
companies, small companies and private companies having paid-up share capital less than
INR100 crore, in case of private companies)
Reporting on adequacy and effectiveness of IFC
No annual ratification of auditors required as per the Companies (Amendment) Act, 2017
Companies are not required to get the appointment/continuance of an auditor ratified by the
shareholders on an annual basis once the auditors have been appointed for five years.

MCA notification no. G.S.R. 464(E) dated 5 June 2015.

Auditor is not allowed to render services prescribed under Section 144 of the 2013 Act The
Companies (Amendment) Act, 2017 specifically provides that any person who provides directly
or indirectly any service as given in Section 144 (such as accounting and book keeping services,
internal audit, management services and actuarial services) to the company, its holding
company or to its subsidiary company is ineligible to be appointed as an auditor of the
company.

D.1 Applicability of Reporting

Companies (Auditor’s Report) Order, 2016 (CARO)
CARO 2016 is applicable to all the companies including a foreign Company except the following
(which) are specifically excluded from its purview:
 Banking Company as defined under Section 5 (c) of the Banking Regulation Act, 1949.
 Insurance Company as defined under the Insurance Act 1938.

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 Company licensed to operate under Section 8 of the Companies Act 2013 (Companies
registered with charitable object).
 A one-person company (OPC) as defined under clause (62) of Section 2 of Companies Act
2013 (OPC means a company which has only one person as a member).
 A small company under Section 2 (85) of the Companies Act, 2013. (Refer Page 5 of this
documents for definition of Small Company.
 The auditor of following type of Private Companies are not required to comment on the matter
prescribed under CARO 2016:
(a) A private company which is not holding or subsidiary company of a public company, and
(b) A private company having a paid up capital and reserve and surplus not more than Rs. 1
crore as on the balance sheet date, and
(c) A private company which does not have total borrowing exceeding Rs. 1 crore from any
bank and financial institution at any point of time during the financial year, and
(d) A private company which does not have total revenue exceeding Rs. 10 crore during the
financial year.
Internal Financial Control (IFC)
As per Notification No. GSR 464 (E) dated 5th June 2015 as amended by Notification No. GSR 583(E)
dated 13th June 2016, this requirement shall not apply to a Private company:
 which is one person company or a small company
 which has turnover less than Rs. 50 crores as per latest audited financial statements and which
has aggregate borrowings from banks or financial institutions or any Body Corporate at any
point of time during the financial year less than Rs. 25 crores.

For Sample Audit Report Refer Annexure – A to this document

E. Related Party
Related Party Transactions (RPTs) has been an area of focus for regulators, auditors and
shareholders. The Companies Act, 2013 and the Listing Regulations lay a lot of emphasis on the
RPTs.
Under the 2013 Act, certain transactions with related parties, which are not in the ordinary course
of business and which are not at an arm’s length require the consent of the BoD of the company.
Further, shareholders’ approval is required for transactions where certain thresholds are met.

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Additionally, Section 134 read with Section 188 of the 2013 Act also requires the details of RPTs that
require consent of the BoD/ordinary resolution of members along with the justification for entering
into them.
Revised definition of a related party as per the Companies (Amendment) Act, 2017
Related party with reference to a company means:
 A director or his relative
 A Key Managerial Personnel (KMP) or his relative
 A firm, in which a director, manager or his relative is a partner
 A private company in which a director or manager or his relative is a member or director
 A public company in which a director or manager is a director and holds along with his
relatives, more than two per cent of its paid-up share capital
 Any Body Corporate whose BoD, managing director or manager is accustomed to act in
accordance with the advice, directions or instructions of a director or manager
 Any person on whose advice, directions or instructions a director or manager is accustomed
to act
 Provided that nothing in sub-clauses (vi) and (vii) should apply to the advice, directions or
instructions given in a professional capacity.
 Any Body Corporate which is:
a. A holding, subsidiary or an associate company of such company
b. A subsidiary of a holding company to which it is also a subsidiary or
c. An investing company or the venturer of the company19.
For private companies and units of an unlisted public company in an International Financial
Services Centre (IFSC) in Special Economic Zones (SEZs) (specified IFSC public company), the
above mentioned relationships (given in point (viii)) are outside the scope of RPTs.
As per the Listing Regulations (Regulation 2(zb)), an entity should be considered as related to the
company if:
 Such entity is a related party under Section 2(76) of the 2013 Act, or
 Such entity is a related party under AS or Ind AS.

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Updates on Companies Act, 2013

The 2013 Act

requirements All
Public
Companies

All transactions -
audit
committee
approval

Transactions under Transactions under

Section 188 Section 188
Not in ordinary Ordinary course of
course of business/ business and at an
not at an arm’s arm’s length
length

No further
Board’s approval approval
required* required

Ordinary resolution at general meeting

required– voting only by parties not
interested in the contract/arrangement^

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F. Corporate Social Responsibility (CSR)

The government introduced mandatory CSR requirements in the 2013 Act. The 2013 Act mandates
companies to spend on social and environmental welfare. The CSR provision became effective
from 1 April 2014. Significant amendments have been made to the CSR provisions through issuance
of various notifications and clarifications. ICAI has also issued a Guidance Note on accounting for
expenditure on CSR (GN on CSR) to provide guidance on accounting as well as suggesting best
practice for disclosure and presentation of CSR expenses in the financial statements.

Applicability
The 2013 Act mandates that every company (including its holding or subsidiary, as well as foreign
companies with project office/branch in India) to undertake CSR activities if they meet certain
thresholds.
A company would fall within the ambit of CSR provisions if any of the following thresholds are met:
o Net worth of Rs. 500 crore or more
o Turnover of Rs. 1,000 crore or more
o Net profit of Rs. 5 crore or more
during the immediately preceding Financial Year.
If a company meets any of the above threshold then it is required to spend two per cent of its
average net profits (made during three immediately preceding FYs) as a CSR spend.
Issues

Holding v/s Subsidiary: FAQs issued by the MCA clarify that a holding or a subsidiary of a
company is not required to comply with the CSR provisions unless the holding or subsidiary itself
fulfils the CSR criteria.
Applicability to Section 8 companies The FAQs issued by the MCA clarify that CSR provisions of the
2013 Act apply to ‘every company’ and no specific exemption is given to Section 8 companies.
Hence, Section 8 companies are required to follow CSR provisions.
Calculation of net profit to compute CSR spend
As per the Companies (CSR Policy) Rules, 2014 (CSR Rules), net profit means the net profit of a
company as per its financial statements prepared in accordance with the applicable provisions
of the 2013 Act, but would not include the following:

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 Any profit arising from any overseas branch or branches of the company, whether
operated as a separate company or otherwise
 Any dividend received from other companies in India, which are covered under and
complying under Section 135 of the 2013 Act.
Accordingly, for a CSR contribution to be made in 2017-18, average of the net profits for the
immediately preceding three FYs i.e. 2014-15, 2015-16 and 2016-17 would be computed.

Explanation for net profits under the Companies (Amendment) Act, 2017
Section 198 of the 2013 Act specifies additions/deletions to be made while calculating the net
profit of a company (mainly it excludes capital payments/receipts, income tax, set-off of past
losses). Additionally, the computation of net profit for CSR spend calculation would be based
on profit before tax.
CSR committee
 Every company required to make a CSR spend should constitute a CSR committee. The CSR
committee would comprise three or more directors, out of which at least one director should
be an Independent Director.
 However, an unlisted public company/private company which is not required to appoint an
Independent Director, would constitute a CSR committee without an Independent Director
(as per the CSR Rules (Rule 5(1)).
 A private company with only two directors on its BoD would constitute its CSR committee with
those two directors.
 In respect of a foreign company, the CSR committee would comprise at least two persons of
which one person should be as per the Section 380(1) (d) of the 2013 Act (i.e. person
authorised to accept service of process and any notices or other documents on behalf of the
foreign company) and another person should be nominated by the foreign company.
 The BoD of the company are required to approve CSR policy after considering the
recommendations made by the CSR committee and should also ensure that the activities
included in the CSR policy are undertaken by the company.
Eligible activities for CSR spend
Schedule VII to the 2013 Act lays down a list of activities which are eligible for the CSR expenditure
and could be included by companies in their CSR policies. Following are the key headline activities
specified in the Schedule VII of the 2013 Act:
a. Eradication of hunger, poverty and malnutrition, promotion of health care including
preventive health care and sanitation including contribution to the Swachh Bharat Kosh set-
up by the CG for the promotion of sanitation and making available safe drinking water
b. Promotion of education including special education and employment enhancing vocation
skills
c. Promotion of gender equality and empowerment of women, setting up homes and hostels for
women and orphans, setting up old age homes, day care centers and such other facilities for
senior citizens and measures for reducing inequalities faced by socially and economically
backward groups Requirement under the Companies (Amendment) Act, 2017.
A company which is not required to appoint an Independent Director under Section 149(4) of the
2013 Act, should have two or more directors in its CSR committee.

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Additional adjustments to be made while computing net profits as per the Companies
(Amendment) Act, 2017
While calculating net profits of the company, any amount representing unrealised gains,
notional gains or revaluation of assets have to be excluded from net profits.
However, any amount representing profits by way of premium on shares or debentures of the
company, which are issued or sold by an investment company should not be excluded from
the net profits as per the Companies (Amendment) Act, 2017.

Responsibilities of the CSR committee as per the Companies (Amendment) Act, 2017
The CSR committee would be responsible for the following activities:
a. Formulation and recommendation to the BoD, a CSR policy indicating the activities to be
undertaken by the company in areas or subject, specified in Schedule VII to the 2013 Act
b. Recommendation of the amount of expenditure to be incurred on the activities referred to in
clause (a) above and
c. Monitoring the CSR policy of the company from time to time.
d. Environmental sustainability
e. Protection of national heritage, art and culture including restoration of buildings and sites of
historical importance and works of art
f. Measures for the benefit of armed forces veterans, war widows and their dependents
g. Training to promote rural sports, nationally recognised sports, Paralympic sports and Olympic
sports
h. Contribution to the Prime Minister’s National Relief Fund or any other fund set up by the CG or
the state governments for socio-economic development and relief and funds for the welfare
of the scheduled castes, the scheduled tribes, other backward classes, minorities and women
i. Contributions or funds provided to technology incubators located within academic institutions
which are approved by the CG
j. Rural development projects
k. Slum area development.
Companies should give preference to the local area and areas around it where it operates, for
spending the amount earmarked for CSR activities.
The MCA has also clarified that the CSR activities enumerated in the Schedule VII to the 2013 Act
are broad-based and are intended to cover a wide range of activities. Thus, these prescribed
activities should be interpreted liberally to capture their essence29.
Different forms for undertaking CSR activities
a. CSR activities itself: A company could undertake the CSR activities itself as per its stated CSR
policy either in new projects or ongoing projects.
b. CSR activities through a company/trusts/society established under Section 8 of the 2013 Act:
Companies could undertake its CSR activities through:
i. Companies established by the company or with any other company: A company
established under Section 8 of the 2013 Act, a registered trust, or a registered society
established by the company along with any other company and
ii. Companies established by the central or state government: Section 8 Company, a
registered trust, or a registered society established by the central or state government or
any entity established under an Act of Parliament or a state legislature

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iii. Companies established by others: Any other Section 8 company, registered trust, or a
registered society.

Ineligible activities for CSR spend

a. Normal course of business activities
b. Direct/indirect contribution to any political party
c. Only for the benefit of the employees and their families
d. One-off events
e. Regulatory expenses
f. Activities undertaken outside India.

Treatment of CSR expenditure in the financial statements

The amount of contribution made towards CSR would generally, be treated as an expense and
charged to the statement of profit and loss, unless it gives rise to an asset. According to the GN on
CSR, an asset would be recognised on the basis of an evaluation of control over the asset and
accrual of future economic benefits to the company. Based on GN on CSR, it seems that a
company would be unlikely to demonstrate either the control or future economic benefits criteria
for the CSR assets.
In case a company spends more than the amount specified in Section 135(1) of the 2013 Act (i.e.
more than 2 per cent of its average net profits of three preceding years) on CSR, the excess
amount spent cannot be carried forward to the subsequent years and adjusted against the next
year’s CSR expenditure.
However, the company’s BoD may carry forward any unspent amount out of the minimum required
CSR expenditure to the next FY. However, the carried forward amount would be over and above
the next year’s CSR allocation equivalent to at least 2 per cent of the average net profit of the
company of the immediately preceding three years.
A company within the ambit of CSR provisions has to provide following disclosures:
• Financial statements: Disclose the amount of expenditure incurred on CSR by way of a note to
the statement of profit and loss.

G. Section wise list of Companies (Amendment) Act, 2017

with Effective Date

Sr. No. Particulars Section of Amended Effective Date

Companies Sections of
Amendment Companies
Act, 2017 Act, 2013
1 Definitions Section 2 Section 2 February 09, 2018
except except
Clause (i) & clause (6) &
(xiii) 85
2 Definitions Clause (i) & 2(6) & (85) May 07, 2018
(xiii) of
section 2;

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3 Memorandum 4 4 January 26, 2018

4 Incorporation of Company 5 7 July 27, 2018
5 Registered office of Company 6 12 July 27, 2018
6 Authentication of documents, 7 21 February 09, 2018
proceedings and contracts
7 Matters to be stated in prospectus 8; 26 May 07, 2018
8 Civil Liability for misstatements in 9 35 February 09, 2018
prospectus
9 Issue of shares on Private 10 42 August 07, 2018
Placement basis
10 Voting Rights 11 47 February 09, 2018
11 Prohibition on issue of shares at 12 53 February 09, 2018
discount
12 Issue of sweat equity shares 13; 54 May 07, 2018
13 Further Issue of Share Capital 14 62 February 09, 2018
14 Prohibition on acceptance of 15 73 August 15, 2018
deposits from public
15 Repayment of deposits etc. 16 74 August 15, 2018
Accepted before the
commencement of this Act
16 Punishment for contravention of 17 76A February 09, 2018
section 73 or 76
17 Duty to Register of charges, etc. 18 77 May 07, 2018
and
18 Application for Registration of 19 78 May 07, 2018
charge
19 Company to report satisfaction of 20 82 July 05, 2018
charge
20 Declaration in respect of Beneficial Clauses (i) 89 May 07, 2018
Interest in any share and (ii) of
section 21;
21 Declaration in respect of Beneficial Clauses (iii) 89(10) June 13, 2018
Interest in any share of section
21
22 Register of Significant beneficial 22 90 June 13, 2018
Owners in a Company
23 Annual return Clauses (iii) 92 May 07, 2018
and (iv) of
section 23;
24 Return to be filed with Registrar in 24 93 June 13, 2018
case of promoter stake changes
25 Place of keeping and inspection of 25 94 June 13, 2018
registers and returns etc.
26 Annual General Meeting 26 96 June 13, 2018
27 Calling of EGM 27 100 February 09, 2018
28 Notice of Meeting 28 101 February 09, 2018
29 Postal Ballot 29 110 February 09, 2018
30 Resolutions and Agreements to be 30 117 May 07, 2018
filed
31 Report on Annual General meeting 31 121 May 07, 2018
32 32 123 February 09, 2018
33 Financial Statement 33; 129 May 07, 2018

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34 Reopening of Accounts on Court’s 34 130 February 09, 2018

order
35 Constitution of NFRA 35 132 February 09, 2018
36 Financial Statement, Board’s Report 36 134 July 31, 2018
37 Right of member to copies of 38 136 February 09, 2018
Audited Financial statements
38 Copy of financial statement to be 39 137 May 07, 2018
filed with registrar
39 Appointment of Auditors 40 139 May 07, 2018
40 Removal, Resignation of Auditor 41 140 February 09, 2018
and giving of special notice
41 Eligibility, Qualification and 42 141 February 09, 2018
Disqualification of Auditors
42 Power and duties of Auditors and 43 143 February 09, 2018
AS
43 Punishment for contravention 44 147 February 09, 2018
44 CG to specify audit of cost in 45 148 February 09, 2018
respect of certain companies
45 Company to have Board of 46; 149 May 07, 2018
Directors
46 Appointment of Directors 47 152 February 09, 2018
47 Application for allotment of DIN 48 153 February 09, 2018
48 Company to inform DIN to registrar 49; 157 May 07, 2018
49 Right of persons other than retiring 50 160 February 09, 2018
directors to stand for directorship
50 Appointment of Additional, 51 161 February 09, 2018
alternate and Nominee Director
51 Disqualification for appointment of 52 164 May 07, 2018
Directors
52 Number of Directorships 53 165 February 09, 2018
53 Vacation of office of Directors 54 167 May 07, 2018
54 Resignation of Director 55 168 May 07, 2018
55 Meetings of Board 56 173 May 07, 2018
56 Audit Committee 57 177 May 07, 2018
57 Nomination and Remuneration 58 178 May 07, 2018
Committee and Stakeholders
Relationship committee
58 Restrictions on Powers of Board 59 180 February 09, 2018
59 Disclosure of Interest by Director 60 184 February 09, 2018
60 Loan to Directors, etc. 61 185 May 07, 2018
61 Loan and Investment by company 62 186 May 07, 2018
62 Related Party transactions 63 188 February 09, 2018
63 Prohibition on forward dealings in 64 194 February 09, 2018
securities by Directors or KMPs
64 Prohibition on insider trading of 65 195 February 09, 2018
securities
65 Investigation of ownership of 71 216 June 13, 2018
Company
66 Inspector’s report 72 223 February 09, 2018
67 Purchase of Minority’s Shareholding 73 236 February 09, 2018
68 Valuation by registered Valuer 74 247 February 09, 2018

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69 Companies capable of being 75 366 August 15, 2018

registered
70 Obligations of companies 76 374 August 15, 2018
registering under this part
71 Application of Act to Foreign 77 379 February 09, 2018
Companies
72 Debentures, Annual return, 78 384 February 09, 2018
registration of Charge, books of
accounts and their inspection
73 Application of sections 34 to 36 and 79 391 February 09, 2018
chapter XX
74 Fee for filing etc. First Proviso 403 May 07, 2018
to clause (i)
of section
80 a
75 Qualification of president and 82 409 February 09, 2018
members of Tribunals
76 Constitution of appellate tribunal 83 410 May 07, 2018
77 Qualification of chairperson and 84 411 February 09, 2018
members of Appellate tribunal
78 Selection of members of 85 412 February 09, 2018
tribunal and Appellate tribunal
79 Establishments of special courts 86 435 May 07, 2018
80 Application of code to 87 438 May 07, 2018
proceedings before special court
81 Offences to be non-cognizable 88 439 May 07, 2018
82 Transitional Provisions 89 440 May 07, 2018
83 Compounding of certain offences 90 441 February 09, 2018
84 Factors for determining level of 91 446A,446B February 09, 2018
punishment and lesser penalties for
OPCs and Small companies
85 Punishment for fraud 92 447 February 09, 2018
86 Punishment for false statement 93 458 February 09, 2018

H. Other Important Updates

Sections under cos act 2013 notified
1. Merger
Merger or amalgamation of a company with a foreign company (Section 234 and Rule 25A of
the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016) (w.e.f. 13th
April, 2017).

2. Layers of Subsidiary
Restriction on layers of subsidiaries (Proviso to Section 2(87) and Companies (Restriction on
number of layers) Rules, 2017 (Restriction on layers Rules)) (w.e.f. 20th September, 2017)

3. Valuation Norms
Valuation norms (Section 247 and Companies (Registered Valuers and Valuation) Rules, 2017
(Valuation Rules)).

4. Consolidated Financial Statements

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Section 129(3) of the 2013 Act requires that a company having one or more subsidiaries will, in
addition to separate financial statements, prepare CFS. An explanation to section 129(3) of the
2013 Act stated, “For the purpose of this subsection, the word subsidiary includes associate
company and joint venture.” The meaning of this explanation was not very clear, leading to
the possibility of different views. However, it was generally understood that the explanation
required CFS to be prepared when the company had an associate or joint venture, even
though it did not have any subsidiary. The associate and joint venture were accounted for using
the equity/proportionate consolidation method in the CFS.
To address this issue and bring out the intention clearly, the 2017 Amendment Act has deleted
the above stated explanation. Rather, it is stated that a company having one or more
subsidiary or associate company will, in addition to separate financial statements, prepare CFS.
Since the term ‘associate company’ includes ‘joint venture companies’, a company having
joint ventures will also need to prepare CFS even if it does not have any subsidiary. The CFS will
be prepared as per the applicable accounting standards.

5. Relaxation on uploading of financials on website

 Only Listed company to place audited FS of each subsidiary
 CFS of foreign subsidiaries may be placed instead of separate audited accounts of each
foreign subsidiary
 All Companies to give copy of FS of each subsidiary if a member asks

6. Signing of financials
In accordance with section 134(1) of the 2013 Act, the CEO is required to sign the
financial statement including CFS only if he or she is a director in the company. In
contrast, the CFO and the Company Secretary of the company are always required to
sign the financial statements. The Companies Law Committee observed that in case of
a company not having a managing director, the CEO is a KMP and responsible for the
overall management of the company. Hence, the CEO should be mandated to sign
the financial statements, irrespective of whether he or she is a director or not. The 2017
Amendment Act amends section 134(1) to this effect.

7. Definition of Net worth (Debit balance of P&L)

In the absence of a specific mention, there was a debate as to whether ‘net worth’ included
‘debit or credit balance of the profit and loss account’. The 2017 Amendment Act addresses
this debate by specifically including the phrase ‘debit or credit balance of the profit and loss
account’ in the definition of ‘net worth’. It is a clarificatory amendment.
8. Definition of Turnover
Section 2(91) of the 2013 Act defines the term ‘turnover’ to mean the aggregate value of the
realisation from the sale, supply or distribution of goods, or on account of services rendered, or
both, by the company, during a financial year.
From the definition, it was not clear whether indirect taxes such as excise duty/Goods and
Services Tax (GST) will be included in or excluded from turnover.
To address these issues, the 2017 Amendment Act contains a new definition of ‘turnover’. In
accordance with the new definition, ‘turnover’ means the gross amount of revenue recognised
in the P&L account from the sale, supply, or distribution of goods or on account of services
rendered, or both, by a company during a financial year.

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I. Annexure – A: Sample Audit Report

INDEPENDENT AUDITOR’S REPORT
To the Members of ABC

Report on the Financial Statements

We have audited the accompanying financial statements of ABC, which comprise the Balance
Sheet as at 31 March 2018, the Statement of Profit and Loss, the Cash Flow Statement for the year
then ended, and a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Financial Statements
The Company’s Board of Directors is responsible for the matters in section 134(5) of the Companies
Act, 2013 (“the Act”) with respect to the preparation of these financial statements that give a true
and fair view of the financial position, financial performance and cash flows of the Company in
accordance with the accounting principles generally accepted in India, including the Accounting
Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts)
Rules, 2014. This responsibility also includes the maintenance of adequate accounting records in
accordance with the provision of the Act for safeguarding of the assets of the Company and for
preventing and detecting the frauds and other irregularities; selection and application of
appropriate accounting policies; making judgments and estimates that are reasonable and
prudent; and design, implementation and maintenance of internal financial control, that were
operating effectively for ensuring the accuracy and completeness of the accounting records,
relevant to the preparation and presentation of the financial statements that give a true and fair
view and are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit.
We have taken into account the provisions of the Act, the accounting and auditing standards and
matters which are required to be included in the audit report under the provisions of the Act and
the Rules made thereunder.
We conducted our audit in accordance with the Standards on Auditing specified under section
143(10) of the Act. Those Standards require that we comply with ethical requirements and plan
and perform the audit to obtain reasonable assurance about whether the financial statements
are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements. The procedures selected depend on the auditor’s
judgment, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, the auditor considers
internal financial control with reference to financial statements that give true and fair view in order
to design audit procedures that are appropriate in the circumstances. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of the
accounting estimates made by Company’s Directors, as well as evaluating the overall
presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion on the financial statements.

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Opinion
In our opinion and to the best of our information and according to the explanations given to us,
the aforesaid financial statements give the information required by the Act in the manner so
required and give a true and fair view in conformity with the accounting principles generally
accepted in India:
(a) in the case of the Balance Sheet, of the state of affairs of the Company as at March 31,
2018;
(b) in the case of the Profit and Loss Account, of the Loss for the year ended on that date; and
(c) in the case of the Cash Flow Statement, of the cash flows for the year ended on that date.
Report on Other Legal and Regulatory Requirements
1. As required by the Companies (Auditor’s Report) Order, 2016, issued by the Central
Government of India in term of sub-section (11) of section 143 of the Companies Act, 2013, we
give in the Annexure A statement on the matters specified in the paragraphs 3 and 4 of the
Order, to the extent applicable.
2. As required by section 143(3) of the Act, we report that:
(a) We have sought and obtained all the information and explanations which to the best of
our knowledge and belief were necessary for the purposes of our audit.
(b) In our opinion proper books of account as required by law have been kept by the
Company so far as appears from our examination of those books.
(c) The Balance Sheet, the Statement of Profit and Loss, and Cash Flow Statement dealt with
by this Report are in agreement with the books of account.
(d) In our opinion, the aforesaid financial statements comply with the Accounting Standards
specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules,
2014.
(e) On the basis of written representations received from the directors as on 31 March, 2018,
taken on record by the Board of Directors, none of the directors is disqualified as on 31
March, 2018, from being appointed as a director in terms of Section 164(2) of the Act.
(f) With respect to the adequacy of the internal financial controls with reference to financial
statement of the Company and the operating effectiveness of such controls, refer to our
separate report in “Annexure B”; and
(g) With respect to the other matters to be included in the Auditor’s Report in accordance with
Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of
our information and according to the explanations given to us:
 the Company does not have any pending litigations as at 31 March 2018 which would
impact its financial position
 the Company does not have any long-term contracts including derivative contracts for
which there were any material foreseeable losses; and
 there were no amounts which were required to be transferred to the Investor Education
and Protection Fund by the Company
For XYZ & Co.
Chartered Accountants
(FRN:XXXXXXX)

Place: Ahmedabad CA MNOP

Date: DD.MM.YYYY (Partner)
Membership No : XXXXXX

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 Exemption of CARO reporting to certain class of companies : Refer section D.1 for
details.

Report under Companies (Auditors Report) Order 2016 Annexure A To Auditors’ Report Referred to
in Para 1 of our Report of even date

1.
a) The Company has maintained proper records showing full particulars including quantitative
details and situation of fixed assets;
b) As explained to us, all the fixed assets have been physically verified by the management in
a phased periodical manner, which in our opinion is reasonable, having regard to the size
of the Company and nature of its assets. No material discrepancies were noticed on such
physical verification and same have been property dealt with in books of account.
c) According to information provided to us and based on the records verified by us, all title
deeds of immovable properties are held in the name of the company.
2.
a) The Company has physically verified the inventory during the year at all locations. In our
opinion, the frequency of verification is reasonable.
b) In our opinion and according to the information and explanations given to us, the
Company has maintained proper records of its inventories and no material discrepancies
were noticed on Physical verification.

3. The Company has not granted any loans, secured or unsecured to companies, firms, Limited
Liability Partnerships or other parties covered in the register maintained under Section 189 of
the Companies Act, 2013. And hence paragraphs 3(iii)(a) , 3(iii)(b) & 3(iii)(c ) of the Order are
not applicable.
4. In our opinion and according to the information and explanations given to us, the provisions of
section 185 and 186 of the Act are not applicable as there are no loans and investments made
by the Company.
5. The Company has not accepted any deposits from the public.
6. We have been informed that the Central Government has not prescribed maintenance of cost
records under Section 148 (1) (d) of the Companies Act, 2013. Hence paragraph 3(vi) of the
Order is not applicable
7.
a) According to the information and explanations given to us and on the basis of our
examination of the records of the Company, amounts deducted/ accrued in the books of
account in respect of undisputed statutory dues including income-tax, sales tax, service tax
and other statutory dues have been regularly deposited during the year by the Company
with the appropriate authorities. There were no undisputed amount payable in respect of
provident fund, employees’ state insurance, duty of excise, duty of customs, value added
tax and cess and other material statutory dues in arrears as at 31st March 2018 for a period
of more than six months from the date they became payable.
b) There are no dues of Income tax, Sales tax, wealth tax, Service tax, Customs Duty, Excise
duty, Value added tax and cess which have not been deposited as on 31st March 2018 on
account of disputes.

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8. The Company has not defaulted in repayment of dues to banks during the year. The company
did not have any outstanding dues to financial institutions.
9. The Company did not raise any money by way of initial public offer or further public offer
(including debt instruments) and term loans during the year. Thus, paragraph 3 (ix) of the Order
is not applicable.
10. According to the information and explanations given to us, fraud as reported in Note 28 has
been committed by an officer of the company to the tune of Rs. 25,728/- and appropriate
action against the same has been taken by the Company
11. The Company is not a Public Company as defined under the Companies Act 2013.
Accordingly, paragraph 3(xi) of the Order is not applicable.
12. In our opinion and according to the information and explanations given to us, the Company is
not a Nidhi company. Accordingly, paragraph 3(xii) of the Order is not applicable.
13. According to the information and explanations given to us and based on our examination of
the records of the Company, transactions with the related parties are in compliance with
sections 177 and 188 of the Act, where applicable and details of such transactions have been
disclosed in the financial statements as required by the applicable accounting standards.
14. According to the information and explanations given to us and based on our examination of
the records of the Company, the Company has made private placement of shares in
compliance with section 42 of the Companies Act, 2013 and amount raised have been used
for the purpose for which the funds were raised.
15. According to the information and explanations given to us and based on our examination of
the records of the Company, the Company has not entered into any non-cash transactions
with directors or persons connected with him.
16. According to the information and explanations given to us, the Company is not required to be
registered under section 45-IA of the Reserve Bank of India Act, 1934.
For XYZ & Co.
Chartered Accountants
(FRN:XXXXXXX)

Place: Ahmedabad CA MNOP

Date: DD.MM.YYYY (Partner)
Membership No : XXXXXX

 The exemption from reporting of Internal Financial Control for specified class of private
limited company is provided vide MCA notification No. GSR 464 (E) dated 5th June 2015 as
amended by Notification No. GSR 583(E) dated 13th June 2016, Refer section D.1 for details.

“Annexure B” to the Independent Auditor’s Report of even date on the Standalone Financial
Statements of ABC Works (India) Private Limited
Report on the Internal Financial Controls under Paragraph (i) of Sub-section (3) of Section 143 of
the Companies Act, 2013 (“the Act”)
Referred to in Para 2(vi) of our Report of even date

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We have audited the internal financial controls over financial reporting of ABC WORKS (INDIA)
PRIVATE LIMITED (“the Company”) as of March 31, 2018 in conjunction with our audit of the
standalone financial statements of the Company for the year ended on that date.
Management’s Responsibility for Internal Financial Controls
The Company’s management is responsible for establishing and maintaining internal financial
controls based on the internal control over financial reporting criteria established by the Company
considering the essential components of internal control stated in the Guidance Note on Audit of
Internal Financial Controls over Financial Reporting issued by the Institute of Chartered
Accountants of India (‘ICAI’).
These responsibilities include the design, implementation and maintenance of adequate internal
financial controls that were operating effectively for ensuring the orderly and efficient conduct of
its business, including adherence to company’s policies, the safeguarding of its assets, the
prevention and detection of frauds and errors, the accuracy and completeness of the accounting
records, and the timely preparation of reliable financial information, as required under the
Companies Act, 2013.
Auditors’ Responsibility
Our responsibility is to express an opinion on the Company's internal financial controls over financial
reporting based on our audit. We conducted our audit in accordance with the Guidance
Note on Audit of Internal Financial Controls Over Financial Reporting (the “Guidance Note”) and
the Standards on Auditing, issued by ICAI and deemed to be prescribed under section 143(10) of
the Companies Act, 2013, to the extent applicable to an audit of internal financial controls, both
applicable to an audit of Internal Financial Controls and, both issued by the Institute of Chartered
Accountants of India. Those Standards and the Guidance Note require that we comply with
ethical requirements and plan and perform the audit to obtain reasonable assurance about
whether adequate internal financial controls over financial reporting was established and
maintained and if such controls operated effectively in all material respects.
Our audit involves performing procedures to obtain audit evidence about the adequacy of the
internal financial controls system over financial reporting and their operating effectiveness. Our
audit of internal financial controls over financial reporting included obtaining an understanding of
internal financial controls over financial reporting, assessing the risk that a material weakness exists,
and testing and evaluating the design and operating effectiveness of internal control based on
the assessed risk. The procedures selected depend on the auditor’s judgement, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud
or error.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion on the Company’s internal financial controls system over financial
reporting.
Meaning of Internal Financial Controls over Financial Reporting
A company's internal financial control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting
principles. A company's internal financial control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to permit preparation

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of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition
of the company's assets that could have a material effect on the financial statements.
Inherent Limitations of Internal Financial Controls over Financial Reporting
Because of the inherent limitations of internal financial controls over financial reporting, including
the possibility of collusion or improper management override of controls, material misstatements
due to error or fraud may occur and not be detected. Also, projections of any evaluation of the
internal financial controls over financial reporting to future periods are subject to the risk that the
internal financial control over financial reporting may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Opinion
In our opinion, the Company has, in all material respects, an adequate internal financial controls
system over financial reporting and such internal financial controls over financial reporting were
operating effectively as at March 31, 2018, based on the internal control over financial reporting
criteria established by the Company considering the essential components of internal control
stated in the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting issued
by the Institute of Chartered Accountants of India.
For XYZ & Co.
Chartered Accountants
(FRN:XXXXXXX)

Place: Ahmedabad CA MNOP

Date: DD.MM.YYYY (Partner)
Membership No : XXXXXX

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Services provided for financial reporting and value addition:

Corporate Laws

•Company incorporation services including name approval, drafting of

Memorandum & Articles of Association
•Services such as drafting of minutes, registration of charges, filing of
returns, annual accounts and other documents with the Registrar of
Companies
•Advisory on Corporate Governance, Risk & Compliance

Ind AS and Other GAAP Implementation

•Assessment of potential impact on financial statements and disclosure

•Ind AS / IFRS Execution Roadmap
•Compliance with detailed disclosure requirements
•Preparation and Presentation of Financial Statements as per Generally
Accepted Accounting Principles (GAAP) - AS, Ind AS, IFRS, US GAAP
•Pre and Post Authentication Review of Financial Statements
•Issue based Consulting on GAAP
•Retainership on Ind AS Consultancy

Training on AS, US GAAP, IFRS and Ind AS

•Basic Training to All Finance & Accounts Staff

•Train Core Team
•Report on Management Options.

Services related to Consolidation and Restructuring

•Advisory and Implementation of Robust consolidation system

•Consultancy Related to Merger, Acquisitions, Financial Due Diligence
Services and Other Restructuring
•Restatement and Ind AS convergence in DRHP / RHP documents at
the time of Listing
•Financial Due Diligence Services at the time of aquisition or structuring

Valuation and Model Implementaiton Services

•Valuation as per Ind AS - 113 and other Valuation Procedure

•Training and implementation of ECL Model in Banking Regime and its
synchronisation with ERP System
•Advisory Related to Ind AS – 109, Financial Instruments

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Other Publications and Knowledge Sharing Initiatives by NJP

NJP Survey on Nifty Fifty Companies for Ind AS impact

on Result of Q- 1 June 2017

Compliance Handbook

Android Application on Accounting and Auditing

You Tube Channel on Ind AS (IFRS in India)

Brochure - Ind AS Implementation in India

Ind AS Updates - NJP

Disclaimer
The information contained herein is of a general nature and is not intended to address the
circumstances of any particular individual or entity. Although we endeavor to provide accurate
and timely information, there can be no guarantee that such information is accurate as of the
date it is received or that it will continue to be accurate in the future. No one should act on such
information without appropriate professional advice after a thorough examination of the particular
situation.
All rights reserved by NJP. No part of this publication may be reproduced, stored in a retrieval
system, or transmitted, in any form, or by any means, electronic, mechanical, photocopying,
recording, or otherwise without prior permission, in writing, from the publisher.
This document is meant for e-communication only.

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Updates on Companies Act, 2013

NJP Advisors Pvt. Ltd. is a professional services firm providing accounting, assurance, auditing,
financial advisory and consulting services to a wide range of clients including listed/unlisted
companies, partnership firms and other corporations. We specialize in providing Ind AS
Implementation, Training and Consultancy to ensure smooth transition. Our advisors and
personnel are well qualified and experienced to provide effective services. For more
information, refer to our website www.njpadvisors.com & www.expertgaap.com

 FCA, DISA, CISA(USA), Certi. IFRS (ICAI), CPA(USA)

 More than 15 years of experience in Accounting & Assurance
services including Ind AS/IFRS/US GAAP
 Co-Author of book on ‘Quick Guide to Ind AS’ published by
Taxmann and various and Articles published in professional journals
CA Chintan Patel  More than 300 presentations
Core Advisor,
Accounting &  Editor of IFRS e-Newsletter of IFRS (Ind AS) Implementation
Advisory Committee of ICAI in 2014-15
 Past Member of IFRS Course Advisory Board of ICAI

Address – 803, Mauryansh Elanza, Near Parekhs Hospital,

Shyamal Cross Roads, Satellite,
Ahmedabad , 380016
Call - 079 – 26752544 / 45
Email - support@expertgaap.com

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