This document provides an overview of key changes introduced by the Companies Act 2013 regarding financial reporting, auditing, related party transactions, and corporate social responsibility for companies in India. It discusses new requirements for board reports, depreciation, appointment and rotation of auditors, audit committees, and related party transactions. It also covers the scope of corporate social responsibility under the Act and transitional requirements for companies to comply with the new provisions.

1. Companies Act 2013:
Beginning of a new era

2. B | Companies Act 2013

3. 1Beginning of a new era |
Dear reader,
We are delighted to share with you our new publication
Companies Act 2013: Beginning of a new era.
be addressed through appropriate changes in the rules,
the MCA to continue engaging with constituents as it has been
Ernst & Young LLP

4. | Companies Act 2013
Financial Reporting 4
Board report 6
Disclosures required 6
Preparation of board report 6
Depreciation 20
Audit and auditors 30
Appointment of auditors 30
Rotation of auditors 32
Contents

5. Beginning of a new era |
Related parties transactions 46
reconstruction

6. 4 | Companies Act 2013
of this Act applicable to the preparation, adoption and
mutatis mutandis

7. Beginning of a new era |
criteria prescribed in accounting standards for use of different
National Financial Reporting
standards for adoption by auditors

8. 6 | Companies Act 2013
Board report
Dis
Change in the nature of business, if any
resigned during the year
during the year
Practical perspectives
present MD&A either separately in the annual report or as part
Practical perspectives

9. 7Beginning of a new era |
Disclosure regarding median remuneration
Practical perspectives
earning, if they were arranged in an ascending or descending
addition to the disclosures required as per the Managerial

10. | Companies Act 2013
and those related to strategic and operational aspects of the
year shall include, in the report by its Board of directors,

11. Beginning of a new era |
Companies

12. 10 | Companies Act 2013
the purposes of a particular section for interpreting another
strategic and operational business decisions, including whether
share capital of `

13. 11Beginning of a new era |
mutatis mutandis, to
The Guidance Note on Audit of Consolidated Financial
Statements
fact that part of the audit of the group was carried out by other
Other key perspectives

14. | Companies Act 2013
,

15. Beginning of a new era |
mutatis mutandis, apply
the

16. 14 | Companies Act 2013
mutatis
mutandis
prepare and present CFS in accordance with AS 21. Keeping

17. Beginning of a new era |
prepare CFS under Indian GAAP. Will this position continue
net worth of `

18. 16 | Companies Act 2013
mutatis
mutandis

19. 17Beginning of a new era |
Place separate audited accounts in respect of each of its
subsidiary on its website, if any
statements prepared as per local GAAP for this purpose.

20. | Companies Act 2013
foreign subsidiaries prepared in accordance with their local
the purposes of preparing CFS.

21. Beginning of a new era |
a separate statement containing the salient features of the
in accordance with Indian GAAP or the local GAAP of the
mutatis mutandis

22. | Companies Act 2013
Depreciation
Amendments in Schedule II to the 2013 Act
Minimum vs. indicative rates
Continuous process plant
for which there is no special depreciation rate otherwise
BOT assets
an asset is used in double shift depreciation will increase by
uses the asset on triple shift basis during any subsequent year,
in the opening balance of retained earnings where

23. Beginning of a new era |
depreciate the asset using either 10 year life prescribed in
total cost of the asset and useful life of that part is different
II. How does component accounting interact with AS 6

24. | Companies Act 2013
Guidance
Note on Treatment of Reserve Created on Revaluation of
Fixed Assets
is no change in Part A and it still requires depreciation to be
, states

25. Beginning of a new era |
declaration related issues, reference is drawn to discussion
AS 6 useful life.
to retained earnings in accordance with the transitional
Tax effect
of expenses/income adjusted directly against the reserves and/
or Securities Premium Account.”
depreciation
out of surplus
(emphasis added)

26. | Companies Act 2013

27. Beginning of a new era |
Section 123 of the 2013 Act dealing with declaration of
publication for discussion on the issue related to charging
Utilization of securities premium
Writing off debentures and preference share issue

28. | Companies Act 2013
otherwise, or

29. Beginning of a new era |
any other
instrument of a company evidencing a debt, whether
(emphasis added)
and any other securities of a company, whether constituting a
(emphasis added)
particularly onerous, if one considers it together with the
2013 Act
Nil Nil
Nil
NA

30. | Companies Act 2013
Re-opening of accounts on the court/tribunal’s order

31. Beginning of a new era |
presented to the directors who authenticated the original

32. | Companies Act 2013
Appointment of auditors
The draft rules required that if the board does not agree
it is stated that the board will record reasons for its
Audit and auditors
consider only order or pending proceeding relating to

33. Beginning of a new era |
committee need to consider order/pending proceeding
relating to matters of professional conduct against the
committee cannot recommend such person for appointment
The Audit Rules state that if the appointment of auditor is
appointment of auditor or will it follow the procedures relating
whose accounts are subject to audit by an auditor

34. | Companies Act 2013
Rotation of auditors
share capital of `
`
share capital of `
`

35. Beginning of a new era |
entities, or to listed entities and public interest entities, such as,
the purposes of this Act to be a subsidiary of a public

36. | Companies Act 2013
share capital of `20 crore or more on 1 April 2014. It needs
` `
`
on approach to be followed if there is a change in the threshold

37. Beginning of a new era |

38. | Companies Act 2013
guarantee or securit
`
`
connection with indebtedness of any third person to the
`

39. Beginning of a new era |
Practical perspectives
`1
`
`
Business relationship
Practical perspectives

40. | Companies Act 2013
refers to aspects such as ordinary course of business and
and conditions of the transaction are standard or the
criterion related to indebtedness beyond prescribed
its partners or through its parent, subsidiary or associate
for business relationship is not only restricted to the audit

41. Beginning of a new era |
Practical perspectives
of its partners or through its parent, subsidiary or associate
An auditor is not allowed to enter into any new

42. 40 | Companies Act 2013
Management services

43. 41Beginning of a new era |
Fraud reporting
The auditor will forward his report to the board or the
mutatis mutandis, to a cost auditor
`
`
Practical issues and perspectives
The procedure prescribed for fraud reporting is a step in the

44. | Companies Act 2013
report on all cases of suspected fraud to the Central
that an
reasons”
conclusion, then the auditor needs to further probe the

45. Beginning of a new era |
parties, the auditor is not required to report directly to the
The Auditor’s Responsibilities
Relating to Fraud in an Audit of Financial Statements. An auditor

46. 44 | Companies Act 2013
Practical perspectives

47. Beginning of a new era |

48. 46 | Companies Act 2013
transactions
partner
director and1
professional capacity
professional capacity

49. 47Beginning of a new era |
also a subsidiary
Related parties under “enabling clause”
(clause (ix))
or
prescribed under the draft rules, will result in a long list
Common directorship
or holds along with his
(emphasis
added).
He has recently been appointed as independent director
Companies 1st (Removal

50. | Companies Act 2013
other entity is an associate of the third entity
The entity is controlled or jointly controlled by a
SEBI
(Substantial Acquisition of Shares and Takeovers) Regulations,
They are husband and wife, or
Daughter

51. Beginning of a new era |
Companies
the concerned clause for identifying related party is not
related party as both the criteria for identifying a public
Public Public
Nil Nil
Nil Nil
ABC
No
Whether ABC is related party to
No, if ABC is a public

52. | Companies Act 2013
Company S
50% 50% 30%
Company A
Company Z Company H
Diagram 1

53. Beginning of a new era |
transactions
related parties with respect to “selling or otherwise disposing

54. | Companies Act 2013
The 2013 Act
ordinary course of business other than transactions
of whether they are in the ordinary course of business and
entered into the ordinary course of business, and

55. Beginning of a new era |
Criteria Board Rules Draft rules
Paid-up share capital threshold ` `
`
`
worth
`1,000,000
shareholders either the transaction has to be in the ordinary
ordinary course of business and it has been entered into on an
resolution of disinterested shareholders based on the criteria,
corporate assets and abuse in related party transactions.”

56. | Companies Act 2013
Audit Committee approval,
if applicable1
Board of Director’s approval
Listed company?
Board’s approval and
special resolution
of disinterested
shareholders is required.
Special resolution of
disinterested
shareholders is
required.
Special resolution of
disinterested
shareholders is
not required.
Neither board’s approval
nor special resolution of
disinterested
shareholders is required.
Disclosure in the board report - Refer Form AOC-2
Related party transactions
NO
NO NO
NO
NO
Has the transaction been
entered into by the company
in its ordinary course of
business?
Has the transaction been
entered into on arm’s length
basis?
Yes
Yes
Yes
Yes
No
Is the share capital of the
company below prescribed
limit?
Is the transaction amount
within prescribed threshold
(refer table 5)?
Yes
Yes
1
Under the 2013 Act, non-listed companies, which do not meet the prescribed criteria, are not required to constitute Audit Committee. In such case, Audit Committee approval requirement does not apply.
Is the related party transac-
tion material (RC49)?

57. Beginning of a new era |
related party transactions to be by the Audit
with a related party to any director, or is authorised by any
special resolution of disinterested shareholders, will be obtained

58. | Companies Act 2013
Related parties not entitled to vote
on the special resolution. It is clear that P is not entitled
resolution.
Public
shareholding
29%
Parent P
51%
Investor A
20%
Subsidiary
S
Diagram 3

59. Beginning of a new era |
Special resolution in case of wholly owned
subsidiaries
concerning special resolution of disinterested shareholders, if
Master agreements
With regard to the Audit Committee/Board/disinterested

60. | Companies Act 2013
Non-reciprocal relationship
Ordinary course of business
Related Parties
restructurings or acquisitions
Transactions with offshore entities in jurisdictions with
returns

61. Beginning of a new era |
cases where related party transaction is not falling under either
building thereon just to lease the entire building to its
third parties
Arms’ length
purpose of the TP guidelines is to ensure that there is no

62. 60 | Companies Act 2013
between two related parties that is conducted as if they
contracting parties has not affected the transaction and its
Policy on dealing with related parties on its website and in
the annual report

63. 61Beginning of a new era |
This disclosure regarding related party transactions in the board

64. | Companies Act 2013
Loans to directors and
instructions of the board, or of any director or directors,

65. Beginning of a new era |
companies
disclose the details of such loans or guarantee or security or
or guarantee on behalf of its wholly owned subsidiary
Omnibus resolution

66. 64 | Companies Act 2013
Investment in mutual funds
loans, guarantee and security refer to person as well as body
Foreign currency loans
Loan between fellow subsidiaries
act on behalf of its parent and apply all the restrictions of the
Loan from foreign parent

67. Beginning of a new era |
Transitional requirements

68. 66 | Companies Act 2013
` `
`
Constitution of CSR committee
of these three directors, at least one director should be an
Corporate social
responsibility
the board, in its report, needs to specify the reasons for not

69. 67Beginning of a new era |
Scope/ applicability
`

70. | Companies Act 2013
`
this purpose.
average net
the
average

71. Beginning of a new era |
CSR expenditure and its accounting
Also, there does not appear to be any legal obligation on
The Framework for the Preparation and Presentation of
Financial Statements
Expenses
assets or incurrences of liabilities that result in decreases
in equity, other than those relating to distributions to
The Chartered Accountant

72. 70 | Companies Act 2013
furnished by the querist, it is not clear as to whether there
is any legal or contractual obligation for afforestation,

73. 71Beginning of a new era |
` `
`
of trust in the Guidance Note on Accounting for Employee
Share-based Payment.
requires consolidation of only those controlled entities which

74. | Companies Act 2013
Transitional requirements
` ` `
` `
` `
`

75. Beginning of a new era |

76. 74 | Companies Act 2013
4
Corporate
(I) Strategy:
(II) Performance:
(III) Risk:
(IV) People:

77. Beginning of a new era |
Woman director
Draft Rules
` `
` `
the criteria for appointment of woman director in non-listed
capital of `
but does not
include any other amount received in respect of such shares,
by whatever name called (Emphasis added)

78. 76 | Companies Act 2013

79. 77Beginning of a new era |
Independent directors
Particulars Draft rules
All listed companies
Two
Criteria – either of the following
` `
` `
Aggregate outstanding loans,
debentures and deposits
` `
independent director at the earliest but not later than the

80. | Companies Act 2013
Board of subsidiary companies
Meaning:
Nominee directors:
Stock options:
Limit on number of directorship:
in which a person can be appointed as a director cannot
Tenure and rotation requirement:
Limitation of liability:
director will be held liable, only in respect of such acts of

81. Beginning of a new era |
Audit Committee
Board Rules Draft Rules
` `
`1 No such criterion
Aggregate outstanding loans, or
borrowings, or debentures or deposits
` `
separately and deposits separately or they should be considered
` `
and outstanding deposits of `

82. | Companies Act 2013
Nomination and Remuneration
Committee
Board Rules Draft Rules
` ` NA
`1 No such criterion NA
Aggregate outstanding loans, or
borrowings, or debentures or deposits
` ` NA

83. Beginning of a new era |
Vigil mechanism
`
` periodically bring to the attention of the board of the listed
resolution

84. | Companies Act 2013
Internal audit
Particulars Accounts Rules Draft rules
` `
` No such criteria
year
` `
` `
`
year
`

85. Beginning of a new era |

86. | Companies Act 2013
property and all assets, tangible and intangible,
Mergers,
reconstruction
This will prohibit creation of any treasury shares under the

87. Beginning of a new era |

88. | Companies Act 2013
Glossary
1 Crore 10 Million
100 Crore 1 Billion
Annual General Meeting AGM
Depreciation Accounting
Accounting for Fixed Assets
The Effects of Changes in Foreign Exchange Rates
Consolidated Financial Statements
Accounting for Investments in Associates in Consolidated Financial Statements
Interim Financial Reporting
Intangible Assets
Financial Reporting of Interests in Joint Ventures
Provisions, Contingent Liabilities and Contingent Assets
Financial Instruments: Recognition and Measurement
Continuous Process Plant CPP
Generally Accepted Accounting Principles GAAP

89. Beginning of a new era |
Related Party Disclosures
Ministry of Corporate Affairs MCA
The Auditor’s Responsibilities Relating To Fraud
In An Audit Of Financial Statements
Related Parties
Transfer Pricing guidelines TP guidelines

90. | Companies Act 2013

91. Beginning of a new era |
Ahmedabad
nd
Bengaluru
6th th th
th
th
Chandigarh
1st
Chennai
th
& 7th
Hyderabad
Hitech City, Madhapur
Kochi
th
Kolkata
rd
Mumbai
14th
th
NCR
10th
6th
4th th
Pune
th

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