Directors Statement on Statutory Compliances -Companies Act Role of Chartered Accountants. CA Sripriya Kumar

Transcription

1 Directors Statement on Statutory Compliances -Companies Act 2013 Role of Chartered Accountants CA Sripriya Kumar

2 Section 134 of the Act Section 134 also speaks of Directors Responsibility Statement to be furnished along with the Board report on the company affairs as well as the financial statements This section corresponds to Sec 217 (2AA) of the Old Act but is not entirely the same. What are the differences? Sec 134 Contents Financial Statement Approval Auditors Report Board Report Including Directors Responsibility Statement

3 Section 134 of 2013 Vs 217 (2AA) Directors Responsibility Statement All Companies Listed Companies New / Old Directors had prepared accounts on a going concern basis Yes Yes Old 217(2AA) Applicable accounting standards have been followed and material departures disclosed Selection and application of accounting policies to ensure prudence, true and fair Adequate accounting records have been maintained for safeguarding assets and preventing frauds and irregularities Yes Yes Old 217(2AA) Yes Yes Old 217(2AA) Yes Yes Old 217(2AA) Proper systems to ensure compliance with the provisions of applicable laws and such systems were adequate and operating effectively Directors have laid down internal financial controls which are adequate and operating effectively Yes Yes New Not Applicable Yes New

4 sk1 Analysis of the Provision (5) The Directors Responsibility Statement referred to in clause (c) of sub-section (3) shall state that (f) the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively. Had devised proper systems Ensure compliance All applicable Laws and Regulations Adequate Operating Effectively

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6 The Omni present penalties Default Imprisonment Fine Company Not Applicable Rs to Rs 25 lakhs Officer in Default Term upto to three years Rs to Rs 5 lakhs Is the penalty for non reporting or is the penalty for erroneous reporting in case of statutory non compliances discovered at a later date?

7 sk1 Analysis of the Provision Had devised proper systems Ensure compliance All applicable Laws and Regulations Adequate Operating Effectively Is it the Duty of the director to devise a system. Would you be comfortable with this if you are a director. Would this not be even more uncomfortable for an independent director. Devising a system is the role of the operating management!

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9 sk1 Analysis of the Provision Had devised proper systems Ensure compliance All applicable Laws and Regulations Adequate Operating Effectively What is a Proper System. The emphasis here is on the organisation having a Control Design for Statutory Compliances. The system can be manual / automated or partially both All locations HO, factories, Branches, Sales Offices, Abroad, CFA, Converters to be covered

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11 sk1 Analysis of the Provision Had devised proper systems Ensure compliance All applicable Laws and Regulations Adequate Operating Effectively The Compliance Landscape is extensive and includes Registration Deductions and / or remittances Filing of Returns Non compliances Response to notices received Assessments

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13 sk1 Analysis of the Provision Had devised proper systems Ensure compliance All applicable Laws and Regulations Adequate Operating Effectively All Applicable is an exhaustive definition and does not include the term major. Even for the minor acts, the principal officer is an MD in India which means that an MD / Director can get a notice for a petty default

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15 sk1 Analysis of the Provision Had devised proper systems Ensure compliance All applicable Laws and Regulations Systems are Adequate Operating Effectively Laws and regulations. A law is codified and hence directors are more likely to be aware. Here specifically regulations ( and hence rules, notices, circulars, amendments etc ) are also covered

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17 sk1 Analysis of the Provision Had devised proper systems Ensure compliance All applicable Laws and Regulations Systems are Adequate Operating Effectively Systems are adequate in relation to all aspects of statutory compliance management. - from applicability to assessments Operating Effectively delivers the intended purpose that the entity is a fully compliant zero defect organisation

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19 sk1 Role of a CA Had devised proper systems Ensure compliance All applicable Laws and Regulations Systems are Adequate Operating Effectively This is a lot for a Director and Boards are likely to ensure that they obtain professional advice and comfort before they sign the Directors Responsibility Statement. More so for every company with an independent director CA s would be an obvious choice as we handle most legislations

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21 sk1 Different Types of Engagements Had devised proper systems Ensure compliance All applicable Laws and Regulations Systems are Adequate Operating Effectively Horse Back Reviews Diagnostic Assessments Compliance Tracker Set up Statutory Compliance Management Statutory Compliance Audit

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23 sk1 Getting Started Presentation Material on Sec 134 Board Presentation Proposal Award for Compliance Tracker and One Qtr Testing

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25 sk1 Proposed Methodology Phase Zero Activity The Framework for managing Stat Compliances Control Design One Understanding of present Compliance and Reporting systems at HO, branches, Sales offices, Converters, Factories, Warehouses and applicable laws and regulations Two Review of all applicable laws and regulations and preparation of checklists Three Review and Acceptance of checklists by the management Four One time audit with reference to above checklists

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27 sk1 What are the laws and regulations Steps Actions List of all applicable Laws and Regulations Economic Laws and Regulations Constitution related Direct Taxes Indirect taxes Business related Labour Laws Environmental Laws Safety, Health and Environment Related

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29 sk1 What are the laws and regulations Laws RBI Act and Regulations SEBI Act FEMA Factories Act, Shops and Establishments Act NBFC,NHB, Insurance Act, Banking Regulation Act Companies Act, Partnership Act Income Tax Act Customs and Central excise Service Tax Act Entry tax Act

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31 sk1 What are the laws and regulations Laws Professional tax Provident Fund EmployeesState Insurance Corporation Payment of Bonus Act Payment of Gratuity Act Contract Labour Regulation Act Apprentices Act Employment Exchange Act Environment Protection Act

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33 sk1 What are the laws and regulations Laws Equal Remuneration Act Industrial Disputes Act IDRA Inter State Migrant workmen Act Maternity Benefit Act Payment of wages Act Personal Injuries Act Water ( Prevention and Control of Pollution) Act 1974 VAT Act, CST Act

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35 sk1 What are the laws and regulations Laws Minimum Wages Public Liability Insurance Workmen Compensation Child Labour Trade Union Act Labour Laws Act Sexual Harassment of Women ( prevention, prohibition and redresssal Act )

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37 sk1 What are the laws and regulations Laws Information Technology Act Stamp Act Transfer of Property Act National and Festival Holidays Act Copyright Act Designs Act Sick Industrial Companies ( Special Provisions ) SEZ Act Whistle Blowers Protection Act

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39 sk1 What are the laws and regulations Laws Right to Information Act Narcotic Drugs and Psychotropic Substances Act Employment Exchange Compulsory notification of vacancies Foreign Contribution Regulation Act Prevention of Money laundering Act

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41 sk1 What are the laws and regulations Steps Actions Identification of significantprovisions in these legislations in the following areas Registrations and Amendments OperatingCompliances Deductionsand Remittances Filing of returns Assessments Notices and Responses Two Illustrations Provided Income Tax Act and Factories Act

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43 Part A Evaluation of the Control Design over the management of the Statutory Compliance Process management Part B Part C Detailed Compliance Checklist for the legislations indicated to us. Review of Statutory Compliances for Jan March or extended time frame under various legislations as per checklists prepared in Part A

44 Parameter Review Parameters Maturity Assessment Remarks Strategy The Company needs to have a well-defined compliance management strategy generally and more specifically in the We have been engaged to prepare comprehensive checklists for all legislations. The following processes need context of Section 134(5) of the Companies Act 2013 which mandates directors reporting on compliance with all applicable laws and regulations ( Directors Responsibility Statement ) to be enabled Designation of a Chief Compliance Officer Monthly compliance reporting Report backs to the BoD

45 Parameter Review Parameters Maturity Assessment Remarks Client Contracts Roles and Responsibilities in relation to Compliance management protocols are well documented in all client contracts without any ambiguity and such contracts are appropriately executed Client contracts presently document that the client will comply with applicable environmental/ occupational health and safety regulations applicable in India. There is no express provision on responsibility of the client for other laws and regulations Further, the contract specifies an inclusive responsibility quoting the below mentioned laws for which Manpower is responsible for compliance. It is recommended that this be made an exhaustive list instead

46 Parameter Review Parameters Maturity Assessment Remarks Org Structure Responsibility for Compliances is clearly defined with a specific senior management resource identified for this purpose Operating Management including branches are aware of the compliance framework requirements Board Of Directors to designate a Chief Compliance Officer for the Company and Branches

47 Parameter Review Parameters Maturity Assessment Remarks Policy Documentation Compliance Policies are documented, version controlled and signed off In progress Change Management Changes to the landscape CCO to be entrusted with the are continuously responsibility monitored and updated in the base documentation Training Formal User training programs and workshops to ensure periodic Knowledge transfers CCO to be entrusted with the responsibility

48 Parameter Review Parameters Maturity Assessment Remarks Policy Documentation Compliance Policies are documented, version controlled and signed off In progress Reporting Mechanism Structured self assessment mechanisms exist to measure and report compliances on all applicable legislations including negative tracers on legislations not applicable These mechanisms are yet to be defined

49 Parameter Review Parameters Maturity Assessment Remarks Formal Certification by Senior Management / KMP on Statutory Compliances Independent review / audit mechanisms CCO to be entrusted with the responsibility CCO to be entrusted with the responsibility Yet to be initiated as a formal process

50 Parameter Review Parameters Maturity Assessment Remarks Exception All deviations, notices, queries CCO to be entrusted Management from various compliance authorities with the responsibility are immediately tracked and reported in a formal reporting framework Records Management Independent review / audit mechanisms The Company maintains adequate physical records as audit trails of transactions complied, completed, reported CCO to be entrusted with the responsibility Most hard copies are not maintained and improvement is required. CCO to be entrusted with the responsibility

51 Parameter Review Parameters Maturity Assessment Remarks Exception All deviations, notices, queries CCO to be entrusted Management from various compliance authorities with the responsibility are immediately tracked and reported in a formal reporting framework Records Management Independent review / audit mechanisms The Company maintains adequate physical records as audit trails of transactions complied, completed, reported CCO to be entrusted with the responsibility Most hard copies are not maintained and improvement is required. CCO to be entrusted with the responsibility

52 Parameter Findings E wasterules Awareness and compliance with e wasterules to be ensured for disposal of e waste ( computers, hard ware etc) Income tax Delays in TDS remittance Payments > Rs20000 in cash Service tax ST not charged on reimburseables( non pure agent) Credit availed erroneously Reverse Charge not applied for man power Companies Act Share application money > 60 days pending Sec 185 loans given to directors son Internal Audit not complied ( Sec 138 )

53 Parameter Hard copiesof documents BoDMinutes Findings In most cases, only thescan images of the filings were found to be maintained. The hard copies of the records to be archived and indexed as appropriate Signed Copies of Board Resolutions and Minutes to be maintained on record. We have sighted the unsigned versions only.

54 Parameter Gratuity PF ESI Findings No Provision in Books Delays in remittance / non deduction forcertain employees Delays in TDS remittance Shops and establishments Professiontax Registration pending Registration pending for last 8 years

55 sk1 Directors Expectations Had devised proper systems Ensure compliance All applicable Laws and Regulations Systems are Adequate Operating Effectively A detailed and thorough Job Partner Involvement Significant attention to detail Addresses all of the above

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57 sk1 Questions Is this a proscribed service under Sec 144 of the Companies Act Can the statutory auditor devise a checklist / review compliance Is this in the nature of an internal audit Any views on Time and Cost Estimate

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