CARO and MGT-7 filing

October 2015

CEO is happy on the response with first edition…

It gives me immense pleasure to share with you the second edition of our Zappy News. We have received an encouraging response from the first edition and hope that you find the second edition equally enriching. In our second edition of the newsletter, you can see some interesting articles related to CARO, FAQ on filing in form MGT-7 and updates on Notifications issued by MCA, RBI, SEBI and IT Department on September, 2015. Most importantly, your feedback is extremely crucial for us to continuously innovate and raise the bar. We would really appreciate your valuable inputs pertaining to this newsletter or for that matter our products and services. We would like to thank you again for your attention and assure you the best of our services at all times. Wish you, your team and family a happy Navratri festival.

CEO Saranya Deivasigamani,
CEO

A brief about CARO

The Ministry of Corporate Affairs, on 10th April 2015, notified the Companies (Auditor’s Report) Order- 2015 (CARO, 2015) After the enactment of the Companies Act, 2013, the Companies Act, 1956 (old Act) ceased to have effect from April 2014. As a corollary, the Companies (Auditor’s Report) Order, 2003 also ceased to have effect from the said date. The Institute of Chartered Accountants of India (ICAI) were receiving queries from the members regarding applicability of CARO, 2003 along with Auditors’ Report on financial statements of Companies for the financial year 2014-15. To clear the issue, the ICAI made announcement on April 8, 2014, wherein it was provided that a smaller version of CARO, 2003, applicable for the financial year 2014-15, might be notified under section 143(11) of the Companies Act, 2013 (New Act) Now, the new CARO 2015 has been notified by the Government vide order dated April 10, 2015 which would be applicable from financial year 2014-15. New CARO excludes One Person Company (OPC) and Small Company from its preview. For exclusion of private limited Company, the ceiling of paid-up capital and reserve, and turnover remain unchanged.
1. APPLICABILITY
It shall apply to every company including a foreign Company as defined in clause (42) of section 2 of the Companies Act, 2013 Except following companies
  • A banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949);
  • An insurance company as defined under the Insurance Act,1938 (4 of 1938);
  • A company licensed to operate under section 8 of the Companies Act;
  • A One Person Company as defined under clause (62) of section 2 of the Companies Act and a small company as defined under clause (85) of section 2 of the Companies Act; and
  • A private limited company with a paid up capital and reserves not more than rupees fifty lakhs and which does not have loan outstanding exceeding rupees twenty five lakhs from any bank or financial institution and does not have a turnover exceeding rupees five crores at any point of time during the financial year.
2. CARO, 2015 APPLIES FOR THE FINANCIAL YEAR COMMENCING ON OR AFTER 1ST APRIL, 2014
Auditor’s report to contain matters specified in paragraphs 3 and 4. Every report made by the auditor under section 143 of the Companies Act, on the accounts of every company examined by him to which this Order applies for the financial year commencing on or after 1St April, 2014, shall contain the matters specified in paragraphs 3 and 4.
3. MATTERS TO BE INCLUDED IN THE AUDITOR’S REPORT
The auditor’s report on the account of a company to which this Order applies shall include a statement on the following matters, namely:- 1. FIXED ASSETS
  • Whether the Company is maintaining proper records showing full particulars, including quantitative details and situation of fixed assets;
  • Whether these fixed assets have been physically verified by the management at reasonable intervals; whether any material discrepancies were noticed on such verification and if so, whether the same have been properly dealt with in the books of account;
2. INVENTORY
  • Whether physical verification of inventory has been conducted at reasonable intervals by the management;
  • Are the procedures of physical verification of inventory followed by the management reasonable and adequate in relation to the size of the company and the nature of its business? If not, the inadequacies in such procedures should be reported;
  • Whether the company is maintaining proper records of inventory and whether any material discrepancies were noticed on physical verification and if so, whether the same have been properly dealt with in the books of account;
3. LOAN AND ADVANCES
  • Whether the company has granted any loans, secured or unsecured to companies, firms or other parties covered in the register maintained under section 189 of the Companies Act. If so,
  • Whether receipt of the principal amount and interest arc also regular; and
  • If overdue amount is more than rupees one lakh, whether reasonable steps have been taken by the company for recovery of the principal and interest;
4. INTERNAL CONTROL
  • Is there an adequate internal control system commensurate with the size of the company and the nature of its business, for the purchase of inventory and fixed assets and for the sale of goods and services? Whether there is a continuing failure to correct major weaknesses in internal control system.
5. DEPOSITS
  • In case the company has accepted deposits, whether the directives issued by the Reserve Bank of India and the provisions of sections 73 to 76 or any other relevant provisions of the Companies Act and the rules framed there under, where applicable, have been complied with?
  • If not, the nature of contraventions should be stated; If an order has been passed by Company Law Board or National Company Law Tribunal or Reserve Bank of India or any court or any other tribunal, whether the same has been complied with or not?
6. COST ACCOUNTING RECORDS
  • Where maintenance of cost records has been specified by the Central Government under sub-section (1) of section 148 of the Companies Act, whether such accounts and records have been made and maintained;
7. STATUTORY DUES
  • Is the company regular in depositing undisputed statutory dues including provident fund, employees’ state insurance, income-tax, sales-tax, wealth tax, service tax, duty of customs, duty of excise, value added tax, cess and any other statutory dues with the appropriate authorities and if not, the extent of the arrears of outstanding statutory dues as at the last day of the financial year concerned for a period of more than six months from the date they became payable, shall be indicated by the auditor.
  • In case dues of income tax or sales tax or wealth tax or service tax or duty of customs or duty of excise or value added tax or cess have not been deposited on account of any dispute, then the amounts involved and the forum where dispute is pending shall be mentioned. (A mere representation to the concerned Department shall not constitute a dispute).
  • Whether the amount required to be transferred to investor education and protection fund in accordance with the relevant provisions of the Companies Act, 1956 (1 of 1956) and rules made there under has been transferred to such fund within time.
8. LOSS MAKING COMPANIES
  • Whether in case of a company which has been registered for a period not less than five years, its accumulated losses at the end of the financial year are not less than fifty per cent of its net worth and whether it has incurred cash losses in such financial year and in the immediately preceding financial year;
9. REPAYMENT OF DUES
  • Whether the company has defaulted in repayment of dues to a financial institution or bank or debenture holders?
  • If yes, the period and amount of default to be reported;
10. GUARANTEE GIVEN
  • Whether the company has given any guarantee for loans taken by others from bank or financial institutions, the terms and conditions whereof are prejudicial to the interest of the company;
11. USE OF FUNDS
  • Whether term loans were applied for the purpose for which the loans were obtained;
12. FRAUD
  • Whether any fraud on or by the company has been noticed or reported during the year; If yes, the nature and the amount involved is to be indicated.
REASONS TO BE STATED FOR UNFAVOURABLE OR QUALIFIED ANSWERS
  • Where, in the auditor’s report, the answer to any of the questions referred to in paragraph 3 is unfavourable or qualified, the auditor’s report shall also state the reasons for such unfavourable or qualified answer, as the case may be.
  • Where the auditor is unable to express any opinion in answer to a particular question, his report shall indicate such fact together with the reasons why it is not possible for him to give an answer to such question.
Important points to know while MGT-7 Filing
  • MGT 8 is applicable for Listed Companies and for other Companies, if the Paid up capital is more than 10 Crores or Profit is more than 50 Crores.
  • Address and category of the Company is given dynamic so the address and category of the Company for that particular which relates to the filing shall be entered. But this does not validate the address / category unless all regular formalities like filing INC-22 etc., are done.
  • All activities done by the Company should be mentioned in descending order of % contributing to total turnover of the Company. Only if the number of business activities is less than 10 then the total of the % should equal to 100%.
  • Transfer of shares should contain only the transfers made in the period for which the annual return is filed. Date of transfer of Debentures need not be entered.
  • NIL check boxes should be used only if both categories mentioned are not made in the period for which the annual return is filed.
  • Under KMP, the regular employees who are designated as Director but not in the board or KMP as per the act like Marketing Director etc., are need not to be entered.
  • The committees that are mandatory under the Act and its details are to be mentioned.
  • No, Sitting fees for the Directors need not to be entered under remuneration.
  • MGT-8 got 18 points and it is practically not possible to check all the compliances of the Company hence a PCS shall give an optional attachment stating that these are the compliances we have seen and verified and list the compliances that were physically verified.
  • Penalty and Punishments and Compounding imposed under any act (not only CA, 2013) is to be mentioned. Any proceeding, where the penalty is not finally imposed need not to be mentioned.
  • There is a limit of maximum 5 files only can be attached under optional attachments. If there are more than 5 details requires optional attachment then all the similar documents shall be clubbed in a single file.


CS V Prasanna, B.Com, ACS,
Proprietor, Prasanna & Associates
Company Secretary In Practice

Legal Term

Consensus ad idem (also referred to as mutual agreement, mutual assent or consensus ad idem)
Phrase (p).in contract law used to describe the intentions of the parties forming the contract. In particular it refers to the situation where there is a common understanding in the formation of the contract. This condition or element is often considered a necessary requirement to the formation of a contract.

NewsBites

MCA Updates

  • The sub-section (1) of section 467 of the Companies Act, 2013 (18 of 2013), the Central Government made further alterations in Schedule III.
  • The sections 73 and 76 with subsection (1) of section 469 of the Companies Act, 2013 (18 of 2013), the Central Government made amendments to the Companies (Acceptance of Deposits) Rules, 2014.
  • In the Companies (Management and Administration) Rules, 2014, in Form No. MGT-7, in paragraph I, under serial number (i), after “Global Location Number (GLN) of the Company”, the following shall be inserted, namely:-
  • “Permanent Account Number (PAN) of the Company __________”
  • The sub-section (6) of section 129 of the Companies Act, 2013 (18 of 2013), the Central Government hereby, in public interest, Additional information of the General lnstructions for preparation of Statement of Profit and Loss in Schedule III of the Companies Act, 2013 shall not apply to government companies producing Defence Equipment including the Space Research subject to fulfillment of certain conditions.
  • New forms AOC-4(Non-XBRL), MGT-7, ADT-2 & SH-9 are being made available w.e.f. 25th September 2015 along with C&I Validation tool beta version. Versions of forms CRA-4 and CHG-4 are likely to be modified w.e.f. 25th Sept 2015.

SEBI Updates

  • SEBI has notified SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (Listing Regulations) on September 2, 2015 after following the consultation process. SEBI in its Board meeting dated 19th November, 2014 approved the conversion of existing listing agreements into a single comprehensive regulation for various type of listed entities.
  • Role of Company Secretary under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 has been defined.

RBI Updates

  • In order to facilitate Rupee denominated borrowing from overseas, RBI has decided to put in place a framework for issuance of Rupee denominated bonds overseas within the overarching ECB policy.
  • The limits for investment by foreign portfolio investors (FPI) in Government securities were last increased to USD 30 billion vide. A Medium Term Framework (MTF) for FPI limits in Government securities was announced to provide a more predictable regime.

Income Tax Updates

  • The due date for ITR and audit reports u/s 44AB which were due by 30th September 2015 has been extended to 31st October 2015 for the entire country.
  • The Principal DGIT(Systems) has issued Notification No 4/2015 dated 04/09/2015 regarding Form No 61B related to Statement of Reportable Accounts u/s 285BA(1) of the Income-tax Act, 1961. The procedures prescribed in Notification 3 dated 25th August, 2015 stands withdrawn forthwith. The registration and submission of Nil statement already completed under the procedures prescribed in Notification 3 dated 25th August, 2015 shall continue to be valid.