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Amendments for CA Final Corporate and Allied Laws for November 2016 Examination

1. Dividends:

Section 125(5), (6) and (7) of the Companies Act, 2013 have been enforced with effect from 13-1-2016. The provisions of these subsections respectively are as follows:

(i).

The Central Government shall constitute, by notification, an authority for administration of the Fund consisting of a
chairperson and such other members, not exceeding seven and a chief executive officer, as the Central Government may
appoint [sub-section 5].

(ii).

The manner of administration of the Fund, appointment of chairperson, members and chief executive officer, holding of
meetings of the authority shall be in accordance with such rules as may be prescribed [sub-section 6].

(iii).

The Central Government may provide to the authority such offices, officers, employees and other resources in accordance
with such rules as may be prescribed [sub-section 7].

2. SEBI (Issue of Capital and Disclosure Requirements) (Second Amendment) Regulations, 2016:
1Conditions

and Manner of Providing Exit Opportunity to Dissenting Shareholders [Chapter VI-A of SEBI (ICDR) Regulations,

2009]
Applicability
Regulation 69A. (1) The provisions of this Chapter shall apply to an exit offer made by the promoters or shareholders in control of an
issuer to the dissenting shareholders in terms of section 13(8) and section 27(2) of the Companies Act, 2013, in case of change in
objects or variation in the terms of contract referred to in the prospectus.
(2) The provisions of this Chapter shall not apply where there are neither identifiable promoters nor shareholders in control of the listed
issuer.
Definitions
Regulation 69B. For the purpose of this Chapter:
(a)

"dissenting shareholders" means those shareholders who have voted against the resolution for change in objects or variation
in terms of a contract, referred to in the prospectus of the issuer;

(b)

"frequently traded shares" shall have the same meaning as assigned to it in the Securities and Exchange Board of India
(Substantial Acquisition of Shares and Takeovers) Regulations, 2011.

(c)

"relevant date" means date of the board meeting in which the proposal for change in objects or variation in terms of a
contract, referred to in the prospectus is approved, before seeking shareholders' approval.

Conditions for exit offer

Regulation 69C. The promoters or shareholders in control shall make the exit offer in accordance with the provisions of this Chapter,
to the dissenting shareholders, if:
(a)

the public issue has opened after April 1, 2014; and

(b)

the proposal for change in objects or variation in terms of a contract, referred to in the prospectus is dissented by at least ten
per cent. of the shareholders who voted in the general meeting; and

(c)

the amount to be utilized for the objects for which the prospectus was issued is less than seventy five per cent. of the amount
raised (including the amount earmarked for general corporate purposes as disclosed in the offer document).

Eligibility of shareholders for availing the exit offer

Regulation 69D. Only those dissenting shareholders of the issuer who are holding shares as on the relevant date shall be eligible to
avail the exit offer made under this Chapter.

Exit offer price

1

NOTIFICATION NO.SEBI/LAD-NRO/GN/2015-16/036, DATED 17-2-2016

Kamal Garg, FCA

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Regulation 69E. The 'exit price' payable to the dissenting shareholders shall be the highest of the following:

(a)

the volume-weighted average price paid or payable for acquisitions, whether by the promoters or shareholders having control
or by any person acting in concert with them, during the fifty-two weeks immediately preceding the relevant date;

(b)

the highest price paid or payable for any acquisition, whether by the promoters or shareholders having control or by any
person acting in concert with them, during the twenty-six weeks immediately preceding the relevant date;

(c)

the volume-weighted average market price of such shares for a period of sixty trading days immediately preceding the
relevant date as traded on the recognised stock exchange where the maximum volume of trading in the shares of the issuer
are recorded during such period, provided such shares are frequently traded;

(d)

where the shares are not frequently traded, the price determined by the promoters or shareholders having control and the
merchant banker taking into account valuation parameters including book value, comparable trading multiples, and such
other parameters as are customary for valuation of shares of such issuers.

Manner of providing exit to dissenting shareholders

Regulation 69F. (1) The notice proposing the passing of special resolution for changing the objects of the issue and varying the terms
of contract, referred to in the prospectus shall also contain information about the exit offer to the dissenting shareholders.
(2) In addition to the disclosures required under the provisions of section 102 of the Companies Act, 2013 read with rule 32 of the
Companies (Incorporation) Rules, 2014 and rule 7 of the Companies (Prospectus and Allotment of Securities) Rules, 2014 and any
other applicable law, a statement to the effect that the promoters or the shareholders having control shall provide an exit opportunity to
the dissenting shareholders shall also be included in the explanatory statement to the notice for passing special resolution.
(3) After passing of the special resolution, the issuer shall submit the voting results to the recognised stock exchange(s), in terms of the
provisions of regulation 44(3) of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements)
Regulations, 2015.

(4) The issuer shall also submit the list of dissenting shareholders, as certified by its compliance officer, to the recognised stock
exchange(s).

(5) The promoters or shareholders in control, shall appoint a merchant banker registered with the Board and finalize the exit offer price
in accordance with these regulations.

(6) The issuer shall intimate the recognised stock exchange(s) about the exit offer to dissenting shareholders and the price at which
such offer is being given.

(7) The recognised stock exchange(s) shall immediately on receipt of such intimation disseminate the same to public within one
working day.
(8) To ensure security for performance of their obligations, the promoters or shareholders having control, as applicable, shall create an
escrow account which may be interest bearing and deposit the aggregate consideration in the account at least two working days prior
to opening of the tendering period.
(9) The tendering period shall start not later than seven working days from the passing of the special resolution and shall remain open
for ten working days.
(10) The dissenting shareholders who have tendered their shares in acceptance of the exit offer shall have the option to withdraw such
acceptance till the date of closure of the tendering period.
(11) The promoters or shareholders having control shall facilitate tendering of shares by the shareholders and settlement of the same
through the recognised stock exchange mechanism as specified by SEBI for the purpose of takeover, buy-back and delisting.
(12) The promoters or shareholders having control shall, within a period of ten working days from the last date of the tendering period,
make payment of consideration to the dissenting shareholders who have accepted the exit offer.
(13) Within a period of two working days from the payment of consideration, the issuer shall furnish to the recognised stock
exchange(s), disclosures giving details of aggregate number of shares tendered, accepted, payment of consideration and the post-offer
shareholding pattern of the issuer and a report by the merchant banker that the payment has been duly made to all the dissenting
shareholders whose shares have been accepted in the exit offer.

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Offer not to exceed maximum permissible non-public shareholding

Regulation 69G. In the event, the shares accepted in the exit offer were such that the shareholding of the promoters or shareholders in
control, taken together with persons acting in concert with them pursuant to completion of the exit offer results in their shareholding
exceeding the maximum permissible non-public shareholding, the promoters or shareholders in control, as applicable, shall be required
to bring down the non-public shareholding to the level specified and within the time permitted under Securities Contract (Regulation)
Rules, 1957.

3. FEMA:

Acceptance of deposits by Indian Companies from a person resident outside India for nomination as director: Under section
160 of the Companies Act, 2013, it is provided that a person who intends to nominate himself or any other person as a director in an
Indian company is required to place a deposit with the said company. In this context, it has come to the notice of the Reserve Bank
that there is ambiguity whether such deposits will require any specific approval from the Reserve Bank under Notification No. FEMA
5(R), in cases where the deposit is received from a person resident outside India.

It is clarified that keeping deposits with an Indian company by persons resident outside India, in accordance with section 160 of the
Companies Act, 2013, is a current account (payment) transaction and, as such, does not require any approval from Reserve Bank. All
refunds of such deposits, arising in the event of selection of the person as director or getting more than twenty five percent votes, shall
be treated similarly.
4. Competition Act:
2Inquiry

into Combination by Commission - Enhancement of Value of Assets and Value of Turnover for purposes Of Section 5
of said Act: In exercise of the powers conferred by sub-section (3) of section 20 of the Competition Act, 2002, the Central Government
in consultation with the Competition Commission of India, hereby enhances, on the basis of the wholesale price index, the value of
assets and the value of turnover, by hundred per cent for the purposes of section 5 of the said Act, from the date of publication of this
notification in the Official Gazette.
Common Amendments vis--vis Advanced Auditing and Professional Ethics
1. XBRL Amendment Rules, 2016: The following class of companies shall file their financial statement and other documents under
section 137 of the Act, with the Registrar in e-form AOC-4 XBRL given in Annexure-I for the financial years commencing on or after 1st
April, 2014 using the XBRL taxonomy given in Annexure II, namely:
(i)

all companies listed with any Stock Exchange(s) in India and their Indian subsidiaries; or

(ii)

all companies having paid up capital of rupees five crore or above;

(iii)

all companies having turnover of rupees hundred crore or above; or

(iv)

all companies which were hitherto covered under the Companies (Filing of Documents and Forms in Extensible Business
Reporting Language) Rules, 2011:

3[Provided

that the companies in banking, insurance, power sector, non-banking financial companies and housing finance companies
need not file financial statements under this rule. ]
2. Audit Committee vis--vis Omnibus Approval: Section 177(4)(iv) of the Companies Act, 2013 provides that every Audit
Committee shall act in accordance with the terms of reference specified in writing by the Board which shall inter alia, include approval
or any subsequent modification of transactions of the company with related parties:
4[Provided

that the Audit Committee may make omnibus approval for related party transactions proposed to be entered into by the
company subject to such conditions as may be prescribed]
5Omnibus approval for related party transactions on annual basis [Rule - 6A, Companies (Meetings of Board and its
Powers) Rules, 2014]

NOTIFICATION NO. SO 675(E) [F.NO.5/7/2013-CS], DATED 4-3-2016

Proviso substituted by the Companies (Filing of Documents and Forms in Extensible Business Reporting Language) Amendment Rules, 2016, w.e.f. 4-4-2016.
4
Proviso inserted by the Companies (Amendment) Act, 2015, w.e.f. 14-12-2015
5
Rule 6A inserted by the Companies (Meetings of Board and its Powers) Second Amendment Rules, 2015, w.e.f. 14-12-2015.
3

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All related party transactions shall require approval of the Audit Committee and the Audit Committee may make omnibus approval
for related party transactions proposed to be entered into by the company subject to the following conditions, namely:

(1) Criteria for making omnibus approval: The Audit Committee shall, after obtaining approval of the Board of Directors, specify
the criteria for making the omnibus approval which shall include the following, namely:

(a)

maximum value of the transactions, in aggregate, which can be allowed under the omnibus route in a year;

(b)

the maximum value per transaction which can be allowed;

(c)

extent and manner of disclosures to be made to the Audit Committee at the time of seeking omnibus approval;

(d)

review, at such intervals as the Audit Committee may deem fit, related party transaction entered into by the company pursuant
to each of the omnibus approval made;

(e)

transactions which cannot be subject to the omnibus approval by the Audit Committee.

(2) Factors to be considered while specifying the criteria for making omnibus approval: The Audit Committee shall consider
the following factors while specifying the criteria for making omnibus approval, namely:

(a)

repetitiveness of the transactions (in past or in future);

(b)

justification for the need of omnibus approval.

(3) The Audit Committee shall satisfy itself on the need for omnibus approval for transactions of repetitive nature and that such
approval is in the interest of the company.
(4) Contents of omnibus approval: The omnibus approval shall contain or indicate the following:
(a)

name of the related parties;

(b)

nature and duration of the transaction;

(c)

maximum amount of transaction that can be entered into;

(d)

the indicative base price or current contracted price and the formula for variation in the price, if any; and

(e)

any other information relevant or important for the Audit Committee to take a decision on the proposed transaction:

Provided that where the need for related party transaction cannot be foreseen and aforesaid details are not available, Audit
Committee may make omnibus approval for such transactions subject to their value not exceeding rupees one crore per transaction.
(5) Omnibus approval shall be valid for a period not exceeding one financial year and shall require fresh approval after the expiry of
such financial year.
(6) Omnibus approval shall not be made for transactions in respect of selling or disposing of the undertaking of the company.
(7) Any other conditions as the Audit Committee may deem fit.]
3. 6Report under Section 143(12) of the Companies Act, 2013: Notwithstanding anything contained in this section, if an auditor of a
company in the course of the performance of his duties as auditor, has reason to believe that an offence of fraud involving such
amount or amounts as may be prescribed, is being or has been committed in the company by its officers or employees, the auditor
shall report the matter to the Central Government within such time and in such manner as may be prescribed:

Provided that in case of a fraud involving lesser than the specified amount, the auditor shall report the matter to the audit committee
constituted under section 177 or to the Board in other cases within such time and in such manner as may be prescribed:

Provided further that the companies, whose auditors have reported frauds under this sub-section to the audit committee or the Board
but not reported to the Central Government, shall disclose the details about such frauds in the Board's report in such manner as may
be prescribed

Sub-section (12) substituted by the Companies (Amendment) Act, 2015, w.e.f. 14-12-2015

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7Reporting

of frauds by auditor and other matters [Rule 13 Companies (Audit and Auditors) Rules, 2014]:

(1) If an auditor of a company, in the course of the performance of his duties as statutory auditor, has reason to believe that an
offence of fraud, which involves or is expected to involve individually an amount of rupees one crore or above, is being or has been
committed against the company by its officers or employees, the auditor shall report the matter to the Central Government.

(2) The auditor shall report the matter to the Central Government as under:
(a)

the auditor shall report the matter to the Board or the Audit Committee, as the case may be, immediately but not later than two
days of his knowledge of the fraud, seeking their reply or observations within forty-five days;

(b)

on receipt of such reply or observations, the auditor shall forward his report and the reply or observations of the Board or the
Audit Committee along with his comments (on such reply or observations of the Board or the Audit Committee) to the Central
Government within fifteen days from the date of receipt of such reply or observations;

(c)

in case the auditor fails to get any reply or observations from the Board or the Audit Committee within the stipulated period of
forty-five days, he shall forward his report to the Central Government along with a note containing the details of his report that
was earlier forwarded to the Board or the Audit Committee for which he has not received any reply or observations;

(d)

the report shall be sent to the Secretary, Ministry of Corporate Affairs in a sealed cover by Registered Post with
Acknowledgement Due or by Speed Post followed by an e-mail in confirmation of the same;

(e)

the report shall be on the letter-head of the auditor containing postal address, e-mail address and contact telephone number or
mobile number and be signed by the auditor with his seal and shall indicate his Membership Number; and

(f)

the report shall be in the form of a statement as specified in Form ADT-4.

(3) In case of a fraud involving lesser than the amount specified in sub-rule (1), the auditor shall report the matter to Audit
Committee constituted under section 177 or to the Board immediately but not later than two days of his knowledge of the fraud and
he shall report the matter specifying the following:

(a)

Nature of Fraud with description;

(b)

Approximate amount involved; and

(c)

Parties involved

(4) The following details of each of the fraud reported to the Audit Committee or the Board under sub-rule (3) during the year shall
be disclosed in the Board's Report:
(a)

Nature of Fraud with description;

(b)

Approximate Amount involved;

(c)

Parties involved, if remedial action not taken; and

(d)

Remedial actions taken.

(5) The provision of this rule shall also apply, mutatis mutandis, to a Cost Auditor and a Secretarial Auditor during the performance
of his duties under section 148 and section 204 respectively.]

Rule 13 substituted by the Companies (Audit and Auditors) Amendment Rules, 2015, w.e.f. 14-12-2015.

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Amendments for CA Final Advanced Auditing and Professional Ethics for November 2016 Examination

1. Code of Ethics

Responding to Tenders: A member of the Institute in practice shall not respond to any tender issued by an organization or user of
professional services in areas of services which are exclusively reserved for chartered accountants, such as audit and attestation
services. However, such restriction shall not be applicable where minimum fee of the assignment is prescribed in the tender document
itself or where the areas are open to other professionals along with the Chartered Accountants. [Guideline No. 1-CA(7)/03/2016, Dated
7.4.2016]

2. XBRL Amendment Rules, 2016: The following class of companies shall file their financial statement and other documents under
section 137 of the Act, with the Registrar in e-form AOC-4 XBRL given in Annexure-I for the financial years commencing on or after 1st
April, 2014 using the XBRL taxonomy given in Annexure II, namely:

(i)

all companies listed with any Stock Exchange(s) in India and their Indian subsidiaries; or

(ii)

all companies having paid up capital of rupees five crore or above;

(iii)

all companies having turnover of rupees hundred crore or above; or

(iv)

all companies which were hitherto covered under the Companies (Filing of Documents and Forms in Extensible Business
Reporting Language) Rules, 2011:

1[Provided

that the companies in banking, insurance, power sector, non-banking financial companies and housing finance companies
need not file financial statements under this rule. ]
3. Audit Committee vis--vis Omnibus Approval: Section 177(4)(iv) of the Companies Act, 2013 provides that every Audit
Committee shall act in accordance with the terms of reference specified in writing by the Board which shall inter alia, include approval
or any subsequent modification of transactions of the company with related parties:

2[Provided

that the Audit Committee may make omnibus approval for related party transactions proposed to be entered into by the
company subject to such conditions as may be prescribed]
3Omnibus

approval for related party transactions on annual basis [Rule - 6A, Companies (Meetings of Board and its
Powers) Rules, 2014]

All related party transactions shall require approval of the Audit Committee and the Audit Committee may make omnibus approval
for related party transactions proposed to be entered into by the company subject to the following conditions, namely:

(1) Criteria for making omnibus approval: The Audit Committee shall, after obtaining approval of the Board of Directors, specify
the criteria for making the omnibus approval which shall include the following, namely:

(a)

maximum value of the transactions, in aggregate, which can be allowed under the omnibus route in a year;

(b)

the maximum value per transaction which can be allowed;

(c)

extent and manner of disclosures to be made to the Audit Committee at the time of seeking omnibus approval;

(d)

review, at such intervals as the Audit Committee may deem fit, related party transaction entered into by the company pursuant
to each of the omnibus approval made;

(e)

transactions which cannot be subject to the omnibus approval by the Audit Committee.

(2) Factors to be considered while specifying the criteria for making omnibus approval: The Audit Committee shall consider
the following factors while specifying the criteria for making omnibus approval, namely:
(a)

repetitiveness of the transactions (in past or in future);

(b)

justification for the need of omnibus approval.

Proviso substituted by the Companies (Filing of Documents and Forms in Extensible Business Reporting Language) Amendment Rules, 2016, w.e.f. 4-4-2016.
Proviso inserted by the Companies (Amendment) Act, 2015, w.e.f. 14-12-2015
3
Rule 6A inserted by the Companies (Meetings of Board and its Powers) Second Amendment Rules, 2015, w.e.f. 14-12-2015.
2

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(3) The Audit Committee shall satisfy itself on the need for omnibus approval for transactions of repetitive nature and that such
approval is in the interest of the company.

(4) Contents of omnibus approval: The omnibus approval shall contain or indicate the following:
(a)

name of the related parties;

(b)

nature and duration of the transaction;

(c)

maximum amount of transaction that can be entered into;

(d)

the indicative base price or current contracted price and the formula for variation in the price, if any; and

(e)

any other information relevant or important for the Audit Committee to take a decision on the proposed transaction:

Provided that where the need for related party transaction cannot be foreseen and aforesaid details are not available, Audit
Committee may make omnibus approval for such transactions subject to their value not exceeding rupees one crore per transaction.

(5) Omnibus approval shall be valid for a period not exceeding one financial year and shall require fresh approval after the expiry of
such financial year.

(6) Omnibus approval shall not be made for transactions in respect of selling or disposing of the undertaking of the company.
(7) Any other conditions as the Audit Committee may deem fit.]
4. 4Report under Section 143(12) of the Companies Act, 2013: Notwithstanding anything contained in this section, if an auditor of a
company in the course of the performance of his duties as auditor, has reason to believe that an offence of fraud involving such
amount or amounts as may be prescribed, is being or has been committed in the company by its officers or employees, the auditor
shall report the matter to the Central Government within such time and in such manner as may be prescribed:
Provided that in case of a fraud involving lesser than the specified amount, the auditor shall report the matter to the audit committee
constituted under section 177 or to the Board in other cases within such time and in such manner as may be prescribed:
Provided further that the companies, whose auditors have reported frauds under this sub-section to the audit committee or the Board
but not reported to the Central Government, shall disclose the details about such frauds in the Board's report in such manner as may
be prescribed
5Reporting

of frauds by auditor and other matters [Rule 13 Companies (Audit and Auditors) Rules, 2014]:

(1) If an auditor of a company, in the course of the performance of his duties as statutory auditor, has reason to believe that an
offence of fraud, which involves or is expected to involve individually an amount of rupees one crore or above, is being or has been
committed against the company by its officers or employees, the auditor shall report the matter to the Central Government.
(2) The auditor shall report the matter to the Central Government as under:
(a)

the auditor shall report the matter to the Board or the Audit Committee, as the case may be, immediately but not later than two
days of his knowledge of the fraud, seeking their reply or observations within forty-five days;

(b)

on receipt of such reply or observations, the auditor shall forward his report and the reply or observations of the Board or the
Audit Committee along with his comments (on such reply or observations of the Board or the Audit Committee) to the Central
Government within fifteen days from the date of receipt of such reply or observations;

(c)

in case the auditor fails to get any reply or observations from the Board or the Audit Committee within the stipulated period of
forty-five days, he shall forward his report to the Central Government along with a note containing the details of his report that
was earlier forwarded to the Board or the Audit Committee for which he has not received any reply or observations;

(d)

the report shall be sent to the Secretary, Ministry of Corporate Affairs in a sealed cover by Registered Post with
Acknowledgement Due or by Speed Post followed by an e-mail in confirmation of the same;

(e)

the report shall be on the letter-head of the auditor containing postal address, e-mail address and contact telephone number or

Sub-section (12) substituted by the Companies (Amendment) Act, 2015, w.e.f. 14-12-2015
Rule 13 substituted by the Companies (Audit and Auditors) Amendment Rules, 2015, w.e.f. 14-12-2015.

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mobile number and be signed by the auditor with his seal and shall indicate his Membership Number; and

(f)

the report shall be in the form of a statement as specified in Form ADT-4.

(3) In case of a fraud involving lesser than the amount specified in sub-rule (1), the auditor shall report the matter to Audit
Committee constituted under section 177 or to the Board immediately but not later than two days of his knowledge of the fraud and
he shall report the matter specifying the following:

(a)

Nature of Fraud with description;

(b)

Approximate amount involved; and

(c)

Parties involved

(4) The following details of each of the fraud reported to the Audit Committee or the Board under sub-rule (3) during the year shall
be disclosed in the Board's Report:

(a)

Nature of Fraud with description;

(b)

Approximate Amount involved;

(c)

Parties involved, if remedial action not taken; and

(d)

Remedial actions taken.

(5) The provision of this rule shall also apply, mutatis mutandis, to a Cost Auditor and a Secretarial Auditor during the performance
of his duties under section 148 and section 204 respectively.]
5. 6CARO, 2016:
In exercise of the powers conferred by sub-section (11) of section 143 of the Companies Act, 2013 and in supersession of the
Companies (Auditor's Report) Order, 2015 published in the Gazette of India, Extraordinary, Part II, section 3, sub-section
(ii), vide number S.O. 990 (E), dated the 10th April, 2015, except as respects things done or omitted to be done before such
supersession, the Central Government, after consultation with the, committee constituted under proviso to sub-section (11) of section
143 of the Companies Act, 2013 hereby makes the following Order, namely:
Short title, application and commencement
1. (1) This Order may be called the Companies (Auditor's Report) Order, 2016.
(2) It shall apply to every company including a foreign company as defined in clause (42) of section 2 of the Companies Act, 2013 (18
of 2013) [hereinafter referred to as the Companies Act], except

(i)

a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949);

(ii)

an insurance company as defined under the Insurance Act, 1938 (4 of 1938);

(iii)

a company licensed to operate under section 8 of the Companies Act;

(iv)

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

(v)

a private limited company, not being a subsidiary or holding company of a public company, having a paid up capital and
reserves and surplus not more than rupees one crore as on the balance sheet date and which does not have total borrowings
exceeding rupees one crore from any bank or financial institution at any point of time during the financial year and which does
not have a total revenue as disclosed in Scheduled III to the Companies Act, 2013 (including revenue from discontinuing
operations) exceeding rupees ten crore during the financial year as per the financial statements.

NOTIFICATION SO 1228(E)[F.NO.17/45/2015-CL-V], DATED 29-3-2016

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Auditor's report to contain matters specified in paragraphs 3 and 4

2. Every report made by the auditor under section 143 of the Companies Act, 2013 on the accounts of every company audited by him,
to which this Order applies, for the financial years commencing on or after 1st April, 2015, shall in addition, contain the matters
specified in paragraphs 3 and 4, as may be applicable:

Provided the Order shall not apply to the auditor's report on consolidated financial statements.

Matters to be included in the auditor's report

3. The auditor's report on the accounts of a company to which this Order applies shall include a statement on the following matters,
namely:

(i)

(a) whether the company is maintaining proper records showing full particulars, including quantitative details and situation of
fixed assets;
(b) 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;
(c) whether the title deeds of immovable properties are held in the name of the company. If not, provide the details thereof;

(ii)

whether physical verification of inventory has been conducted at reasonable intervals by the management and whether any
material discrepancies were noticed and if so, whether they have been properly dealt with in the books of account;

(iii)

whether the company has 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. If so,

(a)

whether the terms and conditions of the grant of such loans are not prejudicial to the company's interest;

(b)

whether the schedule of repayment of principal and payment of interest has been stipulated and whether the
repayments or receipts are regular;

(c)

if the amount is overdue, state the total amount overdue for more than ninety days, and whether reasonable steps have
been taken by the company for recovery of the principal and interest;

(iv)

in respect of loans, investments, guarantees, and security whether provisions of sections 185 and 186 of the Companies Act,
2013 have been complied with. If not, provide the details thereof.

(v)

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, 2013 and the rules framed thereunder, where
applicable, have been complied with? If not, the nature of such contraventions 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?

(vi)

whether maintenance of cost records has been specified by the Central Government under sub-section (1) of section 148 of
the Companies Act, 2013 and whether such accounts and records have been so made and maintained.

(vii)

(a) whether the company is regular in depositing undisputed statutory dues including provident fund, employees' state
insurance, income-tax, sales-tax, service tax, duty of customs, duty of excise, value added tax, cess and any other statutory
dues to the appropriate authorities and if not, the extent of the arrears of outstanding statutory dues as on 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;

(b) where dues of income tax or sales tax or service tax or duty of customs or duty of excise or value added tax 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 be treated as a dispute).
(viii)

whether the company has defaulted in repayment of loans or borrowing to a financial institution, bank, government or dues to
debenture holders? If yes, the period and the amount of default to be reported (in case of defaults to banks, financial
institutions, and government, lender wise details to be provided).

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(ix)

whether moneys raised by way of initial public offer or further public offer (including debt instruments) and term loans were
applied for the purposes for which those are raised. If not, the details together with delays or default and subsequent
rectification, if any, as may be applicable, be reported;

(x)

whether any fraud by the company or any fraud on the Company by its officers or employees has been noticed or reported
during the year; If yes, the nature and the amount involved is to be indicated;

(xi)

whether managerial remuneration has been paid or provided in accordance with the requisite approvals mandated by the
provisions of section 197 read with Schedule V to the Companies Act? If not, state the amount involved and steps taken by
the company for securing refund of the same;

(xii)

whether the Nidhi Company has complied with the Net Owned Funds to Deposits in the ratio of 1: 20 to meet out the liability
and whether the Nidhi Company is maintaining ten per cent unencumbered term deposits as specified in the Nidhi Rules,
2014 to meet out the liability;

(xiii)

whether all transactions with the related parties are in compliance with sections 177 and 188 of Companies Act, 2013 where
applicable and the details have been disclosed in the Financial Statements etc., as required by the applicable accounting
standards;

(xiv)

whether the company has made any preferential allotment or private placement of shares or fully or partly convertible
debentures during the year under review and if so, as to whether the requirement of section 42 of the Companies Act, 2013
have been complied with and the amount raised have been used for the purposes for which the funds were raised. If not,
provide the details in respect of the amount involved and nature of non-compliance;

(xv)

whether the company has entered into any non-cash transactions with directors or persons connected with him and if so,
whether the provisions of section 192 of Companies Act, 2013 have been complied with;

(xvi)

whether the company is required to be registered under section 45-IA of the Reserve Bank of India Act, 1934 and if so,
whether the registration has been obtained.

Reasons to be stated for unfavourable or qualified answers

4. (1) 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 basis for such unfavourable or qualified answer, as the case may be.
(2) Where the auditor is unable to express any opinion on any specified matter, his report shall indicate such fact together with the
reasons as to why it is not possible for him to give his opinion on the same.
6. SA 610 and SAE 3420:
6.1. SA 610 (Revised) [additional principles w.e.f. 1.4.2016]:
(a) Scope SA 610 (Revised) does not apply if the entity does not have an internal audit function. Activities similar to those
performed by an internal audit function may be conducted by functions with other titles within an entity. Some or all of the
activities of an internal audit function may also be outsourced to a third-party service provider. Neither the title of the function,
nor whether it is performed by the entity or a third-party service provider, are sole determinants of whether or not the external
auditor can use the work of the function. Rather, it is the nature of the activities; the extent to which the internal audit functions
organizational status and relevant policies and procedures support the objectivity of the internal auditors; competence; and
systematic and disciplined approach of the function that are relevant. References in this SA to the work of the internal audit
function include relevant activities of other functions or third-party providers that have these characteristics.
(b) Internal audit function A function of an entity that performs assurance and consulting activities designed to evaluate and
improve the effectiveness of the entitys governance, risk management and internal control processes;
(c) Direct assistance The use of internal auditors to perform audit procedures under the direction, supervision and review of the
external auditor. The external auditor may be prohibited by law or regulation from obtaining direct assistance from internal
auditors;
(d) Relationship between SA 315 and SA 610 (Revised) Many entities establish internal audit functions as part of their internal
control and governance structures. Depending upon the factors discussed in point (e) below, the external auditor should also

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apply principles of SA 315 and SA 330 so that he would be able to use the work of the internal audit function in a constructive
and complementary manner;
(e) Factors influencing using the work of internal audit function: The external auditor shall determine and document whether the
work of the internal audit function can be used for purposes of the audit by evaluating the following:
(i).

The extent to which the internal audit functions organizational status and relevant policies and procedures
support the objectivity of the internal auditors;

(ii).

The level of competence of the internal audit function; and

(iii).

Whether the internal audit function applies a systematic and disciplined approach, including quality control.

6.2. SAE 3420:

Assurance Engagements to Report on the Compilation of Pro Forma Financial Information included in a Prospectus [SAE
3420]7

Scope: This SAE applies when:

(i).

Such reporting is required by securities law or the regulation of the securities exchange (relevant law or regulation)
in the jurisdiction in which the prospectus is to be issued; or

(ii).

This reporting is generally accepted practice in such jurisdiction.

Non applicability:
(i).

This standard does not deal with circumstances where pro forma financial information is provided as part of the
entitys financial statements pursuant to the requirements of an applicable financial reporting framework.

(ii).

This SAE does not deal with non-assurance engagements in which the practitioner is engaged by the entity to
compile its historical financial statements.

Definitions:
1. Applicable criteria The criteria used by the responsible party when compiling the pro forma financial information.
Criteria may be established by an authorized or recognized standard-setting organization or by law or regulation.
Where established criteria do not exist, they will be developed by the responsible party.
2. Pro forma adjustments In relation to unadjusted financial information, these include:
(i).

Adjustments to unadjusted financial information that illustrate the impact of a significant event or transaction if
the event had occurred or the transaction had been undertaken at an earlier date selected for purposes of the
illustration; and

(ii).

Adjustments to unadjusted financial information that are necessary for the pro forma financial information to be
compiled on a basis consistent with the applicable financial reporting framework of the reporting entity and its
accounting policies under that framework.

3. Pro forma financial information Financial information shown together with adjustments to illustrate the impact of an
event or transaction on unadjusted financial information as if the event had occurred or the transaction had been
undertaken at an earlier date selected for purposes of the illustration. In this SAE, it is presumed that pro forma
financial information is presented in columnar format consisting of:
a. the unadjusted financial information;
b. the pro forma adjustments; and
c. the resulting pro forma column.
4. Prospectus A document issued pursuant to legal or regulatory requirements relating to the entitys securities on
which it is intended that a third party should make an investment decision.
5. Published financial information Financial information of the entity or of an acquiree or a divestee that is made
available publicly.
7

This SAE is effective for assurance reports dated on or after 01st April 2016.

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6. Unadjusted financial information Financial information of the entity to which pro forma adjustments are applied by
the responsible party.

Nature of the Practitioners Responsibility: In an engagement performed under this SAE, the practitioner has no
responsibility to compile the pro forma financial information for the entity; such responsibility rests with the responsible party.
The practitioners sole responsibility is to report on whether the pro forma financial information has been compiled, in all
material respects, by the responsible party on the basis of the applicable criteria.

Assessment of unadjusted financial information and pro forma financial information: The practioner should assess the
appropriateness of these information on the basis of following factors:
(a) Source of such information - the extent to which it can be relied upon;
(b) Whether such financial information is factually supportable;
(c) Consistency with the entitys applicable financial reporting framework and its accounting policies under that
framework;
(d) Determine whether the calculations within the pro forma financial information are arithmetically accurate.

Purpose of Pro Forma Financial Information Included in a Prospectus: The purpose of pro forma financial information
included in a prospectus is solely to illustrate the impact of a significant event or transaction on unadjusted financial
information of the entity as if the event had occurred or the transaction had been undertaken at an earlier date selected for
purposes of the illustration. This is achieved by applying pro forma adjustments to the unadjusted financial information. Pro
forma financial information does not represent the entitys actual financial position, financial performance, or cash flows.
For example, the entity may acquire a number of businesses prior to an initial public offering. In such circumstances, the
responsible party may choose to present a pro forma net asset statement to illustrate the impact of the acquisitions on the
entitys financial position and key ratios such as debt to equity as if the acquired businesses had been combined with the
entity at an earlier date. The responsible party may also choose to present a pro forma income statement to illustrate what the
results of operations might have been for the period ended on that date. In such cases, the nature of the pro forma financial
information may be described by titles such as Pro Forma Balance Sheet as at March 31, 20X1 and Pro Forma Statement
of profit and loss for the Year Ended March 31, 20X1.

Compilation of Pro Forma Financial Information: The compilation of pro forma financial information involves the
responsible party gathering, classifying, summarizing and presenting financial information that illustrates the impact of a
significant event or transaction on unadjusted financial information of the entity as if the event had occurred or the transaction
had been undertaken at the selected date. Steps involved in this process include:
(a)

Identifying the source of the unadjusted financial information to be used in compiling the pro forma financial information,
and extracting the unadjusted financial information from that source;

(b)

Making pro forma adjustments to the unadjusted financial information for the purpose for which the pro forma financial
information is presented; and

(c)

Presenting the resulting pro forma financial information with accompanying disclosures

Nature of Reasonable Assurance Engagement: A reasonable assurance engagement to report on the compilation of pro
forma financial information involves performing the procedures set out in this SAE to assess whether the applicable criteria
used by the responsible party in the compilation of the pro forma financial information provide a reasonable basis for
presenting the significant effects directly attributable to the event or transaction, and to obtain sufficient appropriate evidence
about whether:
(a)

The related pro forma adjustments give appropriate effect to those criteria; and

(b)

The resulting pro forma column reflects the proper application of those adjustments to the unadjusted financial
information.

It also involves evaluating the overall presentation of the pro forma financial information. The engagement, however, does not involve
the practitioner updating or reissuing any reports or opinions on any historical financial information used in compiling the pro forma
financial information, or performing an audit or review of the financial information used in compiling the pro forma financial information.
Relationship with Other Professional Pronouncements: During the course of this engagement, the practitioner should:

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(a)

Comply with the independence and other requirements of the Code of Ethics, issued by the Institute of Chartered
Accountants of India; and

(b)

Implement quality control procedures that are applicable to the individual engagement.

Presentation of pro forma financial information: The practitioner shall evaluate the presentation of the pro forma financial
information. This shall include consideration of:
(a) The overall presentation and structure of the pro forma financial information, including whether it is clearly labeled to
distinguish it from historical or other financial information;
(b) Whether the pro forma financial information and related explanatory notes illustrate the impact of the event or
transaction in a manner that is not misleading;
(c) Whether appropriate disclosures are provided with the pro forma financial information to enable the intended users to
understand the information conveyed; and
(d) Whether the practitioner has become aware of any significant events subsequent to the date of the source from
which the unadjusted financial information has been extracted that may require reference to, or disclosure in, the pro
forma financial information.
Written Representations: The practitioner shall request written representations from the responsible party that:
(a) In compiling the pro forma financial information, the responsible party has identified all appropriate pro forma
adjustments necessary to illustrate the impact of the event or transaction at the date or for the period of the
illustration; and
(b) The pro forma financial information has been compiled, in all material respects, on the basis of the applicable criteria.
Forming the Opinion: The practitioner shall form an opinion on whether the pro forma financial information has been
compiled, in all material respects, by the responsible party on the basis of the applicable criteria. In order to form that opinion,
the practitioner shall conclude whether the practitioner has obtained sufficient appropriate evidence about whether the
compilation of the pro forma financial information is free from material omissions, or inappropriate use or application of a pro
forma adjustment. That conclusion shall include an evaluation of whether the responsible party has adequately disclosed and
described the applicable criteria to the extent that these are not publicly available.
(a) Unmodified Opinion: If pro forma financial information has been compiled, in all material respects, by the responsible
party on the basis of the applicable criteria.
(b) Modified Opinion Qualified/ Adverse/ Disclaimer/ EOM, as the case may be: If pro forma financial information has
not been compiled, in all material respects, by the responsible party on the basis of the applicable criteria.
But where the relevant law or regulation precludes (i.e. does not permit) publication of a prospectus that contains a
modified opinion with regard to whether the pro forma financial information has been compiled, in all material
respects, on the basis of the applicable criteria and the practitioner concludes that a modified opinion is nevertheless
appropriate in accordance with the Framework for Assurance Engagements, the practitioner shall discuss the matter
with the responsible party. If the responsible party does not agree to make the necessary changes, the practitioner
shall:
(i).

Withdraw from the engagement; or

(ii).

Consider seeking legal advice.

Factors to be considered before accepting such assurance engagement:

(a) His capabilities and competence;
(b) Determine that the applicable criteria are suitable and that it is unlikely that the pro forma financial information will be
misleading for the purpose for which it is intended;
(c) Where the sources from which the unadjusted financial information and any acquiree or divestee financial information
have been extracted have been audited or reviewed;

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(d) If the entitys historical financial information has never been audited or reviewed, consider whether the practitioner
can obtain a sufficient understanding of the entity and its accounting and financial reporting practices to perform the
engagement;

Bacis Elements of such assurance report:

(a) Title;
(b) Addressee;
(c) Introductory Paragraph identifying the pro forma financial information, nature of the unadjusted financial information,
and applicable criteria on the basis of which the responsible party has performed the compilation of the pro forma
financial information;
(d) A statement that the responsible party is responsible for compiling the pro forma financial information on the basis of
the applicable criteria;
(e) Description of the practitioners responsibilities clearly specifying that the practitioner does not provide any assurance
that the actual outcome of the event or transaction at that date would have been as presented;
(f) A statement that the engagement was performed in accordance with SAE 3420, Assurance Engagements to Report
on the Compilation of Pro Forma Financial Information Included in a Prospectus,
(g) Statements that:
(i).

the applicable criteria used by the responsible party in the compilation of the pro forma financial information
provide a reasonable basis for presenting the significant effects directly attributable to the event or
transaction,

(ii).

the procedures selected depend on the practitioners judgment, having regard to the practitioners
understanding of the nature of the entity, the event or transaction in respect of which the pro forma financial
information has been compiled, and other relevant engagement circumstances; and

(iii).

The engagement also involves evaluating the overall presentation of the pro forma financial information

(h) Opinion paragraph: Unless otherwise required by law or regulation, the practitioners opinion using one of the
following phrases, which are regarded as being equivalent:
(a) The pro forma financial information has been compiled, in all material respects, on the basis of the
[applicable criteria]; or
(b) The pro forma financial information has been properly compiled on the basis stated;
The relevant law or regulation in some jurisdictions may prescribe the wording of the practitioners
opinion in terms other than those specified above
(i) Signature;
(j) Date and Place

7. Infrastructure Debt Fund-Non-Banking Financial Company (IDF-NBFC)8: Infrastructure Debt Fund-Non-Banking Financial
Company or IDF-NBFC means a non-deposit taking NBFC:

1. that has Net Owned Fund of Rs 300 crores or more; and

2. which invests only in Public Private Partnerships (PPP) and post commencement operations date (COD) infrastructure
projects which have completed at least one year of satisfactory commercial operation and becomes a party to a Tripartite
Agreement

IDF-NBFC shall have at the minimum, a credit rating grade of 'A' of CRISIL or equivalent rating issued by other accredited rating
agencies such as FITCH, CARE and ICRA.

The IDF-NBFC shall have at the minimum CRAR of 15 percent.

Credit Concentration Norms:

8

RBI Circular May 14, 2015

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i. The maximum exposure that an IDF-NBFC can take on individual projects will be at 50 percent of its total Capital Funds;

ii. An additional exposure up to 10 percent could be taken at the discretion of the Board of the IDF-NBFC.

iii. RBI may, upon receipt of an application from an IDF-NBFC and on being satisfied that the financial position of the IDF-NBFC is
satisfactory, permit additional exposure up to 15 percent (over 60 percent) subject to such conditions as it may deem fit to impose
regarding additional prudential safeguards.

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