Definitions under the Companies Act, 2013- SERIES I

Definitions under the Companies Act, 2013- SERIES I

The Ministry has notified Sec 2 which pertains to “Definitions” on 12.09.2013. There are about 95 definitions under the Companies Act, 2013, some of which have become effective from 01.04.2014. The Rules for certain definitions were published on 27.03.2014 and which will come in to force from the date of their publication in the official gazette as per the Companies (Specification of definitions details) Rules, 2014. This article aims to analyse certain important definitions under the companies act,2013. 

SECTION 2(6) -ASSOCIATE COMPANY:

Meaning: “Associate Company in relation to another company, means a company in which that other company has a significant influence, but which is not a subsidiary company of the company having such influence and includes a joint venture company.”

Explanation: For the purposes of this clause, “significant influence” means control of at least twenty per cent of total share capital, or of business decisions under an agreement;

The Term associate company was not defined under the earlier act. In the new act the Relevance and the impact of companies having associate company would be of high importance as the company having an associate have to comply by giving every details of the associate company also.

IMPACT/RELEVANCE OF  AN ASSOCIATE COMPANY :

SEC 2(76)(viii)- The Definition of Related Party includes “associate company” also.

Sec 188- Related Party Transactions- Under Section 188 of the Companies Act,2013,  if the company has an transaction with the associate company it needs to report on it.

SEC 92- Annual Return:  The Company needs to give the complete particulars of the associate company as detailed in the section in relation to shares, debentures, directors , KMP, remuneration of directors and KMP, the compliances and disclosures etc., The Company needs to file a return and also keep registers on the details mentioned above.

Sec 129(3)-Consolidation of Accounts: The Company needs to consolidate the accounts of associate companies as the definition of subsidiary includes associate company also as specified under the explanation given under the section.

Under Rule 8(1) of the Companies (Accounts) Rules, 2014: The Board’s Report shall be prepared based on the stand alone financial statements of the company and the report shall contain a separate section wherein a report on the performance and financial position of each of the subsidiaries, associates and joint venture companies included in the consolidated financial statement is presented.

In the Statement pursuant to Section 129 (3) of the Companies Act, 2013 relating to Associate Companies  and Joint Ventures , The following disclosures must be made:

a)       Name of Associates/Joint Ventures,

b)       Latest audited Balance Sheet Date,

c)       Number Shares of Associate/Joint Ventures held by the company on the year end ,

d)      Amount of Investment in Associates/Joint Venture ,

e)       Extend of Holding % ,

f)       Description of how there is significant influence,

g)       Reason why the associate/joint venture is not consolidated , 

h)      Networth attributable to Shareholding as per latest audited Balance Sheet ,

i)        Profit / Loss for the year, Considered in Consolidation, Not Considered in Consolidation ,

j)        Names of associates or joint ventures which are yet to commence operations ,

k)       Names of associates or joint ventures which have been liquidated or sold during the year.

Beginning to be an associate company for any company will add to further compliances and additional reporting on their transactions.

The Catch Word is “ASSOCIATE COMPANIES = ADDITIONAL COMPLIANCES & DISCLOSURES”.

SECTION 2(7) -AUDITING STANDARDS:

Meaning : “It means the standards of auditing or any addendum thereto for companies or class of companies referred to in sub-section (10) of section 143;”

Until any auditing standards are notified, any standard or standards of auditing specified by the ICAI (Institute of Chartered Accountants of India) shall be deemed to be auditing standard.

Even though the duty to comply with the auditing standards rest with the auditor, the Company Secretaries also needs to understand the implications of the auditing standard which might be applicable to any company.

AUDITING STANDARDS WHICH MAY BE OF RELEVANCE:

The SA 240 (AAS 4) : “ The Auditor’s Responsibility to Consider Fraud and Error in an Audit of Financial Statements” .

SA 250 (AAS 21): Consideration of Laws and Regulations in an Audit of Financial Statements.

SA 260(AAS 27): Communications of Audit Matters with Those Charged with Governance.

SA 550 (AAS 23): Related Parties.

SA 700 (AAS 28): The Auditor’s Report on Financial Statements.

Under  the provisions of sec 143 (12) of the Companies Act,2013 and Rule 13 of Companies (Audit and Auditors) Rules,2014 with regard to reporting of frauds by auditor, the power and duties of auditor specified under this section is also applicable to the company secretary, the Section also mandates such auditors to comply with the auditing standards. Therefore, the duty is also cast on a Secretarial Auditor who should conduct the audit with reasonable diligence and care and as per the Auditing Standards prescribed by ICAI & as per the Secretarial Standards prescribed by ICSI from time to time.

The Catch word is “AUDITING STANDARDS = MORE ADVISORY STANDARDS AND MORE RESPONSIBILITY STANDARDS”

A =           Accounting & Auditing Standards

C =          Cost Accounting Standards

S  =          Secretarial Standards

                          

These are my personal views and interpretation on the above subject matter. however, professional or other readers views are solicited.

DEFINITIONS SERIES To BE CONTINUED……

-M.SUNDAR A.C.S