By Gaurav Pingle, Practising Company Secretary Presentation at Navi - PowerPoint PPT Presentation

PRESENTATION AT NAVI MUMBAI CHAPTER OF ICSI ON Analysis of SEBI’s Working Group Report Analysis of MCA’s Report on proposed amendments – Audit Highlights of the Cos. (Amendment) Act, 2019 By Gaurav Pingle, Practising Company Secretary

Presentation at Navi Mumbai Chapter (ICSI) February 16, 2020 By Gaurav Pingle, Company Secretary AGENDA FOR TODAY’S DISCUSSION 2 Analysis of SEBI's Working Report on RPTs Analysis of MCA’s Consultation Paper to examine existing provisions of law & make suitable amendments to enhance Audit Independence & Accountability Key amendments in the Cos. (Amendment) Act, 2019 Key Recommendations of Co. Law Committee (2019)

Presentation at Navi Mumbai Chapter (ICSI) February 16, 2020 By Gaurav Pingle, Company Secretary 3 Analysis of SEBI’s Working Report on RPTs

Presentation at Navi Mumbai Chapter (ICSI) February 16, 2020 By Gaurav Pingle, Company Secretary 4 BACKGROUND OF THE WORKING GROUP REPORT ON RELATED PARTY TRANSACTIONS • Facts of the case – ITC Vs SEBI [SAT order dated Sep. 26, 2019] • Nature of transactions involved • SAT’s Observations • SAT’s Conclusion • Reference to the SAT order.

Presentation at Navi Mumbai Chapter (ICSI) February 16, 2020 By Gaurav Pingle, Company Secretary 5 ANALYSIS OF SEBI’S WORKING REPORT ON RPT • Proposed amendments to definition of ‘Related Party’ • Proposed amendments to definition of ‘Related Party Transactions’ • Materiality threshold • Audit Committee Approval • Shareholders Approval • Exemptions • Disclosures. Reference to SEBI’s Working Report on RPT

Presentation at Navi Mumbai Chapter (ICSI) February 16, 2020 By Gaurav Pingle, Company Secretary 6 Analysis of MCA’s Consultation Paper to examine existing provisions of law & make suitable amendments to enhance Audit Independence & Accountability

Presentation at Navi Mumbai Chapter (ICSI) February 16, 2020 By Gaurav Pingle, Company Secretary IMPORTANT POINTS OF THE MCA’s 7 CONSULTATION PAPER • Self-interest Threat • Self-review • Advocacy Threat • Familiarity Threat • Intimidation Threat

Presentation at Navi Mumbai Chapter (ICSI) February 16, 2020 By Gaurav Pingle, Company Secretary 8 Suggestions to overcome the said situations which worsened independence of the Auditors TO REMOVE THE SELF – INTEREST THREAT: • Prohibition of providing non-audit services; • Fees based on reasonable estimates of time & expertise reqd.; • Stringent independence guidelines and monitoring by firms; • Disclosure of previous business relationship with Co. in Audit Report; • Legislative restrictions on auditors regarding independence

Presentation at Navi Mumbai Chapter (ICSI) February 16, 2020 By Gaurav Pingle, Company Secretary 9 … Suggestions to overcome the said situations which worsened independence of the Auditors TO REMOVE THE SELF-REVIEW THREAT: • Stringent quality review procedures within firms; • Prohibition of retired partners joining clients within cooling period; • Confidentiality of information; • Prohibition of personal relationships with clients; • Prohibition of providing certain assurance engagements for client

Presentation at Navi Mumbai Chapter (ICSI) February 16, 2020 By Gaurav Pingle, Company Secretary 10 … Suggestions to overcome the said situations which worsened independence of the Auditors TO REMOVE THE ADVOCACY THREAT: • Prohibition of business relationships; • Strict rules on promoting clients; • Rotation of audit partners

Presentation at Navi Mumbai Chapter (ICSI) February 16, 2020 By Gaurav Pingle, Company Secretary 11 … Suggestions to overcome the said situations which worsened independence of the Auditors TO REMOVE THE FAMILIARITY THREAT: • Restriction of personal relationships; • Rotation of audit partners and possibly senior auditors; • Disclosure of commission and other relationships. TO REMOVE THE INTIMIDATION THREAT: • Appointment of auditors by external authorities like CAG of India.

Presentation at Navi Mumbai Chapter (ICSI) February 16, 2020 By Gaurav Pingle, Company Secretary 12 MCA has observed foll. further points which require thorough examination & proper inclusion in existing law • Economic Concentration of audit [Big 4] – beneficent and maleficent effect on economy • Non-audit services not to be taken by auditors • Joint Audit – should it be made mandatory for bigger companies? • Mandatory comment of Holding Company’s auditor on account of subsidiary companies? • Methodology for creation and maintenance of proposed panel of auditors – CAG/RBI/NFRA

Presentation at Navi Mumbai Chapter (ICSI) February 16, 2020 By Gaurav Pingle, Company Secretary 13 MCA has observed foll. further points which require thorough examination & proper inclusion in existing law • Audit Engagement letter – where mandated and assessment of its utility and mis-use • Utilisation of Borrowed funds – Concurrent Audit? • Restriction on number of audit firms a group [Big 4] can have in whole of India. • Disclosure / requirement on Probability of default? – On the lines of Credit Rating Agencies

Presentation at Navi Mumbai Chapter (ICSI) February 16, 2020 By Gaurav Pingle, Company Secretary 14 MCA has observed foll. further points which require thorough examination & proper inclusion in existing law • Unlisted Co. whose parent company is a listed company will also require submitting quarterly returns to SEBI • Development of a ‘Composite Audit Quality Index’ to improve accountability of auditors and audit firms • Strengthening Deterrence of conducting improper audits by inspection of audit engagements • Resignation of auditors

Presentation at Navi Mumbai Chapter (ICSI) February 16, 2020 By Gaurav Pingle, Company Secretary 15 Analysis of Companies (Amendment) Act, 2019 & Key Recommendations of Company Law Committee Report (2019)

Presentation at Navi Mumbai Chapter (ICSI) February 16, 2020 By Gaurav Pingle, Company Secretary 16 EXTRACT OF STATEMENT OF OBJECTS & REASONS OF COMPANIES (AMENDMENT) BILL, 2019 The recommendations made by the Committee were examined by the Government and it was noted that the changes in the Companies Act, 2013 suggested by the said Committee would fill critical gaps in the corporate governance and compliance framework as enshrined in the said Act while simultaneously extending greater ease of doing business to law abiding corporates . Accordingly, it was proposed to amend certain provisions of the Companies Act, 2013. However, in view of the urgency, the Companies (Amendment) Ordinance, 2018 was promulgated on November 2, 2018. To replace the aforesaid Ordinance, a Bill, namely, the Companies (Amendment) Bill, 2018 was introduced in the Lok Sabha and passed in the said House on January 4, 2019. However, the said Bill could not be taken up for consideration in the Rajya Sabha.

Presentation at Navi Mumbai Chapter (ICSI) February 16, 2020 By Gaurav Pingle, Company Secretary 17 EXTRACT OF STATEMENT OF OBJECTS & REASONS OF COMPANIES (AMENDMENT) BILL, 2019 …. It is now proposed to bring the Companies (Amendment) Bill, 2019 to replace the Companies (Amendment) Second Ordinance, 2019 with certain other amendments which are considered necessary to ensure more accountability and better enforcement to strengthen the corporate governance norms and compliance management in corporate sector.

Presentation at Navi Mumbai Chapter (ICSI) February 16, 2020 By Gaurav Pingle, Company Secretary 18 COS. (AMENDMENT) ACT, 2019 Cos. Few more Cos. (Amendment) amendments (Amendment) Ordinance, introduced in Bill, 2019 2019 Bill

Presentation at Navi Mumbai Chapter (ICSI) February 16, 2020 By Gaurav Pingle, Company Secretary 19 KEY PROVISIONS OF COS. (AMENDMENT) ACT, 2019 (NOT PART OF COS. (AMENDMENT) ORDINANCE, 2019) • ‘Registration of Prospectus’ being changed to ‘mere Filing or Prospectus’ with ROC • De-mat of shares of Unlisted Public Company • De-mat of shares of Private Companies? • Now, it is the responsibility of Co. to identify individual who is SBO & require him to comply with provisions • CG can issue directions for provisions relating to SBO

Presentation at Navi Mumbai Chapter (ICSI) February 16, 2020 By Gaurav Pingle, Company Secretary 20 KEY PROVISIONS OF COS. (AMENDMENT) ACT, 2019 (NOT PART OF COS. (AMENDMENT) ORDINANCE, 2019) • Treatment of unspent amount of CSR, • Provision for bail by special courts in case of SFIO • Declaration by NCLT of a person ‘not fit or proper’ for being director or officer of Co. & his removal

Presentation at Navi Mumbai Chapter (ICSI) February 16, 2020 By Gaurav Pingle, Company Secretary 21 KEY PROVISIONS OF COS. (AMENDMENT) ACT, 2019 (PART OF COS. (AMENDMENT) ORDINANCE, 2019) ‘Penalty’ by Registrar ‘Fine’ or of Companies or Regional Director . ‘Imprisonment’ for under offences Adjudication Process. under Cos. Act, 2013 Parameters for ‘Penalty’