| New Companie sAct draft |
|
Mumbai, 9 September Auditors have to be compulsorily changed by a company at the end of two five- year terms, say the new rules. The five- year period for rotation in the case of an individual and 10- year period for afirm will be calculated retrospectively. Auditors fear this will impact smaller firms and they will be forced to consolidate, as they will not be able to attract new talent for auditing. Says N Venkatram, managing partner, audit, Deloitte, Haskins & Sells: " The increased demands on the audit profession and the churn in audit clients that is mandated will cause hardship for a few years. The retrospective application of rotation rules would necessarily result in increased cost and hardship to both companies and clients, and have the unintended consequence of harming audit quality." The new rules have given some breather in terms of reporting on fraud by auditors to the Union government. Auditors are required to report material fraud within 30 days to the government. Materiality shall mean frauds happening frequently or those where the amount involved or likely to be involved is not less than five per cent of net profit or two per cent of turnover of the company for the preceding financial year. Says Harinderjit Singh, partner, Price Waterhouse: " A mere allegation or suspicion will now have to be reported to the government. Professional guidance will need to be given to auditors." Also, the new Companies Act imposes severe penalties on auditors of companies for various issues such as non- filing of documents. It has also introduced the concept of class- action lawsuits. For negligence in their duties, auditors are liable to pay damages to the company or any other person for losses arising from incorrect statements in the audit report. Company auditors are clearly worried that this is going to impact the business of auditing for small and big firms. Says Shailesh Haribhakti, chairman, DH Consultants: "It's going to be very difficult for the auditing profession to attract, retain and deploy new talent, as the risks have gone up tremendously. Auditing will become more time- consuming and the costs will go up." Auditors fear the Act will also increase their workload considerably — they will have to go through a larger number of transactions and keep extensive details on many. Auditors also have to take indemnity insurance against third- party liabilities, likely to be highly expensive. Auditors fear only the larger firms will be able to afford higher insurance costs. The Act also mandates that an audit firm and all its partners are jointly liable for any fraudulent action of even asingle partner. Earlier only the partner in question had to face the consequences of negligence; with this new rule, an entire firm of auditors might have to down shutters for the errors of one partner. Says Singh: " It was always the individual who was signing the accounts. Now, with the concept of an entire firm being held responsible, the existence of the firm itself can be in jeopardy, without the relevant due process being defined." The auditor is now also required to report on whether the company has adequate internal financial controls system in place and the operating effectiveness of such controls. Says Venkatram: " It is necessary that the rules clearly lay down the processes that need to be followed by the management of companies to make this evaluation. Based on the US experience, this is likely to be an onerous responsibility on both management and auditors, which will be expensive to implement." RULES UNPLEASANT The Union government on Monday released draft norms for clauses of the new Companies Act that replaces a six decade- old legislation The bones of contention |Auditors will now have to face penalties ranging from ₹ 25,000 to ₹ 25 lakh for non- compliance on issues such as filing and reporting |Concept of class- action lawsuit introduced. Shareholders and depositors can claim damages and compensation from auditors for negligence |Auditors will not be able to provide allied services such as consultancy and management accounting systems to the companies they audit |Rotation of auditors is now mandatory. Auditors fear this will increasingly see a shift towards bigger players |A whistle- blower policy has been introduced where auditors will have to report any wrongdoings to the central government |Number of audits per partner has been restricted to 20, which crimps the earnings potential of an auditor How much it will cost |Auditors will now have to take indemnity insurance that will increase their costs, to which only the big firms will be able to adjust |Audit firms will have to increase the support staff to do a more rigorous checking of the accounts |Auditors are more likely to become conservative and ask for more details of expenses and statements from managements The new rules say auditors will have to take highly costly indemnity insurance against third- party liabilities, feasible only for large firms |
| Vikram Bakshi moves Company Law Board against McDonald's |
|
New Delhi, 9 September Vikram Bakshi, the estranged joint venture partner of US fast food chain McDonald's, approached the Company Law Board ( CLB) on Monday for his reinstatement as managing director of the joint venture company, Connaught Plaza Restaurants Pvt Ltd. In his plaint, Bakshi requested the CLB to break the ' deadlock' as the four- member board of the joint venture company is divided on whether or not to allowhimtocontinueasmanaging director. Bakshi also alleged that McDonald's was using pressure tactics to force him to sell his 50 per cent stake in the JV at acheap price. The joint venture company runs the franchise for the foods chain in the northern and eastern parts of India. Bakshi declined to comment on the issue. An email questionnaire to Mcdonald's Corporation, too, did not elicit any response at the time of going to press. A few years ago, the US company had offered to buy Bakshi's stake but was not ready to give him more than $ 10 million ( about ₹ 65 crore), which he refused. According to him, his 50 per cent stake in the venture was worth ₹ 200 crore. Sources close to the development said McDonald's, in its board meeting on August 6, raised various issues regarding Bakshi's running of the business. It was felt that with his other businesses, including hospitality and real estate growing rapidly, he was showing a lack of commitment and attention to the joint venture. The meeting decided that Bakshi's other businesses were in conflict with the joint venture business. The US chain also questioned some of Bakshi's financial dealings. According to sources, Bakshi will challenge these issues saying that he devotes enough time to the joint venture and that his other businesses are run by his daughters and wife and that they are wellestablished. Bakshi will also contend that McDonald's was aware of all his other businesses and did not object when the JV was formed. The US chain, in fact, had undertaken thorough due diligence before getting into the joint venture. Bakshi will also clarify that all key financial decisions were taken by the board and all deals were vetted by them. Sources said he will argue that the JV has forked out ₹ 193 crore as royalty payment to McDonald's, more than the value of the US company's stake in the venture. Sources added that under the Articles of Association of the JV, McDonald's is obligated to appoint him the managing director. McDonald's operates in India through two franchisees. Its outlets in the western and southern parts of the country are run by the BL- Jatia Grouppromoted Hardcastle Restaurants, which had bought over the 50 per cent stake of the US company a few years ago. Bakshi alleged that McDonald's is using pressure tactics to force him to sell his stake in a joint venture at a cheap price FILE PHOTO |
| The bill that was not passed |
|
headline said, it really "rained" Bills in Parliament this monsoon session. Several much- awaited game- changing laws on companies, food security, pensions and land acquisition were passed. The Street had a 50: 50 record. Two bills related to the functioning of the market regulator were introduced and one went through. Unfortunately for the Street, the one which did not go through was the Securities Laws ( Amendment) Bill, 2013. This was a crucial one that gave additional powers to the Securities and Exchange Board of India (Sebi), which it had been seeking for the better part of Chairman U K Sinha's tenure. The powers it sought to give Sebi included search and seizure, access to call records, power to recover sums due through attachment of assets and even arrest. The Bill also empowers the regulator with unambiguous jurisdiction over investment schemes, irrespective of form or composition. These powers were targeted at illegal but innovative financing schemes that tried to exploit grey areas in law. It also formalises the settlement mechanism, hitherto being executed by Sebi in the form of consent orders, with retrospective effect from April 2007. The Bill was brought to replace an ordinance promulgated by the President in July. Without a legislative nod, the fate of these new powers, though alive at the moment, hangs in the balance. According to constitutional provisions, an ordinance promulgated shall have the same force and effect as an Act of Parliament but every such ordinance "( a) shall be laid before both houses of Parliament and shall cease to operate at the expiration of six weeks from the reassembly of Parliament, or, if before the expiration of that period resolutions disapproving it are passed by both houses, upon the passing of the second of those resolutions; and ( b) may be withdrawn at any time by the President." The monsoon session began on August 5, 2013. The six- week period when the ordinance will cease to operate expires on September 16. While it is widely expected that a fresh ordinance will be brought to maintain status quo, that will not be a permanent solution. The new powers require Sebi to make structural changes, hire more people, draft rules and regulations and put in place a strong framework. Such uncertainty can put brakes on these efforts. More worrying is that this uncertainty is not accidental. It was not created because the Bill was stuck in traffic. The Bill did not go through the Lok Sabha because there was severe opposition from members of several parties including Samajwadi Party, Trinamool Congress and Bharatiya Janata Party. It has been well- documented that shadow banking activities such as illegal investment schemes and lending operations are a bane to the investing public, the exchequer, the legal/ regulated businesses and the economy as a whole. Yet, our parliamentarians are united across party lines to oppose the passage of a law that attacks these activities. There have also been demands that the Bill be referred to the standing committee on finance. Your guess on who they are ' batting' for is as good as mine. With the time left for elections shrinking, it is not clear if the government will have enough time and resolve to push it through. Some members are also particularly worried about the retrospective provisions on consent orders. Does that ring a bell? STREET FOOD NSUNDARESHA SUBRAMANIAN |
This mail and its attachments (if any) are confidential information intended for persons to whom the email is planned for delivery by the sender. If you have received this mail in error please notify the sender of the error by forwarding the email and its attachments (if any) and then deleting the mail received in error and the relevant email trail in this connection without making any copies or taking any prints.
__._,_.___
No comments:
Post a Comment