Auditors Now Need to Give Info on Companies Internal Financial Controls

New Delhi: Ushering in stronger disclosure requirements, the government has asked auditors to provide details about companies' internal financial controls as well as their effectiveness in annual statements.

The new provision is part of rules under new Companies Act, that seeks to strengthen corporate governance practices, among others.

"... for the financial years commencing on or after April 1, 2015, the report of the auditor shall state about existence of adequate internal financial controls system and its operating effectiveness," the Corporate Affairs Ministry has said.

For the current financial year (2014-15), this provision would be made voluntary for the auditor of a company.

This provision has been introduced by amending the Companies (Audit and Auditors) Rules, 2014, according to a communication from the Ministry on Tuesday.

The Corporate Affairs Ministry is implementing the new companies law, whose many provisions came into force from April 1.

Besides, corporates have been advised to give all disclosures relevant to consolidated financial statements while reporting the same rather than just repeating the disclosures made under stand-alone accounts that are being consolidated.

In this regard, the ministry issued a circular on Tuesday.

"... it is clarified that Schedule III to the Act read with the applicable Accounting Standards does not envisage that a company while preparing its CFS merely repeats the disclosures made by it under stand-alone accounts being consolidated."

"In the CFS, the company would need to give all disclosures relevant for CFS only," the circular said.

Meanwhile, the ministry has said that provisions of consolidated financial statement in the new companies law would not be applicable for the current fiscal on corporates that do not have any subsidiaries but have joint ventures, among others.

Amendments have been made to the Companies (Accounts) Rules, 2014 in this regard.

As per the ministry, the rule pertaining to consolidated financial statement would not be applicable on certain entities for the current financial year ending March 31, 2015.

This rule would not "apply for the financial year commencing from the April 1, 2014 and ending on the March 31, 2015, in case of a company which does not have a subsidiary or subsidiaries but has one or more associate companies or joint ventures or both, for the consolidation of financial statement in respect of associate companies or joint ventures or both, as the case may be".