LATEST AMENDMENTS IN THE COMPANIES ACT 2013 INCLUDING

LATEST AMENDMENTS IN THE COMPANIES ACT, 2013 INCLUDING RELATING TO COVID -19 Presentation By CA Anil Sharma

OVERVIEW • Deferment of CARO, 2020. • Special measures in view of COVID-19. • CSR related amendments. • Company Fresh Start Scheme, 2020. • LLP Settlement Scheme, 2020 as modified. • Announcements by FM on 17/4/2020 relating to the Companies Act. • New Form SPICEe+ and Easy of Doing Business. 2

CARO, 2020 • The Companies (Auditor's Report) Order, 2020 shall be made applicable from the financial year 2 O 2 O-2 O 21 instead of being applicable from the financial year 2019 -2020 notified earlier. 3

Special measures in view of COVID-19 outbreak • Filing of various forms under MCA 21 • Board meetings • General meetings • Appointment of independent directors 4

Filing of various forms under MCA 21 • GC 11/2020 dated 24/3/2020. • No additional fees shall be charged for late filing during a moratorium period from 01 sr April to 30 th September 2020, in respect of any document, return, statement etc. , required to be filed in the MCA-21 Registry, irrespective of its due date. • GC 16 dated 13/4/2020 • Extension without additional fee shall also be applicable to various IEPF e-forms, including for verification of claim IIEPF 5) required to be filed under section 124 and a 25 of the CA, 2013. 5

GC 11/2020 dated 24/3/2020 • 2. Requirement under section 73(2)(c) of CA-13 to create the deposit repayment reserve of 20% of deposits maturing during the financial year 2020 -21 before 30 th April 2020 shall be allowed to be complied with till 30 th June 2020. • 3. Requirement under rule 18 of the Companies (Share Capital & Debentures) Rules, 2014 to invest or deposit at least 15% of amount of debentures maturing in specified methods of investments or deposits before 30 th April 2020, may be complied with till 30 th June 2020. 6

GC 11/2020 dated 24/3/2020 • 4. As per Para Vll (1) of Schedule l. V to the CA-13, independent Directors (l. Ds) are required to hold at least one meeting without the attendance of Non –independent directors and members of management. For the financial year 2019 -20, if the l. Ds of a company have not been able to hold such a meeting, the same shall not be viewed as a violation. The l. Ds, however, may share their views amongst themselves through telephone or e-mail or any other mode of communication, if they deem it to be necessary. • 5. Non-compliance of minimum residency in India for a period of at least 182 days by at least one director of every company, under Section 149 of the CA-13 shall not be treated as a non-compliance for the financial year 2019 -20. 7

GC 11/2020 dated 24/3/2020 • 6. Newly incorporated companies are required to file a declaration for Commencement of Business within '180 days of incorporation under section 10 A of the CA-13. An additional period of 180 more days is being allowed for this compliance. 8

Availability of name • Names expiring any day between 15 th March 2020 to 31 st May would be extended by 60 days beyond 31 st May 2020. • Names reserved for 90 days for new LLP incorporation/change of name. • Fi. LLi. P/Form 5 needs to be filed within 90 days of name reservation. 9

Board meetings • GC 11/2020 dated 24/3/2020 • The mandatory requirement of holding meetings of the Board of the companies within the intervals provided in section 173 of the Companies Act, 2013 (120 days) stands extended by a period of 60 days till next two quarters i. e. , till 30 th September. • Accordingly, as a one time relaxation the gap between two consecutive meetings of the Board may extend to 180 days till the next two quarters, instead of 120 days. 10

Amendment in Rule 4: matters which shall not be dealt with in a meeting through video conferencing or other visual means (i) the approval of the annual financial statements; (ii) the approval of the Board’s report; (iii) the approval of the prospectus; (iv) the Audit Committee Meetings for consideration of financial statement including CFS, if any to be approved by the Board under Sec 134(1); and • (v) the approval of the matter relating to amalgamation, merger, demerger, acquisition and takeover. • • • The Rule has been amended to allow these matters also to be dealt with in a meeting through VC or other visual means during the period from 19 th March, 2020 to 30 th June, 2020. 11

General Meetings • General circular No 14 dated 8. 4. 2020 and 17 dated 13. 4. 2020: • The companies can hold EGM through VC and OVAM only if considered unavoidable subject to the certain conditions including: • • • Two way teleconference facility is available, Different time zone to be kept in mind while fixing the time, Recorded transcript to be kept in safe custody, Facility of remote e-voting to be made available, One independent director and auditor or his representative to attend and Resolution passed to be filed with ROC within 60 days. • General Circular No. 18 dated 21. 04. 2020: • The companies whose financial year ended on 31 st December, 2019, have been allowed to hold their AGM by 30 th September, 2020. • General Circular No. 20 dated 5. 5. 2020: • the companies are allowed to conduct their AGM through video conferencing or other audio visual means (OAVM), during the calendar year 2020, subject to the fulfillment of the certain requirements. 12

Notices for General Meetings • General Circular Nos. 14 dated 8. 4. 2020 and 17 dated 13. 4. 2020 and 20 dated 5. 5. 2020 • Manner and mode of issue of notice to the members before convening the general meetings (both EGM and AGM): • • By e-mail, Public notice/displace on website of the company Chairman to ensure that voting by show of hand is possible E-voting facility has to be ensured. • General Circular no 21 dated 11. 5. 2020 • Rights issues opening up to 31 st July, 2020, in case of listed companies, inability to dispatch the notice to their shareholders through registered post or speed post or courier would not be viewed as violation of section 62(2) of the Act. 13

Appointment of independent directors • A director who has been appointed as an independent director in a company, on shall within a period of three months from such commencement (i. e. 22/10/2019); or shall apply online to the institute (IICA) for inclusion of his name in the data bank for a period of one year or five years or for his life-time. • The above rule in Companies (Appointment and Qualification of Directors) Rules, 2019 has been amended • First on 28/2/2020 to extend the period from 3 months to five months and • Second on 29/4/2020 to make is 7 months from 5 months earlier. 14

GC 10 dt. 23/3/2020 - Spending CSR funds for COVID-19 15

GC 15 dt. 10/4/2020 COVID-19 related FAQs on CSR • Contributions to PM CARES Fund, State Relief Fund for COVID-19 and State Disaster Management Authority shall be qualified to be a CSR expenditure. • Payment of salaries/wages to employees and workers including contract labour and casual workers/daily wagers during the lock down period shall qualify as an admissible CSR expense. • However, one time ex-gratia payment to temporary/casual workers during lock down period, over and over their salaries/wages shall be admissible as an CSR expense. 16

Notification dt. 26/5/2020 - Amendment in Schedule- VII • 1. In Schedule VII, item (viii), after the words “Prime Minister’s National Relief Fund”, the words “or Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund)” shall be inserted. • 2. This notification shall be deemed to have come into force on 28 th March, 2020. 17

Company Fresh Start Scheme, 2020 • General Circular No. 12/2020 dated 30/03/2020. • Central Government introduced Companies Fresh Start Scheme, 2020 (CFSS-2020). The scheme shall come into force on the 01. 04. 2020 and shall remain in force till 30. 09. 2020 • The Scheme provides for condoning the delay in filing the specified documents ( the Annual Return and Financial Statements and various other statements, documents, returns, etc )with the Registrar, insofar as it relates to charging of additional fees, and granting of immunity from launching of prosecution or proceedings for imposing penalty on account of delay associated with certain filings. 18

CFSS, 2020 • Only normal fees for filing of documents in the MCA-21 registry will be payable in such ease during the currency of CMS-2020 as per the provisions of section 403 read with Companies Registration Offices and Feel Rules, 2014 and section 460 of the Act. • the scheme gives an opportunity to inactive companies to get their companies declared as ‘dormant company’ under section 455 of the Act by filing a simple application at a normal fee. The said provision enables inactive companies to remain on the register of the companies with minimal compliance requirements. • Immunity from the launch of prosecution or proceedings for imposing penalty shall be provided only to the extent such prosecution or the proceedings for Imposing penalty under the Act pertain to any delay associated with the filings of belated documents. 19

CFSS, 2020 - Exceptions • This Scheme is shall not apply: • To companies against which action for final notice for striking off the name u/s 248 of the Act has already been initiated by the Designated authority, • Where any application has already been filed by the companies for action of striking off the name of the company from the reister of companies, • To companies which have amalgamated under a scheme of arrangement or compromise under the Act, • Where application have already been filed for obtaining dormant status under section 455 of the Act before this Scheme, • To vanishing companies, • Where any increase in authorised capital is involved (Form SH-7) and charge related documents (CHG-1, CHG-4, CHG-8 and CHG-9). 20

CFSS, 2020 –Immunity from prosecution • This immunity shall not be applicable in the matter of any appeal pending before the court of law and in case of management disputes of the company pending before any court of law or tribunal. • No immunity shall be provided in case any court has ordered conviction in any matter or order imposing penalty has been passed by the adjudication authority under the Act and no appeal has been preferred against such orders before this Scheme has come into force. • After granting the immunity, the Designated Authority concerned shall withdraw the prosecution pending, if any, before the concerned court and the proceedings of adjudication of penalties under section 454 of the Act in respect of defaults against which immunity has been so granted shall be deemed to have been completed without any further action on the part of the Designated Authority. 21

FAQs on CFSS, 2020 • Qes. Is the CFSS 2020 applicable on foreign company? Will the forms FC-1, FC-2 and FC-3 be covered under the scheme? • Ans: Yes. • Qes. Can Deactivated director activated through this scheme? • Ans: Yes. He can file DIR-3 KYC eform/Web form and INC-22 A (Active) as applicable without any payment of fee provided such director is not disqualified under section 164 of the CA 2013. • Qes: Whether CFSS scheme is applicable for the companies which have been automatically struck off due to non-filing of annual documents i. e. Annual Returns? • Ans: The struck off companies have to approach the NCLT for reviving their companies first and a copy order of NCLT approving for such revival under section 252 of the CA 2013 to be filed in Form NO. INC-28. Later on they can take the benefit of this scheme. 22

FAQs on CFSS, 2020 • Qes. If the Company is in Active mode, but the directors’ DINs are deactivated, what should we do? • Ans: Deactivated DINs for not filing the DIR-3 KYC can be activated by filing it now without the fee of INR 5000 during the currency of the CFSS, 2020 provided such director is not disqualified under section 164 of the CA 2013. • Qes: A Company was not able to file Satisfaction of charge in CHG 4 as the DIN of the director was deactivated. Now with this scheme can the company first update its returns, get the din activated and then file CHG 4 under this scheme even though there is a delay of 1 year? • Ans: Deactivated DIN can be reactivated by filing DIR-3 KYC now without payment of INR 5000. Filing of CHG-4 towards satisfaction of charges beyond 300 days is NOT permissible, however for delay in filing satisfaction of charges, form no. CHG-8 may be filed and the power for such Condonation of delay (satisfaction) is vested with Regional Director(s). 23

Various Forms covered under CFSS, 2020 • Under the Companies Act, 1956: • Form 20 B, 21 A, 23 B, 23 C, 23 D, 23 ACXBRL, 66, I-XBRL, A-XBRL, • Under the Companies Act, 2013: • • INC-4, INC-5, INC-6, INC-12, INC-20 A, INC-22, INC 22(ACTIVE) INC-27, INC-28, PAS-3, SH-11, DPT-3, DPT-4, MGT-6, MGT-7, MGT-10, MGT-14, MGT-15, AOC-4(CFS), AOC-4(XBRL), AOC-4(NBFC)(IND-AS), AOC-4 CFS(NBFC)(IND-AS), AOC-5, ADT-I, ADT-2, ADT-3, DIR-3 C, DIR-3 KYC WEB, DIR-11, DIR-12, MR-1, MR-2, FC-1, FC-2, FC-3, FC-4, NDH-1, NDH-2, NHD-3, NDH-4, MSC-1, MCS-3, CRA-2, CRA-4, BEN-2, GNL-3, IEPF-2, IEPF-3, IEPF-4, IEPF-5, IEPF-6 and IEPF-7. 24

LLP Settlement Scheme, 2020 • Government has introduced the LLP Settlement Scheme, 2020. • 1. GC 6/2020 dated 4/3/2020 (“Old Scheme”) (effective from 16 th March, 2020 to 31 st March, 2020); & • 2. GC 13/2020 dated (“Modified Scheme”) (effective from 01 st April, 2020 to 30 th September, 2020). • The purpose of both these schemes is to reduce the compliance burden on the LLPs which have defaulted in filing of any of the statutory forms with the Registrar by allowing a One-time condonation of delay in filing statutorily required documents with the Registrar. 25

LLP Settlement Scheme, 2020 • Any “defaulting LLP- is permitted to tile belated documents, which were due for filing till 31 August, 2020 in accordance with the provisions of this Scheme. • no additional fees shall be payable for filing any belated documents under this scheme. • The defaulting LLPs, which have filed their belated documents till 30 September, 2020 and made good the default, shall not be subjected to prosecution by the Registrar for such defaults. • This Scheme shall not apply to LLPs which have made applications in Form 24 to the Registrar, for striking off their name from the register as per provisions of Rule 37(1) of the LLP Rules, 2009. ” 26

Various Forms covered under LLP, 2020 • • • FORM-3 FORM-4 FORM-5 FORM-8 FORM-11 FORM-12 FORM-15 FORM-22 FORM-23 FORM-27 FORM-29 FORM-31 27

Announcements made by FM on 17/4/2020 • Announcing measures under the fifth and final tranche of the Rs 20 lakh crore stimulus package for the economy hit hard by the coronavirus pandemic, the finance minister also said an Ordinance would be promulgated to amend the Act for: • 1 violations involving minor technical and procedural defaults, including shortcoming in CSR reporting, inadequacies in board report, filing defaults and delay in holding AGM, would be decriminalised. • Majority of the compoundable offences sections would be shifted to internal adjudication mechanism. Besides, powers of a regional director for compounding various offences would be enhanced. As many as 58 Sections under the Act would be dealt with under the mechanism compared to 18 earlier. Also, seven compoundable offences would be dropped altogether and five would be dealt under the alternative framework. 28

Announcements made by FM on 17/4/2020 • Indian companies would be allowed direct listing of their securities in permissible foreign jurisdictions. Private companies that list their non -convertible debentures (NCDs) on stock exchanges would notbe regarded as listed companies. • Creation of additional or specialised benches for NCLAT (National Company Law Appellate Tribunal). • Lower penalties for all defaults for small companies, one person companies, producer companies and start-ups. These changes are part of the amendment Bill pending before Parliament. 29

New Form SPICEe+ and Ease of Doing Business • New Web Form christened ‘SPICe+’ (pronounced ‘SPICe Plus’) replacing the existing SPICe form w. e. f. 23 rd February 2020. • SPICe+ would offer ten services by three Central Govt Ministries & Departments (Ministry of Corporate Affairs, Ministry of Labour & Department of Revenue in the Ministry of Finance) and One State Government(Maharashtra), thereby saving as many procedures, time and cost for Starting a Business in India. • SPICe+ would have two parts viz. : • Part A-for Name reservation for new companies and • Part B offering a bouquet of services viz. • • • (i) Incorporation (ii) DIN allotment (iii) Mandatory issue of PAN (iv) Mandatory issue of TAN (v) Mandatory issue of EPFO registration (vi) Mandatory issue of ESIC registration (vii) Mandatory issue of Profession Tax registration(Maharashtra) (viii) Mandatory Opening of Bank Account for the Company and (ix) Allotment of GSTIN (if so applied for) 30

New Form SPICEe+ • From 23 rd February 2020 onwards, RUN service would be applicable only for ‘change of name’ of an existing company. • 8. The new web form would Facilitate On-screen filing and real time data validation for seamless incorporation of companies. • 9. The approved name and related incorporation details as submitted in Part A, would be automatically Pre-filled in all linked forms also viz. , AGILE-PRO, e. Mo. A, e. Ao. A, URC-1, INC-9 (as applicable). 31

ACCOUNTING AND AUDITING ISSUES RELATING TO COVID-19 Presentation By CA Anil Sharma

Accounting issues relating to COVID-19 • Inventory Measurement (Ind AS 2 and AS 2) • Impairment of Non-Financial Assets (Ind AS 36 and AS 28) • Leases (Ind AS 116 and AS 19) • Borrowing Cost (Ind AS 23 and AS 16 ) • Revenue (Ind AS 115 and AS 9) • Provisions, Contingent Liabilities and Contingent Assets (Ind AS 37 and AS 29) • Going Concern Assessment (Ind AS 1 & 10 and AS 1 & 4 ) 33

Inventory Measurement (Ind AS 2 and AS 2) • According to the above standards, it might be necessary to write down inventories to net realisable value due to reduced movement in inventory, decline in selling prices, or inventory obsolescence due to lower than expected sales. 34

Impairment of Non-Financial Assets (Ind AS 36 and AS 28) • Due to COVID-19, there might be temporary ceasing of operations or an immediate decline in demand or prices resulting in lowering of revenues and profitability and reduced economic activity. • Contraction in economic activity due to the outbreak of COVID-19 is considered to be an impairment indicator at the reporting date. • The assumptions used to determine discount rate to measure the recoverable amount require any adjustments. • The forecasts or budgets for future cash flows prepared by management should be updated to reflect the impact of COVID-19. • The management may consider the above indicators that may require impairment testing for the purpose of Ind AS 36 and AS 28. 35

Goodwill Impairment (Ind AS 36 and AS 28) • The standard requires that goodwill being tested for impairment at a level that reflects the way an entity manages its operations and with which the goodwill would naturally be associated. • Due to COVID-19, there might be significant changes with an adverse effect in operations of a cash generating unit to which goodwill is allocated and therefore requiring additional focus and attention while testing of impairment of goodwill as at March 31, 2020. 36

Leases (Ind AS 116 and AS 19) • Due to COVID-19 there can be changes in the terms of lease arrangements or lessor may give some concession to the lessee with regard to lease payments. Such revised terms or concessions shall be considered while accounting for leases. • Discount rate used to determine present value of minimum lease payments of new leases may need to incorporate any risk associated with COVID-19. • Entities will need to determine whether as a result of COVID-19, any lease arrangement has become onerous. 37

Borrowing Cost (Ind AS 23 and AS 16 ) • Above standards require that the capitalisation of interest is suspended when development of an asset is suspended. The management may consider this aspect while evaluating the impact of COVID-19. 38

Revenue (Ind AS 115 and AS 9) • Due to COVID-19, there could be likely increase in sales returns, decrease in volume discounts, higher price discounts etc. Under Ind AS 115, these factors need to be considered in estimating the amount of revenue to recognised, i. e. , measurement of variable consideration. • Entities to whom AS is applicable, may have postponed recognition of revenue due to significant uncertainty of collection in view of the impact of COVID-19. AS 9, Revenue Recognition requires entities to disclose the circumstances in which revenue recognition has been postponed pending the resolution of significant uncertainties. 39

Revenue (Ind AS 115 and AS 9) • As a result of COVID -19, some contracts may become onerous for reasons such as increase in cost of material/labour, etc. Management should consider whether any of its contracts have become onerous. The same should be accounted for as per Ind AS 37. • As a result of COVID -19, some contracts may become onerous for reasons such as the imposition of penalty due to delay in supply of goods or increase in cost of material, labour, etc. Management should consider whether any of its contracts have become onerous. The same should be accounted for as per AS 29. 40

Going Concern Assessment (Ind AS 1 & 10 and AS 1 & 4) • Management of the entity should assess the impact of COVID-19 and the measures taken on its ability to continue as a going concern. • The impact of COVID- 19 after the reporting date should also be considered and if, management after the reporting date either intends to liquidate the entity or to cease trading, or has No realistic alternative but to do so, the financial statements should not be prepared on going concern basis. 41

SEBI Circular dated 22. 5. 2020 - rationale for higher disclosure of information While such a lockdown and disruption is unforeseen and beyond the control of the entities such events can lead to distortions in the market due to the gaps in information available about the operations of a listed entity. Hence, it is important for a listed entity to ensure that all available information about the impact of these events on the company and its operations is communicated in a timely and cogent manner to its investors and stakeholders. 42

SEBI Circular dated 22. 5. 2020 43

SEBI Circular dated 22. 5. 2020 Additionally, while submitting financial statement under Regulation 33 of the LODR, listed entities may specify/include the impact of COVD-19 pandemic on their financial statements, to the extent possible. For example, details of impact of COVID 19 on listed entity’s: • capital and financial resources • Profitability • Liquidity position • Ability to service debt and other financial arrangements • Assets • Internal financial reporting and control • The above list is illustrative and not exhaustive. Further to have continuous information on impact of COVID 19 on operations, the listed entities may provide periodical updates as and when there is material development. 44

Auditing Issues Relating to COVID-19 • Given there are increasing restrictions on travel, meetings and access to client locations, auditors would be facing practical difficulties in carrying out audits. • These underlying situations, however, must not undermine delivery of high quality audits. Audits should continue to be planned and performed in compliance with the auditing standards. To enable the auditors to perform audits additional time may be required and alternate audit procedures may need to be performed in order to obtain sufficient appropriate audit evidence. • Issues requiring special attention of auditors: • • • Going Concern. Physical verification of Inventory. Subsequent Event. External Confirmations Accounting Estimates. 45

Going Concern • In compliance with SA 570 (Revised), the auditor's responsibilities are: • to obtain sufficient appropriate audit evidence regarding, and conclude on, the appropriateness of management's use of the going concern basis of accounting in the preparation of the financial statements, and • to conclude, based on the audit evidence obtained, whether a material uncertainty exists about the entity's ability to continue as a going concern. 46

Physical Verification of Inventory • SA 501, The auditor must plan procedures depending on the underlying circumstances wherein the inventory count date could be advanced prior to the year- end or deferred to a date after the yearend. • If attendance at physical inventory counting is impracticable, the auditor shall perform alternative audit procedures to obtain sufficient appropriate audit evidence regarding the existence and condition of inventory. 47

External Confirmations • SA 505, External Confirmations provides guidance regarding the process of seeking external confirmations and evaluating the results of the process. Due to the impact of COVID-19 it is more likely that this key audit procedure which provides significant independent audit evidence may be ineffective due to the inadequate responses or nonresponses to the confirmation request sent out. • If the auditor identifies factors that give rise to doubts about the reliability of the response to a confirmation request, the auditor shall obtain further audit evidence to resolve those doubts. 48

Subsequent Events • In terms of SA 560, the auditor shall perform audit procedures designed to obtain sufficient appropriate audit evidence that all events occurring between the date of the financial statements and the date of the auditor's report that require adjustment of, or disclosure in, the financial statements have been identified. 49

Accounting Estimates • the auditor should use procedures as prescribed by SA 540, Auditing Accounting Estimates, Including Fair Value Accounting Estimates and Related Disclosures to check whether they as recognised or disclosed in the financial statements, are reasonable and adequate. • The above procedures include how management has assessed the effect of estimation uncertainty or the risk assessment and audit evidence supporting these accounting estimates and related disclosures that may be affected by the impact of COVID-19 on the business of the entity and the economic environment. 50

Audit Reporting • the auditor may conclude on the following: • Modification to the auditor’s opinion due to material misstatements or an inability to obtain sufficient appropriate audit evidence [SA 705(Revised)]. • Inclusion of a ‘Material Uncertainty Related to Going Concern’ section in the auditor’s report [SA 570(Revised), Going Concern]. • Inclusion of an Emphasis of Matter paragraph and/or Other Matter paragraph in the auditor’s report [SA 706(Revised), Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report]. • Inclusion of key audit matters in the auditor’s report [SA 701, Communicating Key Audit Matters in the Independent Auditor’s Report]. 51

Example 1: Opinion Basis for Qualified Opinion We draw attention to Note XX in the financial statements, which indicates that the Company incurred a net loss of ZZZ during the year ended March 31, 20 XX and, as of that date, the Company’s current liabilities exceeded its total assets by YYY. As stated in Note 6, these events or conditions, along with other matters as set forth in Note XX, indicate that a material uncertainty exists that may cast significant doubt on the Company’s ability to continue as a going concern. The financial statements do not adequately disclose this. 52

Example 2: Opinion Basis for Qualified Opinion As discussed in Note YY, the Company’s financing arrangements expire and amounts outstanding are payable on April 30, 20 XX. The Company has been unable to conclude renegotiations or obtain replacement financing. This situation indicates that a material uncertainty exists that may cast significant doubt on the Company’s ability to continue as a going concern. The financial statements do not adequately disclose this matter. 53

Example 3: Opinion Basis for Adverse Opinion The entity’s financing arrangements expired and the amount outstanding was payable on March 31, 20 XX. The entity has been unable to conclude re-negotiations or obtain replacement financing and is considering filing for bankruptcy. This situation indicates that a material uncertainty exists that may cast significant doubt on the Company’s ability to continue as a going concern. The financial statements do not adequately disclose this fact. 54

Example 4: Opinion Basis for Disclaimer of Opinion The Group’s investment in its joint venture XYZ Company is carried at Rs. xxx on the Group’s consolidated balance sheet, which represents over 90% of the Group’s net assets as at March 31, 20 XX. We were not allowed access to the management and the auditors of XYZ Company, including XYZ Company’s auditors’ audit documentation. As a result, we were unable to determine whether any adjustments were necessary in respect of the Group’s proportional share of XYZ Company’s assets that it controls jointly, its proportional share of XYZ Company’s liabilities for which it is jointly responsible, its proportional share of XYZ’s income and expenses for the year, (and the elements making up the consolidated statement of changes in equity) and the consolidated cash flow statement. 55

Emphasis of Matters We draw attention to Note X of the financial statements, which describes the effects of a fire in the Company’s production facilities. Our opinion is not modified in respect of this matter. 56

Other Matters The financial statements of ABC Company for the year ended March 31, 20 XX, were audited by another auditor who expressed an unmodified opinion on those statements on March 31, 20 XX. 57

Key Audit Matters- what to report • Matters that pose challenges to the auditor in obtaining sufficient appropriate audit evidence or • Matters that pose challenges to the auditor in forming an opinion on the financial statements • Matters that required significant auditor attention also may have resulted in significant interaction with those charged with governance. The nature and extent of communication about such matters with those charged with governance often provides an indication of which matters are of most significance in the audit. • Examples of KAMs (i) valuation of goodwill and other long-term assets, (ii) valuation of financial instruments, (iii) difficult or unique aspects of revenue recognition, (iv) accounting for significant acquisitions or (v) application of a significant accounting policy. 58

Key Audit Matters- how to report The description of each key audit matter in the Key Audit Matters section of the auditor’s report shall include a reference to the related disclosure(s), if any, in the financial statements and shall address: (a) why the matter was considered to be one of most significance in the audit and therefore determined to be a key audit matter; and (b) how the matter was addressed in the audit. 59

Reporting Key Audit Matters- Example S. No. • 1 Recoverability of Indirect tax receivables Auditor’s Response As at March 31, 20 XX, non-current assets in respect of withholding tax and others includes CENVAT recoverable amounting to ₹ XXX crores are pending adjudication. We have involved our internal experts to review the nature of the amounts recoverable, the sustainability and the likelihood of recoverability upon final resolution. Refer Note 2. 8 to the Standalone Financial Statements. 60

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