NEWSLETTER - FEB 2020 REV - baroda-icai.orgbaroda-icai.org/Module2011/MemberNewsLetter/Full/1_118.pdf · to provisionally attach bank accounts is a drastic power and that this power

Circulated By EmailVolume - I | February 2020

Vadodara Branch of Western India Regional Council ofThe Institute of Chartered Accountants of India

The Institute of Chartered Accountants of India(Setup by an Act of Parliament)

Editorial Team

CA. Krunal Brahmbhatt 78748 11551Chairman

CA. Vinod Pahilwani 98980 78176Vice-Chairman

CA. Manoj Sahu 90990 94500Secretary

CA. Rikin Patel 88667 09509Treasurer

CA. Vishal Doshi 98240 59901Ex-officio

CA. Hitesh Agrawal 99980 28737IP - Chairman

CA. Rahul Agrawal 97233 10418Committee Member

CA. Dhruvik Parikh 99795 39966Committee Member

CA. Krunal Brahmbhatt CA. Dhruvik Parikh

CA. Nayan Kothari CA. Rahul Parikh

CA. Hitesh Thakkar CA. Rachit Sheth

CA. Chinmay Naik CA. Janki Gohil

CA. Sakshi Somani CA. Neel Shah

CA. Sahil Rao

Forthcoming Events 2Pg 0

Direct Tax Updates 2Pg 0

Judicial Decisions on 03PgIndirect Taxes

GST Update Pg 04

ICAI guidance on Internal Financial Pg 06Controls Over Financial Reporting

Photo Gallery Pg 09

Managing Committee

Contents

Friends it's privilege to take charge of Baroda branch of ICAI which is mostvibrant branch in nation and yes it should be as we barodians are mostpassionate about our task and so sentimental about cultural values for ourfamily so why not about our mother institute!

It's really been pleasure to serve branch since last 6 years and still I found thatstill I am so enthusiastic as I joined in first year but with the experience of last 6years.

I thank my mother institute for giving me so much and now it's time to giveback by way of selfless contribution, though anything would be done is notenough.

With the blessins of all past chairman and all member of Baroda branch I amcommitted to serve my Branch along with my team.

Friends being in profession and partner in nation building it's our bigresponsibility to contribute to the economy of our nation by helping out todirect and indirect tax department treasurery.

Friends one more thing I would like to request is that please contribute to theinstitute by way of valued suggestions regarding economic reforms andparticipating in exposure draft which is enticipated by our institute time totime.

Friends Its a proud moment of Baroda branch for getting award of 2nd bestbranch of ICAI and 2nd best branch of wicasa in nation and 1st award in WIRCfor branch and WICASA.

I thank each member and students who supported out of all odds.

Friends we have completed full day GST seminar with great response of all ourmembers supported by all four eminent faculties with great feast ofknowledge.

We have achieved one more milestone to have more than 550 nos of membersparticipation in budget analysis program first time in the history of Barodabranch and looking for such kind of support throughout the year.

I welcome any kind of suggestions or initiative from each member which reallyadd value to the profession.

Now I would like to announce one important aspect for professional charteredaccountant.

Me and my team would like to make Vadodara as hub of export of service ofprofession to the globe through joint and collective efforts of all and would liketo put Vadodara on global map as a shining city of CA growth model.

Through this effort I would like to make each chartered accountant toempower with stability of income and high standard to society so that no onewho is having no knowledge of profession can point out figure on ourprofession and newly qualified chartered accountant.

I solicite all your support in kind of suggestions and action in any way who canhelp out to the branch and institute.

With this word I would l rest my speech with folded hands.

Regards,

CA. Krunal BrahmbhattChairman

Chairman Communication

Vadodara Branch of WIRC of ICAI

Volume - I February 2020

Branch Events

Day & Date : Saturday, 01.02. 2020

Time : 11:00 am onwards

Fees : Nil

Venue : ICAI Bhawan, Vadodara

Live Screening of Union Budget 2020-21

Day & Date : Sunday, 02.02. 2020

Time : 09.30 am to 05.00 pm

Fees : Rs. 250/-


Full Day Workshop For Recently Qualified CAs

Topics

Factors to be considered whi leselecting campus centre, How toprepare a compelling job profile onvarious job portals, Getting a job usingLinkedIn, ‘Third Door’ approach to get ajob, Overview of ~30 job roles for a CA(e.g. derivative trading, investmentbanking, asset management, etc.) andof further studies & CV and Cover Letterworkshop (kindly come with your draftCV and cover letter ready)

Speakers

CA. Vaibhav Thakkar,Mumbai &

CA. Parin Mehta, Mumbai

Day & Date : Sunday, 02.02. 2020

Time : 03.00 to 05.00 pm

Fees : Rs. 100/-


CV and Cover Letter Workshop for Members

Topics

Is your CV compelling enough to land adream job in an MNC?, Does your CV runinto 3-4 pages? (You have only 6 sec toimpress a recruiter), Are you stillstruggling in drafting a worth readingcover letter?, Do you know about a ‘ThirdDoor’ approach to land a job?

Speakers



Day & Date : Friday , 07.02.2020

Time : 05.00 pm to 08.00 pm

Fees : R s . 5 5 0 / - ( I n c l u d i n g 1 8 %Fo r M e m b e r s :GST) till 3rd February’2020 afterwards Rs. 700/-(Including 18% GST) (Rs. 50 CABF)

For Non- Members: Rs. 700/- till 3rd February’2020afterwards Rs. 800/- (Including 18% GST)

For Students: Rs. 250/- till 3rd February’2020afterwards Rs. 400/- Followed by Dinner

Venue : Hotel Grand Mercure Surya Palace, Sayajigunj

Analysis of Budget

Topics

Overview of Union Budget & IndirectTax Provisions

Interactive Session on MajorAmendments & New Provisions(Direct Tax) in Union Budget

Speakers

CA. Anirudh Sonpal,Vadodara

Sr. Adv. Saurabh Soparkar,Ahmedabad

HrsCPE 3

Day & Date : Sunday, 09.02.2020

Time : 10.00 am to 01.00 pm

Fees : Rs. 50/-


CV drafting & Personal Interview(PI)

Topics

How to Prepare, what to Prepare, DressCode & Mock PI

Speakers



Day & Date : Saturday & Sunday, 15 & 16.02. 2020

Time : 07.00 am onwards

Fees : Team Registration Rs. 7000/- team,Player Registration Rs. 500/-

Venue : Aryan Cricket Academy, Behind FGI, Sevasi

CAPL Season- V

Contributed by : CA. Narendra Hindochacan be reached at [email protected]

Direct Tax Updates

1. Mandatory facility for payment through electronicmode

Income-tax (16th Amendment) Rules, 2019 whichcame into force from 1st day of January, 2020, byinsertion of rule 119AA requires every personcarrying on business, if his turnover exceeds fiftycrore rupees during the immediately precedingprevious year to provide facility for acceptingpayment through following electronic modes

(i) Debit Card powered by RuPay;

(ii) Unified Payments Interface (UPI) (BHIM-UPI);and

(iii) Unified Payments Interface Quick ResponseCode (UPI QR Code) (BHIM-UPI QR Code)

For non-compliance, penalty is Rs. Five thousandper day starting 01" February, 2020

Considering that electronic mode of payment isalready adopted by Indian businessmen on a largescale, I am wondering what is the logic of enforcing3 more modes, and enforcing them on short notice,a n d a l s o p r o v i d i n g s t e e p p e n a l t y f o rnoncompliance even for businessmen who haveduly paid their taxes.

2. Attempts to increase revenue

While substantial reduction in Corporate tax rates

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was announced midterm, and the economy is alsoreportedly going through a slowdown, and there isalso pressure on Officers to behave fairly with thetaxpayers, it would appear that the Government isnot reducing its target for collection of taxes.

According to a press report, the ‘unrealistic’ targetsare imposed by the Government on tax officialswhich has taken its toll. The officials arereportedly under and are suffering from“stress”

“fear psychosis”. Many have reportedly quit theirjobs as they are unable to bear the pressure tocollect 17% more tax or face consequences

3. TDS on sale of advertisement space

In the case of Times VPL Limited V TheCommissioner Of Income Tax, in I.T .A. NO .274 OF2013 before the High Court Of Karnataka the issuewas whether Section 194C applies to payment forbulk sale of advertising space. The assessee isengaged in the business of printing and publishingnewspapers. The assessee had entered into anagreement for bulk sale of advertising space in thedaily newspaper ‘The Times of India’ with Bennett,Coleman and Co. Ltd., the ultimate holdingcompany of the assessee, The stand of theRevenue was that VPL has to make the payment onmonthly basis, therefore the ownership of thespace does not pass on to the assessee companyforever. There fore, the transaction cannot betermed as purchase as contended by the assesseecompany and the same is nothing but a paymentmade towards advertisements. It was held that inpeculiar facts of the case, the contract in questionis a contract for sale and is not a contract for workand hence the provisions of Section 194C do notapply to the case of the assessee

4. Freebies to Medical practitioners

We have heard of unethical practices by someDoctors, including practice of prescription ofdrugs that need not have been prescribed orprescription of more expensive drugs althoughless expensive drugs having same effect areavailable, with a view a promote earnings of thepharmaceutical companies. We have heard of quidpro quo in such cases being gifts to Doctors indifferent forms. We believed that expenditure bypharmaceutical companies for such purposeswould not be allowable as being in violation of lawconsidering regulations issued by the MedicalCouncil of India (MCI) which is a regulatory bodyconstituted under the Medical Council Act,

1956.made effective from 10.12.2009 and CBDTCircular No. 5/2012 dated 1.8.2012 .

In the case of ITA No.5651/Mum/2017 in case ofM/s. Glenmark Pharmaceuticals Ltd., Vs. Asst.Commissioner of Income Tax expenses incurredby the assessee company for providing freebies tomedical practitioners and their professionalassociations was considered to be in violation ofsuch regulations hence the said expenditure wasconsidered to be for a purpose which is either anoffence or prohibited by law. It was pointed out bythe assessee that the MCI guidelines are applicableonly to doctors / medical practitioners and theirprofessional associations and not applicable to thepharma companies such as assessee. TheAssessing Officer observed that the assessee hadnot furnished details of expenses in the nature offreebies and gifts etc incurred in relation to medicalpractitioners. It would appear that MCI had filedan affidavit before the Hon’ble Delhi High Court thattheir guidelines are applicable only to doctors andnot to others. Hence it was held that nodisallowance of expenses could be made in theinstant case by applying the MCI guidelines whichare applicable only to doctors and not to pharmacompanies such as assessee herein.

Contributed by : CA Anirudh Sonpal.can be reached at [email protected]

Judicial Decisionson Indirect Taxes

I. LEVY

1.1 SERVICE TAX & GST ON IMPORT OCEAN FREIGHT

In a series of Writ Applications, the HonourableHigh Court has held the relevant notifications underService Tax & GST to be ultra vires andunconstitutional. Accordingly, no tax is payable bythe importer in India under Reverse Charge on theocean freight embedded in CIF value of the goodsimported.

[Sal Steel Ltd vs UoI – Gujarat HC]

[Mohit Minerals Pvt Ltd vs UoI – Gujarat HC]

1.2 SERVICE TAX ON NOTICE PAY RECOVERY

The honourable HC held that “The employer cannotbe said to have rendered any service per se muchless a taxable service. He has merely facilitated theexit of the employee upon imposition of a cost upon



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him for the sudden exit, the definition in clause (e)of Section 66E of the Finance Act,1994 is not to beattracted to this scenario as the employer has not'tolerated' any act of the employee but haspermitted a sudden exit upon being compensatedby the employee in this regard.” It was held thatservice tax was not payable on such notice payrecovery.

[GE T&D India Ltd vs DCCE, Chennai – Madras HC]

II. ATTACHMENT

2.1 In the course of inquiry initiated against a thirdparty in relation to claim of ITC, the bank account ofthe petitioner was attached u/s 83 of the CGSTAct,2017 for recovery of dues. The HonourableHigh Court held that ‘Section 83 though uses thephrase ‘pendency of any proceedings’, theproceedings are referable to section 62, 63, 64, 67,73 and 74 of the Act and none other. The bankaccount of the taxable person can be attachedagainst whom the proceedings under the sectionsmentioned above are initiated. Section 83 does notprovide for an automatic extension to any othertaxable person from an inquiry specificallylaunched against a taxable person under theseprovisions. Section 83 read with section 159(2),and the form GST DRC-22 show that a proceedinghas to be initiated against a specific taxable person,an opinion has to be

formed that to protect the interest of Revenue anorder of provisional attachment is necessary.’ TheHonourable High Court also observed that Powerto provisionally attach bank accounts is a drasticpower and that this power is to be used in onlylimited circumstances and it is not an omnibuspower. While allowing the petition, it was ruled thatthe order provisionally attaching the bank accountof the Petitioner was without jurisdiction and isliable to be quashed and set aside.

[Kaish Impex Pvt Ltd vs UoI – Bombay HC]

2.2 The immovable property and bank account of thepetitioner were provisionally attached. Whilereviewing the powers and jurisdiction u/s67 and 83of the CGST Act,2017 and corresponding StateGST Act,2017, the Honourable High, while settingaside the orders of provisional attachment,observed ‘Therefore, in the case on hand, the orderof provisional attachment as well as the order ofprohibition are not

sustainable on two counts, i.e. (i) the order hasbeen passed by the Assistant Commissioner, and

(ii) the order has been passed without any crediblematerials, available for the purpose of passingsuch order of provisional attachment.’ However, theHonourable High Court also clarified that ‘as theproceedings under Section 73 of the said Act arepending as on date, the writ applicant shall notdestroy or secrete any books of account or anyother documents relating to the same till the

conclusion of the inquiry initiated under theprovisions of the Act. In future, if the Authority isable to gather any credible material, on the basis ofwhich it may arrive at the conclusion that it isnecessary to order provisional attachment with aview to protect the interest of the Revenue, it shallbe open for the Authority to do so, in accordancewith law.’

[Enprocon Enterprise Ltd – Gujarat HC]

Contributed by : CA. Manilal Parsiyacan be reached at [email protected]

GST Update

The year of 2019 ended with the following updates in

1. Central Tax

Vide notification no.63/2019-Central Tax, dated 12-12-2019, CBIC extended the due date for furnishingof return in FORM GSTR-1 for registered persons inJammu and Kashmir having aggregate turnovermore than 1.5 crore rupees for the months of July,2019 to September, 2019.

Vide notification no.64/2019-Central Tax, date 12-12-2019 Seeks to extend the due date forfurnishing of return in FORM GSTR-1 for registeredpersons in Jammu and Kashmir having aggregateturnover more than 1.5 crore rupees for the monthof October, 2019.

Vide notification no.65/2019-Central Tax, date 12-12-2019Seeks to extend the due date for furnishingof return in FORM GSTR-7 for registered persons inJammu and Kashmir for the months of July, 2019to October, 2019

Vide notification no.66/2019-Central Tax, date 12-12-2019 extended the due date for furnishing ofreturn in FORM GSTR-3B for registered persons inJammu and Kashmir for the months of July, 2019to September, 2019

Vide notification no. 67/2019-Central Tax, date 12-



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12-2019 seeks to extend the due date for furnishingof return in FORM GSTR-3B for registered personsin Jammu and Kashmir for the month of October,2019.

Vide notification no.68/2019-Central Tax, date 13-12-2019 seeks to carry out changes in the CGSTRules, 2017 regarding the issue of e-invoice byspecified person.

Vide notification no.69/2019-Central Tax, date 13-12-2019notified the common portal for thepurpose of e-invoice.

Vide notification no.70/2019-Central Tax, date 13-12-2019seeks to notify the class of registeredperson required to issue e-invoice.

Vide notification no.71/2019-Central Tax, date 13-12-2019seeks to give effect to the provisions ofrule 46 of the CGST Rules, 2017.

Vide notification no. 72/2019-Central Tax, date 13-12-2019seeks to notify the class of registeredperson required to issue invoice having QR Code.

Vide notification no.73/2019-Central Tax, date 23-12-2019 extended the last date for filing of FORMGSTR-3B for the month of November, 2019 bythree days from 20.12.2019 till 23.12.2019.

Vide notification no.74/2019-Central Tax, date 26-12-2019waived off the late fees for non- filing ofFORM GSTR-1 from July, 2017 to November, 2019.

Vide notification no.75/2019-Central Tax, date 26-12-2019seeks to carry out changes in the CGSTRules, 2017. Where by it empowered theCommissioner or an officer authorised by him inthis behalf, not below the rank of an AssistantCommissioner to put a restriction for maximum ofone year on the input tax credit available in thecredit ledger of a person to the effect that it cannotbe used for discharging the GST output liability u/s49 or not to allow refund of the credit in somesituations.

Vide notification no.76/2019-Central Tax, date 26-12-2019extended the due date for furnishing ofreturn in FORM GSTR-1 for registered persons inAssam, Manipur or Tripura having aggregateturnover more than 1.5 crore rupees for the monthof November, 2019.

Vide notification no.77/2019-Central Tax, date 26-12-2019seeks to extend the due date for furnishingof return in FORM GSTR-3B for registered personsin Assam, Manipur, Meghalaya or Tripura for themonth of November, 2019.

Vide notification no.78/2019-Central Tax, date 26-12-2019Seeks to extend the due date for furnishingof return in FORM GSTR-7 for registered persons inAssam, Manipur or Tripura for the month ofNovember, 2019.

2. Central Tax(Rate)

Vide notification no.27/2019-Central Tax, date 30-12-2019 Seeks to further amend notification No.01/2017-Central Tax (Rate), to change the rate ofGST on goods as per recommendations of the GSTCouncil in its 38th Meeting.

Vide notification no.28/2019-Central Tax, date 31-12-2019To amend notification No. 12/ 2017-Central Tax (Rate) so as to exempt certain servicesas recommended by GST Council in its 38thmeeting held on 18.12.2019

Vide notification no.29/2019-Central Tax, date 31-12-2019To amend notification No. 13/ 2017-Central Tax (Rate) so as to notify certain servicesunder reverse charge mechanism (RCM) asrecommended by GST Council in its 38th meetingheld on 18.12.2019.

The year of 2020 bought the following changes in

1. Central tax-

Vide notification no.01/2020-Central Tax, dated01-01-2020 bought into force certain provisions ofthe Finance (No. 2) Act, 2019 to amend the CGSTAct, 2017.It enforced theprovisions of sections 92to 112, except section 92, section 97, section 100and sections 103 to 110 of the Finance (No. 2) Act,2019 (23 of 2019).

Vide notification no.02/2020-Central Tax, dated01-01-2020 Seeks to make amendment (2020) toCGST Rules thereby bringing the change in date forfiling declaration to avail credit under any perviouslaw by trans-1 and further change in form REG-01and form INV-01.

Vide notification no.03/2020-Central Tax, dated01-01-2020Seeks to amend the notification No.62/2019-CT dt. 26.11.2019 to amend the transitionplan for the UTs of J&K and Ladakh

Vide notification no.04/2020-Central Tax, dated10-01-2020Seeks to extend the one-time amnestyscheme to file all FORM GSTR-1 from July 2017 toNovember, 2019 till 17th January, 2020.

Vide notification no.05/2020-Central Tax, dated13-01-2020 Seeks to appoint Revisional Authorityunder section 108 of CGST Act, 2017.



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2. Integrated tax-

Vide notification no.01/2020-Central Tax, date 01-01-2020 bought into force certain provisions of theFinance (No. 2) Act, 2019 to amend the IGST Act,2017the following section shall be inserted,namely:– “17A. Where any amount has beentransferred from the electronic cash ledger underthis Act to the electronic cash ledger under theState Goods and Services Tax Act or the UnionTerritory Goods and Services Tax Act, theGovernment shall transfer to the State tax accountor the Union territory tax account, an amount equalto the amount transferred from the electronic cashledger, in such manner and within such time, asmay be prescribed.”

Contributed by : CA Mayursinh Chavda.can be reached at

[email protected]

ICAI guidance onInternal Financial ControlsOver Financial Reporting

Background

Under Section 143(3)(i) of the Companies Act, 2013(2013 Act), an auditor of a company is required to statein his/her audit report whether the company has anadequate internal financial controls (IFC) system inplace and the operating effectiveness of such controls.Explanation to Section 134(5)(e) of the 2013 Act definesIFC to include policies and procedures adopted by thecompany for ensuring orderly and efficient conduct ofits business, accuracy and completeness of theaccounting records, and timely preparation of reliablefinancial information.

The Institute of Chartered Accountants of India (ICAI)had issued a Guidance Note in November 2014. ThisGuidance Note has been revised subsequently and theICAI issued a revised ‘Guidance Note on Audit of InternalFinancial Controls Over Financial Reporting’ (GuidanceNote) on 14 September 2015. This issue of First Notesprovides an overview of the Guidance Note issued byICAI.

Reporting responsibility of the management

� Section 134(5)(e) of the 2013 Act (which deals withthe directors’ responsibility statement) requiresdirectors of listed companies to state whether they

had laid down IFC to be followed by the companyand that such IFC are adequate and were operatingeffectively.

� Rule 8(5)(viii) of the Companies (Accounts) Rules,2014 (Rules) requires Board’s report of everycompany to state the details in respect ofadequacy of IFC with reference to the financialstatements.

� Though not specifically mentioned, the GuidanceNote appears to suggest that for:

– Listed companies: The directors’ responsibilitystatement to state that IFC are adequate andoperating effectively. The Board’s report to statethe adequacy of IFC with respect to financialstatements.

– Other companies: The Board’s report to stateadequacy of IFC with respect to financialstatements

Criteria to be considered for developing, establishing

and reporting on IFC

� Similar to the 2013 Act, the Guidance Note does notprescribe a particular framework for IFC. Insteadthe Guidance Note states that a benchmarksystem of internal control, based on suitablecriteria, is essential to enable the management andauditors to assess and state the adequacy andcompliance of the system of internal controls.

� In the Indian context, e.g. Appendix I ‘InternalControl Components’ of Standards on Auditing(SA) 315 - Identifying and Assessing the Risk ofMaterial Misstatement Through Understanding AnEntity and Its Environment, provides the necessarycriteria for IFC over financial reporting (IFC – FR)for companies.

� The components of internal controls under SA 315takes into account control environment, entity'srisk assessment process, control activities,information system and communication andmonitoring of controls.

Reporting by auditors – whether same scope as that of

management

� The auditor’s objective in an audit of IFC – FS(which is generally carried out along with an auditof financial statements) is to express an opinion onthe adequacy and operating effectiveness of thecompany’s IFC – FS. A company’s internal controlcannot be considered effective if one or morematerial weakness exists. Paragraph A1 of SA 200 -

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Overall Objectives of the Independent Auditor andthe Conduct of an Audit in Accordance withStandards on Auditing, inter alia, states that theauditor’s opinion on the financial statements doesnot assure, for example, the future viability of theentity nor the efficiency or effectiveness with whichthe management has conducted the affairs of theentity.

� Globally also, auditor’s reporting on internalcontrols is together with the reporting on financialstatements and such internal controls reportedupon relate only to internal controls over financialreporting.

� The Guidance Note states that consistent with therequirements of the 2013 Act and the Rules as wellas the practice prevalent globally, the term IFCwherever used in the Guidance Note in the contextof the responsibility of the auditor for reporting onsuch controls under Section 143(3)(i) of the 2013Act, per se implies and relates to IFC – FR.

� For the above purpose, the Guidance Note definesIFC – FR to mean a process designed by, or underthe supervision of, the company’s principalexecutive and principal financial officers, orpersons performing similar functions, and effectedby the company’s board of directors, management,and other personnel, to provide reasonableassurance regarding the reliability of financialreporting and the preparation of financialstatements for external purposes in accordancewith Generally Accepted Accounting Principles.

How to audit IFC – FS

� Since the SAs do not address the auditingrequirements for reporting on IFC, though certainportions of the SAs may still be relevant, theGuidance Note prov ides supplementar yprocedures that would need to be considered bythe auditor for planning, performing and reportingin an audit of IFC – FS under Section 143(3)(i) of2013 Act.

� The Guidance Note specifically states that sincethe audit of IFC is in connection with financialreporting, the concept of materiality will beapplicable even in such audits. The auditor shoulduse the same materiality considerations as wouldbe used in planning the audit of the company’sannual financial statements as provided in SA 320 -Materiality in Planning and Performing an Audit.

Though the audit procedures mentioned in the

Guidance Note have been framed for an auditor,these procedures could also be used by companiesto perform a self-evaluation. The audit procedureswould typically involve the following steps:

� Planning: Under the planning stage, theStep – 1auditor is required to establish an overall auditstrategy that sets the scope, timing and direction ofthe audit, and that guides the development of theaudi t p lan. The planning stage involvesi d e n t i f i c a t i o n o f s i g n i f i c a n t a c c o u n tbalances/disclosure items, identification andunderstanding significant flow of transactions,identification of Risk of Material Misstatements(RoMM), identification of controls which willaddress RoMM including applications, associatedIT environment and general IT controls.

� Design and implementation: The auditorStep – 2should test the design effectiveness of controls bydetermining whether the company’s controls, ifthey are operated as prescribed by personspossessing the necessary author i ty andcompetence to perform the control effectively,satisfy the company's control objectives and caneffectively prevent or detect errors or fraud thatcould result in material misstatements in thefinancial statements.

� Operating effectiveness: OperatingStep – 3effectiveness of a control is tested by determiningwhether the control is operating as designed andwhether the person performing the controlpossesses the necessar y author i ty andcompetence to perform the control effectively.

Testing of operating effectiveness involvesplanning the nature, timing and extent ofprocedures to be performed, assessing findingsand concluding on operating effectiveness.

� Reporting: Where there are deficienciesStep – 4that, individually or in combination, result in one ormore material weaknesses, the auditor shouldevaluate the need to express a modified opinion i.e.qualified or adverse on the company’s IFC – FS,unless there is a restriction on the scope of theengagement in which case the auditors shouldeither disclaim the opinion or withdraw from theengagement. The auditor should determine theeffect of the modified opinion on IFC – FS has onhis opinion on the financial statements.Additionally, the auditor should disclose whetherhis opinion on the financial statements wasaffected by the modified opinion on IFC – FS.



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IFC reporting on consolidated financial statements

(CFS)

� Section 129(4) of the 2013 Act states thatprovisions of the 2013 Act applicable to thepreparation, adoption and audit of the financialstatements of a holding company shall, mutatismutandis, apply to the CFS. A strict reading of thisSection might indicate that the auditor will berequired to report under Section 143(3)(i) of the2013 Act on the adequacy and operatingeffectiveness of the IFC – FS, even in the case ofCFS.

� The Guidance Note has clarified this by stating thatreporting on the adequacy and operatingeffectiveness of IFC – FR would apply even in thecase of CFS, for the respective componentsincluded in the CFS only if it is a company under the2013 Act.

� Accordingly, in line with the approach adopted bythe ICAI in case of certain other reporting matterson CFS, the reporting on adequacy of IFC wouldalso be on the basis of the reports on Section143(3)(i) of 2013 Act as submitted by the statutoryauditors of components that are Indian companiesunder the 2013 Act.

Specified date for reporting on the adequacy and

operating effectiveness of IFC – FS

� Section 143(3)(i) of the 2013 Act specifies that theauditor’s report should state if IFC existed andoperated effectively during the period underreporting or at the balance sheet date up to whichthe financial statements are prepared.

� Accordingly, the auditor should report if thecompany has adequate internal financial controlsin place and whether they were operatingeffectively at the balance sheet date.

IFC reporting on interim financial statements

� It may also be noted that an auditor’s reporting onIFC is a requirement specified in the 2013 Act, andtherefore will apply only in case of reporting onfinancial statements prepared under the 2013 Actand reported under Section 143 of the 2013 Act.

� Accordingly, reporting on IFC will not be applicablewith respect to interim financial statements, suchas quarterly or half-yearly financial statements,unless such reporting is required under any otherlaw or regulation.

Comments

� Due to enhanced reporting responsibilities,companies should immediately start evaluatingtheir present components of internal controls andensure that they are aligned with the frameworkprescribed under the Guidance Note.

� In absence of any guidance under the 2013 Act,the Guidance Note is expected to serve as a guidefor the management while implementing therequirements under the 2013 Act.

� The implementation of the Guidance Note wouldentail setting up a robust governance frameworkincluding consideration of outsourced processes,assessment of key risks, detailed documentationof risks and mitigating controls, stronginformation technology systems, periodicreviews, etc.

� The enhanced reporting responsibilities wouldresult in an increase in the cost of compliance.Though this is a valid concern, however, in the longrun, an effective IFC is expected to lead to highquality financial reporting and a robust corporategovernance mechanism.

The bottom line

The Guidance Note is likely to help implement therequirements of the 2013 Act. Companies and auditorswere looking for guidance and a framework to helpthem discharge their obligations. The ICAI hasresponded and the time for action and implementationis now.



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O b i t u a r y

CA. Sachin Mehta

M. No. 39258

left for Heavenly

Abode on 18-01-2020

May the departed soul rest in peace



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Photo Gallery29th Residential Refresher Course on 09 to 12.01.2020

Full Day Seminar on GST on 18.01.2020

Half day seminar on Professional Development of CAs on 25.01.2020 Republic Day Celebration on 26.01.2020

Half day seminar on 31.01.2020



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Our Torchbearers 2020-21

CA. Nihar Niranjan Jambusaria,Vice President ICAI

CA. Atul Kumar Gupta,President ICAI

1st Prize of the Best Branch of WIRC of ICAI under Medium Branch Category &1st Prize of the Best Branch of WICASA under Medium WICASA Branch Category

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NEWSLETTER - FEB 2020 REV - baroda-icai.orgbaroda-icai.org/Module2011/MemberNewsLetter/Full/1_118.pdf · to provisionally attach bank accounts is a drastic power and that this power