Investment Valuation in India

The Lok Sabha, the lower house of the Parliament, has passed the Companies (Amendment) Bill, 2014, which will make it easier for corporates to do business and to ensure severe punishment for illegal money pooling activities, among other things. The amendments have been proposed in order to address some concerns raised by stakeholders. The major concerns raised by the stakeholders included protecting confidentiality of board resolutions, as well as the provision of auditors being required to report suspected frauds at the companies audited by them. Under the new norms, frauds beyond a certain threshold would need to be mandatorily reported by the auditors to the government, while cases below this threshold will be reported to the audit committee of the company’s board. Also, the corporates have been exempted from the need of obtaining approvals of shareholders in the case of related party transactions valued lower than Rs. 100 or 10 percent of net worth. As per the ...

Method of Depreciation - Straight Line or Written Down Value (WDV) / Double Declining Balance Method The new Companies Act 2013 prescribes the Useful life of assets (Schedule II) as opposed the rate of depreciation in the Companies Act 1956. The plain reading of the act implies that the Ministry of Corporate Affairs (MCA) expects the companies to follow the Straight Line Method of Depreciation as opposed to the Written Down Value of Depreciation. Although it is not prescribed which method of depreciation is required to be used. If this implication is drawn, this may impact the financial statements significantly as this would result in change of depreciation method for all companies. Moreover, the change in depreciation method would imply retrospective application which can change the financial statements significantly. There is a breather though. Companies can still opt to continue the Written Down Value Method of Depreciation under the New Companies A...

The importance of internal audit has been well acknowledged in Companies (Auditor Report) Order, 2003 (CARO 2003), pursuant to which auditor of a company is required to comment on the fact that the internal audit system of the company is commensurate with the nature and size of the company’s operations. However, CARO 2003 did not mandate that an internal audit should be conducted by the internal auditor of the company. CARO 2003 acknowledged that an internal audit can be conducted by an individual who is not in appointment by the company. The 2013 Act now moves a step forward and mandates the appointment of an internal auditor who shall either be a chartered accountant (CA) or a cost accountant (CMA), or such other professional as may be decided by the Board to conduct internal audit of the functions and activities of the company. The class or classes of companies which shall be required to mandatorily appoint an internal auditor as per the draft ...

The Companies Bill has been passed by the Lok Sabha and Rajya Sabha as well. The bill is seeing light after decades of discussions and debates. All credits to the Minister of Corporate Affairs for taking the bill through the lower house soon after assuming office. Key highlights of the bill are: Class Action suits introduced for the benefit of investors One Person Company (OPC) introduced Certain class of companies are required to spend at 2% of their average Net profits on Corporate Social Responsibility. Severe punishment for fraud against investors National Financial Regulatory Authority (NFRA) to be set up - this has curbed some rights and powers of Chartered Accountants with respect to setting up of Accounting and Auditing standards. A CA can have maximum 20 companies as audit clients. Every company to have a single financial year end - 31st-March. Certain exceptions apply. A Private company can have 200 members (up from 50) Concept of Dormant company in...

When the two of the 10 richest people joined hands to start The Giving Pledge, they had a tough time convincing billionaires across the world to contribute most of their wealth for philanthropic causes. The Indian government took a leaf out of the concept and made it mandatory for specific class of companies to ensure they spend on Corporate Social Responsibility (CSR) through the new Companies Bill that has been passed in the Lok Sabha in November 2012. Although some European countries require companies to report their CSR information in their Annual Reports, India is arguably the only country in the world that has made CSR mandatory through an Act. What is CSR? CSR is a process with the aim to embrace responsibility for the company's actions and encourage a positive impact through its activities on the environment, consumers, employees, communities, stakeholders and all other members who may also be considered as stakeholders. A firm's implementation of CSR may go b...