The Companies (Auditor’s Report) Order, 2020 was released on February 26 by the Corporate Affairs Ministry which now mandates enhanced disclosures by auditors to detect frauds and bring in financial transparency in companies.
Crux of the Matter
The government has widened the scope of auditors as there has been a substantial rise in the number of fraud cases. This decision has been taken after fraud at companies like Infrastructure Leasing and Financial Services Ltd (IL&FS) and Dewan Housing Finance Corp. Ltd (DHFL).
Auditors have now been mandated to record their findings related to potential frauds in companies along with their ability to pay back loan debt. This will be applicable to all companies with sales less than Rs. 10 crores, banks, insurers, NGO’s and proprietorship companies.
Auditors will now also report if term loans were used for the purpose they were taken and look into whistle-blower complaints received by the company as well as concerns raised by outgoing auditors before forming their opinion.
The order states that the auditors are required to file their opinions on if ‘material uncertainty exists as on the date of the audit report that the company is capable of meeting its liabilities existing at the date of the balance sheet as and when they fall due within a period of one year from the balance sheet date’.
With these changes, the government expects to significantly improve the quality of reporting by auditors which will lead to greater transparency and faith in the financial affairs of the companies. This will indirectly also benefit Indian companies to attract FDI.
Curiopedia
Benami Transactions (Prohibition) Act, 1988 is an Act of the Parliament of India that prohibits certain types of financial transactions. The act defines a ‘Benami’ transaction as any transaction in which property is transferred to one person for a consideration paid by another person. Such transactions were a feature of the Indian economy, usually relating to the purchase of property (real estate), and were thought to contribute to the Indian black money problem. The act bans all Benami transactions and gives the government the right to recover property held benami without paying any compensation. The act came into force on 5 September 1988. More Info
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