Important update on ICOFR

This is on a specific topic of the applicability of Auditors reporting on Internal Financial Controls as specified in Section 143(3) of the Companies Act 2013. Although this is an old exemption notification of June 2017, I thought it fit to discuss the same.  

Please note that there are additional conditions in addition to the threshold limits which were specified in the end of the notification and which may have been overlooked by some us. Also, there was a an important corrigendum to the parent notification too. These are discussed in the form of Questions and Answers. 

 The relevant notifications are indicated ready reference

 1. What is the final position in regard to the Auditors reporting on Internal Financial Controls?

 As per Notification dated 13th Jun 2017 read with corrigendum dated 13th July 2017

 Chapter X, clause (i) of sub-section (3) of section 143 shall not apply to a private company:-

(i) which is a one person company or a small company; or

(ii) which has turnover less than rupees fifty crores as per latest audited financial statement and ( was revised from “or” ) which has aggregate borrowings from banks or financial institutions or any body corporate at any point of time during the financial year less than rupees twenty five crore.”.

 2.      Are there any additional conditions a Company has to fulfil to be able to be exempt from 143(3) reporting ?

 Yes, in addition to the threshold limits specified above , the Company should not have committed a default in filing its financial statements under section 137 of the said Act or annual return under section 92 of the said Act with the Registrar. The relevant part of the notification ( end of the notification ) is reproduced as under 

 “2A. The exceptions, modifications and adaptations provided in column (3) of the aforesaid Table shall be applicable to a private company which has not committed a default in filing its financial statements under section 137 of the said Act or annual return under section 92 of the said Act with the Registrar.”.

 3.      The original notification said “or” in the second condition. How was this revised to “and” ?

 The government issued a Corrigendum reproduced here : MINISTRY OF CORPORATE AFFAIRS CORRIGENDUM New Delhi, the 13th July, 2017 S.O. 2218(E).—In the notification of the Government of India, in the Ministry of Corporate Affairs, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) vide G.S.R. 583(E), dated the 13th June, 2017 at page 4, in paragraph number 5, in the Table, in the column (3), in item (ii), for the words ‘‘statement or’’ read ‘‘statement and’’

 4.      What are the financial statements to which this exemption notification applies ?

 A Circular dated 25th July, 2017 states that it is hereby clarified that the exemption shall be applicable for those audit reports in respect of financial statements pertaining to financial year, commencing on or after 1st April,2016, which are made on or after the date of the said notification

 Warm Regards

CA Sripriya Kumar