With respect to rotation of auditors, restatement of accounts, board responsibilities and CSR measures among others, government companies will need to pay extra attention due to increased compliance norms listed under the new Companies Act, 2013. According to experts, the Companies Act, 1956, empowered the central government to modify the laws for government companies from time to time while most provisions of the new law will be equally applicable for all class of companies.
Experts said the first major change in the new law is on the appointment of auditors for government companies. As per the Companies Act, 2013, the Comptroller and Auditor-General (CAG) of India will be required to appoint the statutory auditor for all government companies. ?This will need to be ratified by the shareholders every year in the annual general meeting (AGM) which practically means appointment of auditors every year,? said N Venkatram, managing partner (audit), Deloitte, Haskins & Sells.
?The continuous appointment of an auditor for a period of five years under the 2013 Act gives the audit firm more independence and understanding of the auditee, and could arguably result in a higher quality of audit than an annual appointment. This is the argument that is being made for non-government companies, and there should be no compelling reason to make an exception for the PSUs,? Venkatram said.
Experts said the Act has provisions for restatement of financial statements and reopening of books of accounts of companies, a move that may help a number of government companies whose financial statements are either qualified by auditors or modified to highlight matters of uncertainty.
?The continuing qualifications and modifications in the auditors reports of large government companies makes it difficult for an uninitiated investor to fully comprehend the audit opinion and its implications. The new law may just change that,? said a compliance officer in a government-backed company.
According to Venkatram, the financial statements of government companies tend to highlight significant matters of uncertainty that require decisions by the government or the courts. ?With the enhanced responsibility of the board of directors and audit committees in relation to the accounts and controls over financial reporting, it would not be surprising if at some future date,? government companies would elect to restate their financial statements rather than carry on qualifications in perpetuity,? said Venkatram of Deloitte.
According to Lalit Kumar, partner in the law firm J Sagar Associates, the central government will need to prepare a detailed annual report along with audit report and comments from CAG for every company in which it is a stakeholder. ?After such preparation, annual reports will need to be laid before both Houses of Parliament and in the State legislature and assembly in case state government is a stakeholder,? Kumar said.
Boards of government companies will also need to factor in the changes in the corporate social responsibility norms as per the new law. The CSR policy mandates 2% sharing of average net profits of certain class of companies whereas the CSR policy for PSUs and government companies mandated 1- 5% by the department of public enterprises.
?Not many government companies were successful in using their CSR budgets.?As per the new law, government companies will be compelled to ?comply or disclose? shortfall in CSR spends in their board reports. This would require a more director attention on identification and monitoring of CSR activities,? said Venkatram.