Auditors must plan audits differently

2014-15 is likely to be the year for massive changes to the regulatory framework within which Corporate India operates. Not only will we be operating under a new Companies Act 2013, but are likely to have the new Direct Tax Code (DTC), and possibly a unified Goods and Service Tax (GST).

The three main changes in the Companies Act 2013 that will create a permanent shift are:

Consolidation The need to present consolidated financial statements for all companies including private companies will lead to:

• Review of corporate structure and potentially collapse number of entities
• Review of capital structure and the balance of equity and debt, and the sources of the same
• Bankers finding it easier to lend to private companies (promoters finding it more difficult to hide losses and create off balance sheet financing)
• Auditors needing to plan their audits differently covering a wider group top down, as opposed to only entities individually
• Regulators needing to gear up capacity to review the filings

Mandatory audit firm rotation The need to change audit firms for all listed companies over the next three years will lead to:

• Audit committee needing to gear up to run RFP/ tenders for selecting a new firm;
• Audit firms need to seek new work to replace long-standing clients
• CFOs and other professionals to be ready to explain their business and open to a re-examination of their accounting judgements to a new audit firm

Corporate Social Responsibility The need to spend 2 per cent of profits or explain inability to do so will lead to:

• Need to form a new committee of the board charged with such responsibility
• Review current CSR activities and spends, future plans, and align the same for compliance with the actives listed as permitted

In addition, among other things, in-house legal counsels have to comply with the documentation of internal financial controls, re-organise boards to comply with independent director and woman director rules.

By Vishesh C Chandiok, National Managing Partner, Grant Thornton India LLP.

The article was published in Business Standard on 06 January 2013.