DCA may review audit guidelines

NEW DELHI: The department of company affairs (DCA) is likely to review some of the provisions in the Companies (Auditors Report) Rule that have become applicable from July 1.
Rajiv Mehrishi, joint secretary at DCA, informed an industry gathering that areas like reporting preferential allotment of shares to specified parties and use of long-term loans for short-term investment by companies were beyond the realm of auditors’ report and needed to be reviewed.
Promoters also needed to become more careful with disclosures as the DCA was coming with a notification that would make it mandatory to have a consolidated account along with a stand-alone account of the holding company, he said.
The other rules that, according to the official, needed review included the issue of rate of interest and whether the conditions of loans taken by the company were prejudicial to the interest of the company and the pricing of the specified transactions, etc.
Referring to the provision that restricts the sale, lease or disposal of assets to only 10 per cent of total assets of the undertaking, he clarified that the rules did not restrict the board from taking shareholders consent for a higher percentage.
On the issue of a subsidiary company being prevented from having further subsidiaries, the DCA official said that in the past this was used as a route to siphon off large funds which were still unrecoverable. The provision to restrict creation of such subsidiaries had been aimed at putting a check on the practice.
He also informed that consolidation of accounts would be made mandatory shortly and once this was notified, a holding company would be required to submit consolidated accounts for the entire group along with the standalone account of the holding company. The requirement of attaching the accounts of subsidiaries would be dispensed with.