Posted: 25 Nov 2013 10:43 PM PST
NEW DELHI: It has reported that
the corporate affairs ministry has rejected the industry’s demand for a
relaxation in the norms on mandatory CSR spending and rotation of auditors
outlined in the new Companies Act. A senior official told ET that the
ministry has decided to stick to the original draft of rules despite intense
lobbying by industry bodies.
The new Companies Act, which
replaces the Companies Act of 1956, requires firms above a certain threshold
to spend 2% of their average net profit on so-called corporate social
responsibility (CSR) initiatives. The Act also requires companies to rotate
the auditors they use periodically.
The corporate affairs ministry is
of the view that rules under the new Companies Act have been carefully
drafted and, therefore, do not require any significant change.
“There is no need for major
changes. We have already sent some of the drafts to the law ministry for
vetting,” the official quoted earlier said.
Industry bodies have been vocal in
their criticism of the proposed rules. In their interactions with corporate
affairs minister Sachin Pilot, industry associations had pressed for
scrapping of the rule on mandatory rotation of auditors for unlisted
companies.
Auditor rotation rules have been
prescribed but they do not seem to consider the size of companies based on
turnover or any measure of profit and loss account, but on the basis of
balance sheet items.
The other major concern seems to
be the threshold of 2% CSR spend by companies in a year. According to the
Companies Bill, 2013, companies with a net worth of 500 crore or more, a
turnover of 1,000 crore or more, or a net profit of 5 crore or more in a
financial year are mandated to spend 2% of their profit towards corporate
social responsibility.
Industry had also sought
relaxation and clarity on corporate governance; restriction on layers of
subsidiaries; constitution of National Financial Reporting Authority, its
oversight; appointment of auditors including mandatory firm rotation, limits
on the number of audits; clauses on independent directors and the manner of
their selection; power to compromise or make arrangements with creditors and
members; merger and amalgamation of companies.
“For big companies, audit firms
need a specific infrastructure for rotation of auditors. We as an audit firm
will also face problems if we shift from a small to a big account at a
specific location,” said Atul Dhawan, partner at Deloitte Haskins &
Sells.
The retrospective implementation
of the clause pertaining to rotation of auditors has particularly irked the
industry.
The new law mandates companies to
rotate their auditor after five years in case of an individual auditor and
after two terms of five years each in case of an audit company.
(Economic Times, 25 November 2013)
|
Tuesday, November 26, 2013
No Relaxation: Companies Have to Spend On CSR Initiatives, Rotate Auditors
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