MCA seeks suggestions/comments on proposed Audit curbs

A consultation paper to examine the existing provisions of law and make suitable amendments therein to enhance audit independence and accountability has been placed and need suggestions/comments.

  • Whether to reduce the number of audits per one audit firm/ auditor?
  • Whether to reduce or set the number of partners under one audit firm?
  • How can those Big-4’s burden be reduced? Which other audit firms are in a position to compete with them and reduce the workload of Big4?
  • Whether the auditors in listed companies to be appointed from a separate auditors ‘ panel to be repaired by NFRA?
  • Whether non-audit services can be included in the list u/s 144?
  • Whether the Joint Audit for bigger companies should be made compulsory?
  • What should be the threshold for the bigger companies?

 Economic Concentration of audit [Big 4] – Positive & Negative effects on the economy

Most of the large global corporations use the Big Four accounting companies to audit their financial statements.This audit industry concentration of listed companies is characterized by an oligopoly of “Big Four” audit firms and in large-company audits would result in inadequate levels of competition.

Finding a new auditor would be more complicated because

  • Less competition in many geographic markets where some of these companies do not have a significant presence.
  • The lack of sufficient auditing experience by the remaining companies, in particular industries.
  • Many other businesses are not independent because of the provision of non-audit services

The Companies Act, 2013  provides mandatory audit firm rotation and non-audit services In order to tackle this economic concentration of audit. The main purpose of this provision is to increase the number of audit firms capable of carrying out the most complex audits.

 Non-audit services not to be taken by auditors

It has been noted that some of the audit firms are observing self-regulation and are making decisions not to participate in non-attested work such as consultancy and transaction advisory services from listed companies that they are auditing. Such a move that comes in the midst of auditors who are facing heat in high-profile corporate scandals seems a welcome change. Deloitte announced recently that it will not underatake any non- audit services in public domain.i.e. listed entities with Banks & Insurance Companies in particular.

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100% Tax Exemption on Investment in Sovereign Funds

100% Tax Exemption on Investment in Sovereign Funds National Infrastructure Pipeline (Section 80-IA)

Per Budget 2020, FM has announced a 100 percent tax exemption on the returns on Investment made in National Infrastructure Pipeline( Allocated Rs 103 Cr.) informs both equity & debt. It’s available to sovereign wealth funds, namely Abu Dhabi Investment Authority as well as any entity wholly owned and controlled, directly or indirectly, by a foreign government.

 Sovereign funds, willing to invest in India’s story in Infrastructure growth, can write to the Finance Ministry along with their project details as it enables choice for funds to invest through incorporated entities rather than investing directly. Every case based on merits of the details will be vetted by the Department of Revenue  and as per the scheme, Sovereign funds will be notified for exemption under Section 80-IA of the Income Tax Act.

Tax exemption for the Infra. Related Instruments will cover –

  • Dividend
  • Interest or
  • Long-term capital gains arising from a debt or equity

 The major condition is that Invested Funds should be used in a “company or enterprise carrying on the business of developing, or operating and maintaining, or developing, operating or maintaining any infrastructure facility” as specified by the law.

  • The infrastructure projects will include:
  • Road, a bridge or a rail
  • Highway project including housing or other activities being a part of the highway project.Water supply project, water treatment system, irrigation project, sanitation, and sewerage system or solid waste management system.
  • Port, airport, inland waterway, inland port or navigational channel in the sea.

The investment needs to have been made before March 31, 2024, and held for at least three years.

A hundred percent deduction for any profits and gains from an investment will be available for 10 consecutive years, according to the Finance Bill.

National Infrastructure Pipeline Project timelines broadly cover a time frame from 2019-20 to 2024-25. These projects have been identified in sectors such as energy, roads, railways, ports and airports, digital infrastructure projects, mobility projects, irrigation, rural, agriculture and food processing.

Projects worth about Rs 25 lakh crore have been identified in the energy sector followed by road projects worth Rs 20 lakh crore.

Some of the other funds that eye to invest in the Govt of India scheme are:-

  • Norway’s Government Pension Fund Global with $1.2 trillion in investments
  • Singapore’s Temasek—an investment fund with a $313-billion portfolio.
  • Public Investment Fund of Saudi Arabia
  • Mubadala Investment Company of UAE
  • GIC Pvt. Ltd., Kuwait Investment Authority,  & Temasek Holdings

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Challenges faced at GST Process

GST Imperative for Small & MSME’s

  • No Facility to Amend or Revise the Returns
  •  Back to Back Returns per month filing or Quarterly submissions instead of Single Comprehensive Annual return
  •  Payment of Taxes and Filing of Return with the same due date
  •  Payments of Tax under different heads often leading to a lot of confusion in terms of set-off and the overall incidence
  •  Setoff of taxes often precede in importance compared to Tax Payment Date, thereby the process getting diluted
  •  Late Fees being levied at the initial stages with stringent overall process thereby negative responses
  •  Lack of Trust in filers, training gaps in dealers and distribution channels along with many procedures, Document & Returns
  •  GSTN software issues often failing and the government’s stance of not acknowledging the same
  •  Forms & Utilities often released late without proper planning
  •  Input credit often a point of debate as the onus lies on business, with severe penalties and cash crunch due to the model of low acceptance and no cross-verification of sellers for input
  •  No Dedicated helpline, Inadequate resources to look into the shortcomings to date

Thus Course Correction in System, process n model is required urgently to instill trust and confidence in the Community

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