CA Ravi Taori Auditguru.

in

CA Final Audit Amendment Nov 21 Exams

Amendments relevant to Audit between 1st Nov 2020 & 30th April 2021

Company Audit
Amendments in Definition of Small Company
 Sec 2 (85) Amended on 1st April 21

Limits Changed
 Paid up capital limit of 50 lakhs is increased to 2 crores
 Previous year turnover limit of Rs 2 crore is increased to 20 crores

Amendments in Company Accounts Sec 128 to Section 138

 Sec 128 (1) Amended on 24th March 21 & 1st April 21
&
Company Sec 128(1) gives power to central government to prescribe rules regarding
Account Rules maintenance of books of accounts in electronic medium.

Accounting Under these rules CG has issued new requirement with respect to accounting
Software with software, which is applicable from 1st April 2022
Audit Trail
Proviso added in rule.
Provided that for the financial year commencing on or after the 1st day of April,
2022, every company which uses accounting software for maintaining its books
of account, shall use only such accounting software which has a
 feature of recording audit trail of each and every transaction (Edit
History of Each Transaction),
 creating an edit log of each change made in books of account along
with the date (Log showing changes made to books of accounts) when
such changes were made and
 ensuring that the audit trail (above 2 things) cannot be disabled.
 Sec 129 (1) Amended on 24th March 21
& Schedule III
Schedule III is issued under Sec 129 (1)
Changes are introduced in schedule III, on 24th March, these changes are not core
part of audit syllabus, changes related to disclosure of funds given and funds
received are relevant for audit.
 Sec 134 (3) Amended on 24th March 21
&
Company Sec 134 (3) provides matters to be specified in BOD report. Clause (q) gives
Account Rules power to central government to specify additional matters in rules.

Additional Under these rules CG has issued 2 additional requirements to be specified in BOD
Reporting report.
Requirements
in BOD Report  (xi) the details of
o application made or any proceeding pending under the
Insolvency and Bankruptcy Code, 2016 (31 of 2016) during the
year
o along with their status as at the end of the financial year.

 (xii) the details of difference between amount of the

o valuation done at the time of one-time settlement and
CA Ravi Taori Auditguru.in

o the valuation done while taking loan from the Banks or

Financial Institutions (So it is change in value of security which
was offered for taking such loan)
o along with the reasons thereof.

Amendments in Section 138 to 148

 Sec 140 Amended on 12th Dec 2020
Penalty
Penalty
 Non-Compliance will lead to penalty of 50,000 or remuneration of
Reduced for
non auditor whichever is lower.
compliance of  In case of continuing failure, with a further penalty of 500 per day
resignation after the first day of non-compliance during which such failure
related continues, subject to a maximum of 2,00,000
communicatio
n
 Sec 143 (3) Amended on 24th March 21

Rule 11 Sec 143 (3) (j) gives power to central government to prescribe additional matters
Amendment to be specified in audit report

Under above provision Rule 11 of Company Audit & Auditor’s Rule 2014 is issued
by CG. Earlier there were 3 points now it has increased to 6 points

See Chart On Next page

CA Ravi Taori Auditguru.in
CA Ravi Taori Auditguru.in

 Sec 143 (15) Amended on 12th Dec 2020

Fine
Penalty of  For Listed Company Rs 5,00,000
Fraud  For Any Other Company 1,00,000
Reporting
Reduced
 Sec 147 Change in punishment for officers of the company - Punishment of 1 year
imprisonment is removed.
Penalty
Change in punishment for auditor of the company – Section 143 is removed
Reduced
from the list which is considered for non-compliance and punishment.

Bank Audit
Above changes as given in company audit are relevant for banking companies also under bank
audit chapter.

Audit under Fiscal Laws

Tax Audit
 Tax Audit Amended on 1st April 21
Report
Revision Under Rule 6G is for Report of Audit of Accounts to be furnished under Section 44AB
Rule 6G
Amendment in Rule 6G
 The report of audit furnished under this rule may (option) be revised
 by the person (assessee) by getting revised report of audit from an
accountant, duly signed and verified by such accountant, and
 furnish it before the end of the relevant assessment year for which the
report pertains,
 if there is payment by such person after furnishing of report under
subrule (1) and (2) which necessitates recalculation of disallowance
under section 40 or section 43B.

Specified Date
 For assesses not requiring audit, it is 31st July
 For assesses requiring audit it is 31st Oct
 These dates get extended by government as per situations.

Analysis with Example

 15th Sept – Date on which Audit Report submitted by assessee, expenses
of 50 lakhs were disallowed because no payment was made as per Sec
40 / Sec 43B.

 10th Oct – Payment to the tune of Rs 30 lakhs was made from above
expenses.

 Because of these calculations of disallowance changed under Sec 40 &

43B, assessee will have to revise financial statements because of these
changes, revise income tax return and get revised audit report from
auditor.
CA Ravi Taori Auditguru.in

 As per amendment such revised audit report can be filed under Rule 6G
on income tax portal

 Earlier Guidance Note on tax audit specified conceptual discussion

regarding revision on tax audit report but there was not practical facility
to upload revised audit report, but not in specific circumstances
assessee and auditor will get facility to upload revised audit report

 So assesses use to delay returns & tax audit report so that they can
arrange funds, make payments, take benefits and then file returns. This
use to lead to last minute rush, now such things wont happen.

 Not covered by AS or Ind AS because it is event happening after

finalisation of financial statement and audit report. Further not covered
as per SA 560 also because it, 560 covers facts after signing audit report
and not events after signing audit report.
 Clause 8A Clause
Clause (8A), The new clause inserted in part A of the form 3CD requires the
assessee to state whether the assessee has opted for taxation under any of the
sections 115BA, 115BAA, 115BAB, 115BAC and 115BAD

Sec 115BA – Old section relevant till FY 19-20

Sec 115BAA – Any Manufacturing Domestic Company – 22%
Sec 115BAB – Any Domestic Company – 15%
Sec 115BAC – Individual & HUF – 7 Slabs, After 15 lakhs 30%
Sec 115BAD – Resident Co-operative Society – 22%

Surcharge & Higher Education Cess will also be applicable.

The reply to the above clause can either be a “yes” or “no”.

 If Answer is No
If the assessee has not opted for any concessional rates as provided
under the sections 115BA, 115BAA, 115BAB, 115BAC and 115BAD, of
the Act, then, the tax auditor is not required to take any further steps
and no further audit procedure is required to be followed. The answer
to such question as per the clause in such case can be given as “No” only.
 If Answer is Yes
However, if the assessee informs that it has opted for the confessional
rate of taxation as per the provisions of sections 115BA, 115BAA,
115BAB, 115BAC and 115BAD of the Act, then the audit approach is
required to be modified.

◊ Audit checklist for practical understanding:

o If yes, whether the assessee has opted for taxation
regime under section 115BA, 115BAA, 115BAB,
115BAC and 115BAD and report accordingly.

o If yes, whether the copy of Form 10-IB / 10-IC / 10-ID /

10-IE / 10-IF filed online has been obtained from the
assessee?
 Clause 17 Rate
CA Ravi Taori Auditguru.in

 Under Sec 43CA (Transfer of Business Asset) & Sec 50C (Transfer of
Capital Asset), if consideration goes below stamp act value then also we
will deem stamp act as consideration.

 But such deeming fiction will apply only if stamp act value is exceeding
110% of consideration. So difference should be more than 10% of
consideration.

◊ Till FY 20-21 this rate was 5%

◊ From 1st April 21 rate was changed to 10% (Finance Act 2020) –
Finance Act 2020 is applicable for May & Nov 21 Exams

◊ There is 1 more change, which is introduced by Finance Act

2021, which is logically not applicable, ICAI has not referred
about it and I don’t think it will get applicable as FA 2021 is for
May & Nov 22. But some faculties and included it and as there
is state of confusion, I am just clarifying it and by chance if there
is such question in exam you should be able to answer.

◊ As per this change there is conditional increase is above rate.

Rate is increased to 20% if following conditions are satisfied

o If residential unit is transferred first time to any person

o Consideration not exceeding 2 crores
o Between time period 12th Nov 2020 to 30th June 2021
Additional Column
Details of Considerati Value Whether provisions
Property on received adopted or of second proviso to
or accrued assessed or subsection (1) of
assessable section 43CA or
fourth proviso to
clause (x) of sub-
section (2) of section
56 applicable?
[Yes/No]

Last column is new addition. We simply have to specify whether deeming

fiction that consideration will be equal to stamp value will get applicable. This
deeming fiction gets applicable only when difference is more than 10% as
specified above.
 Clause 18 Show Adjustment Due to Additional Depreciation Disallowance separately

 Under this clause we give reconciliation of block of assets from opening

balance to closing balance.
CA Ravi Taori Auditguru.in

 In reduced rate of taxation under 115BA / 115BAA / 115BAB / 115BAC /

115BAD additional depreciation is not allowed only normal depreciation
is allowed.

Sec 115BAA / Sec 115BAB – From 1st April 20

Sec 115BAB / Sec 115 BAC – From 1st April 21

 When these sections get applicable first time, there can be situation
where unabsorbed additional depreciation may be remaining
outstanding, assessee will not be able to take its setoff in future, to give
relief to assessee, such unabsorbed additional depreciation should be
added to block of asset. So that deduction is received over period of
time.

Show adjustment due to disallowance of good will amortization separately

 Good will amortization will not be allowed as deduction from 1st April
2021 so any unadjusted goodwill should be removed from block of asset.
 And such removal should be shown as separate adjustment in this
schedule.

 Clause 32 In this clause sub clause (a) we give details related to losses and unabsorbed
depreciation.
As certain specified losses and unabsorbed additional depreciation is not allowed
as deduction, such balances should be removed and such removal should be

shown

Example Suppose Co-Operative society has opted for reduced taxation under Sec
115BAD. In first year, they had accumulated unabsorbed losses of 50 lakhs and
accumulated unabsorbed depreciation of 30 lakhs. Out of 50 lakhs suppose 10
lakhs is of not allowed category and in 30 lakhs there is unabsorbed additional
depreciation of 5 lakhs which is again of not allowed category.
CA Ravi Taori Auditguru.in

Now things which are not allowed should be removed, 10 lakhs should be shown
in Column 5 above and 5 lakhs should be shown in column 6. Further unabsorbed
additional depreciation which is not allowed should be added back to WDV under
clause 18
 Clause 36 Omitted