September 2021


Deepa Agarwal
Chartered Accountant

The effect of laws and regulations on financial statements varies considerably. Non-compliance with the same may result in fines, litigation or other consequences for the entity that may have a material effect on the financial statements. It is the responsibility of management, with the oversight of those charged with governance, to ensure that operations are conducted in accordance with the provisions of various laws and regulations, including those that determine the reported amounts and disclosures in an entity’s financial statements.

Standards on Auditing (SA) 250, Consideration of Laws and Regulations in an Audit of Financial Statements, deals with the auditor’s responsibility to consider laws and regulations when performing an audit of financial statements. The provisions of some laws or regulations have a direct effect on the financial statements in that they determine the reported amounts and disclosures in an entity’s financial statements, e.g., the Companies Act, 2013 (‘2013 Act’). Other laws and regulations that do not have a direct effect on the determination of the amounts and disclosures in the financial statements, but compliance with which may be fundamental to the operating aspects of the business, to an entity’s ability to continue its business, or to avoid material penalties (e.g., compliance with the terms of an operating license, compliance with regulatory solvency requirements, or compliance with environmental regulations), non-compliance with such laws and regulations may therefore have a material effect on the financial statements. The Code of Ethics issued by the ICAI also includes specific sections on Responding to Non-Compliance of Laws and Regulations (NOCLAR)1 for listed companies. However, the auditor is not responsible for preventing non-compliance and cannot be expected to detect non-compliance with all laws and regulations.

The MCA has issued various amendments to the Companies Act, 2013, including an amendment to Schedule III of the Companies Act, 2013 to increase transparency and to provide additional disclosures in the financial statements, and CARO 2020 to enhance the reporting requirements for auditors. The MCA has also amended the provisions of Rule 11 of the Companies (Audit and Auditors) Rules, 2014 to include additional matters in the Auditor’s Report w.e.f. 1st April, 2021 (except the requirement related to audit trail which is applicable w.e.f. 1st April, 2022).

1 The ICAI issued an announcement dated 26th July, 2021 and deferred the applicability date of these provisions to 1st April, 2022

This article attempts to provide an overview of the key amendments relating to the definition of listed company, Corporate Social Responsibility and managerial remuneration and related ch


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