The
Companies Act enhances the role and responsibilities of the Chief Financial
Officer
The Indian Companies Act, 2013 is going to make a big impact on
Indian Corporates in areas including Administration, Accounting &
Reporting, Internal Control, Corporate Social Responsibility, and Governance
structure.
The various provisions of the Act aim to bring in more
transparency and make corporates and those associated with the corporates
accountable to the stakeholders.
The Chief Financial Officer (CFO) of the company, due to his
pivotal position and significant responsibility, is expected to play a critical
role in the changed environment.
CHANGED
ROLE OF CFO
The traditional role of a CFO as an accountant responsible only
for book keeping and recording debits and credits has changed significantly and
the areas of compliance, planning and financial analysis have now become part
of his job responsibilities.
In the 21st century, globally this role has been transformed to
include aspects such as stakeholder’s management, risk management, strategy
building, developing business models, business planning etc.
The Companies Act, in India, has enhanced the responsibilities
of the CFO manifold by formally recognising this transformed role.
For the first time, the Act defines the CFO as a person
appointed as the Chief Financial Officer of the Company and also stipulates
that each company belonging to the prescribed Class of Companies is required to
have a CFO on a full time basis.
The person appointed as the CFO under the Act is also considered
as a Key Managerial Personnel (KMP). Being a KMP under the Act, the CFO is
appointed, remunerated and removed only through a board resolution. The
importance accorded to the role of a CFO is primarily due to the onerous
responsibilities and obligations imposed by the Act on the CFO.
Now, wherever CFOs are appointed under the Act, they will have
to mandatorily sign the financial statements of their companies along with
those authorised by the boards. This is in line with the theory of making those
responsible for execution to formally acknowledge their responsibilities and
accountability to the stakeholder group.
The responsibilities of the CFO for the preparation of the
financial statements have also increased due to the various new requirements
such as consolidation, separate reporting on the operating effectiveness of
internal controls, enhanced disclosure requirements, etc. CFOs are also
responsible for providing various inputs for meeting the enhanced board report
requirements.
REGULATORY
DUTIES
The Act casts tremendous responsibilities on the Audit
Committees and the Board and the new requirements include ensuring effective
internal control environment, setting up a solid regulatory and compliance
framework, formulating a strong risk management platform, providing a robust
vigil mechanism, creating a fool proof mechanism for reporting of frauds, and
ensuring timely approval for related party transactions.
CFOs have an important role to play in all these areas and they
will act as the backbone of corporates in discharging these regulatory
responsibilities in a seamless manner.
Also the corporate social responsibilities of the board would
not only require the involvement of CFOs in ensuring compliance with the Act,
but also in analysing and maximising the value proposition of the same.
Nothing comes free in this world! Along with all the importance
gained, now CFOs are made responsible and liable for penalty and/or prosecution
for non-compliance with various provisions of the Act such as maintenance of
books of account, preparation & filing of annual accounts, disclosure of
financial information in offer documents, risk management, internal control
etc.
CLOSER SCRUTINY
The National Financial Reporting Authority (NFRA) has the power
to investigate matters of professional misconduct committed by individual
members or the firms of Chartered Accountants, Cost Accountants or Company
Secretaries under the respective Acts governing them. So, CFOs, who are
professionals, will also come under the NFRA lens, as members of these
professional bodies.
There is absolutely no doubt that the Indian Companies Act, 2013
expects a lot from CFOs and thrusts various responsibilities and obligations on
them.
The stakeholders firmly believe that Indian CFOs, who are world
class professionals, will meet these expectations proficiently and discharge
their duties diligently by changing gears and taking on a new avatar.
Very soon, CFOs will become key strategic members of Indian
corporates!
ROLE CFO FOR UNLISTED
PUBLIC COMPANY
• CFO is
identified as KMP. 2(19).
• CFO is
identified as ‘officer in default’2(59) and 2(60).
• CFO to
be appointed by means of a Board Resolution (203)
• CFO
shall not hold office in more than one company unless it is a subsidiary
(203-3)
• CFO to
be named in the prospectus or information memorandum for issue of securities.
(26).
• CFO is
responsible for statements in prospectus, if he authorises the issue. (34,35)
• CFO is
directly responsible for maintenance of books of accounts (128-6)
• CFO is
responsible for furnishing ‘true and fair’ view of the state of affairs in the
financial statements (129)
• CFO to
be named in the prospectus or information memorandum for issue of securities.
(26).
• CFO is
responsible for statements in prospectus, if he authorises the issue. (34,35)
• CFO is
directly responsible for maintenance of books of accounts (128-6)
• CFO is
responsible for furnishing ‘true and fair’ view of the state of affairs in the
financial statements (129)
• CFO is
responsible for filing financial statements with Registrar of Companies 137.
• CFO
authorises financial statements – 134.
• CFO is
responsible for adhering to accounting standards – 133.
• A
director may be appointed as CFO (Table A -77). CFO can be a director.
• Where
a CFO has to authorise a statement, if CFO is also a director, he shall
authorise it as CFO. (Table A – 78)
CFO UNDER LISTING
AGREEMENT
• CFO is
responsible for preparation and submission of financial statements.
• CFO
shall be appointed by audit committee
• CFO
shall certify:
• That
has reviewed financial statements and cash flow and state that they do not
contain any materially untrue statement or omit any material fact or does not
contain any misleading statement
• Does
not contain any fraudulent or illegal
transaction
• Does
not contain any transaction violative of company code of conduct
• Accept
responsibility for internal controls relating to financial reporting
• Evaluated
effectiveness of internal controls for financial reporting, reported the same
to auditors
• Made
auditors aware of significant change in accounting policies and disclosed the
same in the notes to accounts.
• Made
auditors aware of any fraud they are aware of in which management or any
employee is involved.
• Introduction
of “manner of dealing with audit report filed by listed companies” – filing of
Form A, Form B specifically signed and issued by chairman of audit committee,
managing director, CFO and auditor.
• Internal
auditor shall coordinate with CFO.
• CFO
cannot distance from state of affairs of the company.
• CFO is
qualified to be in that status. Person accepting that role should understand
and assess the company before taking up the responsibility.
• CFO is
technically and legally responsible for the disclosures in financial
statements.
• CFO is
perceived to be a party to whatever happens in the company.
• CFO,
if he puts his foot and pen down, he can make an impact on governance in the
company
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