Challenges CS faces in filing annual returns
It is a well-known fact that ‘annual filing fever’ grips all CS (Company Secretary) offices during October and November after companies hold their AGMs and due dates for filing are activated. of the audited financial statements and the annual declaration. However, this year the filing has reached a “feverish” pace and tone thanks to the late release of the electronic forms under the new Companies Act 2013 and also repeated revisions of the electronic forms. This has created several challenges in CS offices as well as companies struggling to understand and fill in information correctly. Let’s look at some of the challenges associated with preparing and electronically filing a private company’s annual return (AR) for FY14-15:
1. There is an excerpt from the AR in MGT9 which is part of the Report of the Board (new requirement under the Companies Act 2013) and then there is MGT7 which is the full AR in electronic version. MGT7 was released on its own at the end of September 2015 and continued to evolve like the ‘amoeba’ until it reached its current ‘avatar’ on November 17, 2015. Needless to say, the information previously collected by CS for MGT9 is not exactly the same. Same as in MGT7. Wondering how MGT9 qualifies as an ‘AR excerpt on MGT7’? Surely, there was enough time since 2014 to align the two and save companies and professionals from interpreting and gathering information on the same topic multiple times and from multiple perspectives. Hoping this gets resolved by the FY15-16 annual presentation.
2. Corporations are annoyed that CSs go back again and again to ask them to classify their business activity in percentage under 2 different codes: IAS2008 for annual performance (both MGT7 and MGT9) and NCPS (National Product and Service Classification) o ITC -HS (Indian Business Classification – Harmonized System) for classification in AOC4 (presentation of audited financial statements). This information is not available in the audited financial statements and their annexes. Most companies can’t find the correct classification and so it’s just the ‘almost there’ or ‘closest’ code. Once broad level sorting is completed in MGT7, the autocomplete description that appears reflects an unrelated activity that sends CSs into a nervous state resulting in gtalk/WhatsApp/phone “questions” activity. The lack of clarity is the biggest obstacle that generates different interpretations. We cannot risk being wrong since the CS are signing the form or certifying as in the case of MGT8 (for certain category of companies).
3. In the initial version of MGT7, the details of the share capital division were in the Promoter and Public category. Since public participation is normally relevant for public limited companies, many professionals did not fill in the share capital belonging to non-promoters in the case of private unlisted public limited companies. There was confusion as to whether it was correct to fill it in the ‘public’ category or not. After countless representations, consultations, webinars, FAQs, etc., this has now been clarified by amending the form to read ‘Breakdown of Share Capital: Promoter and Non-Promoter Share’.
4. Similarly, Loan in MGT9 clearly meant ‘including interest increase but not due’, whereas in the early version of MGT7, it simply said Loan. This has now been expanded to read ‘Loan including increased interest but not due’ which aligns both forms. As is, the information at this depth: of most interest, most but not expired, etc. it is not available to the CS of the financial statements and we have to go back to the client to request the same, which delays the whole process. Simply put, unless the CS is fully prepared with an exhaustive checklist, it is not possible to prepare the AR. The tragedy is that we had little time to create a sticky checklist, as the electronic form itself has evolved. Many times a form filled out today is not valid for tomorrow simply because there was a revision. A colossal waste of time and energy in redoing it.
5. Another area is shareholding which in the first version was classified as Indian and Foreign. The question arose as to whether it includes preferred share capital. Now it is changed to Equity and Preference, but there is no place to show the division of Indian and foreign equity participation by legal entities. Fixing an anomaly has now resulted in another request for another hotfix in MGT7!
6. What is the significance of the number of meetings a director is entitled to attend? Does it also include alternate directors? What meetings are they entitled to attend? Information apparently simple but that can be interpreted in various ways.
7. Directors and KMP Compensation Disclosure: Different Positions Taken by Different Professionals. While some say it is not necessary to disclose this for non-listed companies, some are of the opinion that whether or not they are listed, if a company has an MD/WTD/Manager, etc., it is either designated as Director/KMP u/s 203 of the Law or not. details of remuneration must be disclosed. Many companies are sensitive when it comes to disclosing details of executive compensation, but do not understand that this information is, in any case, available in the Audited Balance Sheet Schedule, albeit to a lesser extent.
8. Enforcement and penalties under other Laws – how are we to know this? Difficult to determine because, in general, the scope of work of a PCS (Practicing Company Secretary) does not extend to other laws and this is a new requirement. There is also no disclosure of such non-compliance and penalties in the financial statements. How are we going to sign that the information is correct unless we verify? These are just a few gray areas and challenges a CS faces in this year’s Annual Return filing. Penalties in CSs are significant for completing incorrect information. Therefore, it may be helpful to follow the steps below:
– Study the electronic form completely and prepare a checklist of the required information and start only when the complete data is available. At least for next season’s presentation, better clarity may be available.
– Send the completed form to the customer for confirmation.
– Where required, insist on a Management Representation letter. Currently, various disclosures are subject to interpretation and companies do not share certain information based on advice received from other experts or internal decisions.
– Review all the original records before signing the form, considering that as CS it is declaring to this effect as well as its correctness and integrity. For certification in MGT8, in any case, a mini-audit must be carried out.