The JourneyVolume 2Chief Audit Executives Round Table Conference

www.pwc.com/india

Introduction Background

The journey of the roundtable conferences began with discussions among a few Chief Audit Executives (CAEs) who were deliberating on the need to have a forum that would allow them to network with their peers on a regular basis.

PwC offered to facilitate such discussions in a structured manner and the first roundtable conference was held in October 2009.

In 2011, the journey of the roundtable conferences continued with a wide-range of insightful discussions on areas where internal audit functions can contribute.

Objective

The conference was envisioned to bring together creative and forward-thinking CAEs and provide a forum for open exchange of ideas on diverse issues faced by the profession in India.

The conference also aims to assist young and upcoming CAEs in enhancing their knowledge through interactions with more experienced internal audit professionals.

This second volume of ‘The journey’ continues our initiative of capturing the stimulating discussions into a brief whitepaper, covering the following topics:

• Trends in information technology

• Transforming internal audit by leveraging technology

• Indirect tax: Integral to internal audit

Volume 1 of ‘The Journey’ covered the following topics:

• Positioning for future success: Transforming internal audit

• Risking it all: A case study

• The financial fraud at Wipro

• Control self assessment

• Emerging risks

• Risk assessment process

• PwC’s Global Internal Audit Survey 2010

• Bridging the gap between diverse expectations of various stakeholders from the internal audit function

• Role of internal audit in addressing fraud risk

For more details please visit www.pwc.com/in/en/services/risk-advisory-services

• “Lights, camera, action... scripting internal audit for a changed world” - Results of PwC’s Global Internal Audit Survey 2011

• Connecting the dots: Overview of financial reporting standards

• Tax function framework: Direct taxes and internal audit

• Audit committee effectiveness: What works best

• Indian Budget 2012: Analysis of key proposals

• Companies bill: Challenges and opportunities

• ‘Aligning internal audit: Are you on the right floor?’ -Results of the PwC’s Global Internal Audit Survey 2012 

• Discussions on revised Schedule VI 

4 PwC

Trends in Information TechnologiesSeventh Round Table Conference - 18 March 2011

Overview

The emergence of social media, e-mobility and cloud computing represents significant opportunities for companies to interact with employees and customers in ways never before considered. Underlying these opportunities are heightened risks associated with reputation and brand damage, data leakage and security. However, if these risks are managed well, opportunities for reduced costs, increased reach and access to new revenue streams can be immense.

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Trends in Information TechnologiesSeventh Round Table Conference - 18 March 2011

Key Pointers

The discussions revolved around 4 major upcoming technologies:• Cloud Computing• Semantic Web• Social Networking• 4G

The participating CAEs agreed that only a few companies are adequately prepared to adequately understand and counter risks associated with these emerging technologies.

The CAEs discussed the need for their function to assist with the development of policies and guidelines that address the specific needs of their companies, while balancing risks with the opportunities represented by technology.

The participants understood that domains such as cloud computing and social networking are poised to be the most transformative, technology-driven development in business since the emergence of the Internet.

There is a need to recognize and capitalize on these technologies to lower costs and enhance flexibility & speed to fuel innovation.

Many CAEs felt that organizations may be hiding behind the risks associated with the usage of such technologies, to limit their investments in these transformative business solutions.

CAEs play an important role to help their companies evaluate how these technologies can support the company’s strategy in conjunction with other planned system changes.

As their organizations look to take advantage of these emerging technologies, CAEs would need to assess how the provider will address the variety of risks associated with these technological advances such as:

• Security of sensitive information (including employee data, customer data and intellectual property) against loss or theft

• Integrity of the data on account of contamination

• Data backup and recovery

• Exposure to unauthorized access

6 PwC

Transforming Internal Audit by Leveraging TechnologySeventh Round Table Conference - 18 March 2011

Overview

In the current environment where technology-enabled solutions are being increasingly used for running operations as well as for financial reporting, internal audit executives also need to leverage technology to a greater extent in their effort to manage risks more efficiently and effectively.

The traditional audit methodology of time-intensive manual control testing results in a high cost of compliance, inefficient utilization of resources and inability to form a view on the entire population. Managements are questioning this traditional approach and are looking from a higher return from their internal audit functions. This is therefore driving audit functions to also turn towards technology, including use of in-built modules of ERP systems to test controls. This change can also allow the internal audit community to centralize and standardize.

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Transforming Internal Audit by Leveraging TechnologySeventh Round Table Conference - 18 March 2011

Key Pointers

The discussions highlighted that although most internal audit functions have been leveraging technology, the breadth and depth of that involvement varied widely.

It was felt that in an IT enabled environment, at a minimum IT General Computer Controls (ITGCC) such as physical & logical access, backups, etc. need to be part of the standard internal audit methodology. Further, the participants also agreed that there is a need to have a far more integrated audit approach which cover both, the IT as well as non-IT aspects of a process.

The discussions brought forth some key points that play a significant role in understanding the eminence of technology in internal audit:

Effective use of technology allows better utilisation of resources

Companies are increasingly looking at the ‘return on investment’ from their internal audit functions. Internal audit therefore is under pressure to deliver more with the same resources and their ability to harness the power of technology is emerging as a critical factor towards this success.

Technology enables internal audit to deliver better and more insightful audit results

CAE agreed that effective use of technology often allows them to study entire populations of data instead of only a sample, thereby allowing them to look at a larger picture. Further, technology facilitates the study of trends in the data over a period rather than looking at static data. These enable CAEs to reach more meaningful conclusions and deliver insightful recommendations.

Using inherent controls present in ERP systems to improve effectiveness

ERP solutions like SAP, Oracle Applications, etc. have a number of inherent as well as configurable controls to manage process risks. CAEs generally agreed that the current levels of knowledge of what these controls are and how these have actually been configured in the ERP in their organizations is an area that needs more work. It was felt that once this challenge is overcome, then this understanding combined with ITGCC testing will lead to quantum improvement in the effectiveness of audit functions.

8 PwC

Indirect Tax: Integral to Internal AuditEighth Round Table Conference - 1 July 2011

Overview

With the proposed implementation of Goods & Service Tax (GST), the framework for indirect taxes in India is poised to undergo a significant transformation.

This transformation presents both opportunities and threats. To effectively make the most of these opportunities and mitigate the possible threats, organizations need to redesign their processes.

Key Pointers

The session was around an overview of indirect taxes in India with insights into the current and proposed central and state framework.

The participants were then provided with a brief on the current state of play with regards to the transition to GST.

The discussions then moved to the key opportunities and threats arising from the transition to GST. Some of them are listed below:

• Major opportunity in the form of supply-chain reengineering 

- Possibility of lowering cost of operations due to:

• Compression of the supply chain

• Disintermediation

• unfettered credits throughout the chain

- Centralization and uniformity of sourcing.

- Serious challenges in the traditional hub-and-spoke distribution model

- Impact of tax payments on stock transfers

• Impact of replacement of exemptions by refund of taxes

• Product pricing:

- impact on channel partner profitability

- product affordability

- product reach/market share

Need to re-Design

The proposed GST regime would lead to centralization of the indirect tax function There is increasing scope and value to be gained from tax administration functions to implement and utilize an IT-enabled platform and processes, such as tax-data warehousing, online tracking of inter-state movements and information exchange among others.

Audit of Indirect Taxes (Objectives, Scope and Areas of Concern)

Internal audit functions can play a significant role in meeting the following objectives:

• Ensure that the existing business transactions comply with the provisions of tax laws and all tax liabilities are accurately discharged under the relevant indirect tax legislations.

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Indirect Tax: Integral to Internal AuditEighth Round Table Conference - 1 July 2011

• Identify any potential liabilities arising from business transactions.

• Identify opportunities for tax planning in order to reduce the incidence of tax under the relevant legislations.

• Ensure smooth transition to the GST regime with a tax-efficient business model and comply with the GST legislations from the beginning.

The scope of audit could involve review of the following:

• Present business model, practices and positions taken under each of the specified business transactions in the existing business model

• Agreements and registration certificates

• Returns filed under various tax laws to ensure that all the mandatory returns have been correctly filed within the specified time and that the details provided therein match the financial and tax records

• Valuation of the services rendered, to check whether they have been correctly determined and all the exemptions, concessions and benefits claimed are in line with the law

• Verification of the taxes to ensure that they have been deposited correctly and within the specified time limit

The participants were then taken through specific case studies on areas of concern such as the following:

• Associated enterprises transaction

• Exemption on account of R&D Cess

• Expats

• CENVAT credits

• Reverse charge – Credits

• Subcontractor

• Centralized registration

• Barter transactions

• Cost-sharing arrangements

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Lights, camera, action… scripting internal audit for a changeEighth Round Table Conference - 1 July 2011

Overview

The world in which internal audit operates continues to change, and the 14th Annual Global CEO Survey results reflect confidence, innovation and a need to bridge gaps in the skill-set, to meet emerging growth opportunities.

Businesses have started focusing on emerging markets, adopting innovative technologies and responding to a rapidly changing regulatory environment. In addition to being the key to succeeding in today’s business environment, these strategies also underpin the critical risks facing today’s businesses.

As internal audit functions strive to transition from overseeing financial controls to advising on a wider range of strategic, business and compliance risks, it is imperative that they establish credibility with leaders of the organization by demonstrating their skills and capabilities in these areas.

The 7th Annual Global Internal Audit Survey conducted by PwC revealed a disparity between the main focus of CEOs and internal auditors when it comes to risk areas such as growth and technology. While CEOs are focused on growth in newer geographic markets, internal auditors indicated that they are least involved in those areas. Similarly, while 70 percent of CEOs plan to invest in IT, less than 25 percent of internal auditors plan to be involved in auditing the risks surrounding cloud computing or social media.

Further, CEOs and internal auditors have a shared focus on government regulation, as overregulation ranks among CEOs’ top concerns and nearly 60 percent of internal auditors expect to increase their attention to regulatory compliance programs in their audit plans.

Key Pointers

The study identified three important focus areas for internal audit departments:

• Strategic growth: Emerging markets, mergers & acquisition activity, innovation and new product development

• Information technology: Security and data protection risks related to emerging technologies such as eMobility and cloud computing, data loss and distribution of malware

• Regulation: The expanding reach of regulations and changes due to financial reform

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Lights, camera, action… scripting internal audit for a changeEighth Round Table Conference - 1 July 2011

Questions to consider

As internal auditors re-evaluate their roles, the Survey suggests they ask themselves the following questions:

• Am I leveraging my unique vantage point within the company to provide a clear point of view on the risks associated with the changing business environment?

• Have I taken action to adjust capabilities and approaches to today’s business environment?

• Am I taking steps to prepare my people for what they will be doing two to three years from now?

Leading internal audit functions look beyond the confines of their department and seek partners both within and outside the business. Audit teams of every size can benefit from some form of co sourcing and an active interaction with the business and compliance functions to identify and manage significant risks. That’s our most significant takeaway from speaking with leaders in the profession.

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Connecting the dots: Overview of financial reporting standardsNinth Round Table Conference - 23 September 2011

Overview

In early 2010, the Ministry of Corporate Affairs (MCA) issued various press releases on the International Financial Reporting Standards (IFRS) roadmap and the convergence plan for India specifying the convergence date to be 1 April 2011, but extendable to 2014 for select Indian companies.

Conversion is much more than a technical accounting issue. IFRS may significantly affect the day-to-day operations of any company and may even impact the reported profitability of the business itself. Conversion represents a one-time opportunity to comprehensively re-assess financial reporting and take ‘clean-slate’ approach to financial policies and processes.

Understanding IFRS and their implications is a business imperative for companies.

Key Pointers

The discussion highlighted the background of the worldwide conversion to IFRS, followed by the roadmap to the adoption of the Converged Indian Accounting Standards (Ind-AS).

There was also detailed discussion on the impact of the proposed change.

Fundamental areas in which Indian GAAP (IGAAP) differs from IFRS are listed below :

• Focus on substance over form

• Focus on risks and rewards

• Present value and fair value concepts

• Estimates

• Extraordinary versus exceptional

• Restatement

Ind-AS

Ind-AS standards will be notified. Its expected that IFRS may have India -specific notifications as well. The group discussed some basic differences between IGAAP and IFRS surrounding:

• Business combination with regard to accounting for gain on bargain purchase

• Financial instruments with regard to exceptions to the definition of financial liabilities

• Employee benefits in recognition of actuarial gains and losses.

The participants also briefly discussed the new exposure drafts released on the Ind-AS.

Ind-AS and Internal Audit

Internal audit functions can serve as a resource for the following:

Board / Audit Committee

• Assist in planning and scoping the transition project.

• Ensure that all aspects (people, processes, systems and operations) are addressed.

• Review diagnostic questionnaires or summaries prepared.

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Connecting the dots: Overview of financial reporting standardsNinth Round Table Conference - 23 September 2011

• Ensure all significant constituencies participate in the process.

• Monitor progress.

• Participate in report to the board, audit committee or stakeholders.

Finance Function

• Review the project governance structure or related responsibilities.

• Monitor completion of detailed component evaluation.

• Review management assessment of alternative policies or the issue-evaluation process.

• Monitor plan for training or knowledge transfer.

• Review prioritized plan for process or system changes.

• Monitor plan for dual reporting periods.

• Review controls over initial IFRS conversion.

• Monitor progress and report to stakeholders.

Integrate change

• Monitor implemented process or system changes.

• Ensure process and control changes are embedded in organization.

• Ensure contractual agreements/ financial covenants reflect the new basis of accounting.

• Review revised Sarbanes Oxley (SOX) scope, based on process or systems changes.

• Monitor SOX testing of new control environment.

• Monitor progress and report to stakeholders.

14 PwC

Tax function framework: Direct tax and Internal AuditTenth Round Table Conference - 2 December 2011

Overview

With the increasing complexities and demands for better performance, there is growing need for improved tax management. The government has gradually reduced corporate tax rates. The emphasis is now shifting towards enforcing compliance and expanding the tax base, with e-governance and digitization gaining importance. Taxation is also used as a tool to promote investments in identified industry sectors, thereby spurring overall economic growth. As such, understanding the impact of developments in tax and regulatory aspects and strategically using them to the benefit of business activities is becoming increasingly important.

Key Pointers

The discussion was structured around key themes and the insights from the discussion are summarized below:

Why tax needs managing?

With the prevailing fast-paced and ever-changing business and legislative environment, it has become increasingly important for companies to effectively manage their tax affairs. Keeping in mind the severe risk to reputation, navigating the tax labyrinth requires skill, foresight and effective management of scarce resources.

What causes tax risks?

The experience among the participants suggests that error of judgment, error in implementation and failure to monitor pose multiple levels of operational, reputational, financial and compliance risks.

How do we manage tax risks?

Leading companies carry out assessments of their tax planning, tax compliance and accounting functions to determine their ‘As-Is’ state and use the same to improve their management of risks within these functions.

There was a consensus among participants on the key drivers for improved tax management. These include:

• Technology

• Communication

• Structure of tax function

• Leadership

• Controls or risk management

• Strategic tax plan

• Process

• Data

• People

• Trends in Tax

Active changes to the structure and rules around collection and dispersal of direct taxes have been proposed in the form of the Direct Taxes Code (DTC). The aim is to eliminate distortions in the tax structure, introduce moderate levels of taxation, expand the tax base, improve tax compliance, simplify the language and lower tax litigations. The code incorporates a prescriptive approach, acting upon established judicial precedents.

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Tax function framework: Direct tax and Internal AuditTenth Round Table Conference - 2 December 2011

Beyond this, there is an increased level of scrutiny upon cross-border transactions, which impacts advanced pricing arrangements, unfair treaties and voluntary information exchange, among other areas.

The approach of the judiciary in India with regards to taxation is evolving with a focused approach upon the jurisdictional limits of the courts and a higher weightage to public interest while interpreting legislation and precedents.

Tipping Areas• Robust strategic plan• Business driver documentation• Pre-filing assurance• Managing multiple financial reporting

and their alignment• Comprehensive withholding tax system• ERP-based tax management systems• Deliberate process to anticipate• Related party reviews

Tripping Areas• Disconnect between accounting and tax• Multiplicity of claims and challenges• Analytic assurance on reporting• Defense docket quality• Contracting term• Due diligence on deals• Restructuring transactions• Inadequacy of disclosure

16 PwC

Audit committee Effectiveness: What works bestTenth Round Table Conference - 2 December 2011

Overview

In 2011, PwC and the IIA Research Foundation conducted a survey of leading practices encountered by audit committee chairs.

The survey was conducted in 13 countries including India and included interviews with audit committee chairs, corporate governance thought leaders and heads of internal audit.

Insights from the survey report were appreciated by participants. Participants identified with the audit committee leading practices and agreed that these were quite relevant for India as well.

Key Pointers

Financial reporting and Disclosures

• Invest the time to understand the business, supply chain, distribution channels and visit company facilities

• Understand critical accounting policies and key accounting estimates

• Understand other financial and related information being report – e.g., in Management’s Discussion and Analysis

Risk management and internal controls

• Understand and maintain skepticism for key areas of greatest fraud risk for the company

• Clearly define the audit committee’s risk responsibility relative to the entire board

Culture and Compliance

• Take needed steps to ensure tone at the top is adequate

• Understand whether compliance programs are effective at promoting proper conduct and behavior through the company

Corporate culture – The soul

• How effective is the tone at the top?

• Is there sufficient monitoring of management override of controls?

• Is there sufficient monitoring of management override of controls?

Oversight of management and internal audit

• Reach consensus on what role internal audit should play to provide maximum value - recognizing that management may have different objectives than the audit committee

• Ensure internal audit is empowered throughout the organization to perform its role

• Insist on effective internal audit reporting, at the right level of detail

• Make the audit committee’s support for internal audit visible to management

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Audit committee Effectiveness: What works bestTenth Round Table Conference - 2 December 2011

The entire board is responsible for risk oversight, but the audit committee coordinates the process.- AC Chair

Relationship With External Auditors

• Ensure clarity of reporting relationship is directly with the audit committee

• Engage in selecting new audit partner (during mandatory partner rotation) or new audit firm (if current firm not meeting the needs)

• Evaluate audit fees

Relationship With External Auditors

• Recognize need for greater involvement in selected situations:

- If errors are found in previously-issued financial statements

- If allegations of fraud or illegal acts surface

18 PwC

Indian Budget 2012 : Analysis of key proposalsEleventh Round Table Conference - 23 March 2012

Overview

The focus of the Union Budget 2012 was on growth recovery driven by domestic demand; revival of high growth in private investment; addressing supply bottlenecks in agriculture, energy and transport sectors; tackling problems of malnutrition, black money and corruption; and implementing decisions to improve delivery systems, governance and transparency.

The budget sought to address structural issues as well as supply-side constraints in the economy. In the past few years, an increased subsidy burden has been the major reason for the fiscal imbalance. For 2012-13, the Endeavour of the government is to restrict the expenditure of the central subsidies to below 2% of the GDP and bring down the fiscal deficit to 5.1 %.

Key Pointers

On the revenue front, the Union Budget proposes various tax reforms which include working towards an early enactment of the DTC Bill, finalizing the model legislation for centre and state GST, proposals to increase the contribution of service tax and the introduction of the General Anti Avoidance Rule (GAAR) to avoid counter-aggressive tax.

Tax Proposals

Participants generally expressed a concern that internal audit functions often do not really understand the specific impact of the budget proposals on their businesses. Most CAEs agreed that the budget is read at a macro level and that audit teams need to go back and re-examine if their audit plan or the focus of certain audits need to undergo a change.

In the words of the Finance Minister,

The year 2011-12 has been tough with the Indian

economy reporting a growth of 6.9%. This is a significant

decline as compared to past few years. Despite the slow down,

driven largely by the uncertain global economic scenario, India remains among the

frontrunners, globally, in any cross-country comparison.

Numerous indicators suggest that the economy is turning

around as core sectors as well as manufacturing show signs

of recovery. India’s GDP growth in 2012-13 is expected

to be 7.6 % approximately.

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Indian Budget 2012 : Analysis of key proposalsEleventh Round Table Conference - 23 March 2012

While presenting the Budget, the Finance Minister mentioned that for the Indian economy, 2011-12 was a year of recovery interrupted. The actual results for the year turned out to be below expectations on account of the global economic downturn as well as the domestic slowdown. Therefore, there was a need for fiscal discipline, new measures to levy and collect taxes as well as providing for incentives for certain sectors.

Tax Proposals

The following aspects of the 2012 Budget were discussed briefly:

• Widening of the income tax base

• Tax incentives to select infrastructure sectors

• Increase in Indirect tax rates and its ambit

• Retrospective amendments generated a fair amount of interest among participants. Overall, there have been 82 retrospective amendments and 62 prospective amendments adding up to 144 amendments, which is highest since Union Budget 2007.

• Tax avoidance proposals:

• International tax

• General anti-avoidance rules

• Source rule of taxation expanded

• Stringent tests for treaty benefit

• White paper on black money

Domestic Tax

• Premium in excess of defined FMV to be treated as income

• Return filing by persons having assets outside India

• TDS on transfer of immovable property

• Transfer Pricing for domestic transactions

Key Legislative Changes

Key legislative changes proposed in the union budget :

• Negative List Concept for taxation of services introduced

• Negative List Concept for taxation of services introduced

20 PwC

Companies Bill: Challenges and OpportunitiesEleventh Round Table Conference - 23 March 2012

Overview

After over five decades, the Companies Bill is being overhauled, with the aim of addressing crucial issues of corporate governance.

The bill, which will substitute the Companies Act, 1956 and is expected to become a law in 2012, envisages several forward-looking steps.

The CAEs were appreciative of most of the proposed changes, and believed these to be a step in the right direction for corporate India. However, there were some apprehensions around the practicality of some of the proposals such as auditor rotation.

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Companies Bill: Challenges and OpportunitiesEleventh Round Table Conference - 23 March 2012

Key Pointers

The new bill proposes amendment and reform in a number of areas these include the following:

Corporate Governance & Social Reforms

• Board of Directors

• Corporate Social Responsibility

• Rotation of Auditors

• Internal Audit & Audit Committee

• Statutory Compliance Reporting

• Insider Trading

• Consolidation of Financial Accounts

Liberalization in Procedures

• Related Party Transactions

• Electronic Maintenance of Records

• Mergers & Acquisitions

• Managerial Remuneration

• Increase in ceiling of members in associations

Some novel concepts

• Key Managerial Personnel & Officer in default

• One Person Company & Dormant Company

• Small & Associate Companies

• Class Action Suits

• Registered Valuer

22 PwC

Aligning Internal Audit Are you on the right floor?Twelfth Round Table Conference – 15 June 2012

Overview

Global economic uncertainty is the biggest risk to companies in 2012, according to three-quarters of all the CAEs. Businesses are calling for internal auditors to broaden and deepen their role in helping them navigate the rapidly changing risk landscape across a range of risks, including data privacy & security, and regulation & government policies.

For more than 1,500 stakeholders and CAEs representing 16 industries and spanning 64 countries, it is apparent that the role internal audit plays in monitoring and helping to protect a company from risk is critical

The study highlighted rising stakeholder expectations and the role they would like internal audit to play in risk management to deliver greater value. It also encapsulates how leading internal audit organizations have aligned themselves with these expectations by expanding the footprint of risks they cover and delivering deeper insights.

In these uncertain times, internal audit cannot simply react to events. It must adopt a strategic mindset that is responsive to risk and raise the minimum standard of performance in order to be effective in supporting organizational risk management and earn a seat at the table.

While the CAEs agreed to stakeholder’s expectations, however they felt that availability of the right competency/ skills as well as the mindset among their teams continued to be a limiting factor.

Risk aren’t static. Internal audit must be flexible.

The Journey 23

Key Pointers

Some of the themes which the discussions hovered around, are listed below:

• What are the most critical risks that the organization faces today?

• Do you believe your organization is better at managing risks than your peer organizations?

• Within your organization, do you believe that internal audit focuses on the Risks That Matter (RTM) to your business?

• Do you have a coordinated line of defense?

• Are you planning projects to assess sustainability programs in your company?

• Are you prepared to focus on the attribute of excellence?

Focus Areas

Given the new risk landscape, there is a burning need to rise to the new ‘floor’ or standard. PwC suggests that the internal auditors should ask themselves the following questions

• Is the current audit plan well aligned with the critical risks facing the organization?

• Does internal audit provide a point of view to help the business improve its responses to risk?

• How effectively does internal audit communicate with stakeholders?

Every company small or big should work towards reaching the next level. The study identifies eight core attributes that lead up to the new floor:

1. Focus on critical risks and issues

2. Align value proposition with stakeholders’ expectations

3. Match talent model to the value proposition

4. Engage and manage stakeholder relationships

5. Enable a client service culture

6. Deliver cost-effective services

7. Leverage technology efficiently

8. Promote quality improvement and innovation

24 PwC

Discussions on revised Schedule VITwelfth Round Table Conference – 15 June 2012

Overview

The Revised Schedule VI to the Companies Act became applicable to companies for periods beginning 1 April 2011.

The Revised Schedule VI is not merely a change in format but is a step towards enhanced norms for presentation and disclosure. It includes recommendations such as classifying every asset and liability into current and non-current. One of the significant changes is that the applicable notified accounting standards have now been given an overriding status vis-à-vis the Revised Schedule VI.

The financial statements will now reflect the business of the company more closely. Hence, the preparers of the financial statements will need to have an in-depth knowledge of the business of the company, and also need to exercise professional judgment.

Overall, the CAEs supported the Revised Schedule VI and it was felt that it is a healthy transition on account of the following:

• It is a move towards internationalizing the ‘look’ of the financial statements.

• The earlier Schedule VI had not kept pace with accounting standards.

• Significant changes including current or non-current classification

• Increased use of judgment and estimates

• Managing the extent of disclosures and ensuring optimum disclosures, neither excessive nor too little

The ICAI has issued a Guidance Note on the Revised Schedule VI to the Companies Act, 1956, which provides guidance in the preparation and presentation of financial statements of companies in accordance with various aspects of the Revised Schedule VI.

However, many CAEs were of the view that their teams needed to spend more time on studying the Revised Schedule VI in detail.

The Journey 25

Key Pointers

• Internal audit can take the lead and run awareness and/ or training courses for both, finance as well as non-finance personnel across the organization.

• Areas or processes which are more impacted by the Revised Schedule VI can be factored into the annual audit plan, or if these are already factored in then the focus on these aspects can be increased.

• In initial periods, internal audit can undertake a pre-audit review of the financial statements prior to the external audit.

Internal audit can also help in realigning existing business processes (including process documentation) so that these are consistent with the Revised Schedule VI

26 PwC

Participants  Group/Organisation*

Amit Roy NIIT

Anuj Mathur Uninor

Arup Chakraborty Cairn India

Arvind Vats Jubilant Foodworks

D D Goyal Maruti

Dharmendra Panwar Max Hospitals

Dinesh K Taneja VE Commercial Vehicles

Girraj Bansal Dabur India

Harish Dua Lanco Infratech

Jagdish Kapoor Videocon Mobile services

Jagdish Kumar Singla Nestlé India

John Mathew Coke

Joydeb Chatterjee SRF

Jyoti Ruparel Genpact

Nupur Ray Chaudhuri Schneider Electric India

As on date of the round table meeting

List of Attendees in the Round Table Conferences

Participants  Group/Organisation*

Rahul Katiyar American Towers

Rajesh Aysola Ranbaxy Laboratories

Rajesh Handa HT Media

Ravi Mohan Bharti Infratel

Sanjay Baweja Emmar MGF

Sanjeev Singhal Spice Global

Sanjeev Sood Max Life Insurance

Shamini Ramalingam Bharti Airtel

Sunil Kumar Ranbaxy Laboratories

Sunil Putty EXL Services

T Kumar Times Of India

Tanu Acharya  Genpact

Vineet Mittal Indigo

Vinod Rao Indus Towers

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pwc.com/india This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PwCPL, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. Without prior permission of PwCPL, this publication may not be quoted in whole or in part or otherwise referred to in any documents.

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