What Is an Audit Trail?
Audit Trail An audit trail is a step-by-step record by which accounting, trade details, or other financial data can be traced to its source An auditor can trace the financial data of a particular transaction right from the general ledger to its source document with the help of the audit trail. Audit trails are used to verify and track many types of transactions including accounting transactions and trades in brokerage accounts. An audit trail is most often utilized when the accuracy of an item needs to be verified, such as in the case of an audit. Audit trails can be useful tools when determining the validity of an accounting entry, source of funds, or trade. In the terms of IT Audit Trail in simple words means Activity Log. All the changes happening in a Software has to create an activity log file which gives complete details of : Who made the changes? When were the changes made? What were the changes? Applicability? Can be disabled? In Short, we can Say An audit trail is a sequential record detailing the history and events related to a specific transaction or ledger entry. Maintaining an audit trail is often a regulatory requirement in many financial domains, as well as an accounting best practice. Order audit trails provide evidence and information for regulators in cases of suspected fraud or illegal financial activity. Understanding Audit Trail Audit trails are crucial when it comes to validating and verifying the source of a particular transaction. Auditors can make the use of audit trails for various purposes such as validating the earnings per share, verifying net earnings, and revenue of the company. In case an audit trail learns about missing documents during the process, it means that the company does not adhere to the established accounting procedures. Depending on the company, the type of the given transaction, and the number of steps involved, the audit trail can vary from simple to a much-complicated process. Audit trails can be used in accounting when an auditor or examiner needs to verify figures such as revenue, net earnings, or earnings per share (EPS). Transactions that are involved in computing a company’s revenue, net earnings or earnings per share are reviewed and the calculations may be redone if figures were incorrectly classified. How Audit Trails Are Used Audit trails, or rather the process of following an audit trail, are found in many different areas of finance. When buying a home, for example, a mortgage lender may utilize an audit trail to determine the source of funds for a down payment. They may ask to see a bank statement showing the deposit of funds into the account and ask for additional verification regarding the source of the deposit. Why it is important to know about Audit Trail The MCA has mandated companies to compulsorily have audit trails and transaction logs in their accounting software from April with auditors tasked with the responsibility to review and report the controls. Every company which uses accounting software shall use only such systems that possess a feature of a recording audit trail for transactions and are able to create logs of changes made to the books of account and “ensuring that the audit trail cannot be disabled”, an MCA notification on 24th of March 2021 said. While this helps mitigate unrecorded transactions and curb frauds, it is a huge compliance burden on companies to implement new systems and retrain staff, companies, and auditors There should be a turnover limit instead of a blanket rule, they added, arguing that the move will impact smaller companies. Government sources, however, dismissed the complaint, saying the move was necessary to check frauds as there were several instances of fudging of books. Accounting Software with Audit Trail Feature Zoho Books Quick Books Tally Dynamics AX SAP B1 AUDIT TRAIL IN ZOHO BOOKS Zoho Books maintain an “Activity Log” and cannot be disabled. Following are the details available : Names of both users – created &modified Date & time Multiple versions of same Transactions Comparison between 2 versions Old Values V/s New Values Recently Prashant Ganti, head of tax, accounting, and payroll products at Zoho, said while the ideal expectation is for companies to have such software, it is a big task for those who don’t. “We have been evangelizing this for a long time,” he said. Zoho Books, Zoho’s financial software, has the audit trail feature. AUDIT TRAIL IN QUICK BOOKS Quick Books maintain ”Audit Logs” and this cannot be disabled. Following Details are available : Date of Alteration of any Changes Name of the User Category of Change Vendor / Customer Data altered Unaltered Voucher details with Date and Amount AUDIT TRAIL IN TALLY Tally maintains ”Altered/Entered by” details only. Following details are available : Last user who altered/opened the voucher. So there are no other details as to what was edited when it was edited. Hence, by default, the tally doesn’t comply with the MCA Notification Alternatively, TDL Add-ons are available to fulfill this Audit Trail Requirement, refer to Snapshot Tally Solutions, with a customer base of two million and the largest market share of around 75% in this segment, has an audit trail function but currently, there is also a provision where users can disable it. “This is likely to create huge friction in ease of doing business come April 1. We are working to figure out how to help our customers and efforts to save the company come second,” Bharat Goenka, vice chairman, Tally Solutions, “While we currently have the audit trail capability, we are seeking clarifications from the ministry to ensure we advise our customers in the right manner,” he added.
Why India has become a hotspot for foreign investments?
Foreign direct investment (FDI) is an important source of non-debt finance and hence a factor in the economic development of a country. Apart from supplementing domestic investment, it brings with it internationally available technologies, managerial skills and practices, and new employment opportunities. Although India has been a preferred destination for foreign investors for long, the recent upsurge in flow of funds into the country is quite remarkable and encouraging. According to the World Investment Report, 2020 of the United Nations Conference on Trade and Development (UNCTAD), India jumped from 12th spot in 2018 to 9th spot in 2019 on the list of global top 20 recipients of FDI. In other words, India was among the top 10 recipients of FDI. FDI inflows into India increased from US$ 44 billion in 2018 to US$ 51 billion in 2019. Similarly, as per the quarterly Fact Sheet on FDI released on November 27, 2020 by the Department for Promotion of Industry and Internal Trade (DPIIT), Government of India, FDI into India totaled US$ 30 billion during the first half (April to September) of the current fiscal year (2020-21) as compared to US$ 26 billion for the same period last year (2019-20), recording an increase of 15 percent. Why India has become a hotspot for foreign investments? There are several good reasons for investing in India. Let’s see them:- Large and Expanding Size of the Market India as an Alternative to China Ease of Doing Business Digital Revolution Well-managed Public Finances Robust and Resilient Financial System Strong and Diversified Industrial, Infrastructural and Logistics Base Innovations and Startup Hub Exchange Rate Policy and Foreign Exchange Reserves Political Stability and Cordial International Relations Similarly starting a company in India for the foreign investors is not a huge hindrance. Minimum 2 directors and shareholders are required out of them one must be resident in India. But the incorporated companies as well as the investors have to ensure that they have complied with all the laws and regulations which are applicable to them. Now let’s see what the newly incorporated company and the foreign investors have to comply with. Compliance for the Newly Incorporated Companies under the Companies Act 2013 First meeting:As per Section 173(1), of The Companies Act 2013, the company shall hold a meeting of the Board of Directors in less than 30 days from the date of its incorporation. Directors are permitted to attend the meeting either in person or through video conferencing. Bank account: Companies need to have a bank account even before approaching the authorities for company incorporation. Since the company is an artificial entity, the transactions cannot be done in the name of any natural person. Official address: As per Section 12(1), a company shall have a registered office within 15 days from the date of incorporation. This address shall be used to receive all official communication from the various authorities. The company shall inform the same to the registrar within 30 days from the date of incorporation. It’s all in the name: Every company shall be required to affix its name at all places from where it carries on its business operations. It shall be displayed in the language which is generally used in the locality. Additionally, the company has to get a seal with its name engraved on it, letterheads with appropriate information and printed negotiable instruments. Auditor: According to Section 139(1), the first auditor shall be appointed by the Board of Directors (BOD), except for a government company, within 30 days from the time the company is registered. Failing which, the members shall appoint the auditor within 90 days at an extraordinary general meeting. The term of the first auditor shall be until the conclusion of the first annual general meeting. Interest disclosure:At the first board meeting, every director shall disclose his interest in any company/firm/body corporate/association of individuals as outlined in section 184(1) of the Companies Act 2013. Any changes in the disclosures shall be intimated to the board in its first meeting held during each financial year. An independent director, if any, must give a declaration that he meets the criteria of independence during the first board meeting as a director. Statutory registers: The Company shall be required to maintain statutory registers at the registered office of the company. The same shall be maintained in the prescribed form failing, which the company will be subject to penalties. Infusion of initial capital by subscribers to memorandum :The subscribers to the Memorandum of Company has to bring the amount of subscribed capital as stated in the Memorandum of Association at the time of company registration within 60 days of incorporation. There is no explicit conditions in Companies Act as to this time limit 60 days for bringing the capital. However, the company is required to issue share certificate to the shareholders within 60 days of incorporation. In order to comply requirements of issue of share certificates in time, it is advisable to bring the subscribed capital with 60 days of incorporation. Infusion of capital to the Company bank account should happen preferably from the respective shareholder’s account. Also, the shareholder has to bring the entire amount of subscribed capital as stated in the Memorandum of Association. Share certificate: The share certificate shall be issued to a shareholder within 60 days from the date of incorporation. In case of additional shares being allotted, the time period is taken as 60 days from the date of allotment. Within 30 days from the date of allotment of share, Return of Private Placement is required to be filed with ROC in Form PAS-3. If shares are not issued within 60 days, then the money is required to be refunded within 15 days otherwise 12% p.a. Interest is payable from the 61st day of allotment. Books of Accounts: As per section 128, every company shall maintain proper books of accounts which shall represent an accurate and fair view of
How to carry out business valuation
How to carry out business valuation (International Valuation Standard -200 (IVS-200 (2020)) – Businesses and Business Interests) Valuations of businesses are required for different purposes including acquisitions, mergers and sales of businesses, taxation, litigation, insolvency proceedings and financial reporting. Business valuations may also be needed as an input or step in other valuations such as the valuation of stock options, particular class(es) of stock, or debt. Following are the typical steps for carrying out the business valuations: Valuers must establish whether the valuation is of the entire entity, shares or a shareholding in the entity (whether a controlling or non-controlling interest), or a specific business activity of the entity. It is especially critical to clearly define the business or business interest being valued as, even when a valuation is performed on an entire entity, there may be different levels at which that value could be expressed. For example: (a) Enterprise value: Often described as the total value of the equity in a business plus the value of its debt or debt-related liabilities, minus any cash or cash equivalents available to meet those liabilities. (b) Total invested capital value: The total amount of money currently invested in a business, regardless of the source, often reflected as the value of total assets less current liabilities and cash. (c) Operating Value: The total value of the operations of the business, excluding the value of any non-operating assets and liabilities. (d) Equity value: The value of a business to all of its equity shareholders A valuer must select the appropriate basis(es) of value. Bases of valuations includes Fair Value, Liquidation value etc depending upon the purpose. The three principal valuation approaches described in IVS 105 Valuation Approaches and Methods may be applied to the valuation of businesses and business interests. (a) Market Approach: The three most common sources of data used to value businesses and business interests using the market approach are: (a) public stock markets in which ownership interests of similar businesses are traded, (b) the acquisition market in which entire businesses or controlling interests in businesses are bought and sold, and (c) prior transactions in shares or offers for the ownership of the subject business. There must be a reasonable basis for comparison with, and reliance upon, similar businesses in the market approach. These similar businesses should be in the same industry as the subject business or in an industry that responds to the same economic variables. Factors that should be considered in assessing whether a reasonable basis for comparison exists include: (a) similarity to the subject business in terms of qualitative and quantitative business characteristics, (b) amount and verifiability of data on the similar business, and (c) whether the price of the similar business represents an arm’s length and orderly transaction. (b) Income Approach Income and cash flow related to a business or business interest can be measured in a variety of ways and may be on a pre-tax or post-tax basis. The capitalisation or discount rate applied must be consistent with the type of income or cash flow used. The type of income or cash flow used should be consistent with the type of interest being valued. For example: enterprise value is typically derived using cash flows before debt servicing costs and an appropriate discount rate applicable to enterprise level cash flows, such as a weighted-average cost of capital, and equity value may be derived using cash flows to equity, that is, after debt servicing costs and an appropriate discount rate applicable to equity level cash flows, such as a cost of equity. The income approach requires the estimation of a capitalisation rate when capitalising income or cash flow and a discount rate when discounting cash flow. Under the income approach, the historical financial statements of a business entity are often used as guide to estimate the future income or cash flow of the business. Determining the historical trends over time through ratio analysis may help provide the necessary information to assess the risks inherent in the business operations in the context of the industry and the prospects for future performance Adjustments Adjustments may be appropriate to reflect differences between the actual historic cash flows and those that would be experienced by a buyer of the business interest on the valuation date. Examples include: (a) adjusting revenues and expenses to levels that are reasonably representative of expected continuing operations, (b) presenting financial data of the subject business and comparison businesses on a consistent basis, (c) adjusting non-arm’s length transactions (such as contracts with customers or suppliers) to market rates, (d) adjusting the cost of labour or of items leased or otherwise contracted from related parties to reflect market prices or rates, (e) reflecting the impact of non-recurring events from historic revenue and expense items. Examples of non-recurring events include losses caused by strikes, new plant start-up and weather phenomena. However, the forecast cash flows should reflect any non-recurring revenues or expenses that can be reasonably anticipated, and past occurrences may be indicative of similar events in the future, and (f) adjusting the inventory accounting to compare with similar businesses, whose accounts may be kept on a different basis from the subject business, or to more accurately reflect economic reality. When using an income approach, it may also be necessary to make adjustments to the valuation to reflect matters that are not captured in either the cash flow forecasts or the discount rate adopted. Examples may include adjustments for the marketability of the interest being valued or whether the interest being valued is a controlling or non-controlling interest in the business. However, valuers should ensure that adjustments to the valuation do not reflect factors that were already reflected in the cash flows or discount rate. For example, whether the interest being valued is a controlling or non-controlling interest is often already reflected in the forecasted cash flows. While many businesses may be valued using a single cash flow scenario, valuers may also apply multi-scenario or simulation models, particularly when
MAHARASHTRA PACKAGE SCHEME OF INCENTIVES 2019
PACKAGE SCHEME OF INCENTIVE 2019 – SCHEME HIGHLIGHTS Scheme highlights Period of operation– Application under PSI 2019 can be made between April 2019 to March 2024 provided one of the effective steps is undertaken during the validity period Coverage – Industries envisaging manufacturing; qualifying as SSI, MSMED, Large Scale Units, IT Manufacturing, Bio Technology units, Cold Storages and specified mechanized and food processing industries Geographical Groups – Areas have been earmarked as A, B, C, D, D+, No Industry Disctrict, Naxalism Affected Area, Aspirational District in accordance with the development index of the region and benefits have been determined accordingly. Aspirational Districts consist of Osmanabad, Gadchiroli, Washim and Nandurbar. Capital investment Blocks – Criteria based on investment values have been determined viz. SSI, MSME, Large Scale units, Special Large Scale units, Mega Project and Ultra Mega Projects Thrust Sectors – Following thrust sectors have been identified which will be given priority in incentives and land allotmenta)Electric Vehicles (Manufacturing, Infrastructure and Servicing)b)Aerospace and Defence Manufacturing c)Industry 4.0 (Artificial Intelligence, 3D Printing, Internet of Things and Robotics, Nanotechnology, among others) d)Integrated Data Centre Parks (IDCP) e)Textile Machinery Manufacturing f)Bio technology and Medical and Diagnostic Devices g)Agro & Food Processing (Secondary and Tertiary Food Processing units) h)Information Technology (IT) & IT Enabled Services (ITeS) i)Electronic Systems Design & Manufacturing (ESDM) and Semiconductor Fabrication (FAB) j)Logistics & Warehousing k)Green Energy/ Bio Fuel Production l)Sports and Gym Equipment Manufacturing m)Nuclear Power plant equipment manufacturing n)Mineral / Forest based Industries/ Type of incentivesa)Industrial Promotion Subsidy (Capital subsidy) – The Scheme provides with subsidy which is percentage of capital investment in the projects differentiated on the basis of Groupsb)Interest Subsidy – Interest paid on finances obtained for qualified investments is eligible for subsidy at rates specified in the Scheme document c)Electricity duty exemption – Scheme provides exemption from payment of electricity duty to all eligible units to the extent of eligible period d)Stamp duty exemption – Waiver of stamp duty on transactions undertaken during the investment period e)Power Tariff Subsidy – Fixed subsidy is granted per unit consumption basis f)Other incentives – Investments for MSME expansion units qualifying for promotion of Quality Competitiveness, Research & Development, Technology Upgradation, Water & Energy Conservation, Cleaner Production Measures and Credit Rating will get specified benefits under the Scheme PACKAGE SCHEME OF INCENTIVE 2019 – KEY CONCEPTS PACKAGE SCHEME OF INCENTIVE 2019 – BENEFIT MATRIX
Synopsis of Important Announcements in Press Meet of Finance Minister
INCOME TAX GOODS AND SERVICE TAX Sabka Vishwas Scheme is not extended to 30th June 2020, from 31st March 202 No interest will be levied if you pay dues by 30th June 2020.OTHER IMPORTANT RELIEFS/ANNOUNCEMENTS MCA 21 registry, the moratorium period being issued form 01/04/2020 to 30/09/2020, there will be no late fees for late filling during the said Relaxation of board meetings for 60 days and this relaxation is for next 2 CARO 2020 will be applicable from FY 2020-21 instead of FY 2019-2 Even if independent director has not attended a single meeting in FY 2019-20, it will not be considered as Newly incorporated companies will get additional time of 6 months for fillings forms related to commencement of business (total time will be 1 year). Directors who have not stayed in India for more than 182 days will not be considered as violation. Custom clearance will be available 24 x 7 up to 06.2020 Other few announcements are also made related to Insolvency and Bankruptcy Code, Fisheries, Department of financial services.
KEY DECISIONS OF 39TH GST COUNCIL MEETING (14TH March 2020)
The GSTR-9 & 9C deadline is extended to 30 June 2020 for FY 2018-19. Also, the turnover limit will be increased from Rs 2 crore to Rs 5 crore for mandatory annual return filing. Hence, filing GSTR-9C is optional for the taxpayers having a turnover of less than Rs 5 crore. The taxpayers with an aggregate annual turnover of less than Rs 2 crore in FY 2017-18 and FY 2018-19 will not pay any late fee for delayed filing of GSTR-9. Now, the interest for delayed GST payment will be calculated on the net tax liability. This amendment will apply retrospectively from 1st July 2017. The implementation of the new GST return system has been postponed to 1st October 2020. Also, th implementation of e-invoicing and the QR code has been deferred to 1st October 2020. The present return system (GSTR-1, GSTR-2A & GSTR-3B) will be continued until September 2020. The GSTR-1 for 2019-20 will be waived for certain taxpayers who could not opt for the special composition scheme (notification No. 2/2019-Central Tax (Rate) dated 7th March 2019) by filing Form CMP-02. The due date of Form GSTR-3B for July 2019 to January 2020 is extended till 24th March 2020 for taxpayers with a principal place of business in the Union Territory of Ladakh. Also, a similar extension is recommended for Form GSTR-1 and Form GSTR-7 GST on mobile phones and specified parts was increased from 12% to 18%. This decision was taken to avoid difficulties due to the inverted duty structure. – All types of matches have been rationalized to a single GST rate of 12%. Till now, the handmade ones were taxed at 5% and the rest was taxed at 18%. – GST on Maintenance, Repair, and Overhaul (MRO) service with respect to aircraft was reduced from 18% to 5% with full ITC. – All these rate changes will come into effect from 01 April 2020. A new scheme called ‘Know your Supplier’ has been introduced so that the taxpayers are informed about the basic details of the suppliers with whom they transact or propose to conduct business. Taxpayers who have canceled their GST registration till 14th March 2020 can file an application for the revocation of the cancellation of registration. The window to fill this application is available till 30th June 2020. The extension is a one-time measurement to facilitate those who want to continue conducting the business. OTHER DECISIONS – Infosys Chairman, Mr. Nandan Nilekani to present progress updates about the GST IT systems at the next three GST Council meetings. – The time limit for finalization of the e-Wallet scheme for consumers is extended till 31st March 2021. – A special GST procedure was prescribed during the CIRP period for the GST registered corporates who are undergoing insolvency/resolution procedures under IBC Code, 2016. – A transition plan is laid down till 31st May 2020 for the taxpayers belonging to Dadra and Nagar Haveli & Daman and Diu, due to the merger in January 2020. – Refund claims will now be processed in bulk for the benefit of the exporters. – Present IGST and cess exemptions on the imports made under the AA/EPCG/EOU schemes will continue up to 31st March 2021.
Relief for statutory compliances under GST, Income Tax and others
Highlights of FM Press Meet dated 24th March 2020 GST Due date extensions – The due dates for GSTR-3B for March 2020, April 2020 and May 2020 is extended up to 30th June 2020 for those with an annual aggregate turnover of up to Rs 5 crore. The due date for filing annual returns are extended to the last week of June 2020 from 31st March 2020. Late fee and Interest Exemptions: ○ Companies with an annual turnover up to Rs 5 crores will be exempted from interest, late fees, and penalty. ○ Companies with an annual turnover of more than Rs 5 crores are exempted from late fees and penalty if any. However, the interest will be levied at a reduced rate of 9% if paid between 20th March to 30th June 2020. The filing date of CMP-02 extended: The date for opting composition scheme for the FY 2020-21 has been extended to 30th June 2020. The time limit for any compliance under the GST laws has been extended to 30th June 2020 where the time limit is expiring between 20th March 2020 to 29th June 2020. Sabka Vishwas Scheme gets extension: The legacy Sabka Vishwas scheme is now extended to 30th June 2020 from 31st March 2020. No interest will be levied if you pay dues by the 30th of June 2020. Relief for a smooth EXIM trade: Customs clearance will operate 24×7 up to 30th June 2020. Income Tax Due date extension: The last date for ITRs for FY 18-19, extended to 30th June 2020 instead of 31st March 2020. For delayed payments of tax made till 30th June 2020, penal interest reduced from 12% to 9%. TDS Compliance: TDS will have to be complied with, with no deadline extension. The interest rate on delayed TDS deposit reduced to 9% instead of the earlier 18%. Reduced rate allowed till 30th June 2020. Aadhaar-PAN linking due date extended to the 30th June 2020. Vivad-se-vishwas scheme has also been extended to 30th June 2020. No 10% additional charge from now till 30th June 2020. Earlier there was no additional charge till 31st March 2020. Due dates for issue of notice intimation/notification/approval order/sanction order/filing of appeal/applications/reports any other documents, extended to 30th June 2020. Any compliance by the taxpayers, including investment in tax-savings instruments, capital gains for investment to claim capital gains exemption, compliance with STT law, equalization levy law compliances, all extended to 30th June 2020. Awaiting press releases and relevant notifications. MCA MCA 21 registry, the moratorium being issued from 01 April 2020 till 30th September 2020. There will be no late fee for the late filing during this period. Relaxation of board meetings for the 60 days and this relaxation is for the next 2 quarters. CARO 2020 will be applicable from FY 2020-21 instead of FY 2019-20. Even if the independent director has not attended a single meeting in FY 2019-20, it will not be considered a violation. The newly incorporated companies will get additional time of 6 months for filing the forms related to the commencement of business. Directors who have not stayed in India for more than 182 days will not be considered as a violation. Banks No charges if minimum balance requirement is not met in bank accounts, relief for the next 3 months No debit card charges for ATM transactions
What is CFO Service? How to know if you need one?
Customers and money are two things that fuel every business. But, having money alone doesn’t suffice. There are several factors and risks that revolve around money. So, you need someone who can manage your finances at the enterprise level, and maintain the financial health of your organization. No, we aren’t referring to hiring an accounts manager. You need someone more visionary and experienced here. You need a Chief Financial Officer (CFO)! Of course, hiring CFO, especially with the salaries they demand, may not be as feasible. But, you can opt for a CFO Service. So, if you’ve been searching for a CFO Services in India , you’ve come to the right place. This blog walks you through the concept of CFO Service and also helps you understand how to know if you need one. What is CFO Service? Hiring a CFO Service helps you leverage the benefits of hiring a full-time CFO for your company. Outsourcing CFO operations to an external agency covers the following services. Preparing budgets Devising cost control strategies Improving internal financial processes Taking part in management decisions. Structure deals appropriately. Comprehensive fund management Financial planning Investment consulting Ensuring statutory and tax compliance Assist the organization in private equity, debt, IPOs, Joint Ventures, etc. How to know if you need a CFO Service? Your business indicates the need for a CFO through various situations. So, it is all about identifying those indications to keep your business financially healthy. Your Financial Health is Deteriorating If you are not from a financial background, you may not have the time and technical expertise to understand various aspects such as cash flows, budgets, payroll, balance sheets, etc. So, you may not get the time to access and assess your organization’s financial performance. As a result, your finances may start to suffer. And, if it does, it is time to hire a CFO Service. Your business isn’t Growing as Expected Sometimes, everything is right. Your strategies, plans, business forecasts, and the market situation are all promising. But still, your business doesn’t grow as expected. In such a case, it is possible that your business is bleeding on the financial front. Here, you need a CFO to heal the monetary wounds. Your Business is Growing Too Quickly It is good to grow. But, uncontrolled business growth is like an uncontrolled vehicle. It may crash at any point in time. So, if you feel your business is growing quickly, but in an unplanned manner. You need a CFO to manage the cash flow, budgets, and other financial documents to strike the growth balance. When you are about to exit the business Exiting a business requires complying with a lot of government laws, regulations, and completing various financial and administrative formalities. Hiring an external CFO helps you comply with all the necessary formalities in the most appropriate manner. The CFO takes you through all the processes, right from assessing the financial position of the company, negotiating with the buyers, and closing the books. Conclusion CFOs are critical to the business from the viewpoint of managing finances, devising financial strategies, and securing the company’s financial position. Staying mindful of all of the above indicators will help you hire CFO services for your company in time. Connect with us for CFO services for your company.
7 Things Every Business must do before the Financial Year End
The financial year-end is only a couple of months away. So, it is time, you take the necessary steps associated with year-end compliance, and prepare for the upcoming FY. Here are seven things every business owner must do before the end of every financial year. Calculate Payable Advance Tax Paying the income tax on time is imperative from the viewpoint of compliance. So, you must start working towards your tax liability by calculating the taxable income. Ensure that your advance tax reaches the central government before March 31 and you get your challan serial number on or before it. Invest to Save Tax Make investments that are eligible for deductions under Chapter VI A. For instance, individuals, and HUFs are entitled to deduction under section 80C of the Income Tax. It is for a deduction up to an investment amount of INR 1, 50, 000, and an additional deduction of INR 50,000 under section 80 CCD for investments in the National Pension Scheme (NPS). Ensure you understand the terms and conditions. File the Income Tax Returns Keep your income tax return up to date. Don’t delay filing the income tax returns of your business. Calculate the returns through a qualified and certified chartered accountant. Ensure you fulfill this compliance. Calculate the GST Turnover If your annual business turnover is over 20 lakhs, you will have to file the GST. Make sure you calculate the GST accurately and pay it on time. Hire a GST expert if you don’t have the human and technological muscle to ensure GST compliance. Reconcile the GST Ledgers Business owners pay GST payments either through a tax credit, or challan payments. As a taxpayer, you must reconcile the Credit Ledger, Cash Ledger, and the Liability Ledger on the GSTN portal with the accounting books. Ensure you do all the entries before the year-end. Later on, you must also reconcile credit notes, debit notes, discount, and the rate difference as well. read more about GST services Manage the Professional Income and Expenses Professions that follow the cash system of accounting can deduct business expenses only if the owners pay them on or before March 31. Hence, owners must make the payments before March 31. They must deposit all the professional receipts in the bank account before March 31, and keep to for submission in the next year. It is because the payer must have deducted TDS on it. He will show the amount paid to you, along with the corresponding TDS, and file it. Clean your Loan Accounts If a temporary, or hand loan is outstanding, you must try and repay it on or before March 31. It helps you improve the balance sheet position of your assets and liabilities. Besides, your balance sheet will be prepared as on March 31. So, try to settle the asset and liabilities that may not show a favorable position, if they aren’t settled on or before March 31. Not complying with government rules and regulations may end you up in penalties, and other complications. Don’t let it happen with your business. Connect with ANGCA for more assistance.
Valuation of ESOPs and Accounting of ESOPs
Important Definitions: Employee Stock Option is a contract that gives the employees of the enterprise the right, but not the obligation, for a specified period of time to purchase or subscribe to the shares of the enterprise at a fixed or determinable price. Exercise means making an application by the employee to the enterprise for the issue of shares against the option vested in him in pursuance of the Employee Stock Option Plan. Exercise Period is the time period after vesting within which the employee should exercise his right to apply for shares against the option vested in him in pursuance of the Employee Stock Option Plan. Expected Life of an Option is the period of time from the grant date to the date on which an option is expected to be exercised. Exercise Price is the price payable by the employee for exercising the option granted to him in pursuance of the Employee Stock Option Plan. Fair Value is the amount for which stock option granted or a share offered for purchase could be exchanged between knowledgeable, willing parties in an arm’s length transaction. Grant Date is the date at which the enterprise and its employees agree to the terms of an employee share-based payment plan. At the grant date, the enterprise confers on the employees the right to cash or shares of the enterprise, provided the specified vesting conditions, if any, are met. If that agreement is subject to an approval process, (for example, by shareholders), the grant date is the date when that approval is obtained. Intrinsic Value is the amount by which the quoted market price of the underlying share in case of a listed enterprise or the value of the underlying share determined by an independent valuer in case of an unlisted enterprise, exceeds the exercise price of an option. The vest is to become entitled to receive cash or shares on the satisfaction of any specified vesting conditions under an employee share-based payment plan. Vesting Period is the period between the grant date and the date on which all the specified vesting conditions of an employee share-based payment plan are to be satisfied. Volatility is a measure of the amount by which a price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. The volatility of a share price is the standard deviation of the continuously compounded rates of return on the share over a specified period. For accounting purposes, employee share-based payment plans are classified into the following categories: (a) Equity-settled: Under these plans, the employees receive shares. (b) Cash-settled: Under these plans, the employees receive cash based on the price (or value) of the enterprise’s shares. (c) Employee share-based payment plans with cash alternatives: Under these plans, either the enterprise or the employee has a choice of whether the enterprise settles the payment in cash or by the issue of shares. ESOP Cycle – Grant Vest Exercise Issue/Settlement Equity-settled Employee Share-based Payment Plans Determination of vesting period: Valuation: Fair Value of Options: Accounting of Options: No of Employees 50 No of Grants to Each Employee 500 Contractual Life of Options 5 Vesting Period: 3 Years Exercise Period: 3 Years Expected Life: 5 Years Exercise Price: 50 Market Price: 100 Expected forfeitures per year % 3% FV as per Option Pricing Model 25 At the grant date, the enterprise estimates the fair value of the options expected to vest at the end of the vesting period as below: No. of options expected to vest = 500 x50 x 0.97 x 0.97 x 0.97 = 22817 Fair value of options expected to vest = 22817 options x 25 = 342252 Per Year Cost allocation (for three Years) Employee compensation expense A/c Dr. 1,90,140 To Stock Options Outstanding A/c 1,90,140 Read more here about our valuation services