The proviso to Section 232(3) requires the auditor’s certificate confirming that the accounting treatment proposed in the scheme is in conformity with the accounting standards. The certificate is a condition of the NCLT’s sanction, but it is not a guarantee of the accounting treatment’s correctness. Where the accounting treatment is subsequently found to be non-compliant, the company faces consequences that go beyond the scheme.
The Auditor’s Certificate
The auditor’s certificate is the documentary foundation of the accounting treatment. It must state that the proposed treatment is in conformity with the accounting standards, and it must be filed with the NCLT before the sanction. The NCLT has rejected schemes where the certificate was not filed, treating the omission as a jurisdictional defect.
The Post-Sanction Non-Compliance
Where the accounting treatment is found to be non-compliant after the sanction, the company may be required to restate its financial statements, to reverse the accounting entries, and to pay the additional tax. The non-compliance may also attract the penalty under the Companies Act for the failure to comply with the accounting standards.
The auditor who issued the certificate may be liable for professional negligence where the certificate was issued without a proper examination of the scheme. The auditor’s liability is separate from the company’s liability, and it is enforced by the professional body and the courts.
The Remedies
The company can apply to the NCLT for a modification of the scheme to correct the accounting treatment, but the modification must be necessary for the implementation of the scheme and not a substantial alteration. Alternatively, the company can rectify the accounting treatment in its financial statements and disclose the correction in the notes.
The remedies are limited, and the company should avoid the non-compliance at the outset by obtaining a certificate from an auditor who has examined the scheme’s accounting clauses and the applicable standards.
Call to Action
Anuj Desai & Associates advises companies on the accounting treatment in an NCLT scheme—from the auditor’s certificate and the Ind AS 103 analysis to the post-sanction compliance and the remediation of a non-compliance. If your scheme involves a complex accounting treatment, we can help you ensure that it is compliant.
📧 office@anujdesaiassociates.com
📞 9619456656
🌐 https://anujdesaiassociates.com
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