SEBI recently issued a circular to amend its SEBI (ESOS and ESPS) guidelines, prohibiting employee benefit schemes from acquiring securities from the secondary market. There is worry that entities are using these schemes to deal in their own securities by setting up trusts. Existing schemes of the companies, too, should be aligned to the amended guidelines by June 30, 2013.
This will impact companies that set up trusts to prevent dilution in earnings per share, which arises due to issue of new shares. Earlier, the trusts could issue shares to employees by buying them from the market. The companies were not required to issue new shares to employees under employee benefit schemes.
The Institute of Chartered Accountants of India has finalised and sent new Ind ASs to the NACAS (National Advisory Committee on Accounting Standards) for consideration. One of these is Ind AS-111, Joint Arrangements, where the accounting treatment is significantly different from the existing standards.
It defines a joint arrangement and states that it can either be a joint operation or a joint venture. The legal structure is no longer the most important factor in classifying a joint arrangement. The standard fundamentally changes the way joint ventures are defined.
The proposed standard may impact some sectors more than others. Typically, oil and gas, mining and infrastructure sectors are known to set up joint ventures for operations. Once notified, the new requirements will significantly impact entities that have joint arrangements, particularly if they are using proportionate consolidation to present gross assets and gross revenue.
More difficult at the top
The new Companies Bill is going to make life at the top even more challenging. There are several stringent requirements in the offing. The board of directors, in their report to shareholders, should provide details on risk management policy and corporate social responsibility. They should also dwell on the effectiveness of systems in ensuring compliance with applicable laws. All related-party transactions should be mentioned in the report.
The independent directors should declare that they are compliant with the conditions for independence. They have an elaborately defined code of conduct. Clearly, the expectation from independent directors is that they would spend quality time with the companies to protect and enhance the stakeholder value.