Disclosure in Independent Audit report

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Shubham Nalawade (Querist)
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26 June 2024 Why Rule 11 e of companies rule 2014 is issued by the ministry of corporate affairs.
Means what was the general practice did by business that lead to mca to issue this rule.
Rule 11 e is relating to disclosure for advances given by company to intermediary parties.
In short I just wanted to know actual reason behind rule 11 e.

Asha Kanta Sharma

Asha Kanta Sharma

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06 July 2024 Rule 11(e) of the Companies (Accounts) Rules, 2014, which deals with disclosure of advances given by a company to intermediary parties, was introduced to enhance transparency and accountability in financial reporting. Here are some reasons behind the issuance of this rule:

1. **Risk Management**: Companies often provide advances to various parties such as suppliers, vendors, distributors, etc. These transactions involve financial risk. Rule 11(e) mandates disclosure to ensure stakeholders (investors, creditors, etc.) are aware of such transactions and can assess associated risks.

2. **Prevention of Misuse**: Advances to intermediary parties can sometimes be misused or diverted. Disclosing such transactions ensures that they are scrutinized and monitored, reducing the potential for misuse.

3. **Disclosure Standards**: The Ministry of Corporate Affairs (MCA) aims to align with international accounting standards and best practices. Disclosure requirements like Rule 11(e) help in standardizing reporting practices and improving comparability across companies.

4. **Investor Confidence**: Transparent disclosure fosters investor confidence. Stakeholders can make informed decisions based on complete information about a company's financial dealings with intermediary parties.

5. **Regulatory Compliance**: MCA periodically updates rules to strengthen corporate governance and regulatory compliance. Rule 11(e) ensures that companies comply with prescribed disclosure norms, promoting good governance practices.

In summary, Rule 11(e) was issued by the MCA to ensure comprehensive disclosure of advances given by companies to intermediary parties, thereby enhancing transparency, mitigating risks, and improving overall corporate governance standards.