B & C LAW

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Presented by:Presented by:AbhishekAbhishek

DeshpandeDeshpande

SandeepSandeep

BollineniBollineni

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PRESENTATION OUTLINEPRESENTATION OUTLINE

INDEPENDENT DIRECTORS

AUDIT COMMITTEE

August 4, 2011 SANDEEP, ABHISHEK 2

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CorporateCorporate

Corporate is a adjective meaning of or relating to a corporation

derived from the noun corporation.

A corporation is an organisation created (incorporated) by a group

of shareholders who have ownership of the corporation.

The elected Board of Directors appoint and oversee management

of corporation.


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GovernanceGovernance

Oxford English dictionary defines Governance as an act, manner,

fact or function of governing, sway, control.

The word has Latin origin that suggest the notion of steering. Itdeals with the processes and systems by which an organization or

society operates.


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CORPORATE GOVERNANCECORPORATE GOVERNANCE

It is a broad concept and has been defined and understood

differently by different groups at different point of time.

The Cadbury committee report defines it as the system by which

companies are directed and controlled.

It is generally understood as the framework of rules, relationships,

systems and processes within and by which authority is exercised

and controlled in corporations.

Good Corporate Governance is simply Good Business.


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HistoryofCorporateGovernanceHistoryofCorporateGovernance

Kautilyas (Chanakya) Arthashastra is the oldest book (around 300B.C) on management available to the world.

This masterpiece covered a wide range of topics and also

recommended that:

- The king shall not consult with any advisor who had vested interest

in the outcome of a particular project.

- Establishment of an Ethical code of conduct - a topic which has

received a great deal of attention now during past few years after

corporate scandals.

- The codification of accounting rules into one uniform system to

prevent problems in translating financial data between disparate

methods of accounting.


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ObjectivesofgoodCorporateGovernanceObjectivesofgoodCorporateGovernance

1. Strengthen management oversight functions and accountability

2. Balance skills, experience and independence on the board

appropriate to the nature and extent of company operations

3. Establish a code to ensure integrity

4. Safeguard the integrity of company reporting

5. Risk management and internal control

6. Disclosure of all relevant and material matters

7. Recognition and preservation of needs of shareholders


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PartiestoCorporateGovernancePartiestoCorporateGovernance

1. Board of Directors

2. Managers

3. Workers

4. Shareholders/Owners

5. Regulators

6. Customers

7. Suppliers

8. Community (People affected by the actions of the Organisation)


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Clause 49 in Listing AgreementClause 49 in Listing Agreement

This listing agreement was first introduced by Bombay StockExchange and was later followed by other stock exchanges.

SEBI, vide its circular dated February 21, 2000, specified principles

of corporate governance and introduced a new clause 49 in the

listing agreement of Stock Exchanges.

The listing agreement contains 51 clauses.

Listing means admission of the securities to dealings on a

recognised stock exchange. The securities may be of any public

limited company, Central or State Government, Quasi governmentand other financial institutions/ corporations etc.

Listing helps in free transferability, leads to transparency in

disclosure of information and ensures availability of official quotation.


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SEBI CircularsonClause 49SEBI CircularsonClause 49

S.no Circular No Date

1 SMDRP/POLICY/CIR-10/2000 FEBRUARY 21, 2000

2 SMDRP/POLICY/CIR-13/2000 MARCH 09, 2000

3 SMDRP/POLICY/CIR-42/2000 SEPTEMBER 12, 2000

4 SMDRP/POLICY/CIR-03/01 JANUARY 22, 2001

5 SMDRP/POLICY/CIR-19/01 MARCH 16, 2001

6 SMDRP/POLICY/CIR-53/01 DECEMBER 31, 2001

7 SEBI/MRD/SE/31/2003/26/0 AUGUST 26, 2003


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Recent AmendmentstoClause 49Recent AmendmentstoClause 49

S.

No

Circular No. Date

1 SEBI/CFD/DIL/CG/1/2004/12/10 OCTOBER 29, 2004

2 SEBI/CFD/DIL/CG/1/2005/29/3 MARCH 29, 2005

3 SEBI/CFD/DIL/CG/1/2006/13/1 JANUARY 13, 2006


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Independent DirectorsIndependent Directors

SEBI mandated that all (over 9000) listed companies are required

by 31st December 2005, to have 50% of their Boards comprised of

Independent Directors (IDs), an estimate puts the requirement of

Independent Directors, at over 30000, under clause 49 of the listing

agreement. The concept of IDs is not there in Companies Act,

1956.


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CoreCompetencies & Qualificationsofan IDCoreCompetencies & Qualificationsofan ID

An ID is a non-executive Director on the Board of a Company who

has Integrity, sense of Accountability, Track record of Achievements,

Financial Literacy, Experience and the Independence to balancethe interests of various Stakeholders, ability to think strategically,

degree of commitment, sense of devotion.


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Disqualificationsofan IDDisqualificationsofan ID

According to SEBI, some of the most important disqualifications of

IDs are listed below:

Having a pecuniary relationship with the Company or any of its

arms, other than receiving the Directors remuneration will be

disqualified.

An ID shouldnt be related to the promoters or anyone in the Senior

Management position from one level below of the Board. He

shouldnt have been an Executive of the Company or of its Audit,

consulting or legal Firms in the past 3 Financial years. Besides,

owning 2% or more of the block of voting shares or being a service

provider to the Company, would disqualify one from taking up an

Independent Directorship in a Listed Company.


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Duties & responsibilitiesofIDsDuties & responsibilitiesofIDs

IDs play an active role in various committees to be set up by a

Company to ensure good Governance. Listed Companies are

required to set up Audit committees of minimum 3 Directors, on

which, 2/3

rd

should be IDs. The Audit Committee chaired by a ID,shall inspect the Company's Financial statements and can also

recommend replacement of statutory Auditors.

IDs are responsible for formulating and implementing Business

strategies on behalf of Shareholders and have to ensure that

Business activities of the Company are compatible with all Legal

requirements. They have to perform crucial Governance functions.


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AUDIT COMMITTEEAUDIT COMMITTEE

Section 292A of the Companies Act, 1956

Clause 49 II

A. Qualified and Independent Audit Committee

B. Meeting of Audit Committee

C. Powers of Audit Committee

D. Role of Audit Committee

E. Review of information by Audit Committee


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Section 292A Companies Act, 1956

Provision of this section came into effect on 13th December 2000.

Applicability to every Public Limited Company having a paid up

capital 5 Cr or more.

Three Directors should be the members of the audit committee (2should be non executive)

Chairman can be any Director.

Default in compliance shall be punishable with imprisonment for a

term which may extend to one year, or with fine which may extendto 50,000 rupees or both.


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49 II (A) Qualifiedand Independent49 II (A) Qualifiedand Independent

AuditCommitteeAuditCommittee

i. Minimum 3 Directors. Two-thirds of the members of the Audit

Committee shall be Independent Directors.

ii. All members should be financially literate and at least one

member shall have accounting or related financial management

expertise.

iii. Chairman can be any one of the member apart from MD.

iv. Chairman of the Audit Committee shall be present at AGM to

answer Shareholder queries.

v. Finance Director, Head of the Internal Audit and a representativeof the statutory auditor may be present as invitees for the

meetings of Audit Committee.

vi. The Company Secretary shall act as Committee Secretary.


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49 II (B) MeetingofAuditCommittee49 II (B) MeetingofAuditCommittee

The Audit Committee should meet at-least four times in a year with

a gap of not more than four months.

The quorum shall be either two members or 1/3rd of the members of

the Audit Committee which ever is greater, but there should be a

minimum of two Independent members present.


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49 II (C) PowersofAuditCommittee49 II (C) PowersofAuditCommittee

To investigate any activities within the terms of Reference.

To seek Information from any Employee.

To obtain outside legal and other professional advice.

To secure attendance of outsiders with relevant expertise, if

necessary.


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49 II (D) RoleofAuditCommittee49 II (D) RoleofAuditCommittee

1. Oversight of Companys financial reporting process.

2. Recommending to the Board, the appointment, re-appointment

and, if required, the replacement or removal of the statutory

Auditor and the fixation of Audit fees.

3. Approval of payment to the statutory Auditors for any other

services rendered by them.


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4. Reviewing, with the management, the annual financial

statements before submission to the board for approval, with

particular reference to:

a) Matters required to be included in the Directors responsibilitystatement to be included in the Boards report in terms of clause

(2AA) of Section-217 of the Companies Act, 1956.

b) Changes, if any, in accounting policies and practices and

reasons for the same.

c) Major accounting entries involving estimates based on the

exercise of judgement by management.

d) Significant adjustments made in the financial statements arising

out of Audit findings.

e) Compliance with listing and other legal requirements relating to

financial statements.

f) Disclosure of any related party transactions.

g) Qualifications in the draft audit report.


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5. Reviewing, with the management , the Quarterly financial

statements before submission to the Board for approval.

6. Reviewing, with the management, performance of statutory andInternal Auditors, adequacy of the internal control systems.

7. Reviewing the adequacy of Internal audit function, if any, including

the structure of the Internal Audit Department, staffing and

seniority of the official Head of the Department, reporting structurecoverage and frequency of the Internal Audit.

8. Discussion with Internal Auditors about any significant findings

and follow ups there on.

9. Reviewing the findings of any internal investigations by the

Internal Auditors into matters where there is a suspected fraud or

irregularity or a failure of the internal control system and reporting

the same to the Board.


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10. Discussion with Statutory Auditors before the audit commences,

about the nature and scope of audit as well as post-audit

discussion to ascertain any area of concern.

11. To look into the reasons for substantial defaults in the payment

to the depositors, debenture holders, shareholders (in case of

non- payment of declared dividends) and creditors.

12. To review the functioning of Whistleblower mechanism, in case

the same is existing.

13. Carrying out any other function as is mentioned in the terms ofreference of the Audit Committee.


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49 II (E) ReviewofInformation by AuditCommittee49 II (E) ReviewofInformation by AuditCommittee

The Audit Committee shall mandatorily review the following

information:

Management discussion and analysis of financial condition and

results of operations.

Statement of significant related party transactions (as defined bythe Audit Committee), submitted by the management.

Management letters/letters of internal control weaknesses issued

by the Statutory Auditors.

Internal Audit reports relating to internal control weaknesses. The appointment, removal and terms of remuneration of the Chief

Internal Auditor shall be subject to review by Audit Committee.


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49 III SubsidiaryCompanies49 III SubsidiaryCompanies

49 III (ii) The Audit Committee of the listed holding company shall

also review the financial statements, in particular, the investments

made by the unlisted Subsidiary company.


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ReferencesReferences

http://www.authorstream.com/Presentation/tharayameen-

129200-corporate-governance-entertainment-ppt-

powerpoint/

http://www.indianmba.com/Faculty_Column/FC216/fc216.ht

ml http://www.vakilno1.com/bareacts/companiesact/s292A.htm

http://www.rediff.com/money/2006/jan/31rules.htm

http://www.asialaw.com/Article/1989101/Channel/16958/Cor

porate-Governance-under-the-Indian-Companies-Act-

1956.html http://www.companylawonline.com/search/articles/


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