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Secretarial Audit under the Companies Act 2013Companies Act, 2013
Action Pointsfor the Companies
Action Points
February 12, 2015
What do the Companies need to do?
Approach 1 N A tiApproach 1 No Action
Provide Standard Secretarial Records – notices, agendas, minutes, statutory registers, records, disclosures, ROC and
Approach 2, y g , , ,
Stock Exchange filings, ROC File, Stock Exchange File, RBI Files etc.
02
is it sufficient?
03
What the Companies needs to do?
Purpose Unqualified secretarial audit report – ultimate objective ofPurpose Unqualified secretarial audit report – ultimate objective of the audit
An opportunity to ensure that the secretarial and bgovernance practices are robust
Risk of Negativity about compliance in auditors’ mind inaction
Inefficient time investments by the auditors
Inability of other departments to cooperate
Tension, work pressures, overall chaos and inefficiency
Qualified audit report
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Here’s what the Companies need to do
Secretarial Audit Planning & PreparationSecretarial Audit Planning & Preparation
Organise your audit with your auditors in such a way that you are able to achieve the desired results with the available resources in most efficient manner.
(i) Identify goals; (ii) Formulate strategies; (iii) Arrange means to achieve the goals; and (iv) Monitor steps.
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Benefits of Secretarial Audit Planning
Audit become an investment than expensesAudit become an investment than expenses
Sufficient time to collect documents, details etc.
Correct issues and alleviates concernsCorrect issues and alleviates concerns
Minimise uncertainties
Better time management
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Secretarial Audit Planning:Some Quick Tips
Change your mindsetChange your mindset
Prepare throughout the year
Auditors ‐ partner in compliance and governance
Be more formal/ process oriented/ p
Do not allow walk‐in approach
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Secretarial Audit Planning Strategy : The Blue Print
Post AuditStrategy Audit
Post Audit Discussion and
closure
Pre‐Auditpreparation
Scope
Frequency
Checklist and document requirement
Revalidate audit plan
Administrative
Closure ofqueries
Exit meetingTimelines
Resource deployment
Requisition to other departments
Records/ file il ti d
arrangements
Submit records
Exit meeting
Final report
Escalations
Confidentiality
compilation and updates
Validation + Checklist
Response to queries
Final report
Corrective/ Improvement
actionDocumentation
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action Documentation
Secretarial Audit planning:Strategy….
Kick off meeting with Auditors:Kick‐off meeting with Auditors:
Briefing about Company and your department
Secretarial records and processes
Positions on various compliance issued by the Companyp y p y
Various formats etc.
Preliminary discussion about audit scope, frequency, timing, engagement
manager, etc.
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Secretarial Audit Planning: Strategy ‐ Scope
Form No MR 3 broadly requires the auditors to certify the followings:Form No. MR 3 broadly requires the auditors to certify the followings:
Compliance of the Companies Act, the SEBI Act, FEMA, Secretarial
Standards Listing Agreements and allied rules and regulationsStandards Listing Agreements, and allied rules and regulations
Compliance of other specific applicable laws
Existence of internal control
Board processes and compliance mechanism
Board composition and changes in the Board
Notices and Agendas
Significant events (corporate actions)
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Secretarial Audit Planning Strategy : Scope
Decoding the Audit Scope:
Split the scope into sub categories
Classify in ABC
Decoding the Audit Scope:
y
Incorporate the internal controls and processes
Checklist
Documentation
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Secretarial Audit Planning :Strategy ‐ Others
FrequencyFrequency
Annual Half yearly Quarterly Concurrent
Timings
Agree on timing for start and
Significant part of audit of audit to
Audit Team
for start and closure of audit
audit of audit to close before March
Audit Team
ConfidentialityInsider Trading Regulations and process
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Secretarial Audit Planning :Strategy
Sample Annual Audit Plan:
Periodicity Quarter 1 Quarter 2 Quarter 3 Quarter 4
Annual (Special in depth audit)
Insider TradingLoans, Investments& Borrowings
Takeover RegulationsBoard & Board Committee Agendas
SS2External Commercial Borrowings
SS1Listing AgreementDirectors
Overseas Investments Foreign Direct Investments
Clause 49Auditors Engagements
RemunerationCSRInvestor relations
Quarterly (Routine repetitive incremental)
Forms, returns,records
Forms, returns,records
Forms, returns,records
Forms, returns,records
Concurrent (critical non routine documents to be shared with external parties)
Corporate actionsMinutes
Corporate actionsMinutes
Corporate actionsMinutes
Corporate actionsMinutesShareholders communications
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Secretarial Audit Planning:
Sample Quarterly Audit Plan:
Strategy
Audit Start date : March 5, 2015
Law [ Period] Heading Sub – heading Audit Coverage (Sample Size)
Documents required
FEMA[ Apr – Dec 2014 &
FDI Existing FDI Statutory LimitLimits for the company
FDI/ RBI GuidelinesFIPB ApprovalsD t il f RTA/ ROMdocuments for
existing FDI ]
companyEntity‐wise FDI & Movements RBI Filings & Registrations[Sample Size : 100%]
Details from RTA/ ROMMinutes BookNotice of GMFC‐GPR and RBI Acknowledgement letterFC TRS
CA, 2013[ Apr – Dec 2014]
Loans Employees Transactions Statement of transactions from finance
[Sample Size : 100%] FC‐TRSAnnual FC‐GPRFIRC
[ p ]Related Parties
Non Related Parties
Transactions as per secretarial records
Authorisations
Register of LoansLoan AgreementsBoard ResolutionsAudit Committee Resolution
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Shareholders Resolutions
Secretarial Audit Planning :Action ‐ Pre‐audit Preparation
Check list and documents requirement
Intimation / requisitionto other
departments
Compilation of records/ update
files
Validation of records / checklist
DocumentationAgenda, notices, minutes, attendance Relevant approvals, permissions etc.g , , ,registersDisclosures and declarations, from directors Statutory Registers Files – ROC, SEs, RBI MOA AOA Annual Reports
Details of investments, loans and guarantees, borrowings, depositsCompliance CertificatesAudit specific documents:confirmations from cross functional teamsMOA, AOA, Annual Reports
Documents relating to specific corporateactions/eventsProceedings / investigations etc
confirmations from cross functional teamswhere details are nil / not possibleManagerial remuneration detailsOrganisational structureCSR Reports
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Secretarial Audit Planning :Action : Pre‐audit Preparation
Ensure the following:Ensure the following:
Identify significant transactions
Support the transactions compliance documentsSupport the transactions compliance documents
Review and ensure accuracy and consistency
Refer the previous year audit findingsp y g
Check authenticity before submission
Common Errors:
Incomplete filesHygiene issues
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Secretarial Audit Planning :Actions : During Audit
Audit commencement meeting:
Update about previous audit issues closuresUpdate about previous audit issues closures
Revalidate scope
Update about significant developments
Check for fresh documents requirement, if any
Submit your documents, check lists etc.
Designate a spoke for dealing with the auditors g p g
Provide records/ clarifications promptly upon requisition
Share copies of documents for justified demand only
F i t i tifi d f t tFor minutes ‐ issue certified copy of extracts
Keep copy of the other documents
Ensure administrative arrangements
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Actions for the company Actions : Post Audit
Audit QueriesQ
Beyond routine compliances and documents requisitions e.g. oninterpretational issues
Exit Meeting
Complex issues
Draft reportDraft report
Other audit findings and comments
Suggestions and improvement actions
Escalations
Final Report
Improvement action plan p o e e t act o p a
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Some Specific Issues:Internal Control and Processes
I/We hereby report … also that the Company has proper Board‐processes andReference Clauses of Form MR 3:I/We hereby report … also that the Company has proper Board processes andcompliance mechanism in place to the extent, in the manner and subject to thereporting made hereinafter
I/ e f rther report that there are adeq ate s stems and processes in theI/we further report that there are adequate systems and processes in thecompany commensurate with the size and operations of the company tomonitor and ensure compliance with applicable laws, rules, regulations andguidelinesguidelines
Standing Operating
Formal mails / communications
to other
ProcessNotes
Check lists / self auditingProcedures to other
departments
Notes auditing
Employee Delegation of Periodical
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Employeehandbook
Delegation of authority
PeriodicalConfirmation
Some Specific Issues:Fraud Reporting
Section 143 of the Companies Act, 2013:
(12) Notwithstanding anything contained in this section, if an auditor of a company, in thecourse of the performance of his duties as auditor, has reason to believe that anoffence involving fraud is being or has been committed against the company byofficers or employees of the company he shall immediately report the matter to theofficers or employees of the company, he shall immediately report the matter to theCentral Government within such time and in such manner as may be prescribed.
(14) The provisions of this section shall mutatis mutandis apply to(b) the company secretary in practice conducting secretarial audit under section 204
Tips for the companiesOnly secretarial audit related fraud needs to be reported by the secretarial auditor.
Escalate the issue internally before reporting by the auditors to the government.
Report to the Board and the audit committee
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Report to the Board and the audit committee.
Some Specific Issues:
List out all applicable laws
Compliance of All Applicable Laws
List out all applicable laws
Process for execution of compliance certificates
Compliance certificatesCompliance certificates
Sample back up papers (compliance check lists, functional certificates etc.)
Any exception to the compliance certificatey p p
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Thank YouThank You
CS Rajendra Chopra
Vice President and Group Head – Corporate Secretarial Bharti Enterprises
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