b & c law
TRANSCRIPT
-
8/8/2019 B & C LAW
1/28
Presented by:Presented by:AbhishekAbhishek
DeshpandeDeshpande
SandeepSandeep
BollineniBollineni
-
8/8/2019 B & C LAW
2/28
PRESENTATION OUTLINEPRESENTATION OUTLINE
INDEPENDENT DIRECTORS
AUDIT COMMITTEE
August 4, 2011 SANDEEP, ABHISHEK 2
-
8/8/2019 B & C LAW
3/28
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.
August 4, 2011 SANDEEP, ABHISHEK 3
-
8/8/2019 B & C LAW
4/28
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.
August 4, 2011 SANDEEP, ABHISHEK 4
-
8/8/2019 B & C LAW
5/28
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.
August 4, 2011 SANDEEP, ABHISHEK 5
-
8/8/2019 B & C LAW
6/28
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.
August 4, 2011 SANDEEP, ABHISHEK 6
-
8/8/2019 B & C LAW
7/28
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
August 4, 2011 SANDEEP, ABHISHEK 7
-
8/8/2019 B & C LAW
8/28
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)
August 4, 2011 SANDEEP, ABHISHEK 8
-
8/8/2019 B & C LAW
9/28
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.
August 4, 2011 SANDEEP, ABHISHEK 9
-
8/8/2019 B & C LAW
10/28
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
August 4, 2011 SANDEEP, ABHISHEK 10
-
8/8/2019 B & C LAW
11/28
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
August 4, 2011 SANDEEP, ABHISHEK 11
-
8/8/2019 B & C LAW
12/28
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.
August 4, 2011 SANDEEP, ABHISHEK 12
-
8/8/2019 B & C LAW
13/28
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.
August 4, 2011 SANDEEP, ABHISHEK 13
-
8/8/2019 B & C LAW
14/28
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.
August 4, 2011 SANDEEP, ABHISHEK 14
-
8/8/2019 B & C LAW
15/28
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.
August 4, 2011 SANDEEP, ABHISHEK 15
-
8/8/2019 B & C LAW
16/28
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
August 4, 2011 SANDEEP, ABHISHEK 16
-
8/8/2019 B & C LAW
17/28
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.
August 4, 2011 SANDEEP, ABHISHEK 17
-
8/8/2019 B & C LAW
18/28
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.
August 4, 2011 SANDEEP, ABHISHEK 18
-
8/8/2019 B & C LAW
19/28
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.
August 4, 2011 SANDEEP, ABHISHEK 19
-
8/8/2019 B & C LAW
20/28
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.
August 4, 2011 SANDEEP, ABHISHEK 20
-
8/8/2019 B & C LAW
21/28
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.
August 4, 2011 SANDEEP, ABHISHEK 21
-
8/8/2019 B & C LAW
22/28
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.
August 4, 2011 SANDEEP, ABHISHEK 22
-
8/8/2019 B & C LAW
23/28
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.
August 4, 2011 SANDEEP, ABHISHEK 23
-
8/8/2019 B & C LAW
24/28
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.
August 4, 2011 SANDEEP, ABHISHEK 24
-
8/8/2019 B & C LAW
25/28
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.
August 4, 2011 SANDEEP, ABHISHEK 25
-
8/8/2019 B & C LAW
26/28
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.
August 4, 2011 SANDEEP, ABHISHEK 26
-
8/8/2019 B & C LAW
27/28
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/
August 4, 2011 SANDEEP, ABHISHEK 27
-
8/8/2019 B & C LAW
28/28
August 4, 2011 SANDEEP, ABHISHEK 28
Thank You