s e c r e t a r i a l a u d i t - icsi - home€¦ · scope of the presentation general...

S e c r e t a r i a l A u d i t

CS Amit gupta

Member, NIRC – ICSIPracticing Company Secretary, Lucknow

Scope of the Presentation

General Introduction

Understanding the

Audit Report

Audit Process

Audit Report & Sample

qualifications

Creating Audit

Record file for peer Review

Follow up

2

Applicability

Listed

All Companies whose any security is listed on

stock exchange

Public

Having Paid up

share capital

=> Rs. 50 crores

Having turnover

=> Rs. 250 crores

Private

Subsidiary of Public Limited having

prescribed capital/ turnover

Whose Debentures are listed


3

Companies Act, 2013S

ecti

on

134

(5)(

f) the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively

Sec

tio

n 2

05

to report to the Board about compliance with the provisions of this Act, the rules made thereunder and other laws applicable to the company

Sec

tio

n 2

04

Secretarial audit of bigger companies

4

• Home Work

• Preparing Audit Program

• Interaction with Company

• Checking of Records/compliance

• Working papers/notes creation

• Third Party Reports/management representation

Audit Process

5

a• Analysis of data sheet

b• Testing non compliances on materiality

c• Drafting qualifications/comments

d• Report Compilation

e• Management discussion

f• Finalizing Report

Reporting

6

Second Schedule (Part – I) of CS Act, 1980


A• Disclosure/sharing of information acquired

B• Certification without examination

C• Becoming fortune teller

D

• Expressing opinion in respect of Company in which he has substantial interest

E• Failure to disclose material facts in report

7

Second Schedule (Part – I) of CS Act, 1980


F• Failure to report material misstatement

G• Gross negligence

H• Fails to obtain sufficient information

I

• Fails to invite attention to any material departure from generally accepted procedure

J

• Fails to keep money advanced by client separately for using the same for intended purpose (Statutory fees etc.)

8

Fees for Secretarial Audit

Elements of Cost

Man hours

(Partner, Senior, Junior, Trainees)

Back office

Home workChecklist

preparation

Data analysis/ Report

Preparation

Client office

Verification of records

Interaction

Others

Third party report

Infrastructure etc.

Travelling/ lodging


9

What is Audit

Auditing is a systematic and independent examination of data, statements, records, operations and performance (financial or otherwise) of an enterprise for a stated purpose.

The Auditor perceives and recognizes the propositions before him for examination, collects evidence, evaluates the same and on this basis, formulates his judgment which is communicated through his audit report.

Understanding Audit Report

10

Secretarial Audit ReportFactual

Compliance of

Co. Act, SCRA, SEBI, FEMA Depositories

other laws

(Industry specific)

Secretarial Standards, Listing agreement

Events having major bearing

Qualitative

Composition of Board/ changes

Board process & decision making

Adequacy of Systems & process to monitor & ensure compliance of

all laws

Qualifications

Disclaimer

Adverse opinion

Qualified

(quantifiable/ unquantifiable)


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Secretarial Audit Report

• Declaration:

• What has been done: The auditor has conducted secretarialaudit of applicable statutory provisions and adherence to thegood corporate practices.

• How it has been done: The auditor has conductedsecretarial audit in such a manner that provided reasonablebasis for making evaluation of Corporate conduct, statutorycompliances and expression of opinion thereon.

Para 1


19


• Opinion

• Basis on which opinion given: Verificationof records, information provided by Auditee.

• Opinion regarding: Compliance of listedstatutory provisions and existence of properBoard process and compliance mechanism.

Para 2


20


•Details of verification

•5 specified laws: Listing of the Act, rules (out of5) applicable on the Company in respect of whichrecords had been verified.

•Other laws: Listing of other laws applicable onrespective Industry in respect of which recordshad been verified.

Para 3


21


•Details of verification

•Secretarial Standards: Mention of SecretarialStandards applicable on the Company, whichhad been verified.

•Listing agreement: Mention listing agreementwith stock exchange, applicable on the Company,which has been verified.

Para 4


22


•Non compliances / observations / audit Qualification / reservation / adverse remarks

Para 5


23


• Further opinion:

• Board constitution/changes: Board is duly constituted withproper balance of requisite category of directors and changeswere made in compliance of law.

• Board process: BM notice, agenda, agenda notes were sent atleast 7 days in advance and system exist for seeking furtherinformation/clarification before meeting.

• Decision making: Decisions are taken through majority anddissent is duly recorded.

Para 6


24


• Further opinion:

• Compliance Management System: Adequacyof systems and process, considering the sizeand operations of the Company, to monitorand ensure compliance of applicable laws.(includes all laws not only Industry specific,but also labour etc.)

Para 7


25


•Non compliances / observations / audit Qualification / reservation / adverse remarks

Para 8


26


•Further Opinion:

•Specific Events/actions: List of specificevents/actions having major bearing onthe affairs.

Para 9


27

Home Work

Preparing Audit Program

Interaction with Company

Checking of Records/compli

ance

Working papers/notes

creation

Third Party Reports/manage

ment representation

Audit Process

28

Audit Process

Objectives of Homework

A

• Identification of trigger points for applicability of laws viz. Geographical locations, no of employees, capital, turnover etc

B

• Checking the applicability of 5 specific laws/rules. Preparing list of Industry specific applicable laws and others.

C

• Preparing list of events and filtering of events/actions having bearing on Companys’ affairs

D• Preparing Company profile and data sheet

E• Board composition and changes

29

Audit Process

Objectives of Home work

F• Understanding Compliance management system

G• Assessment of Board Process

H• Website disclosures

I• Understanding the gaps & preparing questionnaire

J• List of documents/information required

30

Statutory Registers

Minutes/Agenda/ notices/dispatch

proof/ attendance register

Audited Financial Statements for last 3

years

Un-audited financial statement for the

audit period

Returns/forms etc. filed with statutory

authorities

News paper Publication

Non compliance, prosecution letter/

orders

Report of Internal Auditors for last 3

years

Internal Auditor report for audit

period

Secretarial Audit reports/ Due

Diligence Reports for past 3 years

Declarations regarding key

parameters that triggers applicability

Statutory records / returns under other

acts

Compliance officer/ officer in default

Compliance Management

System/ alert system

Organogram

Third party Audit reports

Various Committee charters, policies

Group Companies, associates, JV’s

Agreements, Technical

collaborations etc

IPR’s, Domain registration, IT

Servers safety etc.

Audit ProcessDocuments/Returns etc. Required

31

Audit Process

Home Work

Know your Client Company

MCA/SE/Co Website

Geographic Locations/

Industry/Structure/

Sector/Segment (GLISSS)

Preparing Basic Co. data & Questionnaire

Google/

Peer Co Websites

Create list of applicable laws

32

Audit Process

List of Applicable Laws

General Laws Applicable on all

Corporate

Labour

Taxation

Structure

Listed

Unlisted

PSU

Sector

Manufacturing Trading Service

33

Sugar/Alcohol Power Telecommunication Mining Tourism & Hotel

TextileCapital Market &

Financial Intermediary

Insurance Financial Service Banking & NBFC

Information Technology

Drugs & Pharmaceuticals

Retail/Wholesale Agro/Food Processing

FMCG

Engineering Infrastructure Capital Goods Leather Leather

Audit ProcessVarious Segments

34

Audit Process

Other factors affecting applicability of Law

Risk Involved

Special Zones/Act

No of Employee

Event Based

35

Preparing QuestionnaireO

bje

ctiv

e -

1 To update basic data sheet and confirm key parameters that triggers the applicability of specific law

Ob

ject

ive

-2 To identify

major events during the period under report

Ob

ject

ive

-3 List of

documents, records, returns, etc required for audit

Audit Process

36

Preparing Audit ProgramT

eam To create Audit

team. Appropriate mix of Senior/junior and trainees. Back office to create check lists

Wo

rk A

llo

cati

on To divide

entire work in to parts and assign responsibilities to team leaders

Sch

edu

le To draw time schedule. Time allocation to each type of work

Audit Process

37

Master Check list creation

Fo

r C

hec

kin

g A

pp

lica

bil

ity

Master check list for applicability of particular law F

or

Gen

eral

Co

mp

lian

ce Master check list of all laws (non event based)

Fo

r S

pec

ific

Ev

ents

Master Check list of specific event based compliances

Co

rpo

rate

Pra

ctic

es Corporate practices in respect of events on which law is silent

Audit Process

38

Master Sample Check List (Applicability Test)

SrNo

Name of the Act

Applicability factors

If Company fulfils applicability factors

Primary Evidence

Secondary Evidence

Remarks

1 The Factories Act, 1948

Must be manufacturing unitEmploys at least 10 workers (without aid of power) or 20 workers (with power)

Yes Musterroll/ Annual Report

Pay roll

Audit Process

39

Master Sample Check List (Applicability Test)

SrNo

Name of the Act

Applicability factors

If Company fulfils applicability factors

Primary Evidence

Secondary Evidence

Remarks

2 ESI Act, 1948

Must be non seasonal factoryEmploys at least 10 workers

Yes Musterroll/ Annual Report

Pay roll

Audit Process

40

Sample Check List (Increase in authorised Share capital)Event Date – 25.01.2015

SrNo

Details Due Date Compliance Date

Primary Evidence

Secondary Evidence

Remarks

1 Notice convening Board meeting

24.01.15 30.12.14 Dispatch Register

Email/Speed Post/ Regd. Post

Consent not available

2 Board Meeting 01.01.15 01.01.15 BM Minutes Attendance Register

3 Convening of EGM

01.01.15 03.01.15 Dispatch Register

Email/Speed Post/ Regd. Post

Shorter notice consent of all available

Audit Process

41

Sample Check List (Increase in authorised Share capital)Event Date – 25.01.2015

SrNo

Details Due Date Compliance Date

Primary Evidence

Secondary Evidence

Remarks

4 EGM 25.01.15 25.01.15 EGM Minutes

Attendance Register

5 SH7 24.02.15 27.01.15 Filing Receipt & form

Updated master data

MGT14 also to be filed

6 Verification of AOA

AOA SR Required. Alteration in AOA was required

Audit Process

42

Interaction with Company

Comfort that you are not

blood hound

Co-ordination

Fill the Gaps & affirm

applicability of laws

Audit Process

43

Checking of Records/Compliances

Listing of All events

Quality assessment

Factual verification

of compliance

Audit Process

44

Audit Techniques

Examination

Detailed

Sampling

Confirmation

Experts opinion

Audit Process

45

Factors responsible for Sampling

Factual/ qualitative

MaterialityCompliance

system/ internal control

Risk

Audit Process

46

Preparing Working Papers

For analysis of factual compliance

& quality assessment

Records for Peer Review

For seeking further

clarifications/ discussion with

management

Audit Process

47

Third Party Reports/Management Representation

Areas those are covered under separate Audit

Due to geographic

reasons its not feasible to do

yourself

Areas for which you don’t have expertise

Audit Process

48

Analysis of data sheet prepared

Testing non compliance on

materiality

Drafting qualifications

Report Compilation

Management discussion

Finalizing Report

Audit Report

49

Secretarial Audit ReportFactual

Compliance of

Co. Act, SCRA, SEBI, FEMA Depositories

other laws

(Industry specific)

Secretarial Standards, Listing agreement

Events having major bearing

Qualitative

Composition of Board/ changes

Board process & decision making

Adequacy of Systems & process to monitor & ensure compliance of

all laws

Qualifications

Disclaimer

Adverse opinion

Qualified

(quantifiable/ unquantifiable)

Audit Report

50

Audit Qualifications

Simple/

Verbosity to be avoided

Clear/

unambiguous

Brevity/ concise

Firmness/

Vague comments to be avoided

Persuasive/

Not conceal material facts

Audit Report

51

Compliances

SEBI – Prohibition of Insider Trading

A

• Identification of Insiders, connected persons, deemed connected persons, immediate relatives

B• Review of Policies – Code of fair disclosure, code of conduct, Trading plan

C• Listing of UPSI & trading details of insiders, adherence to trading plan

D

• Disclosures by an insider and from those relating to trading by such person’s immediate relatives and by any other person for whom such insider takes trading decisions

E

• Disclosure regarding holding and trading by KMP’s, Directors & Promoters (one time within 30 days, on appointment within 7 days, acq/dis – 2 days)

52

Compliances

SEBI – Prohibition of Insider Trading

F

• Maintenance of records, disclosures on website of the Company & Communication to stock Exchange

G

• Compliance officer, review, monitoring, notification, compliance of trading plans, trading report to Chairman of Audit committee/Board

H

• Closing of trading window, pre-clearances of trade of employees, declaration regarding no UPSI,

I• Contra trade by Designated Person not before 6 months from trade

J• If Company has required connected persons for making disclosures

53

Key Definitions

"insider" means any person who is:

i) a connected person; or

ii) in possession of or having access to UPSI;

“insider” means any person who,

(i) is or was connected with the company or is deemed to have been connected with the

company and is reasonably expected to have access to UPSI in respect of securities of company, or

(ii) has received or has had access to such UPSI

Now Before

Key Definitions

“UPSI" means any information, relating to a

company or its securities, directly or indirectly, that is not generally available which upon

becoming generally available, is likely to materially affect the price of the securities and

shall, ordinarily including but not restricted to, information relating to the following: UFR, dividend, restructuring etc.

“unpublished” means information which is not published by the company or its agents

and is not specific in nature.

“price sensitive information” means any information which relates directly or indirectly

to a company and which if published is likely to materially affect the price of securities of

company.

Now Before

Key Definitions

“Connected Person" is one who has a connection with the company that is expected to put him in possession of UPSI. Immediate relatives and other categories of persons specified above are also presumed to be connected persons but such a presumption is a deeming legal fiction and is rebuttable. This definition is also intended to bring into its ambit persons who may not seemingly occupy any position in a company but are in regular touch with the company and its officers and are involved in the know of the company’s operations. It is intended to bring within its ambit those who would have access to or could access unpublished price sensitive information about any company or class of companies by virtue of any connection that would put them in possession of UPSI.

“connected person” means any person who—

(i) is a director, or is deemed to be a director of that company by virtue of sub-clause(10) of section 307 of that Act or

(ii) occupies the position as an officer or an employee of the company or holds a position involving a professional or business relationship between himself and the company [whether temporary or permanent] and who may reasonably be expected to have an access to unpublished price sensitive information in relation to that company:

[Explanation :—For the purpose of clause (c), the words“connected person” shall [mean] any person who is aconnected person six months prior to an act of insider

trading;]

Now Before

Restriction on passing of information by Insider [3(1)]

No insider shall:

• communicate, provide, or allow access to any UPSI,

• relating to a company or securities listed or proposed to be listed,

• to any person including other insiders

• except where such communication is in furtherance of legitimate purposes, performance of duties or discharge of legal obligations.

Restrictions

Restriction on passing/procuring of UPSI by any Person [3(2)]

No person shall:

• procure from or cause the communication by any insider of UPSI,

• relating to a company or securities listed or proposed to be listed,

• except in furtherance of legitimate purposes, performance of duties or discharge of legal obligations.

Restrictions

Trading prohibition on insider, when in possession of UPSI [4]

No insider shall:

• trade in securities that are listed or proposed to be listed on a stock exchange when in possession of UPSI

Exceptions:

• the transaction is an off-market inter-se transfer between promoters who were inpossession of the same UPSI without being in breach of regulation 3 and bothparties had made a conscious and informed trade decision.

Prohibitions


Exceptions in the case of non-individual insiders :

• the individuals who were in possession of such UPSI were different from theindividuals taking trading decisions and such decision-making individuals werenot in possession of such UPSI when they took the decision to trade.

• appropriate and adequate arrangements were in place to ensure that theseregulations are not violated and no unpublished price sensitive information wascommunicated by the individuals possessing the information to the individualstaking trading decisions and there is no evidence of such arrangements havingbeen breached.

• the trades were pursuant to a trading plan.

Prohibitions


• In the case of connected persons the onus of establishing, that they were not in possession of UPSI, shall be on such connected persons and

• in other cases, the onus would be on the Board.

Prohibitions

Code of conduct [8]

• The Board of every listed company shall formulate a code to regulate,monitor and report trading by its employees and other connectedpersons, adopting the minimum standards set out in Schedule A.

• Every other person who is required to handle UPSI, shall formulate acode to regulate, monitor and report trading by its employees and otherconnected persons, adopting the minimum standards set out inSchedule B.

• Compliance officer to be designated to administer the code andregulations.

Code of fair disclosures & conduct

Prompt public disclosure of

UPSI that would impact

price discovery

Uniform & universal dissemination of UPSI

Designation of a senior

officer as a chief investor

relations officer

Prompt disclosure of UPSI that gets disclosed

selectively

Appropriate and fair response to queries of

regulators on news reports

UPSI not to be shared even with anaysts

Transcripting of proceedings of

meetings with Analysts and sharing on website

Handling all UPSI on a need-to-know basis

Schedule A

Compliance officer (CO) shall report to the board

All information shall be handled within the organization on a need to- know basis

Employees and connected persons shall be governed by internal code of conduct

A notional trading window shall be used as an instrument of monitoring trading by the designated persons The trading window shall be closed if CO determines that a designated person can reasonably be expected to have possession of UPSI

The timing for reopening of the trading window shall be determined by the CO

When the trading window is open, trading by designated persons beyond prescribed limit shall be subject to preclearance by the CO

CO shall confidentially maintain restricted list of securities

CO shall be entitled to seek declarations to the effect that the applicant for pre-clearance is not in possession of any UPSI.

Schedule B

The code of conduct shall specify any reasonable timeframe (not more than 7 trading days) within which trades that have been pre-cleared have to be executed by the designated person.

The code of conduct shall specify the period (not less than 6 months), within which a designated person who is permitted to trade shall not execute a contra trade.

The Code of conduct shall provide for necessary formats.

The code of conduct to stipulate sanctions and disciplinary actions, including wage freeze, suspension etc., that may be imposed.

Code of conduct to specify prompt intimation to Board in case of violation of the Regulations

Schedule B

Compliances

SEBI – LODR

A

• Segregation of Compliances – Routine & Event based, factual & qualitativeIdentification of events triggering compliances

B

• Homework by checking websites of Company/BSE/NSE/SEBI/MCA/other regulators & preparation of data base, identification of gaps

C• Interaction with Company to fill the gaps

D• Review of records to update data base and filling of gaps

E• Master Checklist for all routine & event based compliances

66

Compliances

SEBI – LODR

F

• Review of Policies - Policy on Preservation of Documents, determination of “Material Subsidiary”, materiality of related party transactions and on dealing with related party transactions, materiality of events/ information, Website archival policy, Whistle Blower policy, remuneration of the directors, key managerial personnel and other employees, diversity of board of directors

G• Identification of events triggering disclosures under Regulation 30

H• Audit of Website disclosures

I• Identification of related parties/related parties transactions

67

Regulation 23(4)

All material related party transactions shall require approval of the shareholders through resolution.

The related parties shall abstain from voting on such resolutions whether the entity is a related party to the particular transaction or not.

Material Related Party Transaction - if transaction individually or taken together with previous during a FY, exceeds ten percent of the annual consolidated turnover as per the last AFS.

Compliances

68

Regulation 31A

Promoter & Promoter Group in shareholding pattern to include name of all entities.

For Reclassification of Promoters prescribed procedure to be followed.

If entity listed on more than one exchange, such application for reclassification to be processed jointly.

Compliances

69

Regulation 31A

In case of transmission/succession/inheritance, the inheritor shall be classified as promoter.

If new promoter replaces the existing Promoter, Reclassification shall require shareholders approval and shall be subject to:

Existing promoter (along with PAC) should not hold more than 10% of Paid up equity share capital or special rights (formal/informal) or Promoter or his relative does not continue as KMP for more than 3 years (with shareholders approval)

Compliances

70

Regulation 31A

If entity becomes professionally managed (no group holds more than 1%) and does not have identifiable Promoter, the existing Promoters may be classified as Public with shareholders approval.

Such reclassification is not route for compliance of minimum public shareholding. SEBI has power to relax reclassification conditions.

Reclassification of Public Shareholder to Promoter shall require Open offer.

Compliances

71

Principle based compliances

Principles for making of disclosures and other obligations explicitly defined, which shall prevail in case of any ambiguity or incongruity between the principles and relevant regulations

Ten General Principles applicable on all Listed entities

Six Specific Principles applicable on Listed entities whose specified securities are listed for compliance of Corporate Governance

Compliances

72

A

• Applicable Standards for accounting and financial disclosure to be followed in preparation of information

B

• Prescribed accounting standard to be followed in letter in spirit in preparation of financial statements & annual audit by an independent, competent and qualified auditor

C

• Shall refrain from misrepresentation and information provided shall not be misleading

D• Shall provide adequate and timely information

E

• Shall ensure that disseminations made are adequate, accurate, explicit, timely and presented in a simple language

CompliancesGeneral Principles

73

F

• Sufficient channels for disseminating information shall be provided for equal, timely and cost sufficient access to relevant information by investors

G• Shall abide by the provisions of applicable laws

H

• shall make the specified disclosures and follow its obligations in letter and spirit taking into consideration the interest of all stakeholders

I

• All event based/periodic filings, reports etc. to contain relevant information

J

• Periodic filings, reports, statements etc. shall contain relevant information which shall enable investors to track the performance and current status of the Listed Entity

CompliancesGeneral Principles

74

A• Protection & facilitation of exercise of certain rights by shareholders.

B• Adequate & timely information.

C• Equitable treatment to all shareholders including minority, foreigner etc.

D

• Recognition of rights of its stakeholders & encouragement of co-operation with stakeholders.

E

• Timely and accurate disclosure on all material matters including the financial situation, performance, ownership, and governance.

CompliancesSpecific Principles

75

F

• Responsibilities of Board, Disclosure of information, Key functions, other responsibilities

• What is new in Specific Principles?

a• Employee participation in Corporate Governance dropped.

b• Key Executives replaced by Key Managerial Personnel.

c

• Top management responsibility for maintaining confidentiality shifted to “senior management Personnel”.

CompliancesSpecific Principles

76

Common Obligations of all Listed Entities

Ten Common obligations of all Listed Entities

Mutual fund units exempted from obligations relating to Compliance officer, STA, Co-operation with intermediaries, scheme of arrangements.

Chapter III deals with Common obligations

Compliances

77

A

• Respective KMP, Director, Promoter to comply as per responsibilities assigned to him

B

• Compliance Officer: only CS to be appointed Compliance officer, Responsibilities defined. Not applicable on mutual fund units.

C

• Share Transfer Agent (STA): Manage in house or appoint STA. if no of holders exceeds 1 lacs, listed entity if managing in house shall either register as Category II STA or appoint SEBI registered STA. Half yearly certificate by Compliance officer.

D• Co-operation with entities Registered with Board.

E

• Board to approve policy with in 90 days regarding Preservation of documents, classifying them in two categories - Permanent & for 8 years.

CompliancesCommon Obligations of all Listed Entities

78

F• Filing of information, documents etc on website/electronic platform.

Necessary infrastructure to be secured.

G

• Scheme of Arrangement not to violate or override or circumscribe the provisions of the securities laws etc.

H

• Payment of Dividend/ Interest / Redemption amount vide electronic mode of payment facility approved by RBI. If electronic mode not possible at part cheque may be issued. Cheque exceeding Rs. 1500 to be sent by speed post.

I

• Grievance Redressal mechanism. SCORES registration. Separate Compliance status within 21 days of respective quarter.

J• Payment of fees & other charges to SE’s.

CompliancesCommon Obligations of all Listed Entities

79

General obligations for compliance

• obligations common to all listed entities have been enumerated at oneplace

• Irrespective of the type of security listed, the listed entities have tocomply with these obligations

• Listed entities shall ensure that KMPs, Directors, Promoters or any otherperson dealing with the listed entity complies with the responsibilitiesand obligations, assigned to them under this chapter

80

Obligations of Compliance Officer

• Qualified Company Secretary is to be appointed as “ComplianceOfficer”

• The compliance officer is responsible for

• Ensuring conformity with applicable regulatory provisions

• Co-ordinate with SEBI, stock exchanges and Depositories with respect tocompliance with rules, regulations and other directives

• Ensure correct procedures have been followed, to ensure correctness,authenticity and comprehensiveness of filings

• Monitor investor grievance redressal

81

Disclosures or events of information -Mandatory

• Part A – Disclosures of events or information specified securities (Regulation - 30)

• Para A – events which shall be disclosed without any application of the guidelines for materiality as specified in sub-regulation (4) Regulation 30 –mostly these are policy type events such as -

• Acquisitions, forfeiture, split, consolidation, buyback, revision in ratings, bonus, declaration or cancellation of dividend, fraud or defaults by promoters, changes in directors / KMPs,

• Shareholder agreements, joint venture agreements, family settlement agreements etc

• corporate debt restructuring, one time settlement with banks,

• Appointment and discontinuation of share transfer agents

• Proceedings of AGMs / EGMs, amendments to Memorandum & Articles

• analyst meets etc

82

Events for disclosure on application of guidelines

• Para B – events which shall be disclosed uponapplication of the guidelines for materialityreferred sub-regulation (4) Regulation 30 –mostly these are operational events

• commencement or postponement of commercial production

• Change in general character of business, capacity addition or product launch, award or termination of orders / contracts, agreements which are binding and not in normal course of business

• Disruption of operations due to natural calamities, strikes / lockouts etc

• Impact due to change in regulatory frame work Litigations / disputes with impact

• Fraud / defaults etc by directors (other than KMPs) or employees

83

Compliances

SEBI – SAST

A

• Segregation of Compliances – Routine & Event based, factual & qualitativeIdentification of events triggering compliances

B

• Homework by checking websites of Company/BSE/NSE/SEBI/MCA/other regulators & preparation of data base, identification of gaps

C• Interaction with Company to fill the gaps

D• Review of records to update data base and filling of gaps

E• Master Checklist for all routine & event based compliances

84

Audit Qualifications - Samples

During the period under review the Company has complied with the provisions ofthe Act, rules, regulations, guidelines, standards etc. mentioned above, except tothe extent as mentioned below:

1. In respect of issue of further shares Company did not pass a special resolutionbefore allotment of shares to persons other than existing members.

2. The Company could not spend the sum allocated toward CSR corpus. However theCompany has constituted the CSR committee and its constitution was as per rules.

3. The Company has filed Form CHG -1, with delay of 120 days, for registration ofcharge on vehicle purchased in the name of the Company on loan from SBI.

4. The Company has given loan of Rs. 10 lacs to M/s ABC P Ltd in which Mr. A,director of the Company is director in violation to the provisions of section 185 ofCA, 2013. However the same has been received back.

Audit Report

85

Audit Qualifications - Samples

5. Form DIR 12 regarding appointment of Mr. A as Director was filed with delay of 60days.

6. The Company has not appointed Independent Directors up till 31.03.2015. Howeveras on date of issue of report the Board of the Company has appointed 3Independent Director, subject to the approval of the Shareholders.

7. The Company has not filed Form DIR 12 in respect of vacation of office of directorof Mr. B, due to non attending of meeting during 12 month w.e.f. 01.04.2014 interms of the provisions of section 167(1)(b) of the Act.

8. The Company needs to improve its compliance management and alert system toavoid delays in filing of forms/returns.

9. We are not able to make comments in respect of Nagpur unit started w.e.f.01.01.2015, as no documents could be provided by the Company.

Audit Report

86

Contents of Record File

Evidences of non

compliances/ negative remarks

Evidences regarding

qualititative comments/

supporting on which opinions

are based

Working Sheets/ Check

Lists

Parameters on which List of Applicable

laws prepared

Management Representation

/ Third Party Reports/

certificates

Records file

87

Create a niche over others

Share informal report with

management regarding

Compliance health

Identify and indicate areas

where improvement

is required

Discuss concept of Corporate

Compliance Management

Encourage management to take help of IT

to create Compliance

tracker/alerts/ records

Follow up and offer your services

Follow Up

88

What you should give and take

Form MR-3

Guidance Note – Annexure A

Detailed Report

Management Representation

Letter

Fraud Reporting

89