CORPORATE GOVERNANCE - AUDIT COMMITTEE

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GOVERNANCEAUDIT COMMITTEEBy CMA SUMIT KUMAR 1 Corporate Corporate is adjective meaning of or relating to a corporation .
derived from the noun corporation A corporation is an organization created incorporated by a groupof shareholders who have ownership of the corporation The elected Board of directors appoint and oversee managementof the corporation .
By CMA SUMIT KUMAR 2 Governance Oxford English Dictionary defines Governance as theact manner fact or function of governing sway controlThe word has Latin origins that suggest the notion of.
steering It deals with the processes and systems by whichan organization or society operates By CMA SUMIT KUMAR 3 CorporateGovernance .
It is a broad concept and has been defined and understooddifferently by different groups and at different points of time The Cadbury Committee report defines it as the system by whichcompanies are directed and controlled It is generally understood as the framework of rules relationships .
systems and processes within and by which authority is exercisedand controlled in corporations By CMA SUMIT KUMAR 4 GovernanceGovernance can be used with reference to all kind of.
organisational structure e g 1 NGO not for profit organisation2 Municipal corporation Gram panchyat3 Central State Government4 Partnership firm.
By CMA SUMIT KUMAR 5 Framework of Governance1 Supervisory Board Committee Team2 Audit Committee3 Internal Audit.
4 Statutory Audit5 Disclosure of information6 Risk management framework7 Internal Control framework8 Whistle blower policy.
By CMA SUMIT KUMAR 6 Corporate Governance Corporate ManagementCORPORATE CORPORATEGOVERNANCE MANAGEMENT.
Governance External Focus Internal FocusGovernance Managementassumes an open assumes a closedsystem systemManagement Strategy oriented Task oriented.
Concerned with Concerned withwhere the company getting theis going company thereBy CMA SUMIT KUMAR 7 History of Corporate.
Governance Kautilya s Chanakya Arthashastra is the oldest book around 300 B C onManagement 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 a vested interest in.
the outcome of a particular project establishment of an ethical code of conduct a topic which hasreceived a great deal of attention now during the past few years aftercorporate scandals the codification of accounting rules into one uniform system to.
prevent problems in translating financial data between disparate methodsof accounting a subject which the international accounting communityis dealing with in terms of the convergence of accounting standards In the western world The East India Company introduced a Court ofDirectors separating ownership and control U K the Netherlands in 1600s.
By CMA SUMIT KUMAR 8 International scenarioYear Name of Committee Body Areas Aspects Covered1992 Sir Adrian Cadbury Committee Financial Aspects of Corporate Governance1994 Mervyn E King s Committee Corporate Governance.
South Africa1995 Greenbury Committee UK Directors Remuneration1998 Hampel Committee UK Combine Code of Best Practices1999 Blue Ribbon Committee US Improving the Effectiveness of Corporate AuditCommittees.
1999 OECD Principles of Corporate Governance1999 CACG Principles for Corporate Governance inCommonwealth2003 Derek Higgs Committee UK Review of role of effectiveness of Non executive2003 ASX Corporate Governance Principles of Good Corporate Governance and Best.
Council Australia Practice RecommendationsBy CMA SUMIT KUMAR 9 Indian scenarioYear Name of Areas Aspects CoveredCommittee Body.
1998 Confederation of Desirable Corporate Governance A CodeIndian Industry CII 1999 Kumar Mangalam Corporate GovernanceBirla Committee2002 Naresh Chandra Corporate Audit Governance.
2003 N R Narayana Corporate GovernanceMurthy CommitteeBy CMA SUMIT KUMAR 10 Objectives of good corporategovernance.
1 Strengthen management oversight functions and accountability2 Balance skills experience and independence on the boardappropriate to the nature and extent of company operations3 Establish a code to ensure integrity4 Safeguard the integrity of company reporting.
5 Risk management and internal control6 Disclosure of all relevant and material matters7 Recognition and preservation of needs of shareholdersBy CMA SUMIT KUMAR 11 Parties to corporate.
governance1 Board of directors2 Managers3 Workers4 Shareholders or owners.
5 Regulators6 Customers7 Suppliers8 Community people affected by the actions of theorganization .
By CMA SUMIT KUMAR 12 Principles in developing CorporateGovernance framework Openness Integrity.
AccountabilityBy CMA SUMIT KUMAR 13 Clause 49 in Listing agreement The Listing agreement was first introduced by Bombay Stock Exchangeand later followed by other stock exchanges.
SEBI vide its circular dated February 21 2000 specified principles ofcorporate governance and introduced a new clause 49 in the Listingagreement of the 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 governmental and other financialinstitutions corporations municipalities etc Listing helps in free transferability leads to transparency in disclosureof information and ensures official quotation is available .
By CMA SUMIT KUMAR 14 SEBI Circulars on Clause 49S No Circular no Date1 SMDRP POLICY CIR 10 2000 February 21 20002 SMDRP POLICY CIR 13 2000 March 09 2000.
3 SMDRP POLICY CIR 42 2000 September12 20004 SMDRP POLICY CIR 03 01 January 22 20015 SMDRP POLICY CIR 19 01 March 16 20016 SMDRP POLICY CIR 53 01 December 31 20017 SEBI MRD SE 31 2003 26 0 August 26 2003.
By CMA SUMIT KUMAR 15 Recent Amendments to ClauseS No Circular no Date1 SEBI CFD DIL CG 1 2004 12 10 October 29 20042 SEBI CFD DIL CG 1 2005 29 3 March 29 2005.
3 SEBI CFD DIL CG 1 2006 13 1 January 13 2006By CMA SUMIT KUMAR 16 Applicability of clause 49 All listed entities having a paid up share capital of Rs 3 crores andabove or net worth of Rs 25 crores or more at any time in the.
history of the company For other listed entities which are not companies but bodycorporate e g private and public sector banks financialinstitutions insurance companies etc incorporated under otherstatutes the revised Clause 49 will apply to the extent that it does.
not violate their respective statutes and guidelines or directivesissued by the relevant regulatory authorities The revised Clause 49 is not applicable to Mutual Funds Revised clause 49 has come into effect from January 1 2006By CMA SUMIT KUMAR 17.
Bird s eye view of Clause 49Annexure ContentsAnnexure I Clause 49 Corporate GovernanceAnnexure I A Information to be placed before Board of DirectorsAnnexure I B Format of Quarterly Compliance Report on Corporate.
GovernanceAnnexure I C Suggested List of Items to Be Included in the Reporton Corporate Governance in the Annual Report ofAnnexure I D Non Mandatory RequirementsBy CMA SUMIT KUMAR 18.
Annexure II Board of DirectorsII Audit CommitteeIII Subsidiary CompaniesIV Disclosures.
V CEO CFO certificationVI Report on Corporate GovernanceVII ComplianceBy CMA SUMIT KUMAR 19 Overview of Clause 49 Corporate.
GovernanceI Board of Directors A Composition of Board B Non executive directors compensation and disclosures C Other provisions as to Board and Committees.
D Code of ConductII Audit Committee 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 CommitteeBy CMA SUMIT KUMAR 20 Overview of Clause 49 III Subsidiary Companies.
IV Disclosures A Basis of related party transactions B Disclosure of Accounting Treatment C Board Disclosures Risk management D Proceeds from public issues rights issues preferential.
issues etc E Remuneration of Directors F Management G ShareholdersBy CMA SUMIT KUMAR 21.
Overview ofCEO CFO certificationClause 49 a Financial Statements i Do not contain any materially untrue statement .
ii Present true and fair view of the state of affairs andare in compliance with AS and applicable laws b No transactions entered is fraudulent or illegal c Accepted the responsibility for establishing andmaintaining Internal Controls for the purpose of financial.
reporting amended on 13 1 2006 d Disclosed to the auditors and Audit Committeedeficiencies in the design or operation of internal control VI Report on Corporate GovernanceVII Compliance.
By CMA SUMIT KUMAR 22 Audit 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 committeeBy CMA SUMIT KUMAR 23.
Section 292A Companies Provision of this section came into effect on 13 th December 2000 Applicability to every Public Limited Company having a paid up capitalof 5 Crores or more Three directors should be the member of Audit Committee Two should.
be non executive Chairman can be any Director Default in compliance shall be punishable with imprisonment for a termwhich may extend to one year or with fine which may extend to fiftythousand rupees or with both .
By CMA SUMIT KUMAR 24 49 II A Qualified andindependent Audit committeei Minimum three directors Two thirds of the members of auditcommittee shall be independent directors .
ii All members shall be financially literate and at least one membershall have accounting or related financial management expertiseiii Chairman to be an independent directoriv Chairman of Audit Committee shall be present at AGM to answershareholder queries.
v Finance director head of internal audit and a representative ofthe statutory auditor may be present as invitees for the meetingsof the audit committeevi The Company Secretary shall act as the secretary to theBy CMA SUMIT KUMAR 25.
49 II B Meeting of Audit The audit committee should meet at least four times in ayear with a gap of not more than four months The quorum shall be either two members or one third of themembers of the audit committee whichever is greater but.
there should be a minimum of two independent membersBy CMA SUMIT KUMAR 26 49 II C Powers of Audit1 To investigate any activity within its terms of reference 2 To seek information from any employee .
3 To obtain outside legal or other professional advice 4 To secure attendance of outsiders with relevantexpertise if it considers necessaryBy CMA SUMIT KUMAR 27 49 II D Role of Audit.
1 Oversight of the company s financial reporting process2 Recommending to the Board the appointment re appointment and if required the replacement orremoval of the statutory auditor and the fixation of audit3 Approval of payment to statutory auditors for any other.
services rendered by the statutory auditors By CMA SUMIT KUMAR 28 Role of Audit Committee 4 Reviewing with the management the annual financial statements beforesubmission to the board for approval with particular reference to .
a Matters required to be included in the Director s ResponsibilityStatement to be included in the Board s report in terms of clause 2AA of section 217 of the Companies Act 1956b Changes if any in accounting policies and practices and reasons forc Major accounting entries involving estimates based on the exercise of.
judgment by managementd Significant adjustments made in the financial statements arising out ofaudit findingse Compliance with listing and other legal requirements relating tofinancial statements.
f Disclosure of any related party transactiong Qualifications in the draft audit reportBy CMA SUMIT KUMAR 29 Role of Audit Committee 5 Reviewing with the management the quarterly financial.
statements before submission to the board for approval6 Reviewing with the management performance of statutory andinternal auditors adequacy of the internal control systems7 Reviewing the adequacy of internal audit function if any including the structure of the internal audit department staffing.
and seniority of the official heading the department reportingcorporate governance & audit committee by cma. sumit kumar*

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