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Corporate Governance & Audit Committee: © Rajkumar Adukia 1
Corporate Governance & Audit Committee: © Rajkumar Adukia 1
Rajkumar Adukia 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 group of shareholders who have ownership of the corporation. The elected Board of directors appoint and oversee management of the corporation.
Rajkumar Adukia
Governance
Oxford English Dictionary defines Governance as the act, manner, fact or function of governing, sway, control The word has Latin origins that suggest the notion of 'steering'. It deals with the processes and systems by which an organization or society operates.
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Corporate
Governance
It is a broad concept and has been defined and understood differently by different groups and at different points 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.
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Governance
Governance can be used with reference to all kind of organisational structure e.g. 1. NGO- not for profit organisation 2. Municipal corporation/ Gram panchyat 3. Central/ State Government 4. Partnership firm
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Framework of Governance
1. 2. 3. 4. 5. 6. 7. 8. Supervisory Board/ Committee/ Team Audit Committee Internal Audit Statutory Audit Disclosure of information Risk management framework Internal Control framework Whistle blower policy
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CORPORATE MANAGEMENT
Internal Focus Management assumes a closed system Task-oriented
Concerned with Concerned with where the company getting the company is going there
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International scenario
Year
1992 1994 1995 1998 1999 1999 1999 2003 2003
Indian scenario
Year Name of Areas/Aspects Covered Committee/Body
Confederation of Indian Industry (CII) Desirable Corporate Governance A Code 1998
1999
Corporate Governance
2002
2003
Corporate Governance
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Date
February 21,2000 March 09, 2000 September12, 2000 January 22, 2001 March 16,2001 December 31,2001 August 26, 2003
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SEBI/CFD/DIL/CG/1/2004/12/10
October 29,2004
SEBI/CFD/DIL/CG/1/2005/29/3
SEBI/CFD/DIL/CG/1/2006/13/1
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Applicability of clause 49
All listed entities having a paid up share capital of Rs 3 crores and above 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 body corporate (e.g. private and public sector banks, financial institutions, insurance companies etc.) incorporated under other statutes, the revised Clause 49 will apply to the extent that it does not violate their respective statutes and guidelines or directives issued 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, 2006
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Contents
Clause 49 - Corporate Governance Information to be placed before Board of Directors Format of Quarterly Compliance Report on Corporate Governance Suggested List of Items to Be Included in the Report on Corporate Governance in the Annual Report of Companies Non-Mandatory Requirements
Annexure I D
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Annexure I
I. II. III. IV. V. VI. VII. Board of Directors Audit Committee Subsidiary Companies Disclosures CEO/CFO certification Report on Corporate Governance Compliance
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Overview of Clause 49
III. IV. Subsidiary Companies 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) Shareholders
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d) VI. VII.
Audit Committee
(A) (B) (C) (D) (E)
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vi.
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3.
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b. c. d. e. f. g.
8. 9.
11.
12. 13.
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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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ii.
iii.
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49 IV (D) Proceeds from public issues, right issues, preferential issues etc.
The Company to disclose uses / applications of funds by major category (capital expenditure, sales and marketing, working capital, etc), on a quarterly basis as a part of their quarterly declaration of financial results On an annual basis, the company shall prepare a statement of funds utilized for purposes other than those stated in the offer document/prospectus/notice and place it before the audit committee. Such disclosure shall be made only till such time that the full money raised through the issue has been fully spent. This statement shall be certified by the statutory auditors of the company. The audit committee shall make appropriate recommendations to the Board to take up steps in this matter.
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49 V CEO/CFO Certification
(c ) Certification of internal controls and internal control systems by CEO/ CFO would be for the purpose for financial reporting (d) They have indicated to the auditors and the Audit committee (i) significant changes in internal control over financial reporting during the year (ii) significant changes in accounting policies during the year and that the same have been disclosed in the notes to the financial statements; and (iii) instances of significant fraud of which they have become aware and the involvement therein, if any, of the management or an employee having a significant role in the companys internal control system over financial reporting
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1.Does the committee have a positive working relationship with management, the internal auditors
and the independent auditors?
2.Does the committee challenge management, the internal auditors, and the independent auditors with its own view on issues?
3.Are differences of opinion on issues resolved to the satisfaction of the committee? 4.Do the members challenge the chair as appropriate?
5 Is the audit committee charter (in our case Clause 49 of listing agreement) used as a document to guide the committee in its efforts, and to help guide the committees agenda? Is the audit committee charter matrix (in our case Clause 49 of listing agreement )used to document compliance with the precepts of the charter(in our case listing agreement)?
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8.Are the organizations financial reporting processes stronger as a result of managements interactions with the audit committee?
9.Is the committee cognizant of the line between oversight and management, and does it endeavor to respect that line?
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