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SACMDD > Chapter 8 and 11 - Audits > Flashcards

Chapter 8 and 11 - Audits Flashcards

1
Q

What is the Meaning of Audit ?

A

it is a systematic and independent examination of financial and non financial documents, records and statements with a view to ascertain whether they present a True and Fair view of the affairs of the entity.

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2
Q

Name 3 types of Audits

A

Financial ; Compliance ; Functional

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3
Q

Name the audits under Financial Audit

A

Statutory ; cost ; internal

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4
Q

Name some Audits under compliance audit

A

Secretarial ; CSR ; corporate governance

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5
Q

what are Functional Audits ?

A

audits of various functional departments in the organisation.

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6
Q

Section ______ of companies act 2013 deal with audit and auditors

A

139 - 148

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7
Q

Sections _______ of COA 2013 deals with statutory Audit

A

139 - 147

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8
Q

Section _______ of COA 2013 deals with Cost audit

A

148

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9
Q

Section ________ of COA 2013 deals with Internal Audit

A

138

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10
Q

Section ______ of COA 2013 deals with Secretarial Audit

A

204

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11
Q

Section 143 of companies act deals with many things could you name 2 of them which relate to this chapter

A
  1. Powers & Duties of Auditor which are common for all audits
  2. Reporting of fraud detected during audit.
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12
Q

state the penalty under section 143 for non compliance of reporting of fraud

A

in case of listed entity - upto Rs 5 lac
in case of other company - upto Rs 1 lac

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13
Q

Corporate Governance Audit is a _________ audit to ensure _________

A

strategic ; that all the processes required for directing and controlling a business are implemented efficiently

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14
Q

what kind of assurance is provided to stakeholders by CGA?

A

that governance and compliance related activities are effectively conducted.

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15
Q

CGA is undertaken and supervised by ________

A

Audit committee

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16
Q

what is the scope of CGA ? Name at least 4 points (Total 7 points)

A
  1. Financial & Non Financial Disclosures
  2. protection of stakeholders rights
  3. fairness and transparency in executive compensation
  4. monitor performance of board
  5. control business environment
  6. risk management activities
  7. social responsibility programs
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17
Q

what are the 2 primary aspects considered by an auditor under CGA?

A
  1. performance of board & higher management in conducting the activities in a fair and transparent manner.
  2. level of integrity & accountability shown by them.
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18
Q

Section ________ of COA 2013 deals with Audit committee.

A

177

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19
Q

which companies are required to mandatorily establish an audit committee under companies act 2013

A
  1. Every listed public company.
  2. A public company having PSC of 10 cr or more
  3. A public company having turnover of 100 cr or more
  4. A public company having aggregate of [(a) outstanding loans b) Debentures c) Deposits] more than 50 cr.
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20
Q

constitution of audit committee is given under regulation ______ of SEBI _________ regulations

A

18 ; LODR

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21
Q

State Minimum number of directors required for audit committee.

A

under companies act as well as SEBI LODR regulations it is - 3

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22
Q

state the minimum number of independent directors required for audit committee.

A

under COA 2013 - Majority of the total shall be independent.
under SEBI LODR - 2/3rd of the total shall be independent and in case the company has outstanding SR equity shares then committee shall consist only of independent directors.

23
Q

what is the financial literacy criteria for members of audit committee ?

A

Under COA 2013 - Majority shall be with an ability to read and understand financial statements
Under SEBI LODR - every member shall be financially literate and at least one shall be having expertise in the fields of finance or accounting

24
Q

what is the criteria for chairperson of the audit committee ?

A

under COA 2013 - shall be a person with an ability to read and understand financial statements.
under SEBI LODR - he shall be an independent director and shall be present at all AGMs

25
Q

what does the law say in relation to participation of outsiders in the meetings of audit committee ?

A

under COA 2013 - Auditors and KMP of the company have right to attend the meetings when the auditors report is being considered
under SEBI LODR - the audit committee may at its discretion invite any executives whether internal or external to the organization to be present at the meeting.

26
Q

what is the role of audit committee with respect to corporate governance defined under SEBI LODR regulations. (Pneumonic - ARE - O)

A

pneumonic - ARE - O ! (A - 2)
A- Auditors :- a) recommendation b) Appointment c) remuneration
A - Approvals :- a) RPTs b) appointment of financial executives in the entity.

R - Reviewing :-
a) Annual and Quarterly financial statements and auditors report with special focus on :
- RPT
- Directors
- changes in accounting policies
- major entries & significant adjustments
- Auditors opinion
b) auditors independence
c) effectiveness of audit process
d) performance of auditors
e) adequacy of audit function
f) Findings of the audit
g) whistle blower mechanism

E- Evaluation of :- a) internal financial controls b) risk management systems

O - Overseeing :- a) financial disclosures & reporting to ensure - credibility, accuracy and sufficiency.

27
Q

you as a company secretary are required to prepare a checklist for corporate governance audit, what are the aspects that need to be checked while performing a CGA?

( mnemonic - checklist of FARTS )

A

CGA checklist consist of 5 aspects that need to be checked with respect to the auditee, they are as follows :-
1. Accountability :- it involves to check whether :-
a) separation between ownership and control
b) management accountable to board
c) board accountable to shareholders
d) ID’s have independence
e) auditors have access to information
f) sufficient meeting were held

  1. Fairness :- it involves to check whether :-
    a) shareholders treated equally
    b) defined procedure for grievance redressal
    c) fair pricing policy
    d) fair market practices
  2. Transparency :- it involves to check whether :-
    a) timely, accurate disclosures on material matters are made
    b) company has a policy on political contributions
    c) company provides information to all its investors with regards to rights associated with shares before they invest.
    d) changes in voting rights is subjected to the approval of those affected by it.
    e) any compensation schemes in the form of shares is subjected to the approval of existing shareholders.
  3. Responsibility :- it involves to check whether :-
    a) Company has a policy on stakeholders rights
    b) -||- on social responsibility
    c) -||- on business sustainability
    d) board’s responsibility includes :- i) risk management ii) reviewing corporate performance.
  4. Shareholder interest :- it involves to check whether :-
    a) shareholders have the right to participate in and be informed about fundamental corporate changes such as :-
    i) alteration in charter documents
    ii) corporate restructuring
    iii) alteration in share capital
    iv) changes in ownership rights.
    b) disclosures are made to shareholders in events of disproportion of control to that of their equity holding.
    c) Minority shareholders protected from the abusive actions of the majority.
    d) disclosure of boards interest in any material transaction.
28
Q

What is the primary purpose of CSR Audit

A

the primary purpose is to :-
a) identify environmental, societal and governance risks faced by the organisation
AND
b) to evaluate managerial performance of the organisation in respect of those risks.

29
Q

What are the secondary purposes of CSRA

A

mnemonic - {C - FILM} (I - 2)
1. to ensure compliance with the provisions of COA 2013 wrt to CSR activities.
2. To facilitate transparent monitoring mechanism for the CSR activities
3. To implement CSR policy
4. To evaluate internal control and governance framework
5. to assess life cycle of CSR projects.
6. to conduct financial review of CSR projects and evaluate and confirm the utilization of budget allocated for CSR purposes

30
Q

CSR Audit is _________ as per COA 2013

A

not mandatory

31
Q

Section ______ of COA 2013 deals with CSR

A

135

32
Q

what are the threshold limits specified for CSR under COA 2013

A

as per sec 135 every company meeting the following criteria shall constitute a CSR committee as a committee of board :-
1. NW - 500 cr or more
2. T/o - 1000 cr or more
3. Net profit - 5 cr or more
during the immediately preceding FY

33
Q

state the composition of CSR committee

A

the CSR committee shall consist of :-
1. 3 or more directors out of which at least 1 shall be independent
2. if the company is not required to appoint ID as per sec 149 (4) 2 or more directors.

34
Q

what is the spending limit for CSR activities as per COA 2013

A

the board of every company which is required to constitute CSR committee as per sec 135 (1) shall ensure that the company spends in every FY at least 2 % of the average net profits during the immediately preceding 3 FYs in pursuance of its CSR policy.

35
Q

3 things to be done by the company if it reaches the threshold limits for CSR

A
  1. constitute CSR committee
  2. adopt a CSR policy
  3. spend in every FY at least 2% of the AVNP during the imd preceding 3 FYs
36
Q

What is the objective of CSRA

A

to measure the Actual social performance against the social objectives set by the company.

37
Q

State the methodology for CSR audits

A

mnemonic - MRI
M - Monitoring :-
CSR related activities and conduct of the affairs of the company in that respect.

R - Reviewing :-
CSR policy and projects
CSR committee
Governance Structure
CSR strategies
CSR expenditure
Compliance of CSR rules and provisions as prescribed under the COA 2013
beneficiaries of the CSR project
Budget allocation for CSR activities

I - Interacting with :-
beneficiaries of CSR project
Project team
other stakeholders

38
Q

CSR audit can be conducted __________ or by ________having _______ in CSR matters

A

internally ;
External agencies ;
Expertise

39
Q

State the scope/ coverage of CSR audit

A

Schedule VII of COA 2013 gives an illustrative list of activities which fall under the purview of CSR and a company may include it for the purposes of CSR. The list contains the following activities :-
Eradication of hunger, poverty, malnutrition
Education promotion
Rural development
Slum area Development
preservation of national heritage, arts or culture
promoting gender equality
environment sustainability
promoting sports
contribution to PM CARES fund or Public funded universities
disaster management

40
Q

Prepare a checklist for CSR Audit

A

To check whether :-
1. Constitution of CSR committee u/s 135 of COA 2013 is applicable to the company
2. company has constituted CSR committee as per the requirements of the COA 2013 if applicable
3. Company has adopted CSR policy approved by CSR committee
4. CSR projects undertaken are within the purview of Schedule VII of COA 2013
5. Company has established a transparent monitoring mechanism for CSR projects
6. CSR activities are undertaken as per CSR policy
7. Company has made relevant disclosures wrt to CSR as per the requirements of COA 2013
8. Company has complied with all the CSR requirements prescribed under the COA 2013 and rules related thereto.

41
Q

what are the different measures included under CSR audit ?
OR
What are the projections made by a CSR audit ?

A

The CSR audit tells us how the company has :-
1. identified major socio economic changes caused by its presence/ operations/ conduct
2. conducted social surveys before undertaking any CSR activity
3. identified the possible impacts of its CSR activities on the society
4. undertaken the impact assessment of its CSR activities.

42
Q

what is the purpose of takeover audit? (2 purposes)

A
  1. to provide results to the investor that the acquisition is executed in the most effective way
  2. to provide a cost benefit analysis of the long term investment strategy
43
Q

Name the 3 ways of takeover Audit

A

Takeover audit can be done in 3 parts :-
1. pre acquisition
2. post acquisition
3. sell side

44
Q

Takeover can be performed by ________ or ________ having domain expertise

A

internal auditors or professionals

45
Q

state the 2 main benefits of takeover audit

A
  1. new business opportunities
  2. risk minimization
46
Q

State the scope of takeover audit

A

it generally includes :-
1. identification and categorization of acquirer group
2. ensuring timely disclosures made by acquirer group
3. monitoring the holdings of acquirer group and taking necessary actions.
4. ensuring timely intimations given to SE as required under SEBI SAST reg.
5. filing of timely reports with SE
6. examining T/O regulations and verifying its compliance

47
Q

State the consequences of violation of SEBI SAST regulations

A

actions taken by SEBI inter alia includes :-
1. Debarring persons from accessing capital markets or dealing in securities
2. Directing :-
a. divestment of shares acquired
b. target co/depository not to give effect to any transfer
c. acquirer to make a open offer at price determined by SEBI
d. acquirer not to make a open offer if failed to pay open offer consideration (OOC)
e. acquirer to pay interest for delayed payment of OOC

48
Q

Explain insider Trading.

A

are actions of director, agents, employee or other officers of listed entity to use inside information for profitably speculating in the securities of such entity.

49
Q

How does insider trading occur?

A

It occurs due to :-
Possession of information regarding changes in the economic conditions of the company before everybody.

50
Q

SEBI by the virtue of SEBI PIT Reg has put the primary responsibility to _______ and _______ insider trading activities on _______ and _________.

A

monitor ;
regulate ;
compliance officer ;
Audit committee

51
Q

state some of the essential inputs take by the company in order to ensure compliance with SEBI PIT Reg.

A
  1. to adopt code of conduct in lies with PIT regulations.
  2. Appointment of compliance officer
  3. prior approvals for trading
  4. preservation of price sensitive information
    5.reporting requirements by dir/off/emp
  5. complete awareness with respect to rules and regulations framed in relation to ITA
52
Q

State some of the compliance requirements under SEBI PIT regulations

A

1.Submission of trading plans
2.Appointment of compliance officer
3.Pre-clearance for trading
4.adoption of Codes of fair disclosure and conduct
5.Manner of dealing with UPSI
6.Disclosure requirements :-
a. Initial disclosures - to be made internally by promoters, KMP, dir.
b. continual disclosures - to be made by promoter, employee, dir. if value of trade in a calendar quarter exceeds 10 lac rupees and such disclosures to be notified to SE within 2 trading days.

53
Q

Prepare a checklist for ITA

A

To check whether :-
1. The company has appointed a compliance officer.
2. The company has maintained structured digital database containing the nature of unpublished price sensitive information
3. the structured digital database is preserved for a period of not less than eight years.
4. The company has designated an officer to administer the code of conduct and other requirements under Insider trading regulations.
5. The Board of Directors of has formulated a code of conducts as per Insider trading regulations`.
6. The Code has been hosted on the website of the company
7. The code of conduct has stipulated the sanctions and disciplinary actions for its violations and contravention.
8. Every such code of conduct and documents thereto has been promptly intimated to the stock exchange where the securities are listed.
9. Company has formulated trading plan in compliance with regulations.
10. Compliance officer has fulfilled his following roles and responsibilities :-
a) reviewing/ monitoring trading plans
b) notification of trading plan to SE
c) providing reports of trading to chairman of Audit committee
11. company has preserved records/ disclosures for a min period of 5 years.
12. Any other modes of preventing and containing insider trading activities adopted by the company.

SACMDD (2 decks)

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