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Secretarial Audit & Due Diligence: Preparedness & Process

This seminar provides an overview of secretarial audit and due diligence, including the scope, structure, and techniques involved. It covers the applicability of secretarial audit, compliance checks, value addition, and the advantages of conducting a secretarial audit. The scope includes laws and regulations related to companies, securities, foreign exchange management, and more. Auditing techniques such as preventive mechanism, checklists, and audit reports are discussed, along with planning, team building, and confidentiality.

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Secretarial Audit & Due Diligence: Preparedness & Process

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  1. “REGULATORY COMPLIANCE, AUDIT AND DILIGENCE”17TH SEPTEMBER, 2016 Dr. S Chandrasekaran sankara@cacsindia.com

  2. SECRETARIAL AUDIT & DUE DILIGENCE – PREPAREDNESS & PROCESS

  3. PREPAREDNESS

  4. OVERVIEW, SCOPE & STRUCTURE OF AUDIT, AUDITING TECHNIQUES

  5. SECRETARIAL AUDIT - OVERVIEW • Applicability of Secretarial Audit (Section 204 & Rule 9 of Companies (Appointment and Remuneration) Rules, 2014) • Preventive mechanism, not post-mortem • Compliance check • Value addition • Helping hands To be Continued…

  6. COMPLIANCE CHECK Contd… APPROVALS DISCLOSURES AGREEMENTS FILING OF DOCUMENTS MAINTENANCE OF REGISTERS & RECORDS

  7. VALUE ADDITION Contd… • Clarification Interpretation Systems Development Internal Control and Risk Management

  8. HELPING HANDS • MANAGEMENT • INVESTORS • STAKEHOLDERS • REGULATORS

  9. ADVANTAGES OF SECRETARIAL AUDIT

  10. DUE DILIGENCE - OVERVIEW • Analysis and Risk Assessment of an impending business transactions • Methodological Investigation and Evaluation • Background Check in order to exercise care • Relates to the past, present, and predictable future of the business to be transacted • Controlled Access • Future Perspective and Facilitates Decision Making • Value Protector

  11. SCOPE OF SECRETARIAL AUDIT • The Companies Act, 2013 and the rules made thereunder; • The Securities Contracts (Regulation) Act, 1956 and the rules made thereunder; • The Depositories Act, 1996 and the Regulations and Bye-laws framed thereunder; • Foreign Exchange Management Act, 1999 and the rules and regulations made thereunder to the extent of Foreign Direct Investment, Overseas Direct Investment and External Commercial Borrowings; To be Continued…

  12. SCOPE OF SECRETARIAL AUDIT Contd… • The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011; • The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015; • The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009; • The Securities and Exchange Board of India (Share Based employee Benefits) Regulations, 2014; To be Continued…

  13. SCOPE OF SECRETARIAL AUDIT Contd… • The Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008; • The Securities and Exchange Board of India (Registrars to an Issue and Share Transfer Agents) Regulations, 1993 regarding the Companies Act and dealing with client; • The Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009; and • The Securities and Exchange Board of India (Buyback of Securities) Regulations, 1998; To be Continued…

  14. SCOPE OF SECRETARIAL AUDIT Contd… • Secretarial Standards • The Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015; • Specific laws applicable to the Company • ICSI guidance note • IT Act • Labour Laws • Industrial Laws • Excise and Custom

  15. ADDITIONAL SCOPE TO SECRETARIAL AUDIT • The Securities and Exchange Board of India (Issue And Listing of Non-convertible Redeemable Preference Shares) Regulations, 2013 • The Securities and Exchange Board of India (Issue of Sweat Equity) Regulations, 2002 • The Competition Act, 2002

  16. STRUCTURE OF SECRETARIAL AUDIT • New Appointment • Intimation to the earlier Secretarial Auditor • Earlier observations • MCA signatory details • MCA documents filed • Constitution of Committees • Scrutiny of Forms and Returns filed • Disclosures made • Minutes, Registers and Records • Discussions and Briefing

  17. AUDITING TECHNIQUES • Preventive Mechanism • Systemic and Timeline Checklists • Quarterly Compliance Calendars • Agenda/ Event based and Routine Compliance Trackers • Quarterly Audit Observations to the Secretarial Departments • Half-yearly Secretarial Audit Reports to the Board of Directors • Annual Secretarial Audit Report To be Continued…

  18. AUDITING TECHNIQUES Contd… • Miscellaneous • Sample Checking (Agreements and Contracts) • Test Checking (Promoters Holdings, Forms) • Random Checking (Stock Exchange Website, Media & Newspapers) • Trial and Error Checking (Annual Return)

  19. PLANNING, TEAM BUILDING, BRIEFING AND CONFIDENTIALITY

  20. PLANNING

  21. TEAM BUILDING • Opening meeting (Discussion of Audit Schedule and comprehensive outline of fieldwork) • Team Leaders and Assistance (based on the size and structure of the Company and the period for which the audit has to be conducted) • Team to be well groomed on knowledge grounds, subject matters, time efficiency and soft skills • Timely comparison with the scheduled audit targets with the actual achievements To be Continued…

  22. TEAM BUILDING Contd… • Shuffling of Teams • Allocation of Powers and Duties • Classroom sessions/ discussions for updating the team with the latest news and amendments To be Continued…

  23. BRIEFING

  24. CONFIDENTIALITY • Confidentiality/ Non-Disclosure Agreements • No passing of the information to others • Complying with the Code of Conduct

  25. COMPLIANCE TEST OF INTERNAL CONTROL SYSTEM, SUBSTANTIVE CHECKING AND DEPENDENCE ON OTHER EXPERT

  26. INTERNAL CONTROL SYSTEM • I/we further report that there are adequate systems and processes in the company commensurate with the size and operations of the company to monitor and ensure compliance with applicable laws, rules, regulations and guidelines. • Section 134(5)(e)

  27. COMPLIANCE TEST OF INTERNAL CONTROL SYSTEM • Size and complexity of the organisation • Variable in nature • Competition • Industrial Practices • Legislation • Regulations • Current Economic Conditions • Aim: Identification of gaps • Internal Audit Reports To be Continued…

  28. COMPLIANCE TEST OF INTERNAL CONTROL SYSTEM Contd… • Company Policies • Promoters Securities Transfers, Promoters Shares Pledge (Business Line 15.09.2016 – “Inter-se transfer by promoters even as gift is a sale” – SEBI) • Outcomes of the Committees, Decisions and Implementations, Management Instructions and Planning & Review Processes • Deficiency tracking systems

  29. SUBSTANTIVE CHECKING • Detection of material misstatement or fraud at the assertion level • Physical examination of existence, correctness, completeness, accuracy, validity and authorisation of information • Inspection of supporting documents • Analytical Approach

  30. DEPENDENCE ON OTHER EXPERTS • Reference of judgements and case laws • Opinions • Deposits from Trust • Consolidation of accounts of subsidiaries of Section 8 Company

  31. EVALUATING AUDIT EVIDENCES AND FORMING CONCLUSIONS

  32. EVALUATING AUDIT EVIDENCES AND FORMING CONCLUSIONS • Seeking the Financial data • Confirmation from departmental heads • Identifying the trueness of the documents – Minutes, Attendance Registers, Dispatch Proofs, etc. • Observations • Violations • Advisory • Improvements • Opinions To be Continued…

  33. EVALUATING AUDIT EVIDENCES AND FORMING CONCLUSIONS Contd… • Betterment and Nullifying the repetition of errors • Self-explanatory with references • Compliance focused and not clerical • Good governance

  34. IMPORTANCE OF MANAGEMENT REPRESENTATION LETTER

  35. IMPORTANCE OF MANAGEMENT REPRESENTATION LETTER • ICSI Guidance Note on Secretarial Audit • Depends on the circumstances and facts governing the audit • The opinions on the statutory compliances examined by the auditor • Part of audit evidence • Acknowledgement of the responsibility of the Company for maintaining the Secretarial Records • Other Applicable Laws

  36. FORMING AN OPINION AND REPORTING

  37. FORMING AN OPINION AND REPORTING • Periodical Reports • Quarterly - Secretarial Department • Half-yearly - Board of Directors • Annually - Public at large • Internal hierarchy • CS Management Trainee • Member • Senior • Final Discussion To be Continued…

  38. FORMING AN OPINION AND REPORTING Contd… • Categorisation of issues • Rectifiable non compliances – Signing of documents • Moderate non compliances – Late Form Filing • Alarming non compliances – Part of the Secretarial Audit Report

  39. SCOPE AND TYPES OF DUE DILIGENCE

  40. SCOPE OF DUE DILIGENCE • Transaction Focused • No specific law and process defined • Evolved by practice and requirements of the transaction • Depends on variety of issues involved and their characteristics thereof • Involves time restrictions, cost constraints and situational factors • On-going for Banks

  41. TYPES OF DUE DILIGENCE • Legal Due Diligence - Review of legal organizational matters, ownership of assets, environment problems as potential major financial impact, remediation, capital acquisition issues • Marketing/ Management/ Production Due Diligence - Assessment of existing strengths and weaknesses; future needs • Financial Due Diligence - Historical/ projection scenarios/ tax issues)

  42. WISH YOU ALL SUCCESS.

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