CONFEDERATION OF INDIAN INDUSTRIES (CII) CODE FOR DESIRABLE CORPORATE GOVERNANCE

CONFEDERATION OF INDIAN INDUSTRIES (CII) CODE FOR DESIRABLE CORPORATE GOVERNANCE

The CII code has recommended the following 14 key aspects which should be shared with the
board :
» Annual operating plans and budgets together with updated long-term plans.
» Capital budgets, manpower and overhead budgets.
» Quarterly results for the company as a whole and its operating divisions for business segments.
» Show cause, demand and prosecution notices received from the revenue authorities which are
considered to be materially important.
» Internal audit reports, including cases of theft and dishonesty of a material nature.
» Fatal or serious accidents, dangerous occurrences, and any affluent or pollution problems.
» Default in payment of interest or nonpayment of the principal on any public deposit, and/or to
any secured creditors or financial institutions.
» Defaults such as nonpayment of inter-corporate deposits by or to the company, or materially
substantial non-payments for goods sold by the company.
» Any issue which involves possible public or product liability claims of a substantial nature, including
any judgment or order which may have either passed, strictures on the conduct of the company,
or taken an adverse view regarding another enterprise that can have negative implications for
the company.
» Details of my joint venture or collaboration agreement.
» Transactions that involve substantial payment towards goodwill, brand equity, or intellectual
property.
» Recruitment and remuneration of senior officers just below the board level, including appointment
or removal of the Chief Financial Officer and the Company Secretary.
» Labour problems and their proposed solutions.
» Quarterly details of foreign exchange exposure and the steps taken by management to limit the
risk of adverse exchange rate movement, if material.
These issues can be classified into financial issues and non-financial issues which are not required to be
presented to the Board statutorily
Explaining the nature of key information that should reach board as per CII Code.
Financial Issues :
» Operating plans and budgets
» Capital budgets
» Quarterly results as a whole and by business segment
» Joint venture and collaboration
» Foreign exchange exposures
» Defaults in payments
» Failure in collection
Non-Financial Issues :
» Internal audit report
» Fatal accidents
» Show causes, contingencies, claims, Labour problems
» Important recruitments.

Functions of Audit Committee under Section 292A

Functions of Audit Committee under Section 292A

Sub-section (2) of Section 292A provides that every Audit Committee constituted shall act in

accordance with terms of reference to be specified in writing by the Board. Sub section (6) provides

that the Audit Committee should have periodic discussions with the auditors on the following

matters :

(c) Internal control systems;

(d) The scope of audit including the observations of the auditors

(e) Review of the half-yearly and annual financial statements before submission to the Board and also

ensure compliance of internal control systems; and

(f) Compliance of Internal Control Systems.

Sub-section (7) of Section 292A further provides that the Audit Committee shall have the authority

to investigate into any matter :

(a) In relation to the items specified in section 292A; and

(b) In relation to the items referred to it by the Board of Directors.

Sub-section (7) further provides that the Audit Committee shall have full access to information

contained in the records of the company and external professional advice if necessary.

Sub-section (8) provides that the recommendations of the Audit Committee on any matter relating

to financial management, including the audit report, shall be binding on the Board. Sub-section (9)

provides that in case, the Board does not accept the recommendations of the Audit Committee, it

shall record the reasons for non-acceptance and communicate such reasons to the shareholders.

12.10.5 Penalty for Contravention of Section 292A:

Sub-section (11) of Section 292A provides that the company and every officer who is in default in

complying with the provisions of this section shall be punishable with imprisonment for a term which

may extend to one year or with fine which may extend to fifty thousand rupees or with both.

12.10.6 Meetings of the Audit Committee:

Clause 49 to the listing agreement provides that the Audit Committee should meet at least four

times in a year and not more than four months shall elapse between two meetings. The quorum

shall be either two members or one-third of the members of Audit Committee whichever is greater.

However, there should be a minimum of two independent members present. In view of quarterly

results, it becomes otherwise also essential to meet at least once in a quarter. However, there is

no bar on the maximum number of sittings by an Audit Committee. The Companies Act, 1956 has

assigned a role to these committees and does not provide anything about the minimum numbers

of meetings.

AUDIT COMMITTEES AND CORPORATE GOVERNANCE

AUDIT COMMITTEES AND CORPORATE GOVERNANCE

Audit Committee Statute in India

Audit Committees. The new provision covers every public company having a paid-up capital of Rs. 5
crore and above. The Board of Directors is required to constitute an audit committee consisting of not
less than three directors and such number of other directors as the Board may determine of which twothirds
of the total number of members shall be directors, other than managing or whole time directors.
Similarly, Clause 49 of the uniform listing agreement prescribed by Securities and Exchange Board of
India (SEBI), which is applicable to all companies listed in India, requires the setting up of a qualified
and independent Audit Committee.
Sub-section (6) of Section 292A requires that the Audit Committee should have discussions with the
auditors periodically about internal control systems, the scope of audit including the observations of
the auditors and review the half-yearly and annual financial statements before submission to the Board
and also ensure compliance of internal control systems.
Sub-section (7) of Section 292A provides that the Audit Committee shall have authority to investigate into
any matter inter-alia in relation to these matters and shall have full access to the information contained
in the records of the company and external professional advice, if necessary.
The clause 49 of the listing agreement provides that the audit committee shall have powers which
should include the following :
(b) to investigate any activity within its terms of reference;
(c) to seek information from any employee;
(d) to obtain outside legal or other professional advice; and
(e) to secure attendance of outsiders with relevant expertise, if it considers necessary.
This clause further provides that the role of the audit committee shall inter-alia include the following:
(b) Oversight of the company’s financial reporting process and the disclosure of its financial information;
(c) Recommending the appointment and removal of external auditor, fixation of audit fee and also
approval for payment for any other services;
(d) Reviewing the annual financial statements with management before submission to the board;
(e) Reviewing external and internal auditors with the management and the adequacy of internal
control systems;
(f) Reviewing the adequacy of internal audit system;
(g) Discussion with Internal Auditors of any significant findings and follow-up action thereon;
(h) Discussion with External Auditors; and
(i) Reviewing the company’s financial and risk-management policies.
Sub-section (8) and sub-section (9) of Section 292A provides that the recommendations of the Audit
Committee will be binding on the Board. In case the Board does not accept the recommendations of
the Audit Committee, it will have to record the reasons and communicate the same to the shareholders.
In short, the provisions related to Audit Committees can be summarized as under :
» All public limited companies having paid up capital of Rs. 5 crores or more are required to establish
a committee of the Board known as Audit Committee.
» The Committee shall have at least three directors as members.
» Two-third of the total number of members shall be non-executive directors.
» The Audit Committee shall act in accordance with terms of reference to be specified in writing by
the Board.
» The Statutory Auditors, the Internal Auditor, if any and director in-charge of finance shall attend
and participate the meetings of Audit Committee but shall not have the right to vote.
» The Audit Committee should have discussions with the auditors periodically about internal control
system, the scope of audit and review of the half yearly and annual financial statements before
presenting the same to the Board.
» The Audit Committee shall have right to investigate any matter covered under the broad terms of
reference.
» In case of any default, the company and every officer who is in default shall be punishable with
imprisonment for a term which may extend to one year, or with fine, which may extend to fifty
thousand rupees or with both.