Corporate Governance 2 “ Corporate” Corporate is adjective meaning “of or relating to a...

Corporate Governance

2

“ 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.

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“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.

Current preoccupation with corporate governance can be pinpointed at three events:

1. The East Asian Financial Crisis of 1997 saw the economies of Thailand, Indonesia, South Korea, Malaysia and The Philippines severely affected by the exit of foreign capital. The lack of corporate governance mechanisms in these countries highlighted the weaknesses of the institutions in their economies

2. The US corporate crises of which saw the collapse of two big corporations: Enron and WorldCom, and the ensuing scandals and collapses in other organizations such as Arthur Andersen, Global Crossing and Tyco

3. In India several scams such as DSQ , and other financial scams forced the regulators to clamp regulations for the administration of public limited companies in order to protect the interests of the stakeholders

History

NEED FOR CORPORATE GOVERNANCE Govt and regulatory bodies are defining

standards of corporate governance to mitigate the challenges of emerging corporate dynamism

In India SEBI is actively involved in evolving, setting, and enforcing standards of good corporate governance

Has instituted clause 49 of the listings agreement on the basis of SOX 404

OVERVIEW OF CORPORATE GOVERNANCE About legal , cultural , and institutional

arrangements that determine what public companies do , who controls them how that control is exercised (dcm , escort case) and how risks and returns from activities they undertake are allocated or planned (swadeshi polytex case 1975)

DEFINITION OF CORPORATE GOVERNANCE CODE OF PRACTICE BY WHICH A FIRMS

MANAGEMENT IS HELD ACCOUNTABLE TO STAKEHOLDERS FOR THE EFFICIENT AND HONEST USE OF ASSETS

GOVERNANCE REFERS TO THE SYSTEM OF DIRECTING AND CONTROLLING AN ORG.

GOVERNANCE ASSUMES GREATER SIGNIFICANCE FOR PUBLICLY TRADED COMPANIES BEACAUSE OF THE SEPARATION OF MANAGEMENT FROM OWNERSHIP WHICH IS MEANT TO AVOID CONFLICTS OF INTERESTS ARISING OUT OF OWNER ALSO MANAGING THE SHOW

DEFINITION OF CORPORATE GOVERNANCE Set of processes, customs, policies, laws

and institutions affecting the way in which a corporation is directed, administered or controlled

Corporate governance covers the entire gamut of activities having direct or indirect influence on financial health

Social legal and economic process by which company functions and is held responsible

Means doing everything better to improve relationship between company and stakeholders

Includes the relationships among the various players involved and the goals for which the corporation is governed

Defined as a field in economics, which studies the many issues arising from the separation of ownership and control

Refers to the system of directing and controlling an organization

DEFINITION OF CORPORATE GOVERNANCE

DEFINITION OF CORPORATE GOVERNANCE PREREQUISITES FOR GOOD GOVERNANCE ARE

EDUCATION ,TECHNICAL SKILLS , CORE COMPETENCY AND A SYSTEM OF EFFECTIVE COMMUNICATION BOTH INTERNAL AND EXTERNAL

PRIMARY OBJECTIVE OF THE MANAGEMENT OF A PUBLICLY TRADED COMPANY IS TO ENHANCE THE VALUE OF THE ENTERPRISE

DEFINITION OF CORPORATE GOVERNANCE Corporate Governance is typically perceived

as dealing with “problems that result from the separation of ownership and control”

Corporate Governance is not new It is as old as the division of ownership and management.

Separation has advantages. – Allows share ownership to change without

interfering with operation. – Allows to hire professional managers.

DEFINITION OF CORPORATE GOVERNANCE Corporate governance deals with the ways in which

suppliers of finance to corporations assure themselves of getting a return on their investment

Corporate governance also includes the relationships among the many players involved (the stakeholders). The principal players are the shareholders, management and the board of directors. Other stakeholders include employees, suppliers, customers, banks and other lenders, regulators, the environment and the community at large.

FUNDAMENTAL ISSUES IN CORPORATE GOVERNANCE TRANSPARENCY IN RESPECT TO COMPANY

AFFAIRS AND COMPLETE DISCLOSURE OF ALL ADVERSE FACTORS AFFECTING A COMPANY

ACCOUNTABILITY OF DIRECTORS IN COMPLIANCE OF LAWS AND REGULATIONS

FAIRNESS IN REPORTING OF ALL DEALINGS RESPONSIBILITY ON PART OF DIRECTORS FOR

BUSINESS DEALINGS

NEED FOR CORPORATE GOVERNANCE Government and regulatory bodies are

defining standards of corporate governance to mitigate the challenges of emerging corporate dynamism

In India SEBI is actively involved in evolving, setting, and enforcing standards of good corporate governance

Has instituted clause 49 of the listings agreement on the basis of SOX sections

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What went wrong in the recent past?

Environment– Loss of moral fibre of corporations– Business environment characterized by need to compete with the new economy

Boards– Fundamental weaknesses in business models sought to be compensated by

adoption of aggressive accounting practices – Ignored ethics and value systems when a much hyped business strategy failed

to deliver as expected and articulated to Wall Street– Incompetence of board members and overriding of audit committees

Managements– Stock option heavy compensation structures– Bonus linked to short-term revenue growth, EPS and stock price– An inability to accept failure– Excessive focus on beating the street

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What went wrong in the recent past ?

Auditors– Aggressive interpretation of accounting standards– Independence compromised to obtain lucrative consulting assignments

Employees– Compensation linked to stock-price movement– Large disparity between the highest and lowest paid employee– Culture of greed promoted within the organization by management– Manipulative accounting practices

Analysts– Ever-greening of reports with an eye on investment banking assignments– Pressurized managements to beat quarterly estimates

Investors– Short term focus of investors

Corporate Governance Process

Monitoring executive performance Ensuring accountability of management to

shareholders Motivating management towards creating

value for shareholders Protecting interests of stakeholders

ROLE OF CORPORATE GOVERNANCE`

o STRONG VS WEAK PERFORMANCEo PUBLICLY OWNED BUSINESS VS PRIVATELY OWNED BUSINESSo PROSPECT OF ATTRACTING LONG TERM, STABLE CAPITALo INCLUDES QUESTIONS OF STRATEGY,VISION OF TOP

MANAGEMENT,TRANSPARENCY,CODE OF CONDUCT, STDS OF PERFORMANCE, ACCOUNTABILITY ETC

o DIRECTION OF BUSINESS PERFORMANCEo MEETING STAKEHOLDER INTERESTo RECONCILIATION OF CONFLICTING INTERESTSo SYSTEMS FOR ACCOUNTING, AUDITING AND FISCAL

DISCIPLINEo MANAGER DISCIPLINE

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CORPORATE GOVERNANCE

International • Sarbanes Oxley Act• U.S AUDITING STANDARDS AND GAAP• IFRS

National• Amendments in the Companies Act• Accounting Standards by ICAI including Indian GAAP

and IFRS in the future• Auditing standards by ICAI• SEBI initiatives• Clause 49 of the listings agreement

OBJECTIVES OF CORPORATE GOVERNANCE

Creating a framework for the fiscal control of companies Ensuring that companies are answerable to stakeholders and

protecting the rights of shareholders and investors Company is run according to the laws and regulations and its

accounting policies are in conformity with the laid down accounting principles

Ensuring that the company behaves in a socially responsible way

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Objectives of corporate governance

1. Strengthen management oversight functions and accountability

2. Balance skills, experience and independence on the board appropriate to the nature

and extent of company operations

3. Establish a code to ensure integrity

4. Safeguard the integrity of company reporting

5. Risk management and internal control

6. Disclosure of all relevant and material matters

7. Recognition and preservation of needs of shareholders

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Parties to corporate governance

1. Board of directors

2. Managers

3. Workers

4. Shareholders or owners

5. Regulators

6. Customers

7. Suppliers

8. Community (people affected by the actions of the organization)

IMPORTANCE OF CORPORATE GOVERNANCE IT LAYS DOWN THE FRAMEWORK FOR CREATING LONG

TERM TRUST BETWEEN COMPANIES AND THE EXTERNAL PROVIDERS OF CAPITAL

IMPROVES STRATEGIC THINKING AT THE TOP BY INDUCTING INDEPENDENT DIRECTORS WHO BRING IN EXPERIENCE

ENABLES BETTER MONITORING OF RISKS LIMITS LIABILITY OF TOP MANAGEMENT BY MODULATING

DECISION MAKING PROCESS ENSURES INTEGRITY OF REPORTING OF FINANCIAL

FIGURES HELPS PROVIDE A DEGREE OF CONFIDENCE

FOCUS OF CORPORATE GOVERNANCE ELECTION OF DIRECTORS BY

SHAREHOLDERS(STATEMENT BY SWRAJ PAUL ON DCM AND ESCORTS)

ACCOUNTABILITY OF DIRECTORS FOR DECISIONS TAKEN(PASSING THE BUCK GAME AT SATYAM-ONLY RAJU KNEW)

ADOPTING ACCOUNTING STANDARDS AND INFO GIVEN TO BOARD (CLAUSE 49 ACCURACY,TRUTHFULNESS, TRACEABILITY AUTHORIZATION )

ADHERENCE TO LAWS AND REGULATIONS

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Principles in developing Corporate Governance framework

Openness

Integrity

Accountability

Governance and performance

Good governance leads to good performance It creates an open and transparent system It improves communication and breaks down

systematic barriers to flow of information Good governance allows decision making based

on data. It reduces risk Good governance helps in creating a brand and

creates comfort for all stakeholders and society

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Corporate Governance & Corporate Management

CORPORATE GOVERNANCE

CORPORATE MANAGEMENT

External Focus Internal Focus

Governance assumes an open system

Management assumes a closed system

Strategy- oriented Task-oriented

Concerned with where the company is going

Concerned with getting the company there

Governance

Management

CORPORATE GOVERNANCE CONSTITUENTS RISKS-MANAGEMENT SHOULD BE PREPARED TO

TAKE RISKS AND SHOW ENTREPRENEURSHIP PROTECTION-SHAREHOLDER INTEREST SHOULD

BE PROTECTED FAIRLY INSIDE TRADING-CORPORATE GOVERNANCE

SHOULD NOT PERMIT INSIDER TRADING TRANSPARENCY-FULL DISCLOSURE OF

INFORMATION TO ENABLE SHAREHOLDERS TO EVALUATE MANAGERS

TRENDS IN CORPORATE GOVERNANCE

DEMAND FOR GREATER TRANSPARENCY AND ACCOUNTABILITY

DEVELOPMENT OF PERFORMANCE CRITERIA AND ANNUAL EVALUATION OF THE BOARD

SUCCESSION PLANNING

CHALLENGES FACED BY CORPORATE GOVERNANCE INEFFECTIVE LEADERSHIP OF CHAIRMAN AND LACK

OF COMPETENCE AND FOCUS BY BOARD MEMBERS LACK OF TRUST AMONG BOARD MEMBERS AND

DOWN THE LINE STAFF LACK OF INTEREST AND TIME SHOWN IN

ADDRESSING COMPANY ISSUES FUNCTIONS ROLES AND RESPNSIBILITIES NOT

WELL DEFINED LEADING TO LACK OF CLARITY BETWEEN BOARD AND MGT AND EVENTUALLY WRONG , INEFFECTIVE DECISIONS TAKEN

RECRUITMENT OF BOARD MEMBERS WITH EFFECTIVE SUCCESSION PLANNING IN PLACE

CHALLENGES FACED BY CORPORATE GOVERNANCE FULFILING OBLIGATIONS TO STAKEHOLDERS OPTIMAL UTILIZATION OF RESOURCES FOR VALUE

ENHANCEMENT OF ENTERPRISE ETHICAL CORPORATE BEHAVIOUR PROTECTING INTERESTS OF STAKEHOLDERS MONITORING EXECUTIVE PERFORMANCE ENSURING ACCOUNTABILITY OF MANAGEMENT TO

SHAREHOLDERS ADOPTION OF GOOD CORPORATE PRACTICES REDUCED ENTERPRISE RISKS THUS REDUCING COST

OF CAPITAL EFFECTIVE COMMUNICATION WITH STAKEHOLDERS

CHALLENGES FACED BY CORPORATE GOVERNANCE DISTINGUISHING THE ROLES OF THE BOARD AND

MANAGEMENT INCL SELECTION , REMUNERATION AND PERFORMANCE MONITORING

COMPOSITION OF THE BOARD SEPARATION OF THE ROLE OF CEO AND CHAIR

PERSON RE ELECTION OF DIRECTORS DISCLOSURES AND AUDITS PROTECTION OF SHARE HOLDER RIGHTS AND

THEIR EXPECTATIONS DIALOG WITH INSTITUTIONAL SHAREHOLDERS

FACTORS AFFECTING CORPORATE GOVERNANCE INTEGRITY OF MANAGEMENT - HOLD THE TRUST REPOSED ONTO

BOARD BY SHAREHOLDERS ABILITY OF BOARD IN TERMS OF KNOWLEDGE AND SKILL AND NOT

BASED ON RELATIONSHIP (IS ASIAN PAINTS AN EXCEPTION THOUGH MANY FAMILY MEMBERS ON BOARD). NEED TO EFFECTIVELY SUPERVISE THE EXECUTIVE MANAGEMENT

ADEQUACY OF THE PROCESS TO PROVIDE ADEQUATE AND TIMELY INFO TO BOARD

COMMITMENT LEVELS OF INDIVIDUAL BOARD MEMBERS (MOVE TO RESTRICT NUMBER OF COMPANIES PERSON IS ON BOARD OF DIRECTORS) RELATES TO HIS CONTRIBUTIOON WHLE ON THE BOARD OF DIRECTORS AND HIS ATTENDANCE AT MEETINGS

QUALITY OF CORPORATE REPORTING DEPENDS ON THE TRANSPARANCY AND TIMELINESS OF CORPORATE COMMUNICATIONS WITH SHAREHOLDERS

PARTICIPATION OF STAKEHOLDERS IN MANAGEMENT

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COMMON PRINCIPLES OF CORPORATE GOVERNANCE

Rights of equitable treatment of shareholders Role of responsibilities of the board Integrity and ethical behaviour Disclosure and transparency ISSUES INVOLVING CORPORATE GOVERNANCE

INCLUDE: -Internal controls and independence of auditors -Review of directors and senior management compensation -Risk management practices

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COMMON PRINCIPLES OF CORPORATE GOVERNANCE

REVIEW OF OPERATIONS COMPLIANCE WITH STATUTORY AND

REGULATORY REQUIREMENTS APPOINTMENT OF COMMITTEES SUCH AS AUDIT GRIEVANCE , REMUNERATION AND INVESTMENT CONTRIBUTION OF EMPLOYEE UNION

© Rajkumar Adukia 36

Framework of Governance

1. Supervisory Board/ Committee/ Team

2. Audit Committee

3. Internal Audit

4. Statutory Audit

5. Disclosure of information

6. Risk management framework

7. Internal Control framework

8. Whistle blower policy

MEASURES TO PREVENT CREATIVE ACCOUNTING CREATIVE ACCOUNTING IS AN ASSORTMENT OF TECHNIQUES

USED TO FUDGE NUMBERS WHICH INCLUDE SHANGING BASIS OF ACCOUNTING TO UNDER OR OVER VALUE ASSETS , SHOW FICTICIOUS OR LEGALLY DISALLOWABLE EXPENSES, ALTERING TIMING OF EXPENSES eg POST DATING VOUCHERS , UNDER INVOICING etc

MANIPULATIONS DONE FOR VARIOUS REASONS SUCH AS -EXECUTIVE BONUSES AND PERQUISITES LINKED TO REPORTED EARNINGS eg GETTING LETTER OF INTENT FROM PROSPECT TO REGISTER CREDIT FOR SALES THOUGH AS PER ACCOUNTING STANDARDS A LEGAL ORDER IS RECORDABLE ONLY WITH A PO -MANIPULATION OF TAXES AND DUTIES PAYABLE -HIGHER EARNINGS MANIPULATED TO AVOID SHOWING LESSER NET WORTH

MEASURES TO PREVENT CREATIVE ACCOUNTING PROVIDING GUIDELINES FOR RECORDING TRANSACTIONS PROVIDING LEGAL PUNITIVE ACTION FOR DELIBERATE

FUDGING AND MORE POWERS TO SEBI MAKING MANAGEMENT ACCOUNTABLE FOR ACCOUNTING

POLICIES AND PRACTICES FOLLOWED STRENGTHENING STATUTORY AUDIT AND MAKING

EXTERNAL AUDITORS LEGALLY LIABLE FOR THE ACCURACY AND CORRECTNESS OF AUDIT

VALUE ADDITION OF STATUTORY AUDIT DISCLOSURE AND REPORTING REQUIREMENT COMMENT ON ADEQUACY OF INTENAL AUDIT AND

HIGHLIGHT AREAS OF IMPROVEMENT DUE DILIGENCE OF ACCOUNTING METHODS ADOPTED IN

THE COMPANY eg WIP COSTING ESPECIALLY RAW MATERIAL AWAITING PROCESS SHOWN AS WIP WITH CUM COST FACTOR = 1

ENSURE THAT PAID UP CAPITAL OR BORROWINGS DOES NOT EXCEED SPECIFIED LIMIT

WHEREVER APPLICABLE ENSURE INSTALLED CAPACITY DOES NOT EXCEED LICENSED CAPACITY OR IN SOME CASES MINIMUM QUOTA OF PRODUCTION SOLD AS PER CONTROLLED RATES

ENSURING ALL TAXATIONS PAID AS PER REGULATIONS

FACTORS AFFECTING CORPORATE GOVERNANCE INTEGRITY OF MANAGEMENT - HOLD THE TRUST REPOSED ONTO

BOARD BY SHAREHOLDERS ABILITY OF BOARD IN TERMS OF KNOWLEDGE AND SKILL AND NOT

BASED ON RELATIONSHIP (IS ASIAN PAINTS AN EXCEPTION THOUGH MANY FAMILY MEMBERS ON BOARD). NEED TO EFFECTIVELY SUPERVISE THE EXECUTIVE MANAGEMENT

ADEQUACY OF THE PROCESS TO PROVIDE ADEQUATE AND TIMELY INFO TO BOARD

COMMITMENT LEVELS OF INDIVIDUAL BOARD MEMBERS (MOVE TO RESTRICT NUMBER OF COMPANIES PERSON IS ON BOARD OF DIRECTORS) RELATES TO HIS CONTRIBUTIOON WHLE ON THE BOARD OF DIRECTORS AND HIS ATTENDANCE AT MEETINGS

QUALITY OF CORPORATE REPORTING DEPENDS ON THE TRANSPARANCY AND TIMELINESS OF CORPORATE COMMUNICATIONS WITH SHAREHOLDERS

PARTICIPATION OF STAKEHOLDERS IN MANAGEMENT

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International scenarioYear Name of Committee/Body Areas/Aspects Covered

1992 Sir Adrian Cadbury Committee, UK

Financial Aspects of Corporate Governance

1999 OECD Principles of Corporate Governance

2002 SEC –SOX ACT 2002 FINANCIAL ASPECTS OF CORPORATE GOVERNANCE

CADBURY REPORT Published 1992-committee chaired by sir adrian cadbury and set up

by London stock exchange to address the financial aspects of corporate performance

Committee was concerned at the perceived low levels of confidence both in financial reporting and ability of auditors to provide safeguards which the stakeholders sought and expected

Concern about the working of corporate system heightened following collapse of prominent companies notably banks eg BCCI and Baring banks

Objective to improve quality of financial reporting Publication of code of best practices divided into following

categories: -Role of board of directors -Role of non executive directors -Remuneration of executive directors -Financial reporting and effectiveness of internal controls -Properly constituted audit committee

CADBURY REPORT Non executive directors who are independent should be picked through a selection

process by the board Shareholders should approve all director contracts every three years Positions of ceo/chairman by different people Supremacy of the board, its integrity and accountability. Listed companies to annually report to the shareholders as regards assessment of

risks and the process of decision making Companies should have audit and remuneration committees made up of non

executive directors and exact details of directors salaries need to be disclosed Audit partners should be rotated and their involvement in non audit work should

be disclosed Board of directors should meet regularly , retain full and effective control over the

company and monitor the executive management There should be a clearly accepted division of responsibilities which will ensure a

balance of authority such that no individual has unlimited powers. Where chairman is also the chief executive there should be a strong and independent element in the board . The board should include non executive directors of sufficient calibre

Here should be a documented procedure for the board to take independent professional advice if required (kamath of icici role in reliance division or cc choksi role in mafatlal division)

CADBURY REPORT Non executive directors should bring an independent judgment to bear on

issues related to strategy performance resources Non executive directors appointed for specific terms and if eligible can re

contest and reappointment should not be automatic but ratified at AGM by shareholders. Their selection should be done through a formal process

Directors service contracts should not exceed 3 years without shareholder approval

Disclosure on director remuneration with breakup shown separately Duty of the board to present a balanced assessment of true company position Board should establish an audit committee of at least 3 non executive directors Directors should report on effectiveness of internal controls CADBURY CODE OF BEST PRACTICES PUBLISHED IN NEXT SLIDE

CADBURY CODE OF BEST PRACTICES BOARD SHOULD MEET REGULARLY RETAIN FULL AND EFFECTIVE CONTROL

OVER COMPANY AND MONITOR THE EXECUTIVE MGT CLEARLY ACCEPTED DIVISION OF RESPONSIBILITIES AT HE HEAD OF A

COMPANY TO BALANCE DIVISION OF POWER (SATRAPS IN TATA SONS –DARBARI SETH , AJIT KERKAR , RUSI MODY , MULGOANKAR WHO HAD UNFETTERED POWERS). IN CASE OF CHAIRMAN ALSO BEING CEO ADEQUATE INDEPENDENT DIRECTORS TO BE ON BOARD

ALL DIRECTORS SHOULD HAVE ACCESS TO ADVICE AND SERVICES OF COMPANY SECRETARY

NON EXECUTIVE DIRECTORS SHOULD BRING IN INDEPENDENT JUDGMENT TO BEAR ON ISSUES OF STRATEGY , PERFORMANCE , RESOURCES ,

NON EXECUTIVE DIRECTORS SHOULD BE APPOINTED FOR FIXED TERMS AND REAPPOINTMENT SHOULD NOT BE AUTOMATIC

DIRECTORS CONTRACT SHOULD NOT LAST MORE THAN 3 YEARS AT A STRETCH

FULL AND CLEAR DISCLOSURE RELATED TO DIRECTORS EMOLUMENTS PROFESSIONAL RELATIONSHIP WITH AUDITORS EFFECTIVENESS OF INTERNAL CONTROLS TO BE CERTIFIED BY CEO AND CFO

CADBURY CODE OF BEST PRACTICES BOARD DUTY TO PRESENT A BALANCED AND

UNDERSTANDABLE ASSESSMENT OF COMPANY POSITION ENSURE OBJECTIVE AND PROFESSIONAL RELATIONSHIP

WITH AUDITORS ESTABLISH AUDIT COMMITTEE OF AT LEAST 3 NON

EXECUTIVE DIRECTORS WITH WRITTEN TERMS OF REFERENCE WHICH DEALS CLEARLY ITH AUTHORITIES AND DUTIES

DIRECTORS SHOULD REPORT N THE EFFECTIVENESS OF THE COMPANY SYSTEM OF INTERNAL CONTROLS

OECD PRINCIPLES

Organization for economic cooperation and development was a body created by member governments to spell out principles and practices that should govern corporates in their goal to attain long term share holder value

Used as codes of best practices which are related to the Cadbury report

They include

OECD PRINCIPLES

Rights of shareholders (lnt empl at agm) Equitable treatment of shareholders Interest of other stakeholders Integrity and ethical behaviour Disclosure and transparency and responsibilit of

board Internal controls and independence of auditors Review of compensation of senior executives Selection and recruitment of directors

OECD PRINCIPES

Role of stakeholder in corporate governance Risk management practices Responsibilities of the board

Sarbanes Oxley Act of 2002 – THE U.S. SCENARIO

Sarbanes-Oxley Act of 2002

"To protect investors by improving the accuracy and

reliability of corporate disclosures made pursuant to

the security laws, and for other purposes."

777/40/82924(ppt)

BackgroundThe Problem SOX was a reaction to corporate scandals and lack of

investor confidence:– Enron.

– Arthur Andersen.

– MCI.

Intense competition and pressure, conflicts of interest, and poor practices led to poor reporting and mismanagement.

Criminal activities also contributed to the problem. Many other smaller examples of “dot com” booms that

turned out to be investor busts all combined to prompt congressional action.

Sarbanes-Oxley Act of 2002

Government’s Response to Enron, WorldCom

Intended to restore investor trust in US corporations

Changes how companies manage:– Auditors– Financial Reporting– Executive Responsibility– Internal Controls

777/40/82924(ppt)

Sarbanes-Oxley OverviewThe Scope of the Act The scope of the act focuses on:

– Internal controls.

• Process.

• Policies.

• Activities.

– Compliance and reporting.

• Transparency.

• Accuracy.

– Governance.

• Accountability.

• Responsibility.

• Avoidance of conflict of interest.

Sarbanes-Oxley act, 2002 by US Congress

- Came into effect in July 2002

- Addresses all the issues associated

with corporate failures to achieve

quality governance and to restore

investors’ confidence

Corporate Governance initiative trigerred by

Need for such stringent act

•Scandalous exposures of some high level financial scams

•No. of big, and respected, corporate entities involved in scandals (Enron and Worldcom)

•Investor confidence shaken, had hit rock bottom

SOX Act 2002 56

57

Intent of Sarbanes-Oxley Act

Provide confidence and trust to investors and public in the post-Enron era.

Requires management accountability --focus on rapid identification & correction of control weaknesses along with additional financial disclosure requirements

Hold external auditors to a higher attestation standard

Highlights of the act Enacted by the American government after the exposure of big

scams in which major corporate like Enron and Worldcom were involved

Law requires companies to meet the stringent reporting requirements to keep investors well informed

Aimed at protecting investor interest by improvement in transparency, accuracy and reliability in disclosure of financial information

Management and executives are made personally liable for ensuring reliability and accuracy of financial statements

Introduction of new standards in corporate reporting and accounting

Prescription of very heavy penalties for frauds

SOX Act 2002 58

SALIENT FEATURES OF SOX ESTABLISHMENT OF AUDIT COMMITTEE TO OVERSEE

INTERNAL CONTROLS AUDIT PARTNER ROTATION EVERY 5 YEARS IMPROPER INFLUENCE ON CONDUCT OF AUDIT PROHIBITION OF NON AUDIT SERVICES TO COMPANY

WHERE AUDIT SERVICES ARE RENDERED CERTIFICATION OF INTERNAL CONTROLS BY CEO/CFO SOX

303 SOX 404 PUBLICATION OF LOANS TO DIRECTORS ROLE OF CREDIT RATING AGENCIES

777/40/82924(ppt)

Sarbanes-Oxley OverviewCorporate Responsibility

Assigns the responsibility to the audit committee to appoint, compensate, and oversee the public accounting firm that performs the audit.

Requires CEO and CFO to: – Certify fairness of financial statements.

– Take responsibility for disclosure controls.

Makes it unlawful to fraudulently influence, coerce, or mislead an auditor.

Provides for the forfeiture of certain compensation following the issuance of a “non-compliant” financial document.

Provides the SEC with greater flexibility to remove management or board members.

Requires attorneys to report evidence of material violations.

777/40/82924(ppt)

Sarbanes-Oxley OverviewEnhanced Financial Disclosures Requires disclosure of material off balance sheet

arrangements. Prohibits companies from making loans to directors or

executives. Requires management to establish and maintain adequate

internal controls and procedures for financial reporting. Requires disclosure of a code of ethics for senior financial

officers. Requires companies to disclose whether at least one of the

audit committee members is a financial expert. Requires rapid disclosure of changes in financial condition.

777/40/82924(ppt)

Sarbanes-Oxley OverviewEnhanced Financial Disclosures (continued)

– Related SEC releases define internal controls and procedures for financial reporting as controls that provide reasonable assurances that:

• Transactions are properly authorized.

• Assets are safeguarded against unauthorized or improper use.

• Transactions are properly recorded to permit the preparation of financial statements that are presented in a manner consistent with GAAP.

– To meet the assessment requirement, management must select a suitable, recognized framework for assessing the effectiveness of internal controls.

Sarbanes – Oxley Act

Section 103: Your auditor (and therefore, you should) maintain all audit related records, including

electronic ones, for seven years. Section 201: Firms that audit your company’s books

can no longer provide you with IT related services. Section 301: You must provide systems or

procedures that allow employees to communicate

effectively with the audit committee.

Highlights

Sarbanes – Oxley Act

Section 302: Your CEO and CFO must sign statements

verifying the completeness and accuracy of financial reports. Section 404: CEO , CFO and outside

auditors must attest to the effectiveness and accuracy of financial reports

Section 409: Companies must report material changes in their financial conditions “on a rapid and current basis.” The act calls it “real-time” disclosure but is unclear on what it means.

SOX Section 302

Corporations required to: – assess internal controls around

financial reporting system– Report effectiveness of controls to

SEC– Assessment must be reviewed and

judged by an outside auditing firm– Need to declare quarterly fiscal

results

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SOX: Section 302 certification

Section 302 requires (starting March 2002):– Quarterly certification by the CEO / CFO regarding the completeness and accuracy of quarterly

reports as well as the nature and effectiveness of disclosure controls and procedures (DC&P) supporting the quality of information included in such reports

Representations by CEO and CFO as required by Section 302 to include:– Review of report: no untrue statement or omission of facts & fair presentation of financial position,

results and cash flow– Responsibility for design and maintenance of controls & controls effective during 90 days prior to

filing– Disclosure of deficiencies in internal control and fraud to AC and auditor– Significant changes that affect internal control and management response

Actions:– Enhance DC&P assessment and turn into consistent and continous process– Ensure coverage of entire organization (incl. all material subsidiairies)– Embedding into regular review and monitoring processes

Section 302 Corporate responsibility of financial reports published

quarterly Devoid of any misleading or false statements is also to be

certified Signing officers will be held responsible for the internal

controls

SOX Act 2002 67

777/40/82924(ppt)

Sarbanes-Oxley OverviewEnhanced Financial Disclosures (continued)

Section 404: Management Assessment of Internal Controls– Requires management to establish and maintain adequate internal controls

and procedures for financial reporting.– Requires that each annual report includes a statement:

• Describing management’s:

– Responsibility for internal controls and procedures for financial reporting.

– Assessment of the effectiveness of the controls and financial reporting procedures.

• Incorporating the independent auditor’s review of management’s assessment of internal controls and financial reporting procedures.

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SOX: Section 404 Assessment

• Management’s assessment must be based on procedures sufficient both to evaluate design and test operating effectiveness

• Management must maintain evidential matter, including documentation, to provide reasonable support for the assessment (both design and testing) of effectiveness

• Any material weakness in internal control over financial reporting precludes management from reporting that internal control is effective

• Reiteration of guidance regarding independence: – Auditors may assist management in documenting internal controls. – Management must be actively involved in the process; cannot

delegate assessment responsibility to the auditor

Section 404 Establish, document, and maintain internal controls and

procedures for financial reporting Check the effectiveness of internal controls and procedures

for financial reporting

SOX Act 2002 70

September 20, 2007 71

Section 404: Internal Controls

Section 404, “Management Assessment Of Internal Controls” is the most onerous of the SOX requirements, both in terms of internal work and external audit costs.

Management to report annually on their assessment of internal controls; and

External auditors to certify that the assessment is stated fairly in all material respects.

Crimes as per the act The Act creates new penalties aimed at corporate disclosures and

individual wrongdoers. The Act mandates that auditors of public companies retain their records

for five years after an audit or face possible imprisonment. One offence prohibits company executives from knowingly and wilfully

creating, altering, corrupting, mutilating, concealing, destroying, or falsifying company records with the intent to obstruct, impede, or influence federal proceedings, including bankruptcy proceedings.

SOX Act 2002 72

Crimes as per the act (contd) Under Sarbanes-Oxley it also applies to contemplated investigations to

prevent destruction of records One offence is for the knowing or attempted execution of a scheme for the

purpose of defrauding any person in connection with securities of a publicly traded company, including the fraudulent purchase and sale of securities

Sarbanes-Oxley also added whistleblower protections for those who inform or assist in securities violation investigations

Sarbanes-Oxley affected the Federal Sentencing Guidelines

SOX Act 2002 73

Advantages of the act

Increased accountability for CEO’s and CFO’s

Provides a better standard for accounting practices

Boost in investor confidence It takes care of conflict of interest or lack of

independence of auditing firms

SOX Act 2002 74

September 20, 2007 75

“Internal Controls Over Financial Reporting” (ICFR)

Section 404

INTERNAL CONTROLS Importance of Cadbury recommendation that directors should report

on effectiveness of internal controls is that in effect it defines internal controls as exercised by the board of the company

Internal control is defined by the auditing practices committee as the whole system of controls financial or otherwise established by the management in order to carry out the business in an orderly and efficient manner , ensure adherence to management policies safeguard the assets and secure the completeness and accuracy of records

3 types of internal controls -general system control -computer control systems -statutory system controls

Controls for prevention of creative accounting

IMPLICATIONS OF INTERNAL CONTROLS INCREASE DOCUMENTATION AND FORMALITY

OF SYSTEMS TO REDUCE RELIANCE ON INFORMAL CONTROLS

GREATER CONSISTENCY IN REPORTING AND CONTROLS

LESS RISK IN DECISION MAKING

GENERAL SYSTEM CONTROL Authorization and approval Segregation of duties Accounting accuracy and legality Traceability of transaction Accuracy of transaction Valuation of inventories as per accounting standards

and proper representation of wip ,scrap,goods in transit,project inventory,goods awaiting inspection,reject material awaiting supplier clearance and accounting of departmental inventories

COMPUTER CONTROL SYSTEMS Access control to nodes terminals

applications data etc Operational control including disaster

recovery Access control to computer facilities

STATUTORY SYSTEM CONTROLS Proper maintenance of master data and

transactions as required by auditing standards Validation of data entry into financial systems to

allow only legal and lawful transactions Valuation of inventory to be done as per

allowable rules and all inventory to be accounted To keep a track of all complaints related to share

issuance and transfers as well as stock movement monthwise

Fundamentals of Internal ControlsContinued

Types of control techniques, a combination of all 3 assure a process is operating properly– Preventive controls

• Locked doors, passwords

– Detective controls alert management that a problem has occurred

• Door alarms, account reconciliations

– Corrective controls assist in recovery from problems• Insurance policy

REVIEW

Controls designed to deter undesirable events from occurring are

a. Preventive controls.

b.Directive controls.

c. Detective controls.

d.Output controls.

CORPORATE GOVERNANCE AND RISK MANAGEMENT SOX 409

Section 409

• Display measures that an investor is interested in• Publishing relevant and timely information that can be used to

get the real picture • Provide details on areas of risks and concerns for the company

which may have an adverse effect on the operations along with the impact

SOX Act 2002 84

ENTERPRISE RISK MANAGEMENT SECTION 409 OF SOX WHICH IS RISK DECLARATION TO

SHAREHOLDERS EVERY LISTED COMPANY HAS TO DISCLOSE ITS RISKS IN THE

ANNUAL REPORT IN INDIA THE EQUIVALENT OF SOX 404 IS CLAUSE 49 WHICH IS

OVERSEEN BY SEBI MOREOVER ALL SUCCESSFUL COMPANIES HAVE A VERY

STRONG ENTERPRISE RISK MANAGEMENT PRACTICE THROUGH WHICH POTENTIAL DAMAGING RISKS ARE IDENTIFIED PREVENTED CONTROLLED AND MANAGED

NEED FOR COMPANIES TO ASSESS RISKS IN CRITICAL PROCESSES AND ADDRESS THEM THRU VARIOUS METHODS LISTED LATER

COMPANIES ARE ALSO OBLIGED TO DISCLOSE THEIR RISKS TO THE SHAREHOLDERS IN SPECIFIC CHAPTERS IN THE ANNUAL REPORT

IN INDIA IT IS DISCLOSED IN THE CHAPTER ON MANAGEMENT DISCUSSIONS AND AREAS OF CONCERN UNDER THE MANDATORY DISCLOSURES UNDER CLAUSE 49 OF THE LISTINGS AGREEMENT

CATEGORIES OF RISKS BASED ON TIME SPAN STRATEGIC RISKS – M&A , JV ,

DIVERSIFICATION eg RELIANCE INDUSTRY FORAY INTO GREEN GROCERY OR TATA MOTORS SMALL CAR PROJECT AT SINGUR

TACTICAL RISKS – PLANNING OF NEW PRODUCTS , NEW MARKETS , CORE COMPETENCE , BUSINESS CONTINUITY PLANNING

CATEGORIES OF RISKS BASED ON TIME SPAN OPERATIONAL RISKS – ARISE IN DAY TO

DAY OPERATIONS EG TRANSPORTER STRIKE

REGULATORY RISKS – INADEQUATE INTERNAL CONTROLS LEADING TO FRAUD(MAYTAS) , INSIDER TRADING , MONEY LAUNDERING , CONFLICT OF INTEREST (MD OF TATA COMPANY GIVING INTERIOR DECORATION CONTRACT TO COMPANY WHERE WIFE WAS DIRECTOR)

CLASSIFICATION OF RISKS

EXTERNAL INTERNAL

EXTERNAL RISKS

REPUTATIONAL ECONOMIC CUSTOMER REQUIREMENT CHANGES CREDIT WORTHINESS COMPETITION SUPPLY CHAIN RISKS DECREASED SPEND POWER REGULATORY RISKS

INTERNAL RISKS

REGULATORY (CLAUSE 49 ) STATUTORY (INCOME TAX) REPUTATIONAL(INTERNAL SCANDALS ,

CONTERFEITING, WEIGHTS AND MEASURES,SLE OF COUNTERFEIT AND EXPIRED PRODUCTS,etc)

INDUSTRIAL ESPIONAGE FORCE MAJEURE DECREASING HUMAN CAPITAL SUCCESSION PLANNING BUSINESS CONTINUITY PLANNING

INTERNAL RISKS

FINANCIAL CRUNCH TECHNOLOGY OBSOLESCENCE NEW PRODUCT ACCEPTABILITY INADEQUATE INTERNALPROCESS

AND AGENCY NETWORK CAPABILITY

STEPS IN RISK MGT

IDENTIFICATION OF RISKS EVALUATION OF CAUSE AND

EFFECTS DETECTION OF RISK MEASUREMENT OF RISK HANDLING OF RISK

RISK HANDLING PROCEDURES RISK AVOIDANCE RISK ACCEPTANCE (RETENTION) RISK CONTROL (REDUCTION) RISK TRANSFER RISK SHARING RISK PREVENTION (INTERNAL

CONTROLS)

AIRTEL UNLISTED RISKS

HIGH CUSTOMER CHURN HIGH RATE OF DELINQUENCY ATTITUDE AND EFFECTIVENESS OF

FRANCHISEES BREAKDOWN IN NETWORK SERVICES

DUE TO TECHNICAL FAULT OR FORCE MAJEURE

REPUTATIONAL RISKS ARISING OUT OF ACTS BY EMPLOYEES AND PARTNERS

JET AIRWAYS UNLISTED RISKS INCREASED AIRPORT HANDLING

CHARGES FLIGHT CANCELLATIONS OWING TO

FORCE MAJEURE OR OPERATIONAL REASONS RESULTING IN LOSS OF REVENUE

FORCED DOWNSIZING OF STAFF RISKS FROM OUTSOURCED PARTNERS UNIONISM

JET AIRWAYS UNLISTED RISKS OPERATIONAL AND DAMAGE

CLAIMS BY PASSENGERS THEFTS OF CUSTOMER LUGGAGE

AND ARTICLES COMPENSATION DUE AFTER

ACCIDENTS MISBEHAVIOUR BY PASSENGERS IN

MID AIR

TATA CONSULTANCY UNLISTED RISKS INADEQUATE DUE DILIGENCE DURING

ACQUISITIONS AND MERGERS BUSINESS PARTNERS, PRINCIPALS GOING

OUT OF BUSINESS WITHDRAWAL OF SUPPORT OF SOFTWARE

PRODUCTS BY PRINCIPALS DECREASING HUMAN ASSET WORTH

CAUSED BY ATTRITION , SUPER ANNUATION OR DEATH

TATA CONSULTANCY UNLISTED RISKS TECHNOLOGY OBSOLESCENCE INDUSTRIAL ESPIONAGE POLITICAL AND CURRENCY RISKS IN

COUNTRIES WHERE BUSINESS IS DONE

SUCCESSION PLANNING FOR SENIOR PEOPLE

INDIAN SCENARIO

100

Indian scenarioYear Name of

Committee/BodyAreas/Aspects Covered

1999 Kumar Mangalam Birla Committee


2002 Naresh Chandra Committee

Corporate Audit & Governance

2003 CII RECOMMENDATIONS FROM CII

2003 N. R. Narayana Murthy Committee


2004 SEBI CLAUSE 49 OF THE LISTINGS AGREEMENT

WEAKNESS OF INDIAN COMPANIES WRT OECD EXISTING PROVISIONS IN COMPANY ACT ARE INADEQUATE TO

PENALISE COMPANIES FOR NON CONFORMITY TO OECD PRINCIPLES

OVERLAPPING CONTROLS BETWEEN SEBI AND DEPT OF COMPANY AFFAIRS

LACK OF PROFESSIONALISM OF DIRECTORS ROLE OF INSTITUTIONAL INVESTORS IS QUESTIONABLE INDEPENDENT DIRECTORS ARE NOT THAT INDEPENDENT WHISTLE BLOWERS POLICY IS INEFFECTUAL AND PROTECTION

TO BLOWER IS NOT GUARANTEED ACCOUNTING GIMMICKS NOT PUT UNDER SCANNER BY

EXTERNAL AUDITORS POOR SHAREHOLDER PARTICIPATION OBLIGING AUDITORS

CREATION OF SEBI

SEBI created as an act of parliament in 1992 to provide a minimal framework for corporate conduct

SEBI established by GOI as a independent capital market regulator SEBI and govt set up task forces around 1998 to suggest ways and means of improving corporate governance eg Birla committee 2000;Narayana murthy committee 2003;Nareshchandra committee 2004 and J J Irani committee in 2005

FUNCTIONS OF SEBI REGULATING BUSINESS IN STOCK EXCHANGES AND OTHER

SECURITIES MARKETS REGULATING THE WORKING OF STOCK BROKERS, SUB

BROKERS ,TRANSFER AGENTS, BANKERS TO ISSUES, REGISTRAR TO ISSUES, MERCHANT BANKERS, UNDERWRITERS, PORTFOLIO MANAGERS,INVESTMENT ADVISORS

REGULATING AND MONITORING WORKING OF DEPOSITORIES , FOREIGN INSTITUTIONAL INVESTORS,CREDIT RATING AGENCIES

REGULATING WORKING OF VENTURE CAPITAL FUNDS, MUTUAL FUNDS etc

PROHIBITING FRAUDULENT AND UNFAIR TRADE PRACTICES PROHIBITING INSIDER TRADING IN SECURITIES REGULATING TAKEOVER OF COMPANIES ENSURING TIMELY DISCLOSURE OF RELEVANT INFORMATION ENABLING HIGHEST STANDARDS OF CORPORATE GOVERNANCE

FUNCTIONS OF SEBI RETAINING CONTROL OF NEW CAPITAL ISSUES REGULATING CAPITAL MARKET REGULATING STOCK EXCHANGES AND MONITORING SIGNS OF

INSIDER TRADING ENFORCE COMPANIES TO DISCLOSE ALL MATERIAL FACTS AND

SPECIFIC RISKS ASSOCIATED WHILE GOING FOR PUBLIC ISSUES ISSUE GUIDELINES FOR ENTRY NORMS FOR COMPANIES

ENTERING CAPITAL MARKET BANKERS TO ISSUES UNDER SEBI PURVIEW REGULATIONS ON ACQUISITIONS AND MERGERS JURISDICTION OF MERCHANT BANKING OVERSEEING COMPLIANCE OF CLAUSE 49 GUIDELINES REGULATION OF FOREIGN INVESTMENT

FUNCTIONS OF SEBI CONTROLLING DELISTING OF SHARES

RECOMMENDATONS FOR IMPROVEMENT OF SEBI NEED TO MONITOR LISTED COMPANIES MORE VIGILANTLY STOCK EXCHANGE MANIPULATIONS SHOULD BE MINIMIZED THRU

EFFECTIVE CONTROLS (DINESH DALMIA HARSHAD MEHTA K PARIKH etc)

NEED FOR HIGHER RATE OF CONVICTION OF ROGUE COMPANIES THRU BETTER VIGILANCE

PROCESS OF RAISING FUNDS IN THE MARKET SHOULD BE MONITORED AND ASSURANCE OF PROTECTION OF FIRST CALL MONEY TO BE RETURNED WITHIN MINIMUM PERIOD IF SHARES NOT ALLOTED

TONE UP DISCLOSURES BY COMPANIES BIND AUDITORS TO PUNITIVE ACTION IF FOUND GUILTY NEED FOR WHISTLE BLOWER POLICY FROM SHARE HOLDERS FOR

REPORTING OF MALPRACTICES NEED TO ENSURE PROBITY OF USAGE OF BORROWED FUNDS – HOW

FUNDS USED

MANDATORY RECOMMENDATIONS OF K.BIRLA COMMITTEE

SHRI KUMAR MANGALAM COMMITTEE – CONSTITUTED IN MAY 1999 TO PROMOTE AND RAISE THE STANDARD OF CORPORATE GOVERNANCE IN INDIA

MANDATORY RECOMMENDATIONS OF BIRLA COMMITTEE: 1.APPLIES TO LISTED COMPANIES WITH PAID UP CAPITAL OF Rs.3 CRORE AND

ABOVE 2.BOARD OF DIRECTORS.- SHOULD HAVE AN OPTIMAL MIX OF EXECUTIVE AND

NON EXECUTIVE DIRECTORS. NUMBER OF INDEPENDENT DIRECTORS SHOULD BE AT LEAST 1/3RD IN CASE OF NON EXECUTIVE CHAIRMAN AND ½ IN CASE OF EXECUTIVE CHAIRMAN. INDEPENDENT DIRECTORS ARE THOSE WHO APART FROM RECEIVING FEES DO NOT HAVE ANY MATERIAL RELATIONSHIP OR TRANSACTIONS WITH THE COMPANY

3.AUDIT COMMITTEE – A QUALIFIED AND INDEPENDENT AUDIT COMMITTEE SHOULD BE SET UP TO ENHANCE THE CREDIILITY OF FINANCIAL DISCLOSURES AND TO PROMOTE TRANSPARANCY.IT SHOULD HAVE A MINIMUM OF 3 MEMBERS ALL BEING NON EXECUTIVE DIRECTORS WITH A MAJORITY BEING INDEPENDENT AND AT LEAST ONE DIRECTOR HAVING FINANCIAL AND ACCOUNTING KNOWLEDGE (THIS ISSUE IS RESOLVED BY HAVING ON BOARD A NED FROM THE FINANCIAL INSTITUTIONS) IN ADDITION THE ACCOUNTING PRACTICES SHOULD CONFORM TO STANDARD GAAPTA

4.

MANDATORY RECOMMENDATIONS OF K BIRLA COMMITTEE 3. CONTD-MGT IS RESPONSIBLE FOR PREPARATION , INTEGRITY

AND FAIR PRESENTATION OF FINANCIAL STATEMENTSAND OTHER INFORMATION CONTAINED IN THE ANNUAL REPORT. BESIDES THE CHAIRMAN SHOULD BE PRESENT AT THE AGM TO ANSWER QUERIES. THE AUDIT COMMITTEE SHOULD INVITE SUCH EXECUTIVES AS IT CONSIDERS FIT AND IN PARTICULAR THE HEADS OF FINANCE AND INTERNAL AUDIT AND A MEMBER OF THE EXTERNAL AUDIT TEAM SHOULD BE INVITED AS A MEMBER. THE COMMITTEE SHOULD MEET AT LEAST 3 TIMES A YEAR AND WITH A GAP OF NOT MORE THAN 6 MTHS WITH 1 MEETING MANDATORY TO FINALIZE ACCOUNTS

4. REMUNERATION COMMITTEE OF THE BOARD-THE BOARD SHOULD DECIDE THE REMUNERATION OF DIRECTORS. FULL DISCLOSURE OF REMUNERATION OF ALL DIRECTORS INCLUDING BENEFITS ,BONUSES ,STOCK OPTIONS , PENSIONS,PERFORMANCE LINKED INITIATIVES,,SERVICE CONTRACTS,NOTICE PERIOD,SEVERANCE FEES etc

MANDATORY RECOMMENDATIONS OF K BIRLA COMMITTEE 5. BOARD PROCEDURE-BOARD MEETING SHOULD BE HELD AT

LEAST 4 TIMES A YEAR WITH A MAXIMUM GAP OF NOT MORE THAN 4 MONTHS BETWEEN TWO MEETINGS MINIMUM INFORMATION ON ANNUAL OPERATING PLANS AND CAPITAL BUDGETS , QUARTETLY RESULTS , INFORMATION ON RECRUITMENT AND REMUNERATION OF SENIOR OFFICERS, SIGNIFICANT LABOR PROBLEMS,.MATERIAL DEFAULT IN FINANCIAL OBLIGATIONS STATUTORY COMPLIANCES etc SHOULD BE PLACED BEFORE THE BOARD

5 CONTD IN ORDER TO ENSURE TOTAL COMMITMENT TO BOARD MEEYINGS IT IS RECOMMENDED THAT ADIRECTOR SHOULD NOT BE A MEMBER OF MORE THAN TEN COMMITTEES AND ACT AS CHAIRMAN OF MORE THAN FIVEACROSS ALL COMPANIES WHERE HE IS A DIRECTOR. FURTHER IT IS RECOMMENDED THAT A NON EXECUTIVE DIRECTOR BE ON BOARD OF MAXIMUM 10 INSTEAD OF THE CURRENT 20

MANDATORY RECOMMENDATIONS OF K BIRLA COMMITTEE 6. MANAGEMENT – MANAGEMENT DISCUSSION AND ANALYSIS

REPORT COVERIING INDUSTRY STRUCTURE OPPORTUNITIES AND THREATS ,SEGMENTWISE OR PRODUCTWISE PERFORMANCE OUTLOOK,RISKS,INTERNAL CONTROL SYSTEMS, etc FORM PART OF THE DIRECTORAS REPORT

MANAGEMENT MUST MAKE DISCLOSURES TO BOARD OF ALL MATERIAL , FINANCIAL , AND COMMERCIAL TRANSACTIONS WHERE THEY HAVE A PERSONAL INTEREST THAT CONFLICTS WITH INTEREST OF COMPANY (ARMY SUKHNA LAND SCAM)

7.SHAREHOLDERS-IN CASE OF APPOINTMENT OF NEW DIRECTOR OR REWAPPOINTMENT OF EXISTING ONE , BRIEF RESUME , NATURE OF EXPERTISE IN FUNCTIONAL AREAS, AND COMPANIES I WHICH HE/SHE HOLDS DIRECTORSHIP AND COMMITTEE MEMBERSHIP MUST BE PROVIDED TO THE SHAREHOLDERS. COMPANYS QUARTERLY RESULTS MUST BE PUBLISHED IN AT LEAST 2 NATIONAL NEWSPAPERS AND 1 REGIONAL NEWSPAPER.

MANDATORY RECOMMENDATIONS OF K BIRLA COMMITTEE 7 CONTD – A COMMITTEE UNDER A NON EXECUTIVE DIRECTOR

NEEDS TO BE CONSTITUTED TO SPECIFICALLY LOOK INTO REDRESSING OF SHAREHOLDER GRIEVANCES AND A DECLARATION OF PENDING RESOLUTIONS HAS TO BE DISCLOSED IN THE ANNUAL REPORT. ADDITIONALLY A COMMITTEE NEEDS TO BE FORMED UNDER THE AEGIS OF THE AUDIT COMMITTEE TO RESOLVE ISSUES ARISING OUT OF VIOLATION OF (A)CODE OF ETHICS SOX 406 (B)WHISTLEBLOWERS POLICY SOX 806 AND ( C )COMPLAINT MANAGEMENT SYSTEM FOR EMPLOYEES AND EXTERNAL PEOPLE WHICH INCLUDES HANDLING SHAREHOLDER COMPLAINTS. SOX 301 . AUDIT COMMITTEE SHOULD HAVE ELABORATE SYSTEMS IN PLACE TO RESOLVE ALL SUCH PROBLEMS AND ALSO PROTECT THE ANONYMITY OF THE COMPLAINANT

8 A SEPARATE SECTION ON CORPORATE GOVERNANCE HAS TO BE INCLUDED IN THE CHAPTER ON DISCUSSION HIGHLIGHTING THE CODE ON GOVERNANCE WITH NON COMPLIANCES

Applies to listed companies with paid up capital of Rs. 3 crores and above

Composition of board of directors – optimum combination of executive & non-executive directors

Audit committee – with 3 independent directors with one having financial and accounting knowledge

Mandatory Recommendations of Birla Committee

Separation of role of chairman from CEO

Remuneration Committee

Shareholders’ right for receiving half yearly financial

performance

Postal ballot covering critical matters like alteration in

memorandum , change in address of registered office

Issuance of bonus shares,

Proposal to sell a part or whole of the business

To get a partner to have a joint collaboration

Mergers and acquisitions

Non-mandatory Recommendations of Birla Committee

Corporate restructuring

New ventures which are either horizontal diversification or

unrelated diversification

Matters related to change in management

Non-mandatory Recommendations of Birla Committee

NARESHCHANDRA COMMITTEE

COMMITTEE HEADED BY SHRI NARESH CHANDRA CONSTITUTED IN AUGUST 2002 TO EXAMINE CORPORATE AUDIT, ROLE OF AUDITORS, RELATIONSHIP OF COMPANY & AUDITOR

RECOMMENDATION OF NARESH CHANDRA COMMITTEE:

AUDIT FIRMS NOT TO PROVIDE SERVICES SUCH AS MANAGEMENT CONSULTING, TAXATION ETC. TO AUDIT CLIENTS WHICH IS DISQUALIFICATION CLAUSE FOR AUDIT

AUDITOR COMPANY RELATIONSHIP

COMPULSORY 50% AUDIT TEAM ROTATION AFTER 5YRS IN SAME ACCOUNT

AUDITORS ASSURANCE OF INDEPENDENCE AND FAIRNESS

APPOINTMENT OF AUDITORS

APPROVAL OF AUDITORS BY SHAREHOLDERS WHEN REQUIRED TO BE CHANGED

PROPOSED DISCIPLINARY MECHANISM FOR AUDITORS

AUDIT COMMITTEE CHARTER


EXEMPTING NON EXECUTIVE DIRECTORS FROM CERTAIN LIABILITIES eg SATYAM

INDEPENDENT QUALITY REVIEW BOARD

ESTABLISHMENT OF ANTI FRAUD DETECTION CELL (ITC 1987 -400 CR EXCISE)

RECOMMENDATION THAT NO AUDIT FIRM SHOULD DERIVE MORE THAN 25% OF ITS BUSINESS FROM ONE CLIENT


RECOMMENDATION OF NARESH CHANDRA COMMITTEE: AUDIT COMMITTEE TO BE FIRST POINT OF REFERENCE FOR

APPOINTMENT OF AUDITORS AND COMPOSITION OF AUDIT COMMITTEE

CEO & CFO OF LISTED COMPANY TO CERTIFY ON FAIRNESS, CORRECTNESS OF ANNUAL AUDITED ACCOUNTS

REDEFINITION OF INDEPENDENT DIRECTORS – DOES NOT HAVE ANY MATERIAL, PECUNIARY RELATIONSHIP OR TRANSACTION WITH THE COMPANY

COMPOSITION OF BOARD OF DIRECTORS STATUTORY LIMIT ON THE SITTING FEE TO NON-EXECUTIVE

DIRECTORS TO BE REVIEWED AUDITORS DISCLOSURES OF CONTINGENT LIABILITIES CERTIFICATION OF ANNUAL ACCOUNTS BY CEO AND CFO

RECOMMENDATIONS OF NARAYANA MURTHY COMMITTEE

SEBI CONSTITUTED A COMMITTEE HEADED BY SHRI N. R. NARAYANA MURTHY TO REVIEW EXISTING CODE OF CORPORATE GOVERNANCE RECOMMENDATIONS:

STRENGHTENING THE RESPONSIBILITIES OF AUDIT COMMITTEE IMPROVING QUALITY OF FINANCIAL DISCLOSURES AUDIT COMMITTEES TO BE FINANCIALLY LITERATE TO ASSESS & DISCLOSE BUSINESS RISKS FORMAL CODE OF CONDUCT FOR BOARD WHISTLE BLOWER POLICY TO BE PLACE IN A COMPANY PROVIDING FREEDOM

TO APPROACH THE AUDIT COMMITTEE SUBSIDIARIES TO BE REVIEWED BY AUDIT COMMITTEE OF HOLDING COMPANY CAP ON TERM OF OFFICE OF NON EXECUTIVE DIRECTOR(< = 9 YEARS) RETIREMENT AGE FOR DIRECTORS TO BE FIXED AT 65 DISCLOSURE OF CONTINGENT LIABILITIES CDERTIFICATION OF AUTHENTICITY OF ACCOUNTS FINANCIAL STATEMENTS TO BE DISCLOSED QUARTERLY ALL ANNUAL REPORTS TO CONTAIN A CHAPTER ON MANAGEMENT

DISCUSSION AND ANALYSIS

RECOMMENDATIONS OF NARAYANA MURTHY COMMITTEE

*REPORT RELATING TO COMPLIANCE WITH LAWS AND REGULATIONS AND RISK MANAGEMENT

*MANAGEMENT LETTERS OF INTERNAL CONTROL WEAKNESSES ISSUED BY STATUTORY INTERNAL AUDITORS

*RECORDS OF RELATED PARTY TRANSACTONS TO BE MAINTAINED

*COMPANY MUST DECLARE ALL ITS RISKS IN THE CHAPTER ON MGT DISCUSSION

Recommendations of CII ANNUAL OPERATING PLANS AND BUDGETS TOGETHER WITH UPDATED LONG TERM

PLANS CAPITAL BUDGETS MANPOWER AND OVERHEAD BUDGETS QUARTERLY RESULTS BY THE COMPANY AND ITS OPERATING DIVISIONS OR BUSINESS

SEGMENTS INTERNAL AUDIT REPORTS INCLUDING DISHONESTY OF MATERIAL NATURE ACT ON SHOW CAUSE AND PROSECUTION NOTICES RECEIVED FROM REGULATORY

AUTHORITIES WHICH ARE CONSIDERED TO BE MATERIALLY IMPORTANT(MATERIAL NATURE IS ANY EXPOSURE THAT EXCEEDS 1% OF NET WORTH)

FATAL OR SERIOUS ACCIDENTS , NEAR MISSES, AND ANY EFFLUENT POLLUTION PROBLEMS

DEFAULT OR NON PAYMENT OF INTEREST/PRINCIPAL OF ANY PUBLIC DEPOSIT ANY ISSUE WHICH INVOLVES PUBLIC OR PRODUCT LIABILITY DETAILS OF ANY JV OR COLLABORATION TRANSACTIONS THAT INVOLVE SUBSTANTIAL PAYMENT TOWARDS GOODWILL,BRAND

EQUITY OR INTELLECTUAL PROPERTY RECRUITMENT AND REMUNERATION OF SENIOR OFFICERS LABOUR PROBLEMS AND THEIR PROPOSED SOLUTIONS QUARTERLY DETAILS OF FOREIGN EXCHANGE EXPOSURE AND RISK MITIGATION

Recommendations of CII

Full board shall meet at least 6 times a year Any listed company with a turnover of over 100

crores should have professionally competent non executive directors who should constitute at least 33% of the board if the chairman is non executive or 50% if chairman and managing director is the same

No single person should be on board of more than 10 companies. Currently section 275 of company act allows upto 20


Non executive directors should have very clearly defined responsibilities within the board

Know how to read a balance sheet and have knowledge of company laws

Sitting fees of directors be raised from current 2000 Rs to 5000 Rs per meeting attended

Pay a commission over and above the sitting fees (1% of net profits if company has MD or 3% if no MD


Considering stock options so as to reward performance

While reappointing directors their attendance to be taken into account

If a director is absent for more than 50% (absent without leave) this should be stated in the resolution and such directors should not be reappointed


Key info to be placed before the board includes: annual plans and budgets , quarterly results , internal audit reports including material dishonesty , default in payment of public dues, adverse effects of operations on society which could be liable for sueing , transactions which involve payment towards goodwill ipr etc , recruitment of senior officers labour problems ,high low of stock movement


Setting up of audit committees comprising of non executive directors who are financially savvy and committee should assist board in fulfilling functions related to financial controls

Audit committee should interact with auditors and ascertain the quality of accounting transactions

High and low monthly averages of share prices in all stock exchanges to be furnished


Management is responsible for preparation and fair presentation of the financial statements and information furnished in the balance sheet

Accounting policies conform to standard practices and disclosures to be made of deviations

Board of directors to meet minimum 6 times yearly at interval of 2 months

FEATURES OF CII CODE KEY TO GOOD CORPORATE GOVERNANCE LIES IN WELL

FUNCTIONING OF BOARD OF DIRECTORS. BOARD SHOULD MEET AT LEAST 6 TIMES A YEAR WITH A GAP < 2 MTHS

BOARD SHOULD BE INFORMED OF THE OPERATING PLANS AND BUDGET , LONG TERM PLANS, QUARTERLY DIVISIONAL RESULTS, INTERNAL AUDIT REPORTS

DIRECTORS WHOSE BOARD ATTENDANCE < 50% MUST NOT BE RE ELECTED

DETAILS OF DEFAULTS, PAYMENT FOR INTANGIBLES eg ROYALTY ,COLLABORATION FEES etc MUST BE REPORTED TO THE BOARD

AVERAGE SHARE PRICE MONTHLY SHOULD BE SHOWN FOR LISTED COMPANIES

CLAUSE 49 OF THE LISTINGS AGREEMENT

Clause 49 of listing agreement

What is clause 49?– SEBI implemented the recommendations of the

Birla Committee through the enactment of Clause 49 of the Listing Agreements. Clause 49 may well be viewed as a milestone in the evolution of corporate governance practices in India

– The terms were applied to bring in corporate governance standards among companies

– Schedule of Compliance

130

Clause 49 in Listing agreement

The Listing agreement was first introduced by Bombay Stock Exchange and

later followed by other stock exchanges

SEBI, vide its circular dated February 21, 2000, specified principles of

corporate governance and introduced a new clause 49 in the Listing agreement

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 financial

institutions/corporations, municipalities, etc.

Listing helps in free transferability , leads to transparency in disclosure of

information and ensures official quotation is available.

LISTING REQUIREMENT ACCORDING TO PROVISIONS OF CLAUSE 49 OF THE

LISTING AGREEMENT COMPANIES ARE REQUIRED TO FURNISH THE STICK EXCHANGE WHERE THEIR SHARES ARE LISTED , HALF YEARLY UNAUDITED RESULTS WITHIN 2 MONTHS AND YEARLY REPORT WITHIN 48 HRS OF THE CONCLUSION OF THE AGM IN AT LEAST ONE NATIONAL DAILY ENGLISH NEWSPAPER AND IN A LANGUAGE NEWSPAPER OF THE REGION WHERE THE REGISTERED OFFICE IS LOCATED (SOX 404)

DISCLOSURES IN DESCRIBED FORMATS COMPANIES TO FURNISH QUARTERLY COMPLIANCE

REPORT (AS PER SOX 302) SIGNED BY COMPLIANCE OFFICER OR CEO TO STOCK EXCHANGE WITHIN 15 DAYS OF QUARTER END IN PRESCRIBED FORMATS

PROVISIONS IN CLAUSE 49 CORPORATE GOVERNANCE I BOARD OF DIRECTORS

IA COMPOSITION OF BOARD IB NON EXECUTIVE DIRECTORS COMPENSATION AND DISCLOSURES IC PROVISION FOR BOARD AND COMMITTEES ID CODE OF CONDUCT

II AUDIT COMMITTEE IIA QUALIFIED AND INDEPENDENT AUDIT COMMITTEE IIB MEETING OF AUDIT COMMITTEE IIC POWERS OF AUDIT COMMITTEE IID ROLE OF AUDIT COMMITTEE IIE REVIEW OF INFORMATION BY AUDIT COMMITTEE

III SUBSIDIARY COMMITTEES

PROVISIONS IN CLAUSE 49 CORPORATE GOVERNANCE IV DISCLOSURES

IVA BASIS OF RELATED PARTY TRANSACTIONS IVB DISCLOSURE OF ACCOUNTING TREATMENT IVC RISK MANAGEMENT DISCLOSURES IVD PROCEEDS FROM PUBLIC ISSUES RIGHTS ISSUES ETC IVE REMUNERATION OF DIRECTORS IVF MANAGEMENT IVG SHAREHOLDERS

V CEO/CFO CERTIFICATION VI REPORT ON CORPORATE GOVERNANCE VII COMPLIANCE

IA COMPOSITION OF BOARD IA.1 THE BOARD OF DIRECTORS SHALL HAVE AN OPTIMUM

COMBINATION OF EXECUTIVE AND NON EXECUTIVE DIRECTORS WITH NO LESS THAN 50% OF THE BOARD COMPRISING OF NON EXECUTIVE DIRECTORS.

IA.2 WHERE THE CHAIRMAN IS A NON EXECUTIVE DIRECTOR AT LEAST ONE THIRD OF THE BOARD SHOULD BE NON EXECUTIVE AND IF HE IS AN EXECUTIVE DIRECTOR AT LEAST HALF THE BOARD SHOULD COMPRISE OF INDEPENDENT DIRECTORS

IA.3 INDEPENDENT DIRECTOR MEANS A NON EXECUTIVE DIRECTOR WHO 1A.3.A APART FROM RECEIVING REMUNERATION DOES NOT HAVE ANY MATERIAL RELATIONSHIPS OR TRANSACTIONS WITH THE COMPANY , ITS PROMOTERS , ITS DIRECTORS , ITS SENIOR MGT , OR ITS HOLDING COMPANY , ITS SUBSIDIARIES AND ASSOCIATES WHICH MAY AFFECT HIS INDEPENDENCE

IA COMPOSITION OF BOARD IA.3 INDEPENDENT DIRECTOR MEANS A NON EXECUTIVE DIRECTOR WHO

1A.3.B IS NOT RELATED TO PROMOTERS OR PERSONS OCCUPYING MGT POSITIONS AT BOARD LEVEL OR ONE LEVEL BELOW 1A.3.C HAS NOT BEEN AN EXECUTIVE OF THE COMPANY IN THE IMMEDIATE PRECEDING THREE FINANCIAL YEARS 1A.3.D IS NOT A PARTNER OR EXECUTIVE OR WAS NOT A PARTNER OR AN EXECUTIVE DURING THE PRECEDING THREE YEARS OF ANY OF THE FOLLOWING (1)STATUTORY AUDITING FIRM (2)INTERNAL AUDIT FIRM ASSOCIATED WITH THE COMPANY (3) LEGAL AND CONSULTING FIRMS THAT HAVE MATERIAL ASSOCIATION WITH THE COMPANY 1A.3.E IS NOT A MATERIAL SUPPLIER , SERVICE PROVIDER OR CUSTOMER WHICH MAY AFFECT THE INDEPENDENCE OF THE DIRECTOR 1A.3.F IS NOT A SUBSTANTIAL SHAREHOLDER OF THE COMPANY HOLDING MORE THAN 2% OF EQUITY SHARES 1A.4 NOMINEE DIRECTORS APPOINTED BY FI AS DEFINED IN SECTION 4A OF COMPANY ACT WHICH HAS INVESTED MONEY IN THE ORG ARE DEEMED TO BE INDEPENDENT DIRECTORS

1B NON EXECUTIVE DIRECTORS COMPENSATION AND DISCLOSURES

ALL FEES/COMPENSATION IF ANY PAID TO NON EXECUTIVE DIRECTORS INCLUDING INDEPENDENT DIRECTORS SHALL BE FIXED BY BOARD OF DIRECTORS AND REQUIRES PREVIOUS APPROVAL OF THE SHAREHOLDERS IN AGM. SHAREHOLDERS SHALL SPECIFY LIMITS FOR MAXIMUM NUMBER OF STOCK OPTIONS THAT CAN BE GRANTED TO NON EXECUTIVE DIRECTORS

IC OTHER PROVISIONS 1C.1 THE BOARD SHALL MEET AT LEAST 4 TIMES A YEAR WITH A

MAXIMUM GAP OF 4 MONTHS BETWEEN TWO MEETINGS. THERE IS A MINIMUM INFORMATION TO BE GIVEN TO THE BOARD BY THE MGT 1C.2 A DIRECTOR SHALL NOT BE A MEMBER OF MORE THAN 10 COMMITTEES OR ACT AS A CHAIRMAN OF MORE THAN 5 COMMITTEES ACROSS ALL COMPANIES IN WHICH HE IS A DIRECTOR. THERE IS ALSO AN ANNUAL MANDATORY REQUIREMENT FOR EACH DIRECTOR TO DISCLOSE THE COMPANIES IN WHICH HE IS A DIRECTOR AND THE VARIOUS COMMITTEES IN WHICH HE IS A MEMBER OR A CHAIRMAN 1C.3 BOARD SHALL PERIODICALLY REVIEW COMPLIANCE REPORTS OF ALL LAWS APPLICABLE TO COM PANY (STATUTORY AND REGULATORY COMPLIANCES) 1C.4 AN INDEPENDENT DIRECTOR WHO RESIGNS OR IS REMOVED SHALL BE REPLACED BY A NEW ONE WITHIN A PERIOD OF 180 DAYS FROM THE DATE

INFORMATION TO BE PLACED BEFORE BOD 1 ANNUAL OPERATING PLANS BUDGETS AND UPDATES 2 CAPITAL BUDGETS AND UPDATES 3. QRTLY RESULTS OF COMPANY FOR OPERATING

DIVISIONS AND BUSINESS SEGMENTS 4.MINUTES OF AUDIT COMMITTEE MEETINGS AND ALL

OTHER COMMITTEES 5.INFO ON RECRUITMENT AND REMUNERATION OF SENIOR

OFFICERS JUST BELOW BOARD LEVEL INCL APPOINTMENT OF COO ,CFO , COMP SEC

6.SHOW CAUSE NOTICES , PROSECUTION WARRANTS, PENALTY NOTICES SLAPPED ON COMPANY

7.FATAL OR SERIOUS ACCIDENTS DANGEROUS OCCURENCES, OR POLLUTING PROBLEMS

INFORMATION TO BE PLACED BEFORE BOD 8 MATERIAL DEFAULT IN FINANCIAL OBLIGATIONS TO AND BY COMPANY

AND SUBSTANTIAL ACR BY COMPANY 9 ANY ISSUE WHICH INVOLVES PUBLIC OR PRODUCT OR SERVICE

LIABILITY CLAIMS OF SUBSTANTIAL NATURE 10 DETAILS OF JOINT VENTURES OR COLLABORATIVE AGREEMENTS 11 TRANSACTIONS THAT INVOLVE SUBSTANTIAL PAYMENT OF

GOODWILL BRAND EQUITY OR IPR 12 SIGNIFICANT LABOUR PROBLEMS AND PROPOSED SOLUTIONS

INCLUSING WAGE AGREEMENTS VRS ETC 13 SALE OF ASSETS SUBSIDIARIES WHICH IS NOT DONE NORMALLY IN THE

COURSE OF THE BUSINESS 14 QRTLY DETAILS OF FOREIGN EXCHANGE EXPOSURES AND STEPS

TAKEN TO LIMIT RISKS OF ADVERSE EXCHANGE RATE MOVEMENT 15 NON COMPLIANCE OF ANY REGULATORY STATUTORY OR LISTING

REQUIREMENT eg NON PAYMENT OF DIVIDEND

ID CODE OF CONDUCT ID.1 THE BOARD SHALL LAY DOWN A CODE OF CONDUCT

FOR ALL BOARD MEMBERS AND SENIOR MGT OF THE COMPANY. CODE OF CONDUCT SHOULD BE POSTED ON THE WEBSITE OF THE COMPANY

ID.2 ALL BOARD MEMBERS AND SENIOR MGT PERSONNEL SHALL AFFIRM COMPLIANCE TO THE CODE ON AN ANNUAL BASIS. THE ANNUAL REPORT OF THE COMPANY SHALL CONTAIN A DECLARATION TO THIS EFFECT CERTIFIED BY THE CEO

II AUDIT COMMITTEE IIA QUALIFIED AND INDEPENDENT AUDIT COMMITTEE

A QUALIFIED AND INDEPENDENT AUDIT COMMITTEE SHALL BE SET UP GIVING THE TERMS OF REFERENCE SUBJECT TO THE FOLLOWING: IIA.1 AUDIT COMMITTEE SHALL HAVE MINIMUM 3 DIRECTORS AS MEMBERS WITH 2/3 AS INDEPENDENT DIRECTORS. IIA.2 ALL MEMBERS OF AUDIT COMMITTEE SHALL BE FINANCIALLY LITERATE AND AT LEAST ONE MEMBER SHALL HAVE ACCOUNTING OR RELATED FINANCIAL MGT EXPERTISE IIA.3 CHAIRMAN OF AUDIT COMMITTEE SHALL BE AN INDEPENDENT DIRECTOR IIA.4 CHAIRMAN OF AUDIT COMMITTEE ALONGWITH COMP SEC SHALL BE PRESENT AT AGM TO ANSWER QUESTIONS IIA.5 AUDIT COMMITTEE CAN INVITE SENIOR MGT PERSONNEL TO ATTEND AUDIT COMMITTEE MEETINGS AS DEEMED FIT

II AUDIT COMMITTEE IIB MEETING OF AUDIT COMMITTEE

AUDIT COMMITTEE SHALL MEET AT LEAST FOUR TIMES A YEAR AND GAP BETWEEN TWO MEETINGS SHOULD NOT BE MORE THAN FOUR MONTHS. QUORUM SHALL BE AT LEAST TWO MEMBERS OR ONE THIRD OF THE NUMBER OF THE MEMBERS WHICHEVER IS GREATER BUT A MINIMUM OF TWO INDEPENDENT DIR3ECTORS SHOULD BE PRESENT

IIC POWERS OF AUDIT COMMITTEE IIC.1 INVESTIGATE ACTIVITIES WITHIN TERMS OF REFERENCE IIC.2 SEEK INFORMATION FROM EMPLOYEES IIC.3 OBTAIN OUTSIDE LEGAL AND PROFESSIONAL SERVICES IIC.4 TO SECURE ATTENDANCE OF OUTSIDERS WITH RELEVANT EXPERIENCE IF IT DEEMS FIT TO DO SO

IID ROLE OF AUDIT COMMITTEE

IID ROLE OF AUDIT COMMITTEE ROLE OF AUDIT COMMITTEE SHALL INCLUDE

IID.1 OVERSIGHT OF THE COMPANY FINANCIAL REPORTING PROCESS AND THE DISCLOSURE OF ITS FINANCIAL INFO TO ENSURE THAT THE FINANCIAL STATEMENT IS CORRECT SUFFICIENT AND CREDIBLE IID.2 RECOMMEND THE APPOINTMENT/REAPPOINTMENT OR REPLACEMENT/REMOVAL OF STATUTORY AUDITORS AND FIXATION OF AUDIT FEES IID.3 APPROVAL OF PAYMENT TO STATUTORY AUDITORS FOR ANY OTHER SERVICES RENDERED BY STATUTORY AUDITORS IID.4 REVIEW WITH MGT OF ANNUAL FINANCIAL STATEMENTS

IID.4 REVIEW OF FINANCIAL STATEMENTS A. MATTERS TO BE INCLUDED IN THE DIRECTORS

RESPONSIBILITY STAEMENT B.CHANGES IN ACCOUNTING POLICIES AND PRACTICES

AND REASONS FOR SAME ie MOVEMENT FROM INDIAN GAAP TO IFRS

C.MAJOR ACCOUNTING ENTRIES INVOLVING ESTIMATES BASEDON EXERCISE OF JUDGEMENT BY MGT eg GRATUITY TO BE PAID NEXT YEAR TO BE AUDITED BY ACTUARIANS

D. SIGNIFICANT ADJUSTMENTS TO BE MADE IN FINANCIAL STATEMENTS BASED ON FINDINGS OF AUDITORS

E. COMPLIANCE WITH LISTING AND OTHER LEGAL REQUIREMENTS RELATED TO FINANCIAL STATEMENTS

F DISCLOSURE OF RELATED PARTY TRANSACTIONS

IID ROLE OF AUDIT COMMITTEE IID.5 REVIEWING WITH MGT QRTLY FINANCIAL STATEMENTS

BEFORE SUBMITTING TO BOARD FOR APPROVAL IID.6 REVIEWING WITH MGT PERFORMANCE OF STATUTORY

`AND INTERNAL AUDITORS AND ADEQUACY OF INTERNAL CONTROLS SYSTEM

IID.7 REVIEWING ADEQUACY OF INTERNAL AUDIT FUNCTION IID.8 DISCUSSION WITH INTERNAL AUDITORS WITH THE

INTENT OF HAVING ADEQUACY OF INTERNAL CONTROLS IID.9 REVIEWING FINDINGS OF ANYINTERNAL

INVESTIGATIONS BY INTERNAL AUDITORS INTO MATTERS WHERE FRAUD AND OTHER MAL PRACTICES OR FAILURE OF INTERNAL CONTROLS IS SUSPECTED

IID ROLE OF AUDIT COMMITTEE IID.10 DISCUSS WITH STATUTORY AUDITORS ABOUT

SCOPE OF AUDIT AS WELL AS REVIEW POST AUDIT DISCOVERY OF AREAS OF CONCERN

IID.11 REVIEW THE FUNCTIONING OF THE WHISTLE BLOWERS MECHANISM IN CASE IT EXISTS

IIE REVIEW OF INFO BY AUDIT COMMITTEE 1.MGT DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITIONS AND RESULTS OF OPERATIONS 2.STATEMENT OF SIGNIFICANT RELATED PARTY

TRANSACTIONS 3.DISCLOSURES OF AREAS OF INTERNAL CONTROL

WEAKNESSES POINTED OUT BY AUFDITORS 4. REVIEW OF INTERNAL CONTROL WEAKNESS REPORT

SUBMITTED BY INTERNAL AUDITORS

III SUBSIDIARY COMPANIES III.1 AT LEAST ONE INDEPENDENT DIRECTOR OF THE

HOLDING COMPANY SHALL BE ON THE BOARD OF A NON LISTED INDIAN SUBSIDIARY COMPANY eg AT LEAST ONE INDEPENDENT DIRECTOR OF LARSEN AND TOUBRO LTD SHOULD BE ON THE BOARD OF L&T INFOTECH A WHOLLY OWNED SUBSIDIARY

III.2 AUDIT COMMITTEE OF HOLDING COMMITTEE SHOULD REVIEW FINANCIAL STATEMENTS IN PARTICULAR INVESTMENTS MADE BY THE SUBSIDIARY

III.3 MANAGEMENT OF SUBSIDIARY SHOULD PERIODICALLY DRAW THE ATTENTION OF THE BOD OF HOPLDING COMPANY OF ALL SIGNIFICANT TRANSACTIONS AND ARRANGEMENTS ENTERED INTO BY UNLISTED SUBSIDIARY

IV. DISCLOSURES IV.A BASIS OF RELATED PARTY TRANSACTIONS

IV.A.1 SUMMARY REPORT OF TRANSACTIONS WITH RELATED PARTIES SHOULD BE PLACED BEFORE AUDIT COMMITTEE IV.A.2 DETAILS OF MATERIAL INDIVIDUAL TRANSACTIONS WITH RELATED PARTIES SHOULD BE A COMPLEMENT TO THE ABOVE SUMMARY

IV.B DISCLOSURE OF ACCOUNTING TREATMENT IF IN PREPARATION OF FINANCIAL STATEMENTS A TREATMENT DIFFERENT FROM THE ACCOUNTING STANDARDS IS FOLLOWED THE FACT SHALL BE DISCLOSED IN THE FINANCIAL STATEMENTS TOGETHER WITH MGT EXPLANATION AS TO WHY THE ALTERNATIVE TREATMENT IS MORE REPRESENTATIVE OF THE TRUE AND FAIR VIEW OF THE BUSINESS TRANSACTIONS eg WEIGHTED AVERAGE RATE V/S LIFO IN STORES ISSUES

IV. DISCLOSURES IV.C BOARD DISCLOSURES RISK MANAGEMENT

IV.C.1 BOARD SHOULD BE INFORMED ABOUT THE RISK IDENTIFICATION ASSESSMENT AND MINIMIZATION PROCEDURES. PROCEDURES SHOULD BE PERIODICALLY REVIEWED TO ENSURE THAT EXECUTIVE MGT CONTROLS RISK THRU MEANS OF PROPER DEFINED FRAMEWORK

IV.D PROCEEDS FROM PUBLIC ISSUES RIGHTS ISSUES -MONEY RAISED THRU PUBLIC ISSUES TO BE INFORMED TO THE AUDIT COMMITTEE

IV.E DIRECTORS REMUNERATION IV.E.1 ALL PECUNIARY RELATIONSHIPS OR TRANSACTIONS OF NON EXECUTIVE DIRECTORS SHOULD BE DISCLOSED IN THE ANNUAL REPORT WRT COMPANY IV.E.2 REMUNERATION PACKAGES OF ALL INDIVIDUAL DIRECTORS SHOULD BE SUMMARIZED UNDER HEADS SUCH AS SALARY BENEFITS BONUSES STOCK OPTIONS PENSION etc

IV. DISCLOSURES IV.E.3 DETAILS OF FIXED COMPONENT AND PERFORMANCE LINKED

INCENTIVES ALONG WITH PERFORMANCE CRITERIA IV.E.4 SERVICE CONTRACTS , NOTICE PERIOD , SEVERANCE FEES IV.E.5 COMPANY SHALL PUBLISH ITS CRITERIA OF MAKING PAYMENT TO

NON EXECUTIVE DIRECTORS IN ITS ANNUAL REPORT IV.E.6 COMPANY SHALL DISCLOSE NUMBER OF SHARES HELD BY NON

EXECUTIVE DIRECTORS IV.F MANAGEMENT IV.F.1 A CHAPTER ON MANAGEMENT DISCUSSION AND ANALYSIS SHOULD

FORM PART OF THE ANNUAL REPORT WHICH INCLUDES THE FOLLOWING HEADS

IV.F.2 SENIOR MGT SHALL MAKE DISCLOSURES TO THE BOARD RELATED TO ALL MATERIAL FINANCIAL AND COMMERCIAL TRANSACTIONS WHERE THEY HAVE PERSONAL INTEREST THAT MAY HAVE PERSONAL CONFLICT WITH INTEREST OF COMPANY(DEALING WOITH COMPANY SHARES , COMMERCIAL DEALINGS WITH COMPANIES WHICH HAVE RELATIVES IN SENIOR POSITIONS)

IV. DISCLOSURES IV.G SHAREHOLDERS IV.G.1 INCASE OF APPOINTMENT /REAPPOINTMENT OF DIRECTOR THE

SHAREHOLDER MUST BE PRESENTED WITH -A BRIEF RESUME OF THE DIRECTOR -NATURE OF HIS EXPERIENCE IN SPECIFIC FUNCTIONAL AREAS -NAMES OF COMPANIES IN WHICH HE HOLDS DIRECTORSHIP AND MEMBERSHIP OF COMMITTEES OF VARIOUS BOARDS -DISCLOSURE OF RELATIONSHIPS BETWEEN DIRECTORS WILL BE MADE IN THE ANNUAL REPORT -QUARTERLY RESULTS OF COMPANY WILL BE DISCLOSED IN 2 LOCAL AND 2 NATIONAL DAILIES -COMMITTEE HEADED BY NON EXECUTIVE DIRECTOR SHALL LOOK INTO SHAREHOLDE AND INVESTOR GRIEVANCES SUCH AS NON TRANSFER OF SHARES NON RECEIPT OF BALANCE SHEET NON RECEIPT OF DECLARED DIVIDENDS

V CFO/CEO CERTIFICATION THE CEO(MD) AND THE CFO ie THE FULL TIME FINANCE DIRECTOR SHALL

CERTIFY TO THE BOARD THAT THEY HAVE REVIEWED FINANCIAL STATEMENTS AND CASH FLOW STATEMENTS FOR THE YEAR AND THAT TO THE BEST OF THEIR KNOWLEDGE AND BELIEF V.1 THESE STATEMENTS DO NOT CONTAIN ANY MATERIAL UNTRUE STATEMENT OR OMIT ANY MATERIAL FACT OR CONTAIN STATEMENTS THAT MIGHT BE MISLEADING V.2 THERE ARE NO TRANSACTIONS ENTERED INTO BY THE COMPANY WHICH ARE FRAUDULENT , ILLEGAL OR VIOLATIVE OF THE COMPANY CODE OF CONDUCT V.3 THEY ACCEPT RESPONSIBILITY FOR THE ACCURACY OF INTERNAL CONTROLS FOR FINANCIAL REPORTING AND THEY HAVE EVALUATED THE EFFECTIVENESS OF INTERNAL CONTROL SYSTEMS V.4 THEY HAVE INDICATED TO THE AUDITORS SIGNIFICANT CHANGES IN ACCOUNTING POLICIES DURING THE YEAR V.5 INSTANCES OF SIGNIFICANT FRAUDS REPORTED TO AUDITORS

VI REPORT ON CORPORATE GOVERNANCE VI.1 SEPARATE SECTION ON CORPORATE GOVERNANCE IN

THE ANNUAL REPORT WITH A DETAILED COMPLIANCE REPORT ON CORPORATE GOVERNANCE . NON COMPLIANCE OF ANY MANDATORY REQUIREM,ENT OF THIS CLAUSE WITH REASONS AND EXTENT TO WHICH NON MANDATORY REQUIREMENTS HAVE BEEN ADOPTED SHOULD BE SPECIFICALLY HIGHLIGHTED. SUGGESTED LIST TO BE INCLUDED IN THE REPORT IS HIGHLIGHTED IN THE NEXT SLIDE VI.2 COMPANIES SHALL SUBMIT QUARTERLY REPORT TO STOCK EXCHANGES WITHIN 15 DAYS OF CLOSE OF QUARTER AS PER FORMAT RELATED TO COMPLIANCE TO EACH SUB CLAUSE OF LISTINGS AGREEMENT

SUGGESTED LIST OF ITEMS IN CORPORATE GOVERNANCE REPORT 7.WHISTLE BLOWER POLICY AND ITS EFFECTIVENESS

WITHIN THE COMPANY 8 MEANS OF COMMUNICATION OF

-QUARTERLY RESULTS 9 GENERAL SHAREHOLDER INFORMATION

-AGM DATE AND VENUE -FINANCIAL YEAR AND DATE OF BOOK CLOSURE -DIVIDEND PAYMENT DATE -LISTING ON STOCK EXCHANGES AND MARKET PRICE DATA MONTHWISE HIGH LOW NUMBER SHARES TRADED LAST FINANCIAL YEAR -DISTRIBUTION OF SHAREHOLDING

SUGGESTED LIST OF ITEMS IN CORPORATE GOVERNANCE REPORT 1.BRIEF STATEMENT ON COMPANY PHILOSOPHY ON CODE

OF GOVERNANCE 2.COMPOSITION AND CATEGORIES OF BOARD OF

DIRECTORS , THEIR ATTENDANCE AT BOARD MEETINGS, NUMBER OF OTHER BOARDS AND COMMITTEES OF WHICH HE IS A MEMBER

3.DISCLOSURES OF SHAREHOLDE COMPLAINTS AND REDRESSALS

4.DETAILS OF LAST 3 AGM 5.DISCLOSURES ON MATERIALLY SIGNIFICANT RELATED

PARTY TRANSACTIONS THAT MAY HAVE POTENTIAL CONFLICT WITH THE INTEREST OF THE COMPANY

6.DISCLOSURES OF PENALTIES AND STRICTURES PASSED AGAINST COMPANY

COMPOSITION OF BOARD 67% NON EXECUTIVE DIRECTORS IF CHAIRMAN IS FULL

TIME 50% NON EXECUTIVE DIRECTORS IF CHAIRMAN IS NON

EXECUTIVE

WHO IS A DIRECTOR DIRECTOR IS AN INDIVIDUAL WHO IS REQUIRED TO

DECIDE JOINTLY WITH THE BOARD , WHAT ACTIONS TO TAKE OR WHO EXERCISES POWERS THRU DELEGATION BY THE BOARD (EXTRA CONSTITUTIONAL POWERS)

RESPONSIBLE FOR COBNTROLLING EFFECTS OF DELEGATION OF POWERS

BUCK STOPS WITH THE BOARD (SATYAM CFO STATED THAT HE WAS NOT CONSULTED DURING SIPHONING)

ACCOUNTABLE FOR ACTIONS OF THE BOARD AND ARE ULTIMATELY RESPONSIBLE FOR THE RESULTS OF THE COMPANY THEY DIRECT

DIFFERENCE BETWEEN EXECUTIVE AND NON EXECUTIVE DIRECTORS EXECUTIVE DIRECTORS RESPONSIBLE FOR OPERATIONS

OF A PART OF COMPANYAND ANSWERS TO CEO FOR RESULTS OF THAT PART OF THE COMPANY. CEO IN TURN IS ANSWERABLE TO THE BOARD

NON EXECUTIVE DIRECTOR ANSWERS TO THE BOARD AND SHAREHOLDERS FOR ENSURING THE POLICIES AND DIRECTIONS OF THE COMPANY AS A WHOLE ARE ADHERED BY THE EXECUTIVE DIRECTORS

NEDS ARE EXPECTED TO ACT AS CHECKS AND BALANCES OF THE EDS IN PARTICULAR THE CEO TO ENSURE THAT THE ISSUES OF AGENCY ARE KEPT TO A MINIMUM AND THE MGRS ACT IN THE BEST INTERESTS OF THE SHAREHOLDERS

ROLE OF BOARD OF DIRECTORS GOVERNS ON BEHALF OF OWNERS – TRANSLATING THEIR

EXPECTATIONS INTO PERFORMANCE IT IS THE HIGHEST AUTHORITY IN THE COMPANY

ANSWERABLE TO THE OWNERS FOR EVERYTHING THAT HAPPENS

IT IS THE FINAL AUTHORITY IN THE COMPANY IT CAN DELEGATE ITS AUTHORITY WITHOUT DILUTING

ACCOUNTABILITY IT SHOULD RECOGNIZE THAT GOVERNANCE AND

MANAGEMENT ARE NOT THE SAME;BOARD GOVERNS , MANAGEMENT MANAGES

ROLE OF BOARD OF DIRECTORS REVIEW AND ADOPT A STRATEGIC PLAN – NANO IN

SINGUR? RELIANCE PETROL PUMPS OVERSEE COMPANYS BUSINESS IDENTIFY ENTERPRISE RISKS AND ADDRESS THEM TO

MINIMIZE EFFECTS PLAN FOR SENIOR MGT SUCCESSION PLANNING. WHO

AFTER RATAN TATA PROMOTE INVESTOR RELATIONS PROGRAMS AND A

SHAREHOLDER COMMUNIOCATION POLICY ENSURE ADEQUACY OF INTERNAL CONTROLS AND OTHER

REGULATORY REQUIREMENTS THRU PROPER MIS

BOARD RESPONSIBILITIES REVIEWING AND GUIDING CORPORATE STRATEGY , RISK

POLICY , ANNUAL BUDGETS AND BUSINESS PLANS , SETTING PERFORMANCE OBJECTIVES , MONITORING CORPORATE PERFORMANCE AND OVERSEEING MAJOR CAPITAL EXPENDITURE

SELECTING COMPENSATING AND MONITORING KEY EXECUTIVES

MONITORING AND MANAGING POTENTIAL AREAS OF CONFLICT OF INTEREST OF MANAGEMENT AND BOARD MEMBERS

ENSURING INTEGRITY OF CORPORATE ACCOUNTS AND FINANCIAL SYSTEMS

MONITORING EFFECTIVENESS OF GOVERNANCE PRACTICES OVERSEEING PROCESS OF DISCLOSURE

BOARD RESPONSIBILITIES PROTECTION OF SHAREHOLDER AND STAKEHOLDER RIGHTS TIMELY AND ACCURATE DISCLOSURE OF FINANCIAL

CONDITION , PERFORMANCE AND GOVERNANCE MONITORING OF MANAGEMENT AND MAKING BOARD

ACCOUNTABLE TO THE SHAREHOLDERS MANAGING ACTUAL AND POTENTIAL CONFLICTS OF

INTERESTS MONITORING OF FINANCIAL COMITMENTS CREATION AND MANAGEMENT OF COMPANY VISION AND

MISSION ACCOUNTABILITY TO VARIOUS STAKEHOLDERS MANAGING CONFLICTY OF INTEREST BETWEEN

SHAREHOLDERS,CUSTOMERS,LENDERS,PROMOTERS

BOARD RESPONSIBILITIES ENSURING INTEGRITY OF ACCOUNTING AND FINANCIAL

REPORTING ACTIVITIES ESTABLISHMENT OF OBJECTIVES ,STRATEGY MONITORING AND

REVIEWING ACHIEVEMENTS OVERSEEING FINANCIAL DISCLOSURES REPORTING PERFORMANCE TO SHAREHOLDERS ENSURING ADEQUACY OF RESOURCES ESPECIALLY FUNDS PLANNING NEW PRODUCTS AND SERVICESNEW MARKETS TO

PENETRATE DETERMINATION OF MFG CAPACITY GAINFUL UTILIZATION OF CAPACITY INVESTMENT DECISIONS PURCHASE/DISPOSAL OF CAPITAL ASSETS LIQUIDITY

BOARD RESPONSIBILITIES PUTTING IN PLACE A SYSTEM FOR INTERNAL

CONTROLS TO ENSURE EFFECTIVE OPERATIONS HAVING AN ADEQUATE INTERNAL AUDIT FUNCTION COMPLYING TO GAAP AND REASONS FOR DEVIATION FINANCIAL STATEMENTS TO BE IN ACCORDANCE

WITH STATUTORY REQUIREMENTS IDENTIFICATION UNDERSTANDING AND

MANAGEMENT OF ENTERPRISE RISKS OVERSEEING STRATEGIC DEVELOPMENT PROTECTING ORGANIZATION ASSETS FULFILING FIDUCIARY AND LEGAL REQUIREMENTS

BOARD RESPONSIBILITIES ENSURE COMPANY HAS ADEQUATE FINANCE PEOPLE

TECHNOLOGY AND PROCESSES TO IMPLEMENT AGREED STRATEGY

APPOINT MGT TEAM AND ESTABLISH FRAMEWORK OF POLICIES AND VALUES

SAFEGUARD INTELLECTUAL ASSETS OF THE COMPANYAND ENSURE ETHICAL CONDUCT

ENSURE DEVELOPMENT OF KEY COMPETENCIES AREAS REPORT PERFORMANCE AS PER THE STATUTORY

REQUIREMENTS(SOX 302 AND SOX 404) TRANSPARANCIES OF DISCLOSURES INDEPENDENCE OF DECISION MAKING

BOARD RESPONSIBILITIES CARRY OUT WORK WITH DUE DILIGENCE MAKE PROPER USE OF COMPANY RESOURCES MAKE SURE THAT TRANSACTIONS ARE WITHIN THE

POWERS OF THE COMPANY AVOIDANCE OF LEGAL LIABILITIES NON ENGAGEMENT IN ACTS AGAINST COMPANY INITIATE AND DETERMINE MISSION AND SPECIFY

STRATEGIC OPTIONS TO MGT EVALUATE AND INFLUENCE MGT PROPOSALS DECISIONS

AND ACTIONS , AGEE/DISAGREE,GIVE ADVICE AS WELL AS DEVELOP ALTERNATIVE STRATEGIES

MONITOR INTERNAL AND EXTERNAL DEVELOPMENTS THRU ITS COMMITEES AND ALERT MGT ON NEW ISSUES

POWERS EXERCISABLE BY BOARD ISSUE DEBENTURES MAKE CALLS FOR RECEIPT OF AUTHORIZED CAPITAL TO BORROW MONEY TO INVEST FUNDS OF THE MONEY

POWERS EXERCISABLE WITH SHAREHOLDER APPROVAL SALE OR LEASE OF COMPANY ASSETS AND UNDERTAKING RUNNING BUSINESS OWNED BY OTHER COMPANIES (eg TAJ

HOTELS MANAGING SPENCER HOTELS BEFORE ACQUISITION)

BORROWING BEYOND PAID UP CAPITAL POLITICAL AND OTHER DONATIONS BEYOND AN

AVERAGE OF 5% OF THE NET PROFITS OF THE 3 PRECEDING YEARS OR TO AN ORGANIZATION WHICH DOES NOT DRAW TAX EXEMPTION

ACCOUNTABILITY OF BOARD OF DIRECTORS CANNOT ABDICATE ITS RESPONSIBILITIES eg SATYAM CFO

SAYING HE WAS NOT AWARE THAT RAJU FUDGED THE ACCOUNTS

MUST BE IN FULL CONTROL OF HIS RESPONSIBILITIES BEFORE ATTEMPTING TO CORRECT OTHERS

IS AUTHORATITIVE AND NOT ADVISORY ie BOARD DOES NOT EXIST TO SUPERVISE OTHERS BUT HAS A SPECIFIC DEFINED JOB

IS THE SOLE SOURCE OF COMPANY AURHORITY AND NO GROUP INCLUDING PROMOTERS HAS A HIGHER AUTHORITY THAN THE BOARD AND MEMBERS CANT EXERCISE ANT AUTHORITY OUTSIDE THAT VESTED INTO THEM BY BOD

ROLE OF DIRECTOR EXHIBIT TOTAL COMMITMENT TO COMPANY CARE AND SKILL IN DISCHARGE OF DUTIES DEVOTE ENOUGH TIME TO AFFAIRS OF THE COMPANY STEER DISCUSSIONS MEANINGFULLY MAKE CLEAR THEIR STAND ON ISSUES ENSURE EFFICIENT EFFECTIVE AND INTEGRITY FILLED CEO TAKE DECISIONS BASED ON CHALLENGES OF

ACQUISITIONS ANTICIPATE BUSINESS EVENTS THROUGH STUDY OF

TRENDS AND PATTERNS LONG TERM FOCUS AND STAKEHOLDERS INTEREST PROMOTE OVERALL INTEREST OF COMPANY AND

STAKEHOLDERS (SATYAM-MAYTAS)

ROLE OF DIRECTOR DUTY NOT TO BE NEGLIGENT AND NOT TO

COMMIT CRIMINAL OFFENCE LAWS NOT TO EXCEED BESTOWED POWERS DUTY TO ACT IN BEST INTEREST OF COMPANY

AND STAKEHOLDERS DUTY TO CREDITORS IF BUSINESS IS

CONDUCTED WITH INTENT TO DEFRAUD DUTY OF CONFIDENTIALITY DUTY NOT TO MISAPPROPRIATE FUNDS OR

MANIPULATE TRANSACTIONS

INFORMATION REQUIRED BY BOARD ANNUAL OPERATING PLANS AND BUDGETS ALONG WITH LONG TERM

PLANS CAPITAL , MANPOWER AND OVERHEAD BUDGETS QUARTERLY RESULTS OF COMPANY AND DIVISIONS INTERNAL AUDIT REPORTS ACCIDENTS , POLLUTION , PROBLEMS , NOTICES FROM REVENUE

AUTHORITIES DEFAULT IN PAYMENT OF INTEREST OR PRINCIPAL ON PUBLIC

DEPOSITS PRODUCT , SERVICES LIABILITY , CLAIMS DETAILS OF JOINT VENTURES , COLLABORATIONS , TRANSACTIONS INVOLVING PAYMENT TOWARDS GOODWILL , BRAND

EQUITY ETC RECRUITMET OF SENIOR OFFICERS BELOW BOARD LEVEL LABOUR PROBLEMS AND RESOLUTIONS QUARTERLY DETAILS OF FOREIGN EXCHANGE TRANSACTIONS

DEFINITION OF INDEPENDENT DIRECTOR DOES NOT RECEIVE REMUNERATION NOT RELATED TO PROMOTERS (NEEDS TO BE CHECKED) NOT AN EXECUTIVE OF COMPANY FOR PAST 3 YEARS NOT A PARTNER OR EXECUTIVE OF AUDIT COMPANY (CC

CHOKSI WAS ON BOARD OF SEVERAL COMPANIES WHICH HE AUDITED BEFORE CLAUSE 49 WAS INTRODUCED)

NOT A SIGNIFICANT SUPPLIER VENDOR OR CUSTOMER (MARUTI NOMINEE ON BOARD OF JAY BHARAT MARUTI , SONA STEERING WHERE THEY HAVE . 10% STAKE)

NOT A DIRECTOR FOR 3 TERMS OF 3 YEARS EACH

175

Independent director

INDEPENDENT DIRECTOR IS A NON EXECUTIVE DIRECTOR WHO: -APART FROM RECEIVING DIRECTORS RUMENURATION DOES NOT HAVE ANY MATERIAL PECUNIARY RELATIONSHIPS OR TRANSACTIONS WITH THE COMPANY OR ITS PROMOTERS OR SENIOR MGT OR ITS HOLDING COMPANY OR SUBSIDIARIES OR ASSOCIATES

- IS NOT RELATED TO PROMOTERS OR MGT AT BOARD LEVEL -HAS NOT BEEN AN EXECUTIVE OF THE COMPANY FOR AT LEAST 3

YEARS -IS NOT A PARTNER OR AN EXECUTIVE OF THE STATUTORY AUDIT

FIRM OR INTERNAL AUDIT FIRM THAT IS ASSOCIATED WITH THE COMPANY

-IS NOT A VENDOR OR SUPPLIER TO THE COMPANY -IS NOT A SUBSTANTIAL SHAREHOLDER HOLDING MORE THAN 2%

OF THE SHARES -HAS NOT BEEN A DIRECTOR OF THE COMPANY INDEPENDENT OR

OTHERWISE FOR MORE THAN 3 TERMS OF 3 YEARS EACH -NOMINEE DIRECTORS FROM BANKS/FI WILL BE EXCLUDED FROM

THIS LIST

ROLE OF INDEPENDENT DIRECTOR MONITOR AND CONTROL THE BOARD

ACTIVITIES SERVE AS LINK WITH EXTERNAL

ENVIRONMENT IMPROVE BOARD PROCESSES BRING IN SPECIALIST KNOWLEDGE PROVIDE CONTINUITY HELP IDENTIFY ALLIANCES ANDF

ACQUISITIONS

FACTORS INFLUENCING INDEPENDENCE OF DIRECTORS DIRECTOR HAS BEEN EMPLOYEE OF COMPANY PRIOR TO BEING

APPOINTED DIRECTOR . GAP REQUIRED AS PER COMPANY ACT DIRECTOR HAS MATERIAL BUSINESS RELATIONSHIP DIRECTLY

OR INDIRECTLY AS A PARTNER , SHAREHOLDER. DIRECTOR OR SENIOR EMPLOYEE OF A COMPANY THAT ITSELF HAS A MATERIAL RELATIONSHIP WITH THE COMPANY (CHECK PARTNER OF AUDIT COMPANY ON BOARD OF DIRECTORS)

DIRECTOR RECEIVES SALARY IN ADDITION TO DIRECTORS FEES OR ELSE PARTICIPATES IN STOCK OPTION OR PERFORMANCE INCENTIVE SCHEMES

DIRECTOR HAS FAMILY TIES WITH MEMBERS OF COMPANY –ADVISORS , DIRECTORS , SR MGRS , THAT COULD AFFECT INDEPENDENCE OF JUDGEMENT (CHECK BOD OF RELIANCE)

DIRECTOR HAS BEEN ON BOARD FOR NORE THAN 10 YEARS

DIRECTOR LIABILITY TO COMPANY NEGLIGENCE OF DUTIES- eg UNION CARBIDE

CASE BREACH OF TRUST – DIRECTORS ARE TRUSTEES

OF COMPANY AND ARE RESPONSIBLE FOR MATERIAL LOSS eg SATYAM

WILFUL MISCONDUCT SUABLE IN COURT OF LAW BREACH OF STATUTORY DUTIES NOT LIABLE FOR ACTS OF CO DIRECTORS

THOUGH CHAIRMAN IS ACCOUNTABLE

WHY CHAIR TO BE DIFFERENT FROM CEO CONFLICT OF INTEREST BETWEEN BOARD DUTY AND MGT

DUTY AGENDA OF CHAIR WILL BE MORE OF MANAGEMENT

THAN GOVERNANCE EXCCESIVE POWER VESTED IN ONE INDIVIDUAL IMPRACTICALITY OF MD REPORTING TO HIMSELF -CHAIR

CHAIR RESPONSIBILITIES LEADS BOARD IN SETTING VALUES AND STANDARDS OF

THE COMPANY eg NARAYANAMURTY AND CREATES A RELATIONSHIP OF TRUST BETWEEN EXECUTIVE AND NON EXECUTIVE DIRECTORS TO ENSURE THE EFFECTIVE CONTRIBUTION OF THE NED AND CONSTRUCTIVE RELATIONS BETWEEN THE TWO (GUIDE ED BY THEIR DOMAIN EXPERTISE)

PROMOTE HIGHEST STANDARDS OF CG AND SEEK COMPLIANCE WITH PROVISIONS OF RELEVANT CODES WHEREVER POSSIBLE WITH UTOMST INTEGRITY AND PROBITY

SETS BOARD AGENDA IN CONSULTATION WITH CEO AND CS TAKING INTO ACCOUNT THE ISSUES AND CONCERNS OF ALL MEMBERS OF THE BOARD

CHAIR RESPONSIBILITIES ENSURES A CLEAR REPORTING STRUCTURE IN THE BOARD

AND DWFINES POWERS AND RESPONSIBILITIES MANAGES THE BUSINESS OF THE BOARD ESPECIALLY AT

AGMS EMPOWERED TO MAKE DECISIONS ON BHALF OF THE

COMPANY ARANGES ANNUALEVALUATION OF THE PERFORMANCE OF

THE BOARD ITS COMMITTEES AND THE DIRECTORS EXECUTIVE AS WELL AS NON EXECUTIVE

ENSURE EFFECTIVE COMMUNICATION WITH SHAREHOLDERS CREATE A HIGH DEGREE OF TRUST WITH THE MANAGEMENT ADVISE THE CEO AND BOARD OF ANY SHORTFALLS IN

MANAGEMENT

CEO RESPONSIBILITIES REPORTS TO THE BOARD ALL MATTERS THAT

MATERIALLY AFFECT THE COMPANY AND ITS PERFORMANCE INCLUDING ANY POTENTIALLY STRATEGIC OR POLITICALLY SIGNIFICANT DEVELOPMENT PROSPECTS (TATA MOTORS AT SINGUR)

UNDER PERFORMANCE ACTIVITIES AND PROPOSALS TO RECTIFY SITUATION

ALLMATERIAL MATTERS THA T AFFECT SHAREHOLDERS AND MARKETS IN WHICH SHAREHOLDERS INTERESTS ARE COMPROMISED

REPORT ON ORG STRUCTURE AND SYSYTEMS IN PLACE (INTERNAL CONTROL ADEQUACY)

EFFECTIVENESS OF PERFORMANCE AGAINST BENCHMARKS

DONTS FOR CEO DO ANYTHING WITHOUT TAKING INTO ACCOUNT THE

EFFECT ON LONG TERM SHAREHOLDER VALE . ALWAYS LOOK AT TACTICAL PLANS WHICH SYNERGIZE WITH STRATEGIC PLANS

DO NOT BORROW OR SPEND MONEY WHICH WILL CREATE A FINANCIAL DISASTER FOR THEW COMPANY

DO NOT TAKE DECISIONS WITHOUT CONSIDERING THE RISK FACTORS

DON’T INDULGE IN NEEDLESS EXPANSION OR NEW PLANTS WITHOUT MAXIMIZING RETURNS ON EXISTING ONES eg POWER PLANT UTILIZATION

BOARD CEO LINKAGE-WHAT BOARD NEEDS TO DO AGREE WITH C ALONG WITH METHODS OF ACHIEVING

SPECIFIC GOALS eg CHANGING BUSINESS MODEL TO MOVE INTO DISTRIBUTOR MODEL OR GOING IN FOR OUTSOURCING OR STRATEGIC SOURCING (MAKE OR BUY)

AUTHORIZES CEO TO FORMULATE STRATEGIES POLICIES AND ACTION PLANS TO ACHIEVE DESIRED OUTCOMES WHICH SHOULD BE LINKED TO THE SHORT TERM AND LONG TERM GOALS

TIME TO TIME ENHANCE OR REDUCE THE POWERS OF CEO TO ENABLE HIM TO FUNCTION EFFECTIVELY

DETAILS SCOPE OF POWERS VESTED IN MAMNAGEMENT POSTS eg POWER OF ATTORNEY

PRIMARY DUTIES OF DIRECTOR LOOK AFTER COMPANY INTEREST WHICH REQUIRES A

DIRECTOR TO -ACT IN GOOD FAITH IN THE BEST INTERESTS OF THE COMPANY -EXERCISE LEVEL OF SKILL AND DILIGENCE THAT SHOULD BE EXPECTED FROM PERSONS OF THAT LEVEL OF ABILITY AND EXPERIENCE -EXERCISE POWERS GRANTED BY COMPANY CONSTITUTION -REFRAIN FROM ANY ACT THAT WOULD ADVERSELY AFFECT DECISION MAKING CONCERNING THE ACTIVITIES OF COMPANY -AVOID CONFLICTS OF INTERESTS WITH THE COMPANY -ENSURE THAT PROPER ACCOUNTING RECORDS MAINTAINED TO EXPLAIN THE TRANSACTIONS AND FINANCIAL POSITION OF THE COMPANY -ENSURE THAT ADEQUATE MEASURES ARE IN PLACE TO PREVENT AND DETECT FALSE ACCOUNTING RECORDS

PRIMARY DUTIES OF DIRECTOR LOOK AFTER COMPANY INTEREST WHICH REQUIRES A

DIRECTOR TO -ENSURE AUDITED ACCOUNTS PRESENTED TO SHAREHOLDERS WITHIN 6 MONTHS AFTER FINANCIAL YEAR END -ENSURE FINANCIAL STATEMENTS COMPLY WITH APPLICABLE APPROVED ACCOUNTING STANDARDS -AVOID CONFLICT OF INTEREST -RECORD MATERIAL RELEVANT INTEREST IN ANY TRANSACTIONS IN THE INTERESTS REGISTER -AVOID IMPROPER USE OF POSITION OR PERKS ASSOCIATED WITH THE POSITION OR ANY INFO RECEIVED THRU THAT POSITION FOR PERSONAL GAIN OR TO HARM THE COMPANY (INSIDER TRADING JUST WHEN ACQUISITION ABOUT TO TAKE PLACE)

PRIMARY DUTIES OF DIRECTOR LOOK AFTER COMPANY INTEREST WHICH REQUIRES A DIRECTOR

TO - DETERMINE AND CERTIFY WHAT IS FAIR AND REASONABLE FOR CONSIDERATION OF SHARES OR FOR REPURCHASE OF SHARES -RESPOND APPROPRIATELY TO WRITTEN SHAREHOLDER REQUESTS FOR INFO HELD BY THE COMPANY -ENSURE THAT THE COMPANY DOES NOT CARRY OUT BUSINESS IN A MANNER THAT IS HARMFUL TO CREDITORS AND SHAREHOLDERS -MAINTAIN COMPANY SOLVENCY AND REPUTATION BY ENSURING THAT THE COMPANY DOES NOT INCUR OBLIGATIONS UNLESS THERE ARE REASONABLE GROUNDS TO BELIEVE THAT IT CAN MEET THAT OBLIGATION -FULFIL SPECIFIC OBLIGATIONS IN EVENT OF TAKEOVERS

SECONDARY DUTIES OF DIRECTOR DIRECTOR MUST

-TAKE ALL REASONABLE STEPS TO ENSURE THE BOARD IS DOING WHAT IS REQUIRED TO PREVENT FALSIFICATION OF ACCOUNTIONG RECORDS -PROVIDE PROPER EXPLANATIONS TO THE EXTERNAL AUDITOR TO HELP THEM INTERPRET THE INFO CORRECTLY -CHECK ACCURACY AND COMPLETENESS OF ANY STATEMENTS THAT ARE MADE BY THE COMPANY -ENSURE FINANCIAL STATEMENTS COMPLY WITH THE APPROPRIATE FINANCIAL RE[ORTING STANDARDS -ENSURE FINANCIAL STATEMENTS ARE AUDITED -ENSURE SHAREHOLDERS RECEIVE THE ANNUAL REPORT WITHIN THE STIPULATED PERIOD BEFORE AGM -ENSURE FINANCIAL REPORTS FILED WITH REGISTRAR OF COMPANIES WITHIN THE TIME REQUIRED

SECONDARY DUTIES OF DIRECTOR DIRECTOR MUST

-ENSURE THAT THE REGISTERS AND REQUISITE DOCUMENTATION IS AVAILABLE FOR INSPECTION TO THE MEMBERS -CHANGES TO CONSTITUTION NOTIFIRED TO REGISTRAR -CERTIFY SOLVENCY OF COMPANY (ENRON)

OBLIGATIONS OF A DIRECTOR ACT HONESTLY AND IN GOOD FAITH IN THE BEST

INTEREST OF THE COMPANY ACT IN ACCORDANCE WITH THE FIDUCIARY DUTIES. THEY

MUST COMPLY WITH THE LAWS AND BEING A DIRECTOR REQUIRES HIGH ETHICAL AND MORAL STANDARDS OF BEHAVIOUR

CARRY OUT THEIR DUTIES IN A LAWFUL MANNER AND USE REASONABLE ATTEMPTS TO ENSURE THAT THE COMPANY CONDUCTS ITS BUSINESS IN ACCORDANCE WITH LAW AND HIGH STANDARD OF COMMERCIAL MORALITY

BE AWARE OF STATUTORY AND REGULATORY REQUIREMENTS THAT AFFECT THE COMPANY

OBLIGATIONS OF A DIRECTOR AVOID ALL CONFLICTS OF INTEREST AND STICK TO LAID

DOWN PROCEDURES OBSERVE CONFIDENTIALITY OF NON PUBLIC DATA ENSURE LISTED COMPANIES HAVE AN APPROVED

PROCEDURE FOR BUYING AND SELLING SHARES BY THE COMPANY , DIRECTORS AND THEIR RELATIVES

DO NOT INDULGE IN INSIDE TRADING

LIABILITES OF A DIRECTOR FRAUDULENT DESTRUCTION OF COMPANY PROPERTY

(TEXTILE MILL IN MUMBAI ON FIRE SABOTAGE SUSPECTED)

FALSIFY , DESTROY, ALTER , MUTILATE ANY COMPANY RECORD WITH INTENT TO DECEIVE(ENRON SHREDDING VITAL ACCOUNTING RECORDS)

CARRY OUT BUSINESS WITH INTENT TO DEFRAUD CREDITORS (SATYAM MONEY TO MAYTAS)

INVOLVED IN INSIDER TRADING (HLL EX CHAIRMAN SUSPECTED OF DOING SO ON THE EVE OF LAKME ACQUISITION)

FAILURE TO ENSURE FINANCIAL STATEMENTS ARE IN COMPLIANCE WITH ACCOUNTING STANDARDS

CRIMINAL LIABILITES OF A DIRECTOR BREACH OF SAFETY REGULATIONS LEADING TO

ACCIDENTS (BHOPAL GAS TRAGEDY) POLLUTION OF ENVIRONMENT DUE TO OPERATIONS (KNP) DO NOT MAINTAIN AN ACCURATE RECORD OF ACCIDENTS

AND FAILS TO NOTIFY RELEVANT AUTHORITIES MFG AND SELLS DANGEROUS GOODS WITHOUT A LICENSE DELAY IN REPORTING ACCIDENT INOLVING DANGEROUS

GOODS

BOARD COMMITTEES

COMPENSATION COMMITTEE AUDIT COMMITTEE NOMINATING AND GOVERNANCE

COMMITTEE OTHER STANDING COMMITTEES SPECIAL COMMITTEES

PURPOSE OF AUDIT COMMITTEE PURPOSE OF AUDIT COMMITTEE SHALL BE TO PROVIDE

ASSISTANCE TO BOARD OF DIRECTORS IN FULFILLING THEIR OVERSIGHT RESPONSIBILITY TO THE STAKEHOLDERS RELATED TO -INTEGRITY OF COMPANY FINANCIAL STATEMENTS -COMPANYS COMPLIANCE WITH LEGAL AND REGULATORY REQUIREMENTS -EXTERNAL AUDITORS INDEPENDENCE -PERFORMANCE OF COMPANY INTERNAL AUDIT FUNCTION AS WELL AS THE EXTERNAL AUDITOR

PURPOSE OF AUDIT COMMITTEE INTEGRITY OF COMPANY FINANCIAL STATEMENTS COMPANYS COMPLIANCE WITH LEGAL AND REGULATORY

REQUIREMENTS ENSURING PERFORMANCE OF COMPANY INTERNAL

AUDITORS FUNCTIONS AS WELL AS THOSE OF EXTERNAL AUDITORS

197

ROLE OF AUDIT COMMITTEE

oversight of the company’s financial reporting processes and the disclosure of its financial information to ensure that the financial statement is correct, sufficient and credible.

recommending the appointment and removal of external auditor, fixation of audit fee and also approval for payment for any other services.

Review annual as well as quarterly financial statements with the management before submitting the same to BOD

198

Role of Audit Committee…

Discussion with statutory auditors before the audit commences, about the nature

and scope of audit as well as post-audit discussion to ascertain any area of

concern.

To look into the reasons for substantial defaults in the payment to the depositors,

debenture holders, shareholders (in case of non payment of declared

dividends) and creditors.

To review the functioning of the Whistle Blower mechanism, in case the same is

existing.

Carrying out any other function as is mentioned in the terms of reference of the

audit committee.

199

ROLE OF AUDIT COMMITTEE discussion with external auditors before the audit

commences about nature and scope of audit as well as post audit discussion to ascertain any area of concern.

reviewing the company’s financial and risk management policies.

to look into the reasons for substantial defaults in the payment to the depositors, debenture holders, shareholders(in case of non payment of declared dividends) and creditors.

Discussion with internal auditors any significant finding and follow up thereon

200

ROLE OF AUDIT COMMITTEE TO ORGANIZE INTERNAL AUDIT DEPARTMENT TO LIAISE WITH STATUTORY AND INTERNAL AUDITORS REVIEW FINANCIAL STATEMENTS AND SEEK CLARIFICATIONS

FROM AUDITORS AND RECTIFY FINANCIAL SYSTEMS REVIEW AND CONTROL INTERNAL FINANCIAL CONTROLS ESTABLISH AND IMPLEMENT ACCOUNTING STANDARDS ACT AS LINK BETWEEN AUDITORS AND BOARD OF DIRECTORS

OBJECTIVES SET FOR AUDIT COMMITTEE IMPROVE QUALITY OF FINANCIAL REPORTING ENSURE THAT BOARD MAKES INFORMED DECISIONS

REGARDING ACCOUNTING POLICIES PRACTICES AND DISCLOSURES

REVIEW THE SCOPE AND OUTCOME OF INTERNAL AND EXTERNAL AUDITS (FAIR AND NON PLIANT)

TO OVERSEE THE FINANCIAL REPORTING PROCESS

DUTIES AND RESPONSIBILITIES OF AUDIT COMMITTEE THE COMMITTEE HAS THE RESPONSIBILITY AND POWERS

TO PREPARE PRESENT AND ENSURE INTEGRITY OF COMPANY FINANCIAL STATEMENTS FOR THE APPROPRIATENESS OF ACCOUNTING PRINCIPLES AND REPORTINCONTROL G POLICIES THAT ARE USED BY THE COMPANY AND FOR IMPLEMENTATION AND MAINTAINING INTERNAL ESPONSIBLE CONTROL OVER FINANCIAL REPORTING

EXTERNAL AUDITORS FOR AUDITING THE COMPANY FINANCIAL STATEMENTS AND FOR REVIEWING THE COMPANY UNAUDITED INTERIM FINANCIAL STATEMENTS

DUTIES AND RESPONSIBILITIES OF AUDIT COMMITTEE RESPONSIBLE FOR APPOINTMENT COMPENSATION

RETENTION AND OVERSIGHT OF THE WORK OF EXTERNAL AUDITORS FOR THE PURPOSE OF PREPARING OR ISSUING AN AUDIT REPORT OR PERFORMING OTHER AUDIT REVIEWS

RESPONSIBLE FOR RESOLVING DISAGREEMENTS BETWEEN MGT AND AUDITORS REGARDING FINANCIAL REPORTING AND FOR PREPARING AND ISSUEING AN AUDIT REPORT

AT LEAST ANNUALLY COMMITTEE SHALL OBTAIN AND REVIEW A REPORT BY EXTERNAL AUDITORS DESCRIBING -THE INTERNAL QUALITY CONTROL PROCEDURE -ANY MATERIAL ISSUES RAISED BY THE MOST RECENT INTERNAL QUALITY CONTROL REVIEW -ALL RELATIONSHIPS BETWEEN EXTERNAL AUDITOR AND COMPANY TO ASSESS AUDITOR INDEPENDENCE

DUTIES AND RESPONSIBILITIES OF AUDIT COMMITTEE REVIEW QUALITY OF WORK OF EXTERNAL AUDITORS AND

INDEPENDENCE INCLUDINF PERFORMANCE OF LEAD PARTNER OF EXTERNAL AUDITOR

ENSURE ROTATION OF LEAD AUDIT PARTNER SERVING THE ACCOUNT

VIEW AUDITING ADJUSTMENTAPPROVE ALL AUDIT AND NON AUDIT SERVICES PROVIDED BY THE AUDITOR AND SHALL NOT ENGAGE THE AUDITOR TO PERFORM NON AUDIT SERVICES PROSCRIBED BY LAW OR REGULATION

DISCUSS SCOPE OF AUDITS INCLUDING ADEQUACY OF STAFFING FOR INTERNAL AUDITS(COST AUDITS?)

REVIEW AND RESOLVE ISSUES DURING AUDIT INCLUDING ACCESS TO CONFIDENTIAL INFO

REVIEW ACCOUNTING ADJUSTMENTS PROPOSED BY AUDITORS

DUTIES AND RESPONSIBILITIES OF AUDIT COMMITTEE REVIEW AND DISCUSS QUARTERLY FINANCIAL STATEMENTS

INCLUDING MGT DISCUSSION AND ANALYSIS WITH MGT AND BOARD BEFORE FILING AND DISCLOSING THE INFO TO STOCK EXCHANGE AND PUBLIC

DISCUSS RESULTS OF QUARTERLY REVIEW AND OTHER MATTERS REQUIRED TO BE CERTIFIED AS PER THE AUDITING STANDARDS -INCLUDES ADOPTION OF SIGNIFICANT CHANGES TO ACCOUNTING STANDARDS (GAAP TO IFRS) AND ADEQUACY OF INTERNAL CONTROLS AND REMEDIAL ACTIONS ADOPTED IN LIGHT OF MATERIAL CONTROL DEFICIENCES -DISCUSSION WITH MGT REGARDING SIGNIFICANT FINANCIAL REPORTING ISSUES AND JUDGEMENTS MADE IN CONNECTION WITH THE PREPARATION OF FINANCIAL STATEMENTS AND REASONABLENESS OF THESE STATEMENTS

DUTIES AND RESPONSIBILITIES OF AUDIT COMMITTEE-CLARITY OF DISCLOSURES IN ANNUAL REPORT

-REVIEW AND APPROVE ALL RELATED PARTY TRANSACTIONS

-REVIEW AND ACT ON GUIDANCE PROVIDED BY ANALYSTS AND

RATING AGENCIES

-HAVE PERIODIC REVIEWS ON RISK ASSESSMENT AND CONTROLS

INCLUDING RISK OF FRAUD

-DISCUSS AND MANAGE THE COMPLAINTS FROM STAKEHOLDERS

RELATED TO ACCOUNTING OR ANY OTHER ISSUES

-ANNUNCIATE AND MONITOR HIRING POLICIES

-EVALUATE CORPORATE PERFORMANCE AT LEAST ANNUALLY

WHETHER IT IS FUNCTIONING EFFECTIVELY

207

POWERS OF AUDIT COMMITTEE to investigate any activity within its terms of

reference to seek information from any employee to obtain outside legal or other professional

advice. to secure attendance of outsiders with relevant

expertise, if it considers necessary.

208

AUDIT COMMITTEE : MANDATORY REVIEWS financial statement / audit report / quarterly / half-

yearly financial information. MDA and results of operation legal compliance and risk management observations of statutory / internal auditors. appointment / removal of chief internal auditor. record of significant related party transactions

DUTIES OF AUDIT COMITTEE DIRECTLY RESPONSIBLE FOR APPOINTMENT

COMPENSATION RETENTION AND OVERSIGHT OF THE WORK OF THE EXTERNAL AUDITOR INCLUDING RESOLUTION OF DISAGREEMENT BY AUDITOR ON FINANCIAL REPORTING (BIRLA GRASIM COMMENT BY AFF RELATED TO INACCURACY OF INVENTORY FIGURES PUBLISHED)

ENSURING EXTERNAL AUDITOR INDEPENDENCE(AT WHAT COST-SATYAM PWC)

EVALUATING EXTERNAL AUDITOR PERFORMANCE ROTATION OF LEAD AUDIT PARTNER SERVING IN THE

ACCOUNT WITH TEAM AS PER AUDITING STANDARDS PRE APPROVING ALL AUDITING AND NON AUDITING

STANDARDS PROVIDED BY AUDITOR (AUDIT COMPANY CANT GIVE CONSULTING SERVICES IN IT ,BPR ETC,

DUTIES OF AUDIT COMMITTEE REVIEWING ACCOUNTING ADJUSTMENTS REQUIRED WITH

AUDITORS (DISCEPANCY IN IT SYSTEMS INVENTORY STOCK ADJUSTMENT)

REVIEWING COMMENTS ON INTERNAL CONTROLS PASSED BY AUDITORS AND RECTIFYING WEAKESSESS BEFORE ACCEPTING AUDITED ACCOUNTS

REVIEWING ON A QUARTERLY BASIS THE TOPICS INCLUDED IN THE MANAGEMENT DISCUSSION AND ANALYSIS WITH THE BOARD ESPECIALLY THE RISK MANAGEMENT PART

ENSURING THAT ALL ACCOUNTING ENTRIES ARE IN CONFIRMITY WITH THE INDIAN GAAP STANDARDS AND IN FUTURE WITH IFRS

DUTIES OF AUDIT COMMITTEE REVIEWING COMPANY COMPLIANCE TO LEGAL AND

REGULATORY REQUIREMENT EVALUATION OF QUARTERLY PERFORMANCE AND AFTER

IDENTIFICATION OF AREAS OF IMPROVEMENT , SUGGESTION TO RELEVANT AUTHORITIES TO IMPROVE CONCERNED PROCESSES

AGENDA FOR AUDIT COMMITTEE REVIEW OF NTERIM RESULTS PROIR TO ANNOUNCEMENT

SOX 302 REVIEW OF ANNUAL FINANCIAL STATEMENTS INCLUDING

MAJOE TRANSACTIONS AND ACCOUNTING ISSUES AS WELL AS DISCUSSION ON EXTERNAL AUDITORS REMARKS ABOUT THE ACCOUNTS

MATTERS THAT MAY BE RAISED BY THE SHAREHOLDERS INCLUDING REVIEW OF COMPLAINTS AND THEIR RESOLUTION

ADEQUACY OF FINANCIAL DISCLOSURE IN FINANCIAL STATEMENTS

IMPACT OF CORPORATE DEVELOPMENT ON FINANCIAL DISCLOSURES

AGENDA FOR AUDIT COMMITTEE REVIEW OF PERFORMANCE OF EXTERNAL AND INTERNAL

AUDITORS PLANNING THE SCOPE OF ALL TYPES OF AUDITS

INCLUDING ACCOUNTING AUDIT,CONTROL ADEQUACY AUDIT,COST AUDIT,QUALITY AUDIT,CSR AUDIT,

AREAS OF CONCERNS AND RISKS MANAGEMENT AND REPORTING OF INTERNAL WEAKNESS REVIEW OF MGT REMEDIAL ACTIONS TO RECTIFY

PROBLEMS HAVE ANY CHANGES BEEN PROPOSED IN THE

ACCOUNTING SYSTEMS AND HOW WILL THEY AFFECT THE COMPANY – INDIAN GAAP TO IFRS

REVIEW OF CHANGES IN ACCOUNTING POLICIES

AGENDA FOR AUDIT COMMITTEE ADEQUACY OF BUSINESS PROCESS CONTROLS DETECTION AND PREVENTION OF FRAUDULENT

ACTIVITIES COMPLIANCE WITH COMPANY CODE OF CONDUCT EVALUATION OFF EFFECTIVENESS OF INTERNAL AND

EXTERNAL AUDITS

RESPONSIBILITIES OF EXTERNAL AUDITORS VERIFYING THAT THE STATEMENTS OF

ACCOUNTS DRAWN UP ON THE BASIS OF BOOKS EXHIBIT TRUE AND FAIR STATE OF AFFAIRS OF THE BUSINESS

ASSESSMENT OF RELIABILITY AND SUFFICIENCY OF INFO CONTAINED IN ACCOUNTING RECORDS

INTERNAL CONTROLS ARE IN PLACE WITH RESPECT TO TRACEABILITY LEGALITY AUTHORITY RELEVANCE

EXERCISE OF JUDGMENT WITH RESPECT TO ACCOUNTING PRINCIPLES eg R&D PRODUCT SHOWN UNDER COMMERCIAL SALES HEAD

RESPONSIBILITIES OF EXTERNAL AUDITORS PROFESSIONAL REQUIREMENT IN TERMS OF

INDEPENDENCE , INTEGRITY , OBJECTIVITY , CONFIDENTIALITY

SKILLS AND COMPETENCE EFFECTIVENESS OF ASSIGNMENT DELEGATION OF POWERSA AND

RESPONSIBILITIES MONITORING ADEQUACY OF INTERNAL

CONTROLS AND HIGHLIGHTING DEVIATIONS DEFENDING INTERESTS OF SHAREHOLDERS

RESPONSIBILITIES OF EXTERNAL AUDITORS VERIFY THAT STATEMENT OF ACCOUNTS ARE DRAWN UP

ON THE BASIS OF THE BOOKS OF THE BUSINESS CONFIRM THAT MGT HAS NOT EXCEEDED THE FINANCIAL

ADMIN POWERS INVESTIGATE MATTERS WHERE SUSPICION IS AROUSED PERFORM DUTIES WITH CARE AND SKILL ENSURE ACCOUNTING STANDARDS ARE IMPLEMENTED

SCOPE OF EXTERNAL AUDITOR PLANNING OF CURRENT AUDIT INCLUDING

AREAS OF RISK WEAKNESS IN INTERNAL CONTROLS OPPORTUNITIES AND STRENGTHS IDENTIFIED

DURING AUDIT IDENTIFICATION OF AUDIT ADJUSTMENTS LISTING AREAS OF DISAGREEMENTS WITH MGT

AND VIEWS ON THE ACCOUNTS FURNISHED BY THE CLIENT

SCOPE OF EXTERNAL AUDITOR ADEQUACY OF FINANCIAL DISCLOSURES IN

FINANCIAL STATEMENTS IMPLICATIONS OF SIGNIFICANT CHANGES IN

ACCOUNTING POLICIES IMPACT OF CORPORATE DEVELOPMENTS ON

ACCOUNTING ON FINANCIAL DISCLOSURES eg MERGERS AND ACQUISITIONS – WILL THE ACCOUNTING PERIOD CHANGE;WILL THE ACCOUNTING RULES CHANGE;HOW TO ACCOUNT FOR GOODWILL

PARTIAL LIST OF PROHIBITED SERVICES FOR AUDITORS ACCOUNTING AND BOOK KEEPING INTERNAL AUDIT FINANCIAL SYSTEM DESIGN AND

IMPLEMENTATION ACTURIAL SERVICES INVESTMENT ADVISOR OUTSOURCED FINANCIAL SERVICES MANAGEMENT FUNCTIONS STAFF RECRUITMENT (ACT AS RECRUITMENT

AGENCY) VALUATION SERVICES

PROHIBITION OF SERVICES FOR AUDITORS(NARESH CHANDRA) AS PER THE SOX ACT OF 2002 AUDITORS ARE PROHIBITED FROM PROVIDING

NON AUDIT SERVICES CONCURRENTLY WITH AUDIT REVIEW SERVICES WHICH MEANS THAT A COMPANY CURRENTLY ENGAGED AS AN AUDITOR TO A COMPANY CANNOT PROVIDE CONSULTING SERVICES DURING ITS TENURE AS AN EXTERNAL AUDITOR TO THE COMPANY TO WHICH IT ADVISES AUDIT PRACTICES

AUDIT COMPANIES CANNOT PROVIDE AUDIT SERVICES TO A COMPANY WHERE AN EMPLOYEE/PARTNER OF THE AUDIT COMPANY SERVED AS AN EMPLOYEE/DIRECTOR FOR A YEAR PRIOR TO THE COMMENCEMENT OF THE AUDIT

PROHIBITION OF DIRECT FINANCIAL INTEREST IN THE AUDIT CLIENT BY THE AUDIT FIRM

PROHIBITION OF BUSINESS RELATIONSHIP WITH THE CLIENT BY AUDIT FIRM AUDIT PARTNERS AND ASSOCIATED EMPLOYEES CANNOT JOIN AUDITED

COMPANY FOR AT LEAST TWO YEARS AFTER COMPLETION OF AUDIT SERVICES

FEES RECEIVED FROM ONE CLIENT CANNOT EXCEED 25% OF TOTAL REVENUE OF AUDIT FIRM

PARTIAL LIST OF PROHIBITED SERVICES FOR AUDITORS ACCOUNTING AND BOOK KEEPING INTERNAL AUDIT FINANCIAL SYSTEM DESIGN AND

IMPLEMENTATION ACTURIAL SERVICES INVESTMENT ADVISOR OUTSOURCED FINANCIAL SERVICES MANAGEMENT FUNCTIONS STAFF RECRUITMENT (ACT AS RECRUITMENT

AGENCY) VALUATION SERVICES

AUDIT FAILURES ARTHUR ANDERSEN AT SUNBEAM CORPORATION

MAY 2001 ARTHUR ANDERSEN AT WASTE MGT INC JUNE

2001 ERNST AND YOUNG AT MCDONALDS IN MAY 1999 KPMG AT SHORT TERM INVESTMENT TRUST MAY

2000 PWC AT SATYAM DEC 2007 ARTHUR ANDERSEN AT ENRON CORPORATION

DEC 2001

SCOPE OF INTERNAL AUDIT ASSURANCE TO MGT AND BOARD ABOUT EFFECTIVENESS

OF INTERNAL CONTROLS EVALUATE COMPLIANCE WITH CORPORATE POLICY (eg

REVIEWING COMPLIANCE WITH CORPORATE GOVERNANCE PRACTICES OR POLICIES RELATING TO CAPITAL EXPENDITURE OR TRAVEL /ENTERTAINMENT EXPENSES)

TO AUDIT SIGNIFICANT PROCESSES TO DETERMINE IF THE PROCESS IS OPERATING EFFICIENTLY AND EFFECTIVELY

TO IDENTIFY KEY PERFORMANCE INDICATORS WITHIN THE PROCESS AND MEASURE RESULTS AGAINST KPIS

TO INVESTIGATE VIOLATIONS OF ACCOUNTING PRACTICES

MATERIALITY AND AUDIT RISK AUDITOR IS ENGAGED IN EXPRESSION OF OPINION THAT

THE ACCOUNTS GIVE A TRUE AND FAIR VIEW AUDIT PROVIDES REASONABLE BUT NOT ABSOLUTE

ASSURANCE THAT THE FINANCIAL STATEMENTS ARE NOT MATERIALLY MISSTATED

MATERIAL REFERS TO AMOUNTS OR DISCLOSURES THAT ARE SIGNIFICANT ENOUGH TO INFLUENCE DECISIONS OF USERS OF THE STATEMENT

AUDITORS MUST ESTABLISH AN AMOUNT OR RANGE OF AMOUNTS THEY BELIEVE WOULD BE MATERIAL IN THE PARTICULAR CIRCUMSTANCES OF EACH AUDIT AND PLAN THE AUDIT TO DETECT POSSIBLE MATERIAL ERRORS AND MISSTATEMENTS

MATERIALITY AND AUDIT RISK DETERMINATION OF MATERIALITY WILL

DIRECTLY AFFECT THE ITEMS SELECTED FOR AUDIT EXAMINATIONAND HENCE AUDIT COST

TO AUDIT EVERY TRANSACTION WILL BE VERY EXPENSIVE HENCE THERE IS ALWAYS THE RISK THAT SOME MISSTATEMENT WILL REMAIN UNDISCOVERD (S/W TESTS TO CHECK INTEGRITY OF TRANSACTIONS)

EVALUATION OF QUALITY OF OVERALL FINANCIAL REPORTING FOLLOWING CRITERIA SHOULD BE CONSIDERED DURING

ASSESSMENT OF THE QUALITY OF FINANCIAL REPORTING -SIGNIFICANT ADJUSTMENTS AND VOLUME TRANSACTIONS MADE ESPECIALLY TOWARDS THE END OF THE PERIOD (STOCK ADJUSTMENTS) WHAT IS THE REVIEW PROCESS FOR SUCH ENTRIES BEFORE PASSING -RELATED PARTY TRANSACTIONS ARE THERE ANY RELATED PARTY TRANSACTIONS AND WHAT ARE THEIR BUSINESS PURPOSES (INVESTMENT BY SATYAM IN MAYTAS; AWARD OF SERVICE CONTRACT TO RELATIVE OR PURCHASING RAW MATERIAL FROM RELATIVE;GIVING PERSONAL LOANS TO DIRECTORS; ARE THEY ADEQUATELY DISCLOSED -COMPLEX TRANSACTIONS HAS MGT ADEQUATELY EXPLAINED AND DISCLOSED THE NATURE OF THE ABOVE TRANSACTIONS THEIR BUSINESS PURPOSE AND THEIR EFFECTS ON FINANCIAL STATEMENTS

EVALUATION OF QUALITY OF OVERALL FINANCIAL REPORTING -IMPAIRMENT AND OTHER VALUATION ISSUES HAVE THESE ISSUES

ESPECIALLY DEFERRED TAX ASSETS AND RELATED VALUATION ALLOWANCES COLLECTIBILITY OF RECEIVABLES AND MARKET VALUE OF ASSETS)

-SUBJECTIVE REPORTING AREAS HOW DID MGT ARRIVE AT ITS ASSUMPTIONS AND ESTIMATES. HOW AGGRESSIVE CONSERVATIVE IS MGT IN ITS ASSUMPTIONS AND ESTIMATES. HAVE THE METHODS FOR DETERMINING ESTIMATES CHANGED DURING THE PERIOD AND IF SO WHY. WERE THOSE CHANGES APPROPRIATELY QUANTIFIED AND DISCLOSED IN THE FINANCIAL STATEMENTS

-RISK EXPOSURE WHAT ARE THE RISK AREAS OF THE COMPANY. HAS THE COMPANY ADEQUATELY REPORTED OR DISCLOSED LITIGATION , TAX AND OTHER CONTINGENCIES

-REVENUE RECOGNITION WHAT ARE THE COMPANIES POLICIES FOR REVENUE RECOGNITION. DO COMPLEX REVENUE RECOGNITION ISSUES EXIST (DOUBLE CREDIT,NOTIONAL CREDITS AND DEBIT OF SERVICE CHARGES-INTER DIVISIONAL SALES, INTER COMPANY BILLING PRICE ,,PAYMENT FROM GOVT OFFICES TO GOVT SERVICE PROVIDERS eg ARMY HQ TO CMC FOR COMP MAINT SERVICES

EVALUATION OF QUALITY OF OVERALL FINANCIAL REPORTING -CRITICAL ACCOUNTING POLICIES WHAT ARE CRITICAL ACCOUNTING

POLICIES OF COMPANY. WHAT EFFECT DO THE POLICIES HAVE ON THE FINANCIAL STATEMENTS. ARE THEY ADEQUATELY DISCLOSED. WHAT ARE THE ALTENATIVES

-CHANGES IN INTERNAL CONTROLS HAVE THERE BEEN ANY CHANGES IN INTERNAL CONTROLS AS THE RESULT OF BUSINESS EVENTS (LAYOFFS) THAT MAY AFFECT THE QUALITY OF FINANCIAL REPORTING PROCESS

-TREND INFORMATION ARE THE COMPANY FINANCIAL TRENDS FAVORABLE IN RELATION TO PRIOR RESULTS AND INDUSTRY NORMS. DOES THE TREND INFORMATION MAKE SENSE IN LIGHT OF CURRENT ECONOMIC CIRCUMSTANCES. ARE THERE INDICATIONS OF LIQUIDITY ISSUES. ARE THERE UNUSUAL SEASONAL REVENUE TRENDS OR SPIKES IN REVENUE. IS THERE PRESSURE FOR MGT TO MEET CERTAIN EARNINGS ESTIMATES FROM ANALYSTS .

-UNADJUSTED AUDIT DIFFERENCES WHAT AUDIT DIFFERENCES HAVE NOT BEEN RECORDED BY MGT AND WHY NOT. WHAT EFFECT WOULD THE AUDIT DIFFERENCES HAVE IN THE FINANCIAL STATEMENTS.

EVALUATION OF QUALITY OF OVERALL FINANCIAL REPORTING -ADEQUACY OF DISCLOSURES DO THE DISCLOSURES HAVE A WATER

TIGHT ADEQUACY OR ARE THERE ANY WEAKNESSES NOT HIGHLIGHTED IN THE ADEQUACY CONTROL TEST AUDIT

-ADEQUACY AND COMPLETENESS OF OTHER INFORMATION ESPECIALLY IN THE AREAS OF INDUSTRY OUTLOOK AND AREAS OF RISKS / CONCERNS

NON MANDATORY REQUIREMENT OF CLAUSE 49 OVERSIGHT OF COMPANY FINANCIAL REPORTING PROCESS AND

DISCLOSURE OF ITS FINANCIAL INFORMATION TO ENSURE THAT FINANCIAL STATEMENTS ARE CORRECT SUFFICIENT AND CREDIBLE

RECOMMENDING APPOINTMENT AND REMOVAL OF EXTERNAL AUDITOR AND FIXING THEIR AUDIT FEES ETC

REVIEWING WITH MANAGEMENT THE ANNUAL FINANCIAL STATEMENTS BEFORE SUBMITTING TO THE BOARD FOCUSING PRIMARILY ON CHANGING IN ACCOUNTING POLICIES AND PRACTICES , AUDIT QUALIFICATION ,

REVIEWING ADEQUACY OF INTERNAL CONTROLS WITH INTERNAL AND EXTERNAL AUDITORS AND ADDRESSING AREAS OF CONCERN

LOOKING INTO DEFAULT OF PAYMENT OF INTEREST AND DIVIDENDS

CORPORATE SOCIAL RESPONSIBILITY ACTIVITIES

CSR ACTIVITIES SAFETY HEALTH AND ENVIRONMENT ACCOUNTABILITY ENERGY CONSERVATION RISK REDUCTION HUMAN RIGHTS AND CORPORATE GOVERNANCE WASTE MANAGEMENT SOCIAL SERVICE AND COMMUNITY PROJECTS

MANAGEMENT DISCUSSION AND ANALYSIS

DISCLOSURES IN MGT DISCUSSION AND ANALYSIS REPORT Disclosures and transparences are the most crucial components

of corporate governance Disclosures should be made with reference to the state of

company affairs, industry structure and developments ,opportunities and threats, segment wise or product wise performance, materiality of related party transactions , accounting treatment , risks and concerns , efforts to conserve energy , details of foreign exchange earnings and expenditure, technology upgrades, change in nature of company business , changes in holdings , franchising , sole distributorship ,disclosure of list of employees earning > 24 lacs, internal controls and their adequacy , share trading details monthly with high/low and volumes traded monthly

DISCLOSURES IN MGT DISCUSSION AND ANALYSIS REPORT

EARNING PER SHARE RELATIVES OF DIRECTORS WHO ARE EMPLOYEES OR BOARD

MEMBERS MAINTAIN REGISTER WHICH DISCLOSES INTEREST OF

DIRECTORS IN ANY CONTRACT (OFFICE RENOVATED BY COMPANY WHERE MD WIFE PARTNER). REGISTER MUST BE OPEN TO PUBLIC AND INSPECTED BY MEMBERS IN ANY AGM

DETAILS OF LOANS TO DIRECTORS. LOANS RESTRICTED TO 3 CATEGORIES –HOUSING,MEDICAL,EDUCATION FOR FAMILY MEMBERS AND AVAILABLE ONLY TO FULL TIME DIRECTORS

COMPANY PHILOSOPHY ON CODE OF GOVERNANCE REPORT ON CORPORATE SOCIAL RESPONSIBILITIES

UNDERTAKEN BY COMPANY

MANAGEMENT DISCUSSION AND ANALYSIS INDUSTRY STRUCTURE AND DEVELOPMENTS OPPORTUNITIES AND THREATS SEGMENTWISE OR PRODUCTWISE PERFORMANCE OUTLOOK RISKS AND CONCERNS INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY DISCUSSION ON FINANCIAL PERFORMANCE WRT

OPERATIONAL PERFORMANCE MATERIAL DEVELOPMENT I HUMAN RESOURCE S AND

INDUSTRIAL RELATIONS AND NUMBER OF PEOPLE EMPLOYED

DISCLOSURES IN MGT DISCUSSION AND ANALYSIS REPORT

FUNDS RAISED FROM PUBLIC , UTILIZATION OF FUNDS AND BALANCE FOREIGN HOLDING IN SHARE CAPITAL , LOANS AND DEBENTURES

RAISED IN FOREIGN EXCHANGE REPORT ON RELATIVES OF DIRECTORS HAVING INTEREST IN THE

COMPANY EXISTENCE OF INTEREST OF DIRECTORS IN ANY CONTRACT OF THE

COMPANY DIRECTORS SHAREHOLDING IN COMPANY LOANS GIVEN TO DIRECTORS SHOULD NOT BE MORE THAN 5 TIMES

THEIR ANNUAL REMUNERATION AND BE GIVEN ONLY FOR HOUSING , EDUCATIONAL, MEDICAL PURPOSES

COMPLAINTS RELATED TO SHARE TRANSFERS DIVIDEND RECEIPT etc EMPLOYMENT DETAILS OF TOTAL ON ROLL , HUMAN ASSET

WORTH,LIST OF EMPLOYEES EARNING > 24 LAKHS

238

DISCLOSURES: ACCOUNTING TREATMENT management shall disclose justifying the

different accounting treatment than the accounting standards as a foot note of financial statement.

239

DISCLOSURES:CONTIGENT LIABILITY the management shall provide clear

description of each material contingent liability and its risk alongwith auditors comments on managements views. this should be highlighted in significant accounting policy/ notes and accounts / auditor’s report.

240

DISCLOSURES:RELATED PARTY TRANSACTIONS

Summary of related party transactions, their basis bifurcating transactions in normal course of business and individual transactions not in normal course of business and

Details and management’s justification for any material transaction not on arms length basis

241

DISCLOSURES:BY MANAGEMENT

By senior management of all material financial and commercial transactions, where they have personal interest

242

DISCLOSURES:RISK ASSESSMENT Risk management procedure to be laid down

for the management and to be reviewed periodically

A quarterly report certified by Compliance Officer on business risk and measures to minimise risks an limitations to the risk taking capacity of the company

This document shall be formally approved by the Board.

DISCLOSURE OF FINANCIAL AND OTHER INFORMATION

STATEMENT ON VALUE ADDED WHICH IS TOTAL INCOMME MINUS COST OF ALL INPUTS AND ADMIN EXPENSES

STATUTORY REPORTS IN MANAGEMENT DISCUSSION AND ANALYSIS

Category No. Of Directors Percentage of BoardPromoter Directors

Executive Director

Non-Executive Director

Non-Promoter Directors

Executive Director

Non-Executive Director

Independent Directors

Nominee Directors

Representing Lending Institutions

Representing Investing Institutions

Elected by Small Shareholders

Alternate Directors

COMPSITION & CATEGORY OF DIRECTORS AS ON………

Sl. No. Date of Transaction Amount Involved Name of intersted non-executive director

DISCLOSURE OF PECUNIARY RELATIONSHIP OR TRANSACTIONS WITH NON-EXECUTIVE DIRECTORS

Sl.No. Dates of MeetingNo of Directors who attended the meetings

No of Independent Directors who attended the meetings

Name of Directors who attended the

meetings

ATTENDANCE OF MEMBERS AT AUDIT COMMITTEE MEETINGS HELD DURING THE FINANCIAL YEAR……..

Industry Structure and Development

Opportunities and Threats

Segment-wise or Product-wise performance

Outlook

Risks and Concerns

Internal Control Systems and their adequacy

Discussion on Financial Performance with respect to operational performanceMaterial Developments in human resources/Industrial relations front, including number of people employed

INFORMATION TO BE GIVEN IN MANAGEMENT DISCUSSION AND ANALYSIS REPORT

Sl.No.

Names of interested parties

Nature of personal interest

Details of Financial and commercial transaction

Date of Transaction

Amount Involved

FORMAT FOR PROVIDING INFORMATION BY SENIOR MANAGEMENT TO THE BOARD ABOUT THEIR MATERIAL FINANCIAL AND COMMERCIAL TRANSACTIONS DURING

THE FINANCIAL YEAR ENDED……..

Particulars

No. of Complaints received from

shareholder/investors during the fin. Yr.

No. of Complaints redressed during the

fin. Yr.

Transfer of Shares

Non-receipt of balance sheet Non-receipt of declared dividend

Any other complaint

STATUS OF COMPLAINTS AS ON………

Name of person/organisation transacting with the company

Name of related director

Details of financial transactio

n

Details of product/services involved

Total amount involved in transactions during the year

Amount involved as a % of total turnover of the company

Terms of credit etc.

Transaction rate

Market rate

Details of relevant shareholders CG

permission u/s 297, if any

Remarks

DISCLOSURE OF DIRECTORS INTEREST IN TRANSACTIONS WITH THE COMPANY

S.No. Area Percentage of Business

Capital Employed Revenue

1

2

3

Geographical Distribution

YearsPaid up Caital

Capital Employed

Net Worth

Gross Profit

Tax on profits paid

Net Profit EPS P/E

Book Value

Average Market price of Share

Dividend %

Payout Ratio

1

2

3

4

5

6

7

8

9

10

FINANCIAL INFORMATION OF THE COMPANY PERTAINING TO THE LAST DECADE

Sl.No. Particulars of human resources No. Of employeesValue of

Employees (in Rs.)

Department Managerial Non Managerial

ACCOUNTING OF HUMAN RESOURCES AS ON………

Year to which non-compliance pertains

Details of underlying non-

compliance

Details of penalties imposed on

strictures/orders passed

Authority imposing

penalty/passing stricture/order

Appeal made, if any

Management justification

Director/Employee responsible for compliance

Action taken against delinquent director/employee Remarks

PENALTIES IMPOSED, STRICTURES AND ORDERS PASSED ON THE COMPANY BYANY STATUTORY

AUTHORITY REGARDING STATUTORY COMPLIANCES AS ON……

Number of Legal Cases/arbitration proceedings

pending against the company as on

opening of financial year

Relevant Law aplicable

Cases Added during the year

Cases settled during the year

Number of legal cases/arbitration

proceedings pending against the company

at the close of financial year

Legal Cases/arbitration proceedings pending against the company as on…..

Subject Between To Date

Financial Reporting for the first quarter

Financial Reporting for the second quarter

Interim Dividend Payment (if any)

Financial Reporting for the third quarter

Financial results for the year

Date of AGM for the year

Disclosures for Financial Year……

Month of the year

BSE Mumbai

Volume Traded (No of shares)

NSE Mumbai


Regional Stock Exchange


Name of foreign stock exchange


Share price Sensex Share priceS&P, CNX, Nifty

High Low High Low

High Low High/Low High Low High/

Low

Market Price Data

CategoryTotal No. of Shareholders % of Shareholders Total Shares

% of total equity

0-500

501-1000

1001-2000

2001-3000

3001-4000

4001-5000

5001-10000

10001-50000

Above 50000

Total

Distribution of shareholding and disclosure

Category No. of Shares held % of shareholding No. of Shares held % of

shareholding

Physical Demat Total Physical Demat Total

A. Promoters Holding

(1). Promoters

- Indian

- Foreign

(2). Persons acting in Concert

B. Non Promoters Holding

(1). Institutional Investors

(2). Mutual Funds and UTI

(3). Banks, FI's, Insurance Companies

(4). Central/State Govt. Institutions

(5). Non-Govt Institutions

(6). FII's

(7). Associates/Trusts

C. Others

(1). Private Corporate Bodies

(2). Indian Public

(3). NRIs/OCBs

Shareholding Pattern in Categories of Shareholding

S.No. Name of Shareholders No.of Shares held % of total share capital held

1

2

3

4

5

6

7

8

9

10

Details of Top Ten Shareholders of the Company

Ratio Analysis of the Company

Particulars Current Year

Intra Comparison (Previous 5 years ratios)

Year 1 Year 2 Year 3 Year 4 Year 5

Return on Equity

Return on Capital Employed

Return on net worth

Debt equity ratio

Current Ratio

Fixed Asset T/O Ratio

Investment to total assets

Price earning ratio

Dividend payout ratio

Dividend yield

EPS

Book Value of shares

Avg Mkt value of shares

Other relevant ratios

GradeTotal No. of Employees Women Employees %

Format Showing Women Employees As at end of Financial Year

Main objects of the company

Name & Details of main

products/Services

Market Share of Products/Services

Contribution to total

sales/turnover of the company

Contribution to total profit

List of top 5 competitors

Name Market Share

Details of Products/Services of the company

S. No. Segment Percentage of Business

Capital Employed Revenue

1

2

3

Segment Wise Distribution

Month Fixed Assets Net FA CA

Total TAN ASSETS

Equity Shares

Highest BSE MV MCV Total

IntangibleRatio

Tan/Intan HAW

April

May

June

July

August

September

October

November

December

January

February

March

Company Asset Manager

Corporate Governance 2 “ Corporate” Corporate is adjective meaning “of or relating to a...

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Transcript of Corporate Governance 2 “ Corporate” Corporate is adjective meaning “of or relating to a...