OTHER LEGAL AUDITS

R. Ramakrishna Gupta

ramakrishna@rna-cs.com

27th April, 2012

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MENU

What is it ? Who needs it?

Types of other Legal Audits

Key things to remember about Legal Audits

How much does it cost? Can we put a price for it?

Plethora of Audits – boon or burden?

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WHAT IS IT? WHO NEEDS IT?

Like Internal financial Audit - but focusing on the legal issues

Does other Audit cover it? It should be done by an external

Independent Attorney An enterprise that has / considering

major change in Leadership & Ownership

An Enterprise in a rapid growth phase All Listed Companies – Audit

Committee to review (Clause 49)

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TYPES OF OTHER AUDITS

Compliance Certificate u/s. 383A Corporate Governance Audit u/c. 49 Diligence Report for Banks Labour Law Audit FEMA Audit

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COMPLIANCE CERTIFICATE

Section 383A of the Companies Act, 1956

Mandatory Audit Companies with Capital between

Rs. 10 Lacs to Rs. 5 Crores Certificate should be obtained

from PCS Circulate to all the members along

with Annual Report File with RoC within 30 days of

AGM Failure will attract penalty of Rs.

500/- per day04/10/2023

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CORPORATE GOVERNANCE AUDIT – CL.49

Applicable to all the Listed Companies Recommendations of Kumaramangalam Birla Format – clause 49 Issued by PCS / PCA Objective is to focus on Strengthening

Role of Audit Committee Improve Quality of Financial Disclosure Disclosure of Related Party Transactions Assess and Disclose the Business risks in AR Adoption of Code of Conduct for the Directors and

Senior Executives Position of Nominee Directors Stakeholders approvals Disclosure of Managerial Remuneration04/10/2023

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DILIGENCE REPORT FOR BANKS

Background Applicability – Consortium / Multiple

Banking / syndicate Banking arrangements

Scope of Diligence Report Period of reporting – half yearly Is it serving the purpose?

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LABOUR LAW AUDIT

Need for Labour Law Audit Plethora of Law applicable to the Companies Lack of expertise Regulators becoming more and more vigilant

Important legislations to check PF, Gratuity, Contract Labour, Factories Act,

Minimum Wages, Payment of Bonus, ESI, Industrial Disputes Act, Maternity Benefits,

Penalties are severe

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FEMA AUDIT

Need for FEMA Audit Regulators move from controlled

regime to self-regulation Dynamic and frequent changes in

the rules and regulations Lack of clarity in certain areas Lack of strict enforcement by the RBI

Scope of Audit Foreign Direct Investment JV / WOS ECB Import of Capital Goods Export of Goods and Services

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KEY THINGS TO REMEMBER ABOUT LEGAL AUDITS

A legal audit is not about “scolding” the enterprise or laying all of its faults on the table for public display…It’s about limiting the enterprise’s risk and exposure.

A legal audit is a form of preventative law (as compared to reactive law) that should be a common business practice for every enterprise

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HOW MUCH DOES IT COST? CAN WE PUT A PRICE FOR IT?

Depends on host of factors such as general vs. specific audit parameters, duration of audit, etc.

However, the benefits of risk reduction and implementation of risk mitigation procedures typically outweigh the costs.

Can you put a price tag on a routine medical check-up where the doctor finds early signs of cancer that can be treated?

Can you put a price tag on a routine legal audit where the attorneys discover issues that could result in a class-action lawsuit against the enterprise if not corrected?04/10/2023

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PLETHORA OF AUDITS – BOON OR BURDEN?

Statutory Audit Cost Audit Corporate Governance Audit Stock Audit Internal Audit

Benefits of Audits Reduce the potential Legal Liabilities Improve the quality and speed of Compliance Helps in implementing Legal Corporate Compliance

Management System in the Company Opportunity for revenue generation. Help companies to Stay Complaint Set an environment of On-going Compliance Litigation become more costly and less easy to settle To avoid Penalties and Prosecution and even closure of

Business if Corporates fail to obtain permits and licenses

Conducting audit is more than beneficial – it is necessary

A legal audit is a form of preventative law (as compared to reactive law) that should be a common business practice for every enterprise

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