Corporate Governance
“ 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.
2
“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.
3
History
 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
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
3.
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
DEFINITION OF CORPORATE
GOVERNANCE
 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
 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
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
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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
o
o
o
o
o
o
o
o
STRONG VS WEAK PERFORMANCE
PUBLICLY OWNED BUSINESS VS PRIVATELY OWNED BUSINESS
PROSPECT OF ATTRACTING LONG TERM, STABLE CAPITAL
INCLUDES QUESTIONS OF STRATEGY,VISION OF TOP
MANAGEMENT,TRANSPARENCY,CODE OF CONDUCT, STDS OF
PERFORMANCE, ACCOUNTABILITY ETC
DIRECTION OF BUSINESS PERFORMANCE
MEETING STAKEHOLDER INTEREST
RECONCILIATION OF CONFLICTING INTERESTS
SYSTEMS FOR ACCOUNTING, AUDITING AND FISCAL
DISCIPLINE
MANAGER DISCIPLINE
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
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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
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)
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IMPORTANCE OF
CORPORATE GOVERNANCE
 IT LAYS DOWN THE FRAMEWORK FOR CREATING LONG
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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
Principles in developing Corporate
Governance framework
 Openness
 Integrity
 Accountability
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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
Corporate Governance & Corporate
Management
Governance
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
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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
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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
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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
CHALLENGES FACED BY
CORPORATE GOVERNANCE
 DISTINGUISHING THE ROLES OF THE BOARD AND
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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
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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
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
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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
© Rajkumar Adukia
36
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
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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
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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
International scenario
Year
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
41
CADBURY REPORT
 Published 1992-committee chaired by sir adrian cadbury and set
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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
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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
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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
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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
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."
Background
The 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.
777/40/82924(ppt)
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
Sarbanes-Oxley Overview
The 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.
777/40/82924(ppt)
Corporate Governance initiative
trigerred by
 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
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
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
57
Highlights of the act
 Enacted by the American government after the exposure of
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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
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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
Sarbanes-Oxley Overview
Corporate 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
777/40/82924(ppt)
compensation following the issuance of a
Sarbanes-Oxley Overview
Enhanced 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.
777/40/82924(ppt)
 Requires companies to disclose whether at
Sarbanes-Oxley Overview
Enhanced 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.
777/40/82924(ppt)
Sarbanes – Oxley Act
Highlights
 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.
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
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
66
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
Sarbanes-Oxley Overview
Enhanced 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.
777/40/82924(ppt)
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
69
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
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.
September 20, 2007
71
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
“Internal Controls Over
Financial Reporting” (ICFR)
Section 404
September 20, 2007
75
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
Fundamentals of Internal Controls
Continued
 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
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
Indian scenario
Year
Name of
Areas/Aspects Covered
Committee/Body
1999
Kumar Mangalam
Birla Committee
Corporate Governance
2002
Naresh Chandra
Committee
Corporate Audit & Governance
2003
CII
RECOMMENDATIONS FROM CII
2003
N. R. Narayana
Murthy Committee
Corporate Governance
2004
SEBI
CLAUSE 49 OF THE LISTINGS AGREEMENT
100
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
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
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
MANDATORY RECOMMENDATIONS OF K.BIRLA
COMMITTEE
 SHRI KUMAR MANGALAM COMMITTEE – CONSTITUTED IN MAY 1999
TO PROMOTE AND RAISE
GOVERNANCE IN INDIA
THE
STANDARD
OF
CORPORATE
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 GAAP
TA

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
Mandatory Recommendations of
Birla Committee
 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
Non-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
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
NARESHCHANDRA COMMITTEE

EXEMPTING NON EXECUTIVE
LIABILITIES eg SATYAM
DIRECTORS
FROM
CERTAIN

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
NARESHCHANDRA COMMITTEE

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:
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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
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*MANAGEMENT LETTERS OF INTERNAL CONTROL
WEAKNESSES ISSUED BY STATUTORY INTERNAL
AUDITORS
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*RECORDS OF RELATED PARTY TRANSACTONS TO BE
MAINTAINED
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*COMPANY MUST DECLARE ALL ITS RISKS IN THE
CHAPTER ON MGT DISCUSSION
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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
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
Recommendations of CII
 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
Recommendations of CII
 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
Recommendations of CII
 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
Recommendations of CII
 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
Recommendations of CII
 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
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
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.
130
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
IVA
IVB
IVC
IVD
IVE
IVF
IVG
 V
 VI
 VII
DISCLOSURES
BASIS OF RELATED PARTY TRANSACTIONS
DISCLOSURE OF ACCOUNTING TREATMENT
RISK MANAGEMENT DISCLOSURES
PROCEEDS FROM PUBLIC ISSUES RIGHTS ISSUES ETC
REMUNERATION OF DIRECTORS
MANAGEMENT
SHAREHOLDERS
CEO/CFO CERTIFICATION
REPORT ON CORPORATE GOVERNANCE
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
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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
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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
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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
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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
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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
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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
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

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
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
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
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
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
175
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 LINKAGEWHAT 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
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
197
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.
198
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
199
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
200
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
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.
207
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
208
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
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
DISCLOSURES:
ACCOUNTING TREATMENT
 management shall disclose justifying the
different accounting treatment than the
accounting standards as a foot note of
financial statement.
238
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.
239
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
240
DISCLOSURES:
BY MANAGEMENT
 By senior management of all material financial
and commercial transactions, where they have
personal interest
241
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.
242
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
COMPSITION & CATEGORY OF DIRECTORS AS ON………
Category
Promoter 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
No. Of Directors Percentage of Board
DISCLOSURE OF PECUNIARY RELATIONSHIP OR
TRANSACTIONS WITH NON-EXECUTIVE DIRECTORS
Sl. No.
Date of Transaction
Amount Involved
Name of intersted nonexecutive director
ATTENDANCE OF MEMBERS AT AUDIT COMMITTEE MEETINGS
HELD DURING THE FINANCIAL YEAR……..
Sl.No.
Dates of Meeting
No of Directors
who attended
the meetings
No of Independent
Directors who
attended the
meetings
Name of Directors
who attended the
meetings
INFORMATION TO BE GIVEN IN MANAGEMENT
DISCUSSION AND ANALYSIS REPORT
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 performance
Material Developments in human resources/Industrial relations front, including number of
people employed
FORMAT FOR PROVIDING INFORMATION BY SENIOR
MANAGEMENT TO THE BOARD ABOUT THEIR MATERIAL
FINANCIAL AND COMMERCIAL TRANSACTIONS DURING
THE FINANCIAL YEAR ENDED……..
Sl.No.
Names of
interested
parties
Nature of
personal
interest
Details of Financial
and commercial
transaction
Date of
Amount
Transaction Involved
STATUS OF COMPLAINTS AS ON………
Particulars
Transfer of Shares
Non-receipt of balance sheet
Non-receipt of declared
dividend
Any other complaint
No. of Complaints received
No. of Complaints
from
redressed during the
shareholder/investors
fin. Yr.
during the fin. Yr.
DISCLOSURE OF DIRECTORS INTEREST IN TRANSACTIONS WITH
THE COMPANY
Name of
Details of
Name of
person/organisatio
financial
related
n transacting with
transactio
director
the company
n
Details of Total amount
product/
involved in
services
transactions
involved during the year
Amount involved
as a % of total
Terms of Transaction Market
turnover of the credit etc.
rate
rate
company
Details of relevant
shareholders CG
Remarks
permission u/s 297, if
any
Geographical Distribution
S.No.
Area
Percentage of Business
Capital Employed
1
2
3
Revenue
FINANCIAL INFORMATION OF THE COMPANY PERTAINING TO THE
LAST DECADE
Years
1
2
3
4
5
6
7
8
9
10
Paid up Capital
Net
Gross
Caital Employed Worth Profit
Tax on
profits
paid
Net
Profit
EPS
P/E
Average
Market
Book price of Dividen Payout
Value Share
d%
Ratio
ACCOUNTING OF HUMAN RESOURCES AS ON………
Sl.No.
Particulars of human resources
Department
Managerial Non Managerial
Value of
No. Of employees Employees (in
Rs.)
PENALTIES IMPOSED, STRICTURES AND ORDERS
PASSED ON THE COMPANY BYANY STATUTORY
AUTHORITY REGARDING STATUTORY COMPLIANCES AS
Details of
Year to
Details of
penalties
Authority ON……
which non- underlying
imposed on
imposing
Appeal
Director/Employee
Action taken
compliance
nonstrictures/orders penalty/passing made, if Management responsible for against delinquent
pertains compliance
passed
stricture/order
any
justification
compliance
director/employee Remarks
Legal Cases/arbitration proceedings pending against the
company as on…..
Number of Legal
Cases/arbitration
proceedings
pending against the
company as on
opening of financial Relevant Law
year
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
Disclosures for Financial Year……
Subject
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
Between
To
Date
Market Price Data
Month
of the
year
BSE Mumbai
Volume
Traded
(No of
shares)
NSE Mumbai
Share price
Sensex
Share price
High
High/L
ow
High
Low
Low
S&P,
CNX,
Nifty
High/L
ow
Volume
Traded Regional Stock
(No of
Exchange
shares)
Volume
Name of
Traded
foreign stock
(No of
exchange
shares)
High
High
Low
Low
Volume
Traded
(No of
shares)
Distribution of shareholding and disclosure
Category
0-500
501-1000
1001-2000
2001-3000
3001-4000
4001-5000
5001-10000
10001-50000
Above 50000
Total
Total No. of
Shareholders
% of Shareholders Total Shares
% of total
equity
Shareholding Pattern in Categories of Shareholding
Category
No. of Shares held
Physical
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
Demat
Total
% of
shareholding
No. of Shares held
Physical
Demat
Total
% of
shareholding
Details of Top Ten Shareholders of the Company
S.No.
1
2
3
4
5
6
7
8
9
10
Name of Shareholders
No.of Shares held
% of total share capital held
Ratio Analysis of the Company
Intra Comparison (Previous 5 years ratios)
Particulars
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
Current Year
Year 1
Year 2
Year 3
Year 4
Year 5
Format Showing Women Employees As at end of
Financial Year
Grade
Total No. of
Employees
Women Employees
%
Details of Products/Services of the company
Contribution to
Name & Details of
Contribution
Main objects of the
Market Share of
total
main
to total
company
Products/Services sales/turnover of
products/Services
profit
the company
List of top 5
competitors
Name Market Share
Segment Wise Distribution
S. No.
Segment
Percentage of Business
Capital Employed
1
2
3
Revenue
Company Asset Manager
Month
April
May
June
July
August
September
October
November
December
January
February
March
Fixed
Assets
Net FA
CA
Total TAN Equity
ASSETS Shares
Highest
BSE MV
MCV
Total
Ratio
Intangible Tan/Intan
HAW