Accounting and Audit Related Issues, RPTs and Vigil Mechanism – CS Professional Study Material

Chapter 7 Accounting and Audit Related Issues, RPTs and Vigil Mechanism – CS Professional Governance, Risk Management, Compliances and Ethics Notes is designed strictly as per the latest syllabus and exam pattern.

Accounting and Audit Related Issues, RPTs and Vigil Mechanism – Governance, Risk Management, Compliances and Ethics Study Material

Question 1.
Discuss the need for Internal Audit as a tool for Corporate Governance in the present day organizations. (Dec 2020, 5 marks)
Answer:
The demand for auditing both external and internal is sourced in the need to have some means of independent verification to reduce record-keeping errors, asset misappropriation, and fraud within business and non-business organizations. The concept of internal auditing evolved as an extension to external audit in testing the reliability of accounting records that contribute to published financial statements. International financial scandals and recent events including global financial crises have emphasised need for internal auditing within corporate governance structures of organisations. As organisations and the world they operate in are becoming more and more complex, internal audit is considered good practice & advisable as part of underlying internal control & risk management framework of an organisation.

Internal Audit is an independent management function, which involves a continuous and critical appraisal of the functioning of an entity with a view to suggest improvements thereto and add value to and strengthen the overall governance mechanism of the entity including entity’s strategic risk management and internal control system.

An effective internal audit function can play a significant role within the corporate governance framework of a company. Over the last decade internal audit has developed and grown in importance. Eff icient internal audit functions provide objective assurance/assessments to the board (and to the audit committee) about the adequacy and effectiveness of the processes by which risks are identified and prioritised; managed, controlled, and mitigated. Space to-write important points for revision

Accounting and Audit Related Issues, RPTs and Vigil Mechanism - CS Professional Study Material

Question 2.
When will a transaction with a related party be material? (Aug 2021, 3 marks)
Answer:
According to Regulation 23(1) and (1A) of SEBI (LODR) Regulations- A transaction with a related parry shall be considered material if the transaction(s) to be entered into individually or taken together with previous transactions during a financial year, exceeds rupees one thousand crore or 10% of the annual consolidated turnover of the listed entity as per the last audited financial statements of the listed entity. With effect from July 01, 2019, a transaction involving payments made to a related party with respect to brand usage or royalty shall be considered material if the transaction(s) to be entered into individually or taken together with previous transactions during a financial year, exceed 5% of the annual consolidated turnover of the listed entity as per the last audited financial statements of the listed entity. Space to write important points for revision

Question 3.
As per Ind AS 24, what are the parameters of considering a person or an entity as related party? (June 2022, 3 marks)

Question 4.
“National Financial Reporting Authority (NFRA) has the powers to oversee the quality of service of Auditor as well as to suggest measures for improvement.” Discuss. (June 2022, 3 marks)

Question 5.
2019 – Dec [1] (a) P Pvt. Ltd. was incorporated under the Companies Act, 1956 on 3rd October, 2011. The Authorised Share Capital of the Company is ₹ 75 crores. The present paid-up Share Capital of the Company is ₹ 60 crore. The turnover of the company for financial year 2017-18 was ₹ 150 crores and because of good overseas marketability of the company’s product, the turnover of the company for the year ended 31st March, 2019 increased to ₹ 210 crores.
The Secretarial Auditor of the company advised that the company should have internal audit in place, but the Managing Director of the company argued that since it is a private company, so it is not required.
Based on the facts in the above case, answer the following questions:
(i) Whether internal audit is compulsory for the Private Limited? (Dec 2019, 1 mark)
(ii) In the above case if the company had been an Unlisted Public Limited and Turnover for year ended 31st March, 2019 would be ₹ 190 crore, what would have been your answer? (Dec 2019, 2 marks)
(iii) Can Company Secretary be appointed as Internal Auditor in an Unlisted Public Company where he is already appointed as Key Managerial Personnel? (Dec 2019, 2 marks)
Answer:
(i) As per section 138 of the Companies Act, 2013 read with rule 13(1)(c) of The Companies (Accounts) Rules, 2014 every private company having-
(a) turnover of two hundred crore rupees or more during the orecedina financial vear; or
(b) outstanding loans or borrowings from banks or public financial institutions exceeding one hundred crore rupees or more at any point of time during the preceding financial year shall be required to appoint an internal auditor.
As the turnover of the P Pvt. Ltd is more than ₹ 200 crore, for the year ended 3181 March, 2019 it is mandatory to appoint an internal auditor.

(ii) As per Section 138 of the Companies Act, 2013 read with rule 13(1)(b) of The Companies (Accounts) Rules, 2014 every unlisted public company having-
(a) paid up share capital of fifty crore rupees or more during the preceding financial year; or
(b) turnover of two hundred crore rupees or more during the preceding financial year; or
(c) outstanding loans or borrowings from banks or public financial institutions exceeding one hundred crore rupees or more at any point of time during the preceding financial year; or
(d) outstanding deposits of twenty five crore rupees or more at any point of time during the preceding financial year shall be required to appoint an internal auditor.
In the mentioned case, as the paid up capital is more than ₹ fifty crores hence the company needs to appoint the internal auditor.

(iii) Section 138 of the Companies Act, 2013 states that an internal auditor, shall either be a chartered accountant or a cost accountant, or such other professional as may be decided by the Board. Further explanation to Rule 13 of The Companies (Accounts) Rules, 2014 states that the internal auditor may or may not be an employee of the company.
In view of the above the Company Secretary who is appointed as Key Managerial Personnel in the company can be appointed as an internal auditor of the company.

Accounting and Audit Related Issues, RPTs and Vigil Mechanism - CS Professional Study Material

Question 6.
2019 – Dec [1] (b) M Pvt. Ltd. was registered in the year 2001 as a Private Limited Company and continuing with the same status. It is having a paid-up share capital of ₹ 65 crore as on 31st March, 2019. The present company’s auditor, X, Chartered Accountant, (a Proprietor Firm) who was appointed as auditor of the company in the year 2014.
The term of the said auditor is going to expire and company wants to re-appoint the same person, since he is having well acquaintance with the company’s officials and its working.
Based on the above facts, answer the following questions:
(i) Whether X can be reappointed as Statutory Auditor of the Company? (Dec 2019, 1 mark)
(ii) In the above case if, instead of the Individual Person as an auditor, the company would have appointed any Firm of Chartered Accountants, and now the tenure of the said firm is expiring, whether this firm is eligible for reappointment? (Dec 2019, 2 marks)
(iii) In the given case, if the paid-up capital of the company is ₹ 5 crore and having cash credit limit and term loan facility from a bank to the tune of ₹ 55 crore, what would have been your answer? (Dec 2019, 2 marks)
Answer:
(i) Section 139(2) of the Companies Act, 2013 read with Rule 5(b) of the Companies (Audit and Auditors) Rules, 2014 provides that: all private limited companies having paid up share capital of rupees fifty crore or more shall not appoint or re-appoint
(a) an individual as auditor for more than one term of five consecutive years; and
(b) an audit firm as auditor for more than two terms of five consecutive years.
Also, an individual auditor who has completed his term of five consecutive years shall not be eligible for re-appointment as auditor in the same company for five years from the completion of his term.
In view of the above as the paid up share capital of the company is more than ₹ 50 Crore, Mr. X cannot be appointed as Statutory Auditor for the second term.

(ii) Section 139(2) of the Companies Act, 2013 read with Rule 5 of the Companies (Audit and Auditors) Rules, 2014 provides that:
all private limited companies having paid up share capital of rupees fifty crore or more shall not appoint or re-appoint
(a) an individual as auditor for more than one term of five consecutive years; and
(b) an audit firm as auditor for more than two terms of five consecutive years.
An audit firm which has completed its term shall not be eligible for re-appointment as auditor in the same company for five years from the completion of such term:
Provided further that as on the date of appointment no audit firm having a common partner or partners to the other audit firm, whose tenure has expired in a company immediately preceding the financial year, shall be appointed as auditor of the same company for a period of five years.
In view of the above the firm of Chartered Accountants will not be eligible for the reappointment for five years on the completion of the term.

(iii) Section 139(2) of the Companies Act, 2013 read with Rule 5 of the Companies (Audit and Auditors) Rules, 2014 provides that no listed company or the following classes of companies excluding one person companies and small companies:
(a) all unlisted public companies having paid up share capital of rupees ten crores or more or
(b) all private limited companies having paid up share capital of rupees fifty crores or more or
(c) all companies having paid up share capital of below threshold limit mentioned in (a) and (b) above but having public borrowings from financial institutions, banks or public deposits of rupees fifty crores or more shall not appoint or re-appoint—
(a) an individual as auditor for more than one term of five consecutive years and
(b) an audit firm as auditor for more than two terms of five consecutive years
Since in the present case the company is having paid up share capital of ₹ 5 crore i.e. within the threshold limit of ₹ 50 crors but the company have borrowing facility from a bank of ₹ 55 crores (i.e. exceeding the threshold limits of ₹ 50 crores), hence the company cannot re-appoint X as auditor.

Accounting and Audit Related Issues, RPTs and Vigil Mechanism - CS Professional Study Material

Question 7.
Under the Energy Department, Govt, of Tamil Nadu, three Companies as Government Company were incorporated as below:
A Ltd. for Generation of Electricity
B Ltd. for Transmission of Electricity
C Ltd. for Distribution of Electricity.
Further, three subsidiaries namely X Ltd., Y Ltd. and Z Ltd. were incorporated as wholly owned subsidiary companies of C Ltd. C Ltd. purchases the Power (Electricity) from A Ltd. and sale all Power to subsidiary Companies. Subsidiary Company through B Ltd. distributes the Power in the State.
Apart from that, C Ltd. also purchases cables from manufacturer and sells it to Subsidiary Companies with margin of 5% on sale price. In the power supply, C Ltd. also charge 0.05 paisa per unit as service charge from Subsidiary Companies.
During the Audit, Auditors raised the question that there are lot of related party transactions and directors and members are same in all the Companies. Further, Chairman is also common. Neither the Board nor the Members of the Company approved any transaction which comes under the definition of Related Party Transaction. The Company Secretary replied that the transactions are pre-approved by Energy Department, Govt, of Tamil Nadu but Auditor is dissatisfied with this reply.
In such situation, check the validity of the transactions between related parties. (Dec 2019, 5 marks)
Answer:
According to Section 2(76) of Companies Act 2013, “related party”, with reference to a company includes any body corporate which is –
(a) a holding, subsidiary or an associate company of such company; or
(b) a subsidiary of a holding company to which it is also a subsidiary; or
(c) an investing company or the venture of the company.
Transactions referred to in the question are covered under Section 188 (1) of the Companies Act, 2013 which deals with the related party transactions.

All related party transactions require the approval of the Audit Committee as per section 177 of the Companies Act, 2013 except to a transaction, other than a transaction referred to in section 188 of the Companies Act, 2013, between a holding company and its wholly owned subsidiary company, as stated under fourth proviso to section 177(4) of the Companies Act, 2013. Up to certain limits, the approval of the Board is required and above the limits, approval of the members must be taken.

As per proviso two of section 188(1) of the Companies Act, 2013 member of the company shall not vote where he is related party. However as per proviso three of the section 188(1) of the Companies Act, 2013 , if 90% or more members are related party, members can vote. As per proviso four of the section 188(1) of the Companies Act, 2013, the approval of the Board is not required where the transactions are on arms length basis in ordinary course of business. Further, as per proviso five of the section 188(1) of the Companies Act, 2013, the approval of members is not required in case of transaction between holding and wholly owned subsidiary.

Further, as per the exemption notification dated 5th June, 2015 issued by Ministry of Corporate Affairs, the first and second proviso to sub- section(1) to section 188 of the Companies Act, 2013 shall not apply to
(a) a Government Company where the contracts/arrangements to be entered into by it with any other Government Company;
(b) a Government company (other than a listed company), in respect of contracts/arrangements other than those mentioned in (a) above, if it has obtained approval of the administrative ministry of the concerned Central/State Government.

In this case, C Ltd, being a Government company has entered into the following transactions:
(i) Purchase of power from A Ltd.( Government Company)
(ii) Sale of power to subsidiary companies (all Government companies, as they are subsidiaries of a Government company)
(iii) X Ltd, Y Ltd. and Z Ltd (wholly owned subsidiaries, being Government companies) distribute power through B Ltd. (Government company)
(iv) Purchase of cables from a manufacturer and sale to its Subsidiary companies (Government companies)
(v) Levy of service charges at 0.05 paise per unit on its Subsidiary companies (Government companies)
Therefore, in the present case, assuming that the transactions are at arm’s length and in the ordinary course of business, neither the approval of the Board nor the members of the company is required and the related party transactions would be valid.

Accounting and Audit Related Issues, RPTs and Vigil Mechanism - CS Professional Study Material

Question 8.
M/s. LMN & Co. Chartered Accountants have been appointed as the statutory auditors of AB Ltd. for the financial year 2019-20. During the course of their audit, certain transactions were observed to be irregular and on further scrutiny, the auditors uncovered a series of fraudulent transactions involving the Sales Manager and the Finance Manager. The amount involved was ₹ 50 lakhs. Under the circumstances, explain the reporting responsibilities of M/s. LMN & Co. (Dec 2021, 5 marks)
Answer:
As per section 143 (12) of the Companies Act, 2013 read with Companies (Audit and Auditors) Rules, 2015, if an auditor of a company, in the course of the performance of his duties as statutory auditor, has reason to believe that an offence of fraud, which involves or is expected to involve individually an amount of ₹ 1 crore or above, is being or has been committed against the company by its officers or employees, the auditor shall report the matter to the Central Government within such time and in such manner as prescribed.
Where the fraud is of an amount lesser than ₹ 1 crore, the auditor shall report the matter to Audit Committee constituted under section 177 of the Companies Act, 2013 or to the Board immediately, but not later than two days of the knowledge of the fraud, specifying the following:

  • Nature of fraud with description;
  • Approximate amount involved; and
  • Parties involved.

The following details of each of the fraud reported to the Audit Committee or the Board during the year shall be disclosed in the Board’s Report:

  • Nature of fraud with description;
  • Approximate amount involved; ’
  • Parties involved, if remedial action not taken; and
  • Remedial actions taken.

In the instant case, as the amount of fraud is less than ₹ 1 crore, M/s. LMN & Co. shall report the matter to the Audit Committee or the Board as stated above along with the disclosure in the Board’s Report in the manner as may be prescribed.

Question 9.
XYZ & Co. is an auditor of VPN Limited which is a listed company and the balance sheet of VPN Limited is being signed by X who is also a partner in other Audit firm PQR & Co. The original tenure of XYZ & Co. has expired on 31st March, 2021. Can PQR & Co. be appointed as an auditor of the company for Financial Year 2021-22? Explain with relevant provisions of the Companies Act, 2013. (June 2022, 5 marks)

Question 10.
Write short notes on the disclosure requirements pertaining to Accounting Standards.
Answer:

Section 129(5) of the Companies Act 2013 provides Regulation34(3) read with Schedule V of SEBI LODR Regulations, 2015 provides
Where the financial statements of a company do not comply with the accounting standards, the company shall disclose in its financial statements, the deviation from the accounting standards, the reasons for such deviation and the financial effects, if any, arising out of such deviation. Where in the preparation of financial statements, a treatment different from that prescribed in an Accounting Standard has been followed, the fact shall be disclosed in the financial statements, togeuier with the management’s explanation as to why it believes such alternative treatment is more representative of the true and fair view of the underlying business transaction in the Corporate Governance Report.

Accounting and Audit Related Issues, RPTs and Vigil Mechanism - CS Professional Study Material

Question 11.
Write short notes on
(a) Auditor’s Remuneration and Non-Audit Services.
(b) Reporting of Fraud by Auditors.
Answer:
(a) Auditor’s Remuneration and Non-Audit Services:
Though Companies Act, 2013 does not specify any restrictions on auditor’s remuneration it should be reasonable, adequate but not excess, keeping the scope of the audit and auditors capabilities in mind. Excess Remuneration is an incentive to retain the client and reduces their objectivity. Non – audit services may affect the independence of the auditor hence the following are prohibited under Section 144.
(a) accounting and book keeping services;
(b) internal audit;
(c) design and implementation of any financial information system;
(d) actuarial services;
(e) investment advisory services;
(f) investment banking services;
(g) rendering of outsourced financial services;
(h) management services; and
(i) any other kind of services as may be prescribed.

(b) Reporting of Fraud by Auditors:
Section 143 (12) of the Companies Act 2013 read with Companies (Audit and Auditors) rules, 2015 provides that If an auditor of a company, in the course of the performance of his duties as statutory auditor, has reason to believe that an offence of fraud, which involves or is expected to involve individually an amount of rupees one crore or above, is being or has been committed against the company by its officers or employees, the auditor shall report the matter to the Central Government.

In case of a fraud involving lesser than the amount specified in sub-rule (1), the auditor shall report the matter to Audit Committee constituted under section 177 or to the Board immediately but not later than two days of his knowledge of the fraud and he shall report the matter specifying the following:-

  • Nature of Fraud with description;
  • Approximate amount involved; and
  • Parties involved.

The following details of each of the fraud reported to the Audit Committee or the Board under sub-rule (3) during the year shall be disclosed in the Board’s Report:-
Nature of Fraud with description;
Approximate Amount involved;
Parties involved, if remedial action not taken; and Remedial actions taken.

Question 12.
Write a short note on rotation of auditors.
Answer:
The provisions for rotation of auditors can be summarised as under

In case of an individual as auditor:
(a) No individual shall be appointed or re-appointed as auditor for more than 1 term of 5 consecutive years.
(b) An individual auditor, who has completed his term of 5 consecutive years, shall not be eligible for re-appointment as auditor in the same company for 5 years from the date of completion.

In case of a firm as an auditor:
(a) No audit firm shall be appointed or re-appointed as auditor for more than 2 terms of 5 consecutive years.
(b) An audit firm which has completed its 2 terms of 5 consecutive years, shall not be eligible for re-appointment as auditor in the. same company for 5 years from the completion of such terms.
(c) If any firm/LLP which has one or more partners who are also partners in the outgoing audit firm/LLP cannot be appointed as auditors during the 5 year period. In other words, if two or more audit firms have common partner(s), and one of these firms has completed its 2 terms of 5 consecutive years, none of such audit firms shall be eligible for re-appointment as auditor in the same company for 5 years.

The aforementioned provisions can be explained by the following illustration in a better manner.
If ABC & Co. is auditor of M/S XYZ Ltd. and the balance sheet of M/S XYZ Ltd. is being signed by Mr. A who is also a partner in other firm PQR & Co. If the original tenure of appointment of ABC & Co. is expiring on 20th August, 2020. The firm PQR & Co. can’t take the appointment of auditor of M/S XYZ Ltd. for the period of five years starting from 21 st August, 2020 and up to 20th August, 2025.

In the above example, PQR & Co. can take the advantage of being appointed as auditor on a date starting after the expiry of financial year 2020-2021. In simple words, PQR & Co. is being eligible for appointment of auditor of M/S XYZ Ltd. after the start of new financial year from the expiry of original tenure of ABC & Co., as the proviso mentions only of one preceding financial year.

Accounting and Audit Related Issues, RPTs and Vigil Mechanism - CS Professional Study Material

Question 13.
Write a short note on appointment of internal auditors.
Answer:
Section 138 of the Companies Act, 2013 provides for the mandatory appointment of an internal auditor who shall either be a Chartered Accountant or a cost accountant, or such other professional as may be decided by the Board to conduct internal audit of the functions and activities for classes of company as specified below:

  • every listed company,
  • every unlisted public company having
  • paid up share capital of fifty crore rupees or more during the preceding financial year; or
  • turnover of two hundred crore rupees or more during the preceding financial year; or
  • outstanding loans or borrowings from banks or public financial institutions exceeding one hundred crore rupees or more at any point of time during the preceding financial year; or
  • outstanding deposits of twenty five crore rupees or more at any point of time during the preceding financial year; and every private company having
  • turnover of two hundred crore rupees or more during the preceding financial year; or
  • outstanding loans or borrowings from banks or public financial institutions exceeding one hundred crore rupees or more at any point of time during the preceding financial year.

The internal auditor may or may not be an employee of the company. The Audit Committee of the company or the Board shall, in consultation with the Internal Auditor, formulate the scope, functioning, periodicity and methodology for conducting the internal audit.

Question 14.
Write short notes on
(a) Functions and duties of the NFRA
(b) Powers of NFRA
Answer:
(a) Functions and duties of the NFRA:
NFRA shall protect the public interest and the interests of investors, creditors and others associated with the companies or bodies corporate governed under rule 3 by establishing high quality standards of accounting and auditing and exercising effective oversight of accounting functions performed by the companies and bodies corporate and auditing functions performed by auditors. The Authority shall:-
(a) maintain details of particulars of auditors appointed in the companies and bodies corporate specified in rule 3;
(b) recommend accounting standards and auditing standards for approval by the Central Government;
(c) monitor and enforce compliance with accounting standards and auditing standards;
(d) oversee the quality of service of the professions associated with ensuring compliance with such standards and suggest measures for improvement in the quality of service;
(e) promote awareness in relation to the compliance of accounting standards and auditing standards;
(f) co-operate with national and international organisations of independent audit regulators in establishing and overseeing adherence to accounting standards and auditing standards; and
(g) perform such other functions and duties as may be necessary or incidental to the aforesaid functions and duties.

(b) Powers of NFRA:
Apart from making recommendations to the Central Government on the formulation and laying down of accounting and auditing policies and standards, the NFRA will have the investigative and disciplinary powers. NFRA can:

  1. investigate either suo moto or on the reference made to it by Central Govt, into the matters of professional or other misconduct, committed by any member or firm of Chartered Accountants, registered under the Chartered Accountants Act, 1949.
  2. impose penalties of not less than 1 lakh which may extend to five times of the fees received, jn case of individuals professionals and of not less than 10 lakhs which may extend to ten times of the fees received, in case of professional firms; IF the misconduct is proved.
  3. debarring the member or the firm from engaging himself or itself from practice as the member of the Institute of Chartered Accountant of India for a minimum period of six months which may extend to a period of 10 years.
  4. NFRA has been vested with the same powers as are vested in civil courts under the Code of Civil Procedure, 1908 while trying a suit, relating to:
    • discovery and production of books of account and other documents, as may be specified by the National Financial Reporting Authority;
    • summoning, enforcing the attendance of persons and examination them on oath;
    • issuing commissions for the examination of witnesses or documents;
    • inspection of any books, registers and other documents of any person to whom NFRA has summoned, enforced the attendance and examined on oath;

It is also being provided in section 132 of the Act that no other institute or body shall initiate or continue any proceedings in such matters of misconduct where the NFRA has initiated an investigation under this section. However, any person aggrieved by any order of the NFRA may appeal before the Appellate Authority constituted for this purpose. The NFRA have the power to investigate, either suo moto or on a reference made to it by the Central Government, for such class of bodies corporate or persons, in such manner as may be prescribed into the matters of professional or other misconduct committed by any member or firm of chartered accountants. And no other institute or body shall commence or continue any proceedings in such matters of delinquency or misconduct where the National Financial Reporting Authority has initiated an investigation.

Accounting and Audit Related Issues, RPTs and Vigil Mechanism - CS Professional Study Material

Question 15.
Write a notes on “Types of Whistleblowers”.
Answer:
Types of Whistleblowers

  1. Internal: When the whistleblower reports the wrong doings to the officials at higher position in the organization. The usual subjects of internal whistle blowing are disloyalty, improper conduct, indiscipline, insubordination, disobedience etc.
  2. External: Where the wrongdoings are reported to the people outside the organization like media, public interest groups or enforcement agencies it is called external whistle blowing.
  3. Alumini: When the whistle blowing is done by the former employee of the organization it is called alumini whistle blowing.
  4. Open: When the identity of the whistleblower is revealed, it is called Open Whistle Blowing.
  5. Personal: Where the organizational wrongdoings are to harm one person only, disclosing such wrong doings it is called personal whistle blowing.
  6. Impersonal: When the wrong doing is to harm others, it is called impersonal whistle blowing.
  7. Government: When a disclosure is made about wrong doings or unethical practices adopted by the officials of the Government.
  8. Corporate: When a disclosure is made about the wrongdoings in a business corporation, it is called corporate whistle blowing.

Question 16.
Write a short note on “Whistle Blowing under Sarbanes-Oxley Act, 2002 (SOX)”
Answer:
Whistle Blowing under Sarbanes-Oxley Act, 2002 (SOX):
Section 302 of Sarbanes Oxley Act of 2002, an Act enacted by U.S. congress to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws, and for other purposes contains following provisions for whistle-blowers:

  • Make it illegal to “discharge, demote, suspend, threaten, harass or in any manner discriminate against” whistleblowers
  • Establish criminal penalties of up to 10 years for executives who retaliate against whistleblowers.
  • Require board audit committees to establish procedures for hearing whistleblower complaints.
  • Allow the secretary of labour to order a company to rehire a terminated employee with no court hearing.
  • Give a whistleblower the right to a jury trial, bypassing months or years of administrative hearings

Question 17.
Write a short note on “Vigil mechanism under SEBI Listing Obligations and Disclosure Requirements, 2015″.
Answer:
Vigil mechanism under SEBI Listing Obligations and Disclosure Requirements, 2015

  1. The listed entity shall formulate a vigil mechanism / whistle blower policy I for directors and employees to report genuine concerns.
  2. The vigil mechanism shall provide for adequate safeguards against victimization of director(s) or employee(s) or any other person who avail the mechanism and also provide for direct access to the chairperson of the audit committee in appropriate or exceptional cases.

Accounting and Audit Related Issues, RPTs and Vigil Mechanism Notes

Indian Accounting Standards (Ind AS) as specified in the Annexure to Companies (Indian Accounting Standards) Rules, 2015:
Indian Accounting Standards (Ind AS) are the accounting standards prescribed under Section 133 of the Companies Act, 2013 which are specified in the Annexure to Companies (Indian Accounting Standards) Rules, 2015. These accounting standards are converged with corresponding International Financial Reporting Standards.

Accounting Standards as specified in Annexure to the Companies (Accounting Standards) Rules, 2006:
The Central Government in consultation with NACAS, has notified Companies (Accounting Standards) Rules, 2006 in exercise of the powers conferred by clause (a) of sub-section (1) of section 642 and sub-section (3C) of section 211 and sub-section (1) of section 210A of the Companies Act, 1956. Under these rules, 28 Accounting Standards as recommended by the Institute of Chartered Accountants of India are prescribed. These Accounting Standards are as per the Generally Accepted Accounting Principles of India and not converged with International Financial Reporting Standards.

Accounting and Audit Related Issues, RPTs and Vigil Mechanism - CS Professional Study Material

Auditors’ effectiveness is enhance through:

  • Encouraging Professional Objectivity
  • Maintaining Independence
  • Rotation of Auditors
  • Appropriate Remuneration
  • Restriction on Non-Audit Services

The National Financial Reporting Authority is an independent regulator established under Section 132 of the Act to oversee the auditing profession, improve the quality of audit and ensure independence of audit firms.

Whistle blowers are individuals who expose corruption and fraud in organizations by filing a law suit or a complaint with Government authorities that prompts a criminal investigation in to the organizatiohs alleged behavior.

“Whistle-blowing” originates from the practice of British policemen who blew their whistles whenever they observed commission of a crime. The term ‘whistle-blowing’ is a relatively recent entry into the vocabulary of public and corporate affairs although the phenomenon itself is not new.

Internal Audit is an independent appraisal activity within an organization for the review of systems, procedures, practices, compliance with policies for accounting, financial and other operations as a basis for service to management. It is a tool of control

  • To measure and evaluate the effectiveness of the working of an organization
  • To ensure that all the laws, rules and regulations governing the operations of the organization are adhered to
  • To identify risks and also suggests remedial measures, thereby acting as a catalyst for change and action.

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