Existing language –Clause II.E
(E) Review of information by Audit Committee
(i) The Audit Committee shall mandatorily review the following information
Financial statements and draft audit report, including quarterly / half-yearly financial information;
Management discussion and analysis of financial condition and results of operations;
Reports relating to compliance with laws and to risk management;
Management letters / letters of internal control weaknesses issued by statutory / internal auditors; and
Records of related party transactions
The appointment, removal and terms of remuneration of the Chief internal auditor shall be subject to review by the Audit Committee
Revised Language- Clause II.E
II (E) Review of information by Audit Committee
(i) The Audit Committee shall mandatorily review the following information:
Management discussion and analysis of financial condition and results of operations;
Statement of significant related party transactions (as defined by the audit committee), submitted by management;
Management letters / letters of internal control weaknesses issued by the external auditors;
Internal audit reports relating to internal control weaknesses; and
The appointment, removal and terms of remuneration of the Chief internal auditor shall be subject to review by the Audit Committee
Audit reports and qualifications (Issue 11)
Existing language –Clause III.A
A. Disclosure of Accounting Treatment
In case it has followed a treatment different from that prescribed in an Accounting Standards, management shall justify why they believe such alternative treatment is more representative of the underlined business transactions. Management shall also clearly explain the alternative accounting treatment in the footnote of financial statements.
Revised Language- Clause VII.AA
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, together with the management’s explanation as to why it believes such alternative treatment is more representative of the true and fair view of the underlined business transaction.
Whistle Blower Policy (Issue 12)
Existing language –Clause IV.A
(A) Internal Policy on access to Audit Committees:
Personnel who observe an unethical or improper practice (not necessarily a violation of law) shall be able to approach the audit committee without necessarily informing their supervisors.
Companies shall take measures to ensure that this right of access is communicated to all employees through means of internal circulars, etc. The employment and other personnel policies of the company shall contain provisions protecting "whistle blowers" from unfair termination and other unfair prejudicial employment practices.
Company shall annually affirm that it has not denied any personnel access to the audit committee of the company (in respect of matters involving alleged misconduct) and that it has provided protection to "whistle blowers" from unfair termination and other unfair or prejudicial employment practices.
Such affirmation shall form a part of the Board report on Corporate Governance that is required to be prepared and submitted together with the annual report
.
The appointment, removal and terms of remuneration of the chief internal auditor shall be subject to review by the Audit Committee.
Revised Language- Clause IV.A
The company will establish a mechanism for employees to report to the management concerns about unethical behaviour, actual or suspected fraud or violation of the company’s code of conduct or ethics policy.
The mechanism must provide for adequate safeguards against victimization of employees who avail of the mechanism
The mechanism must also provide, where senior management is involved, direct access to the Chairman of the Audit Committee.
The existence of the mechanism must be appropriately communicated within the organization.
The Audit Committee must periodically review the existence and functioning of the mechanism.
Deletion of redundant clause on internal audit (Issue 13)
Existing language –Clause IV.A(v)
IV.A(v) The appointment, removal and terms of remuneration of the chief internal auditor shall be subject to review by the Audit Committee.
Revised Language- Clause IV.A(v)
Clause IV.A(v) should be deleted.
Subsidiary companiest (Issue 14)
Existing language –Clause V(v)
The company agrees that provisions relating to the composition of the Board of Directors of the holding company shall be made applicable to the composition of the Board of Directors of subsidiary companies
At least one independent director on the Board of Directors of the holding company shall be a director on the Board of Directors of the subsidiary company.
The Audit Committee of the holding company shall also review the financial statements, in particular the investments made by the subsidiary company.
The minutes of the Board meetings of the subsidiary company shall be placed for review at the Board meeting of the holding company.
The Board report of the holding company should state that they have reviewed the affairs of the subsidiary company also.
Revised Language- Clause V
At least one independent director on the Board of Directors of the holding company shall be a director on the Board of Directors of a material non listed Indian subsidiary company.
The Audit Committee of the listed holding company shall also review the financial statements, in particular, the investments made by the unlisted subsidiary company.
The minutes of the Board meetings of the unlisted subsidiary company shall be placed at the Board meeting of the listed holding company. The management should periodically bring to the attention of the Board of Directors of the listed holding company, a statement of all significant transactions and arrangements entered into by the unlisted subsidiary company.
Explanation (i): The term "material non-listed Indian subsidiary" shall mean an unlisted subsidiary, incorporated in India, whose turnover or net worth (i.e. paid up capital and free reserves) in the preceding accounting year exceeds 20% of the consolidated turnover or net worth respectively, of the listed holding company and its subsidiaries in the immediately preceding accounting year.
Explanation (ii): The term "significant transaction or arrangement" shall mean any individual transaction or arrangement that exceeds or is likely to exceed 10% of the total revenues or total expenses or total assets or total liabilities, as the case may be, of the material unlisted subsidiary for the immediately preceding accounting year.
Explanation (iii): Where a listed holding company has a listed subsidiary company which is itself a holding company, the above provisions shall apply to the listed subsidiary insofar as its subsidiaries are concerned.
Disclosure of contingent liabilities (Issue 15)
Existing language –Clause VI
VI(i) The company agrees that management shall provide a clear description in plain English of each material contingent liability and its risks, which shall be accompanied by the auditor’s clearly worded comments on the management’s view. This section shall be highlighted in the significant accounting policies and notes on accounts, as well as, in the auditor’s report, where necessary.
Revised Language- Clause VI
Delete clause VI(i) in its entirety.
Basis of related party transactions (Issue 16)
Existing language –Clause VII.A(i)
VII.A(i) A statement of all transactions with related parties including their basis shall be placed before the Audit Committee for formal approval/ratification. If any transaction is not on an arm’s length basis, management shall provide an explanation to the Audit Committee justifying the same.
Revised Language- Clause VII.A(i)
A statement in summary form of transactions with related parties in the ordinary course of business shall be placed periodically before the audit committee.
Material individual transactions with related parties which are not in the normal course of business shall be placed before the audit committee.
Material individual transactions with related parties or others which are not on an arm’s length basis should be placed before the audit committee, together with Management’s justification for the same.
Board disclosures – risk management (Issue 17)
Existing language –VII.B(i)
VII.B(i) Management shall place a report certified by the compliance officer of the company, before the entire Board of Directors every quarter documenting the business risks faced by the company, measures to address and minimize such risks, and any limitations to the risk taking capacity of the corporation. This document shall be formally approved by the Board.
Revised Language- VII.B(i)
Delete clause VII.B(i) in its entirety.
Proceeds from Initial Public Offering (IPO) (Issue 18)
Existing language –Clause VII.C(i))
VII.C(i) When money is raised through an Initial Public Offering (IPO) it shall disclose to the Audit Committee, the uses / applications of funds by major category (capital expenditure, sales and marketing, working capital, etc), on a quarterly basis as a part of their quarterly declaration of financial results. Further, on an annual basis, the company shall prepare a statement of funds utilized for purposes other than those stated in the offer document/prospectus. This statement shall be certified by the independent auditors of the company. The audit committee shall make appropriate recommendations to the Board to take up steps in this matter.
Revised Language- Clause VII.C(i)
When money is raised through an issue to public (including public issues, rights issues), it shall disclose to the Audit Committee, the uses / applications of funds by major category (capital expenditure, sales and marketing, working capital, etc), on a quarterly basis as a part of their quarterly declaration of financial results. Further, on an annual basis, the company shall prepare a statement of funds utilized for purposes other than those stated in the offer document/prospectus and place it before the audit committee. Such disclosure shall be made only till such time that the full money raised through the issue has been fully spent. This statement shall be certified by the statutory auditors of the company. The audit committee shall make appropriate recommendations to the Board to take up steps in this matter.
Remuneration of directors (Issue 19)
Existing language –Clause VII.D(ii)(a)
VII.D(ii)(a) All elements of remuneration package of all the directors, i.e. salary, benefits, bonuses, stock options, pension etc
Revised Language- Clause VII.D(ii)(a)
VII.D(ii)(a) All elements of remuneration package of individual directors, summarized under major groups, such as salary, benefits, bonuses, stock options, pension etc
Management (Issue 20)
Existing language –Clause VII.E(i)
VIII.E(i) Management shall make disclosures to the board relating to all material financial and commercial transactions, where they have personal interest, that may have a potential conflict with the interest of the company at large (for e.g. dealing in company shares, commercial dealings with bodies, which have shareholding of management and their relatives etc.).
Revised Language- Clause VII.E(i)
VII.E(i) Senior management shall make disclosures to the board relating to all material financial and commercial transactions, where they have personal interest, that may have a potential conflict with the interest of the company at large (for e.g. dealing in company shares, commercial dealings with bodies, which have shareholding of management and their relatives etc.).
Explanation: For this purpose, the term "senior management" shall mean personnel of the company who are members of its management / operating council (i.e. core management team excluding independent directors). This would also include all members of management one level below the executive directors.
CEO/CFO certification (Issue 21)
Discussion
(a) The CEO and the CFO must assume primary responsibility for ensuring that the company does not enter into transactions which are fraudulent, illegal or violative of the company’s code of conduct or ethics policy.
i. Clause (f) which deals with two separate matters viz. (i) internal control and (ii) accounting policies should be split into two clauses as changes an internal control cannot be disclosed in the notes to the financial statements.
Revised Language- CEO/CFO certification
The CEO (either the Executive Chairman or the Managing Director or Manager) and the CFO (either the whole-time Finance Director or any other person heading the Finance function) discharging that function shall certify to the Board that:
They have reviewed financial statements and the cash flow statement and the Directors’ Report and that to the best of their knowledge and belief :
these statements do not contain any materially untrue statement or omit any material fact or contain statements that might be misleading;
these statements together present a true and fair view of the company’s affairs and are in compliance with existing accounting standards, applicable laws and regulations.
There are to the best of their knowledge and belief, no transactions entered into by the company which are fraudulent, illegal or violative of the company’s code of conduct or ethics policy.
They accept responsibility for establishing and maintaining internal controls and that they have evaluated the effectiveness of the internal control systems of the company and they have disclosed to the auditors and the Audit Committee, deficiencies in the design or operation of internal controls, if any, of which they are aware and the steps they have taken or propose to take to rectify these deficiencies.
They have indicated to the auditors and the Audit committee
significant changes in internal control during the year;
significant changes in accounting policies during the year and that the same have been disclosed in the notes to the financial statements; and
instances of significant fraud of which they have become aware and the involvement, if any, of the management or an employee having a significant role in the company’s internal control system.
Annexure 1C – 4. Postal Ballot (Issue 22)
With effect from June 15, 2001, section 192A was introduced in the Companies Act, 1956 providing for the passing of resolutions by postal ballot. Since this is now part of law, it is suggested that paragraph 4 of Annexure 1C be deleted.
