Concepts and Principles of Other Audits – Secretarial Audit Compliance Management and Due Diligence Important Questions

Question 1.
What is the need for Corporate Governance Audit?
The need for Corporate Governance Audit is as follows:

  1. The audit serves as a monitoring device and is essential in corporate governance also.
  2. The audit ensures commitment of the Board in managing the company in a transparent manner.
  3. For receiving higher market valuations.
  4. For improving corporate governance resulting increase in capital flows to companies from domestic and global capital, equity and debt and from public securities markets as well as private capital sources even the increased customer base.

Question 2.
What is the scope of audit of Corporate Governance activities?
The Scope of Corporate Governance Activities is wide and bound-ary-less as follows:

  1. Financial and non-financial information’s and disclosures.
  2. Rights of stakeholders.
  3. Boards of directors (composition, mix, independence)
  4. Control environment (accounting, controls, internal and external audit)
  5. Risk management.
  6. Transparency and disclosure of financial information and executive compensation.
  7. Strategic plans, programs and guidance on social responsibilities.

Question 3.
What are the objective and purpose of CSR Audit?
Objective of CSR Audit:

  • Corporate Social Responsibility (CSR) audit help in measuring the actual social performance against the social objectives set by the Company.
  • CSR audit provides that at what level the decision making, mission statement, guiding principles, and business conduct are aligned with social responsibilities.
  • CSR audit helps meeting the expectations of stakeholder groups relating to social and environmental responsibilities of the company.

Purpose of CSR Audit:

  • To assess the project life cycle.
  • To evaluate internal control and governance framework.
  • To conduct financial review of projects to confirm the utilization of budgets for achieving desired outcomes.
  • To facilitate transparent monitoring mechanism and a mentor for the company’s CSR activities and implementation of CSR policy.

To ensure compliance with the provisions of Companies Act, 2013 with respect to:

  • Constitution of the committee
  • Adoption of policy, and
  • Appropriate spending towards CSR activities.

Question 4.
What are methodologies for CSR Audit?
The methodologies for CSR Audit are as follows:

  1. Review of CSR Policy, CSR Committee, Governance Structure, Strategy, Projects, Partner Identification and Selection Process, Monitoring, Evaluation and Reporting.
  2. Interact with beneficiaries, project team, management and other stakeholders.
  3. Review of beneficiary identification and selection process, budget allocation, outcomes monitoring and reporting.
  4. Review of CSR expenditure, project’s direct expenditure, overheads and administrative expenses, traceability and genuineness of expenditure per beneficiary cost as well as reasons for inability to spend 2% of profits.

Question 5.
Give ten illustrative points to be included in checklist for Corporate Social Responsibility under Companies Act, 2013?
Following are ten illustrative points to be included in checklist for Corporate Social Responsibility provisions under Companies Act, 2013:
1. Check if the constitution of CSR Committee is applicable to company.

2. If yes, whether the company has constituted CSR committee of the board consisting of three or more directors, out of which at least one director is an independent director. In case where a company is not required to appoint an independent director under sub-section (4) of section 149, it shall have in its CSR Committee two or more directors.

3. Whether the company has CSR policy approved by the CSR Committee.

4. Whether the CSR committee has recommended list of CSR projects or programme within the purview of Schedule VII to the Companies Act, 2013.

5. Whether the monitoring process of such projects or programme has been established by the company.

6. The composition of CSR committee is disclosed in the Board’s Report.

7. Check whether the CSR activities were under taken as per CSR policy and projects, programs or activities excludes activities undertaken in pursuance of its normal course of business.

8. Corporate Social Responsibility committee has recommended the amount of expenditure to be incurred on the activities referred in the Corporate Social Responsibility policy.

9. The company has instituted a transparent monitoring mechanism for implementation of the CSR projects or programs or activities under taken by the company.

10. The company has disclosed the contents of the policy in board’s report and at its website, if any.

Question 6.
Write short note on: “ Ten Penal Consequences of violation of obligations under SEBI (SAST) Regulations, 2011.
Ten Penal Consequences of Violation of Obligations SEBI (SAST) Regulations, 2011:

  1. directing the divestment of shares acquired;
  2. directing the transfer of the shares/proceeds of a directed sale of shares to the investor protection fund;
  3. directing the target company/any depository not to give effect to any transfer of shares;
  4. directing the acquirer not to exercise any voting or other rights attached to shares acquired;
  5. debarring person(s) from accessing the capital market or dealing in securities;
  6. directing the acquirer to make an open offer at an offer price deter-mined by SEBI in accordance with the Regulations;
  7. directing the acquirer not to cause, and the target company not to effect, any disposal of assets of the target company or any of its sub-sidiaries unless mentioned in the letter of offer
  8. directing the acquirer to make an offer and pay interest on the offer price for having failed to make an offer or has delayed an open offer;
  9. directing the acquirer not to make an open offer or enter into a trans-action that would trigger an open offer, if the acquirer has failed to make payment of the open offer consideration;
  10. directing the acquirer to pay interest of for delayed payment of the open offer consideration;

Question 7.
What is the scope of Cyber Security Audit?
The scope of a cyber security audit includes:

  1. Data security policies relating to the network, database and applications in place.
  2. Data loss prevention measures deployed.
  3. Effective network access controls implemented.
  4. Detection/prevention systems deployed.
  5. Security controls established (physical and logical).
  6. Incident response program implemented.

Question 8.
Write short note on: “Environmental Management Systems Audit”.
1. ISO 14001 is a voluntary international standard for Environmental | Management Systems (“EMS”). An EMS meeting the requirements of ISO 14001:2015 is a management tool enabling an organization of any size or type to:

  • Identify and control the environmental impact of its activities, products or services;
  • Improve its environmental performance continually, and
  • Implement a systematic approach to setting environmental objectives and targets, to achieving these and to demonstrating that they have been achieved.

2. It provides highly effective, globally accepted framework for establishing and continually improving the effectiveness of environmental management. Implementation of ISO 14001 may bring with it both reductions in environmental risk and environmental costs.

3. ISO 14001:2015 should be used by any organization that wishes to set up, improve, or maintain an environmental management system to r conform to its established environmental policy and requirements.

Question 9.
Name five areas of Forensic Audit?
Following five areas of Forensic audits are:

  1. Criminal investigations.
  2. Professional negligence cases.
  3. Fraud investigation and risk/control reviews.
  4. Settlement of insurance claims.
  5. Dispute settlement.

Question 10.
Discuss phases of Forensic Audit?
Forensic audit is done in two-phases as discussed below:
i. Investigation Services: The auditor begins with an investigation looking into the accounts and statement and identifying defects in it. Afterwards moves on to find ways to deal with such defects which is a reactionary function.

ii. Litigation Services: It may happen the frauds detected be resolved within the company itself. However, there are times when they need to be resolved through legal channels during such situations forensic auditors give litigation support to the advocates.

Question 11.
What is the purpose of Forensic Audit?
The purpose of Forensic Audit discussed below:
1. In Matter of Asset Misappropriation – Misappropriation of cash, raising fake invoices, payments made to non existing suppliers or employees, misuse of assets or theft of Inventory are few examples of such asset misappropriation. In all these situations, forensic audit is required to control them.

2. In Matter of Corruption – While conducting Forensic Audit for investigating fraud, auditor would look out for:

  • Conflicts of interest: When fraudster used his/her influence for personal gains detrimental to company.
  • Bribery: It is a situation of offering money to get things done or influence a situation one’s favour would be bribery.
  • Extortion: If someone demands money so as to award tender to other party then it would amount to extortion.

3. In relation to Fraud relating to Financial Statement – It is done so as improve liquidity or ensure top management keep earning the bonuses or due to market pressure on performance. Companies get into such type of frauds so as to show a better performance of the company than what it is actually.

Question 12.
List contents of Forensic Audit Report.
The Contents of Forensic Audit Report includes following points:

  1. Executive Summary.
  2. Origin of the audit.
  3. Audit Objective.
  4. Proposed Audit Outputs.
  5. Audit Implementation Approach.
  6. Risk Analysis.
  7. Internal Environment Risk: Customers, product and Competitors, Financial Management, Human Resource Management, Information Technology, Business processes.
  8. External Environment Risk: Economy and market situation; political and legal scenario; Technology in the sector.
  9. Audit Process
  10. Preliminary understanding of scope and incident coverage

Question 13.
Discuss objectives of Social Audit?
The Objectives of Social Audit are as follows:

  1. Assessing the physical and financial gaps between needs and resources available for local development.
    Creating awareness among beneficiaries and providers of local social and productive services.
  2. Increasing efficacy and effectiveness of local development programmes.
  3. Scrutiny of various policy decisions, keeping in view stakeholder in-terests and priorities, particularly of rural poor.
  4. Estimation of the opportunity cost for stakeholders of not getting timely access to public services.
  5. Provision of information needed to improve the effectiveness of pro-grams designed to enhance community development.

Question 14.
List five points to be included in Checklist of Social Audit.
Following five points to be included in Checklist of Social Audit:

  1. Whether the company has well defined policies for development of the society especially the poor and rural people?
  2. Whether on regular basis the scrutiny of fulfilment of the policy is done?
  3. Whether the physical and financial gaps between needs and resources available for local development are assessed on regular intervals?
  4. Whether the voice of the minority shareholders is considered?
  5. Are necessary actions taken over them?

Question 15.
Write short note on: “Implementation of Social Audit”.
1. Implementation of Social Audit:
Empowerment of people: Social audit is most effective when the actual beneficiaries of an activity are involved in it. However, people can only get involved in the process when they are given appropriate authority and rights.

2. Proper Documentation: Everything right from the requirement gathering to planning to implementation must be properly documented. Some of the documents that should be made mandatory are:

  • Applications, tenders, and proposals.
  • Financial statements, income – expense statements.
  • Registers of workers.
  • Inspection reports.

3. Accessibility of Documents: Merely generating documents is useless if they are not easily accessible. All the documents must be put on line.

4. Punitive Action: The final and most important provision is to have punitive actions for non-conformance of the process of social audit. The imposition of legal punishment is necessary to implement the processes in a fair manner

Question 16.
What are the “Implications of Social Audit”?

  1. Social Audit creates an impact upon governance.
  2. Social Audit values the voice of stakeholders, including marginalized/poor groups whose voices are rarely heard.
  3. Social Audit serves the purpose of enhancing local governance, particularly for strengthening accountability and transparency in local bodies.
  4. Social Audit make it sure that in democracy the powers of decision makers should be used as far as possible with the consent and under-standing of all concerned.

Question 17.
Discuss steps to be taken for Social Audit?
Following are steps to be taken for Social Audit:

  1. Clarity of purpose and goal of the local elected body.
  2. Identify stakeholders with a focus on their specific roles and duties.
  3. Definition of performance indicators which must be understood and accepted by all. Indicator data must be collected by stakeholders on a regular basis.
  4. Regular meetings to review and discuss data/information on performance indicators.
  5. Follow-up of social audit meeting with the panchayat body reviewing stakeholders’ actions, activities and viewpoints, making commitments on changes and agreeing on future action as recommended by the stakeholders.
  6. Establishment of a group of trusted local people including elderly people, teachers and others who are committed and independent, to be involved in the verification and to judge if the decisions based upon social audit have been implemented.
  7. The findings of the social audit should be shared with all local stakeholders. This encourages transparency and accountability. The key decisions should be written on walls and boards and communicated orally.

Secretarial Audit Compliance Management and Due Diligence ICSI Study Material