CS Professional Secretarial Audit Compliance Management and Due Diligence Question Paper New Syllabus
A very pertinent question which arises for consideration is the extent of detailed verification that has to be resorted to before certifying the Annual Return. Being a Company Secretary, list the guiding principles which can be adopted while deciding about the extent of checking of Annual Return. (5 Marks)
List of guiding principles which can be adopted while deciding about the extent of checking of Annual Return:
Adequate measures of Internal Control: The need for every detailed checking is greatly reduced if PCS confirms that there are adequate measures of internal control and checks and balances built into the systems and procedures of the organization.
For instance, the procedure for registration of share transfers could be so designed that the mistakes and errors committed at one stage are automatically detected and corrected by another.
The principle of materiality: Sample chosen for detailed checking should be representative of the ‘population’.
For instance, in case of share transfers instances of transfer of large blocks of shares could be chosen for detailed scrutiny.
‘High risk’ areas could be identified and subjected to more extensive scrutiny than others. For instance, in the case of shares on which there are restrictions on statutory transfer or otherwise a more extensive examination is warranted.
Privacy of records and its control is the most important function for the Secretarial Department of an organization. Records of Contracts and Commercial Documents and Trade Secretes are to be kept confidentially. Describe the alertness to be observed with respect to keeping of said records.
As mentioned in the given question, Records of Contracts and Commercial Documents and Trade Secretes are kept confidential and considered as confidential information.
Following alertness required to be observed for keeping such confidential information:
The Company may adopt the following procedures for protecting confidential information:
- All confidential documents should be stored in locked file cabinets or rooms and these documents are accessible only to those who arc having authorisation to use such documents.
- All electronic confidential information should be protected via firewalls, encryption and passwords.
- Employees should clear their desks of any confidential information before going home at the end of the day.
- Employees should refrain from leaving confidential information visible on their computer monitors when they leave their work stations.
- AU confidential information, whether contained on written documents or electronically, should be marked as “confidential”.
- All confidential information should be disposed off properly.
- Employees should refrain from discussing confidential information in public places.
- Employees should avoid using e-mail to transmit certain sensitive or controversial in formation.
The continued adoption of web, mobile, cloud and social media technologies by the companies has increased opportunities for attackers for online frauds. Explain various types of online frauds. (5 Marks)
Business and technology innovations that the banking sector is adopting in their quest for growth are in turn presenting heightened levels of cyber risks. These innovations have probably introduced new vulnerabilities and complexities into the system.
Few ways of Online frauds through Incomplete KYC includes:
1. Hacking: Hackers/fraudsters obtain unauthorized access to the card management system of the respective bank. Counterfeit cards are then issued for the purpose of money laundering.
2. Phishing: A technique used to obtain your card and personal details through a fake email.
3. Pharming: A similar technique where a fraudster installs malicious code on a personal computer or server. This code then redirects clicks you make on a Website to another fraudulent Website without your consent or knowledge.
4. Vishing: Fraudsters also use the phone to solicit your personal information.
5. Debit card skimming: A machine or camera is installed at an ATM which picks up card related information and PIN numbers when customers use their cards.
6. Computer viruses: With every click on the internet, a company’s systems are open to the risk of being infected with nefarious software that is set up to harvest information from the company servers.
Travel and Tourism Industry in India is required to implement various laws. Examine the various laws applicable to such Industry. (5 Marks)
- Some specific laws are applicable to Travel & Tourism Industry. Which are classified into following categories:
Legal and Regulatory Framework in Travel and Tourism: Relating to consumer protection; health; safety and security of travel and tourism customers. Legal Liability and Risk Management: Legal liability concepts; owner and director liability; guide and leader liability; risk assessment and controlling; risk mitigation; risk financing and insurance.
- Transport Legislation: Surface; sea and air transport laws in relation to carriage of passengers.
- Contract legislation in relation to Travel and Tourism customers: Contract Act & Partnership Act; Sale of Goods Act, Consumer Protection Act & Companies Act.
- Forex Management: Regulation and Management of foreign exchange: FEMA – realization and repatriation of foreign exchange; Foreign Ex-change Rules in India.
- Medical Tourism: Certification and Accreditation in Health and Medical Tourism, Ethical, Legal, Economic and Environmental issues in Health and Medical Tourism. Role of the National Accreditation Board for Hospitals & Healthcare (NABH) and Joint Commission International (JCI).
- Laws relating to Management of Tourism in Tribal Areas.
- Laws relating to Setting up Travel Agency & Tour Operation Unit.
Attempt all parts of either Q. No. 2 or Q. No. 2A
ABC Ltd. is having a paid up capital of Rs. 1,000 crore and annual turnover of Rs. 2,500 crore. The company has asked you as a Company Secretary in Practice, to advise it on preparation and finalization of its Compliance Management Framework. Give your advice. (5 Marks)
The processes for Setting-up of Compliance Framework are as follows:
Stage 1: Identification of Compliance Obligations: Applicability of the various Act, Rules, Regulations, Policies and Procedures covering Industry Specific Sector Specific, Specific Activity, Specific Entity, Specific State Law, Local Laws.
Stage 2: Preparation of Compliance Chart: Setting-up role and responsibilities of Senior Management, Legal Department and Compliance executor.
Stage 3: Assessment of Historical Compliance Status: Assessment of File/Report/Return Statements/Internal Auditor/Independent agency / Regulator.
Stage 4: Assessment of Compliance Risk: Identification of possible situations of non-compliance and development of strategy for Risk Mitigation / Risk Monitoring/Risk Reporting.
Stage 5: Compliance/Action Reporting: Report of Internal Auditor Independent agency/regulator with the possible consequence such as disqualification/suspension/lock out/license cancellation.
Jindal Brothers has constituted a Limited Liability Partnership (LLP) under the LLP Act, 2008. There are total 3 partners in the Firm. Jindal Brothers has approached you for maintaining the various books of ^ account. Being a Company Secretary, make a brief note on Section 34 read with Rule 24, as per compliance requirement, under the LLP Act, 2008. (5 Marks)
2(b) As a Company Secretary, brief note on Compliance requirement as per Section 34 and Rule 24 under LLP Act, 2008
As per Section 34:
- The LLP shall maintain its books of account relating to its affairs for each year of its existence on cash basis or accrual basis and according to double entry system of accounting.
- The LLP shall maintain its books of account at its registered office for a period of Eight years.
As per Rule 24: The books of account of a limited liability partnership shall contain the following:
- Particulars of all sums of money received and expended and the matters in respect of which the receipt and expenditure takes place.
- A record of the assets and liabilities.
- Statements of cost of goods purchased, inventories, work-in-progress, finished goods and cost of goods sold.
- Any other particulars which the partners may decide.
Sub-rule (3) of Rule 24: The books of account of a limited liability partnership are required to be preserved for eight years from the date on which they are made.
Sub-section (3) of Section 34 read with sub-rule (4) of Rule 24: Every limited liability partnership shall file the Statement of Account and Solvency in Form 8 with the Registrar within a period of thirty days from the end of six months of the financial year to which the Statement of Account and Solvency relates.
While preparing the Search and Status Report, it is important for professionals to conduct due diligence of the intellectual property rights, as tremendous worth is associated with the intangible assets of the business. List the key areas to be analyzed while preparing such Search Report. (5 Marks)
Five key areas to be analysed while preparing the search and status report relating to IPR:
- Key Area 1: What domestic and foreign patents (and patents pending) does the company have?
- Key Area 2: Has the company taken appropriate steps to protect its intellectual property (including confidentiality and invention assignment agreements with current and former employees and consultants)?
- Key Area 3: Are there any material exceptions from such assignments (rights preserved by employees and consultants)?
- Key Area 4: What registered and common law trademarks and service marks does the company have?
- Key Area 5: What copyrighted products and materials are used, controlled, or owned by the company?
State the procedure of KYC of directors in Form DIR-3 and mention the consequence of non-compliance in this regard. (KYC stands for ‘Know Your Customer’ or ‘Know Your Client’). (5 Marks)
Important points needed to be noted in respect of DIR-3 KYC:
- DIR-3 KYC is required to be filed by every Director who has been allotted DIN on or before 31st March, of a Financial Year and whose DIN status is ‘Approved’.
- Due date of filing of DIR-3KYC is on or before 30th June of immediate next financial year.
Prerequisite Mandatory Information DIR-3:
- Unique Personal Mobile Number.
- Personal Email ID.
- Email ID and Mobile Number for receiving OTP.
Certification of DIR-3 KYC:
- First by the affixing Registered Digital Signature of respective person/Director.
- Certification by practicing professional by affixing Digital Signature (CS/CA/CMA).
Filing of DIR-3 KYC would be mandatory for Disqualified Directors as well.
If director fails to file DIR-3 KYC the MCA21 system will mark all approved DINs (allotted on or before 31st March, 2018) against which DIR-3 KYC form has not been filed as ‘Deactivated’ with reason as ‘Non-filing of DIR-3 KYC’.
MCA has notified ‘Nil Fee’ and late Fee’ of ₹ 5,000 (Applicable after the due date) for Filing e-Form DIR-3 KYC under rule 12A of the Companies (Appointment and Qualification of Directors) Rules, 2014.
MCA has also notified format of c-form DIR-3 KYC under new Rule 12A (Directors KYC) along with procedure for restoration of deactivated DINs of Directors, applicable.
OR (Alternate Question to Q. No. 2)
Explain the process of Compliance Risk Mitigation indicating various risks of non-compliance. (5 Marks)
Following are risks of non-compliance:
- Cessation of Business Activities.
- Civil action by the Authorities.
- Punitive action resulting in fines against the company or officials.
- Imprisonment of the errant officials
- Public embarrassment
- Damage to the reputation of the Company and its employees.
- Attachment of Bank Accounts.
Explain the role of a company secretary in Investor Education and Protection. (5 Marks)
Role of Company Secretary in Investor Education and Protection:
- Company secretaries have been recognized to verify compliances and to issue certificates under various securities laws such as Securities Contracts (Regulation) Act, 1956, Depositories Act, 1996, regulations and guidelines issued by SEBI under SEBI Act, 1992 and the listing regulations of the stock exchanges for equity, debt listing, IDRs, resulting a better regulated capital market automatically brings development for the country and a strong regulated capital market instils confidence among the investors that their money is safe.
- Company secretaries are expected to exercise sensitive professional and moral judgments in all their activities while carrying out their professional responsibilities.
- Company secretaries should accept the obligation to act in a way that will serve public interest, honour public trust and demonstrate commitment to professionalism.
- Company Secretary is expected to maintain and broaden public confidence and perform all professional responsibilities with the highest sense of integrity.
- The ICSI as a national body and its members as corporate governance professionals, have played a very significant role in the area of investor education and protection.
What do you mean by Good Documentation ? Give some examples of Good Documentation Practices as well as Poor Documentation Practices. (5 Marks)
Good Documentation: The good documentation promotes good corporate governance practices and compliance level of the company and also improves communication and dissemination of information between and across various stakeholders. These guiding principles support professionals, employers, policy makers and managers in assessment, planning, execution and evaluation. Also, the good documentation practices and policies demonstrate the professional obligation, accountability and legal requirement to communicate and record client information and good secretarial practice.
List of five examples of each as guidance for Mr. Welkinson Xu are discussed below:
Five examples of Poor Documentation:
- The delegation of work is not recorded/documented.
- Recording of events is not in sequence & tabled.
- Document with errors, correction, not signed/dated, and didn’t include a reason for the correction.
- Write-over, multiple line-through and use of “Whiteout” or other masking device.
- Standards operating procedures as adopted by the professional is not authorised.
Five examples of Good Documentation:
- Records should be completed at time of activity or when any action is taken.
- Superseded documents should be retained for a specific period of time.
- Concise, legible, accurate and traceable.
- Clear examples.
- Don’t assume knowledge.
Jemez & Co. Ltd. has listed is Securitized Debt Instruments at a stock exchange One of the directors has asked you, being the compliance officer of the company, to informs the obligations of the company regarding its Securitized Debt Instruments. Describe with reference to compliances under the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015. (5 Marks)
Following are compliance obligations of listed entity which has listed its Securitised Debt Instruments:
1. Issue new securities [Regulation 82(1)]:
Time Period: Prior to issue new Securitised Debt Instrument.
Event: To issue new securitized debt instruments either through a public
issue or on private placement basis
2. Intimation [Regulation 82(2)]:
Time Period: At least 2 working days before the Board Meeting excluding date of intimation & date of meeting.
Event: The meeting of its board of trustees, at which the recommendation or declaration of issue of securitized debt instruments or any other matter affecting the rights or interests of holders of securitized debt instruments is proposed to be considered.
3. Financial Information [Regulation 82(3)]:
Time period: Within 7 days from the end of month/actual payment date on monthly basis.
Event: Submission of such statements, reports or information including financial information pertaining to Schemes to stock exchange.
4. Record Date [Regulation 87(2)]:
Time period: At least 7 working day’s before the record date excluding the date of intimation & record date.
Event: Notice to stock exchange/s regarding record date.
A series of financial crimes and frauds by some of its employees is alleged by a company. It is desired to gather legally tenable evidence and to fix the negligence and responsibility within the company, before taking action in the court of law. Which type of audit will you suggest in this case? Explain. (5 Marks)
In the given situations, Forensic Audit is required to be done as a series of financial crimes by some of its employees is alleged by a Company because Forensic audit:
- refers to the specific guidance carried out in order to produce evidence.
- involves an investigation into the financial affairs of the entity and is often associated with investigation into the alleged fraudulent activity,
- is to relate the findings of audit by examining and gathering legally tenable evidence and producing it to the Court.
- involves application of audit skills to legally determine whether fraud has actually occurred.
- is a comprehensive and systematic process involving a series of activities and tasks undertaken for establishing the accuracy and authenticity of the transactions under review.
- is science which is’applied to legal matters especially criminal matters.
- is a dynamic and strategic tool in combating corruption, financial crimes and frauds through investigations and resolving allegations of fraud and embezzlement.
How monitoring and evaluation of effectiveness of the Organisation’s Risk Management Process is carried out through internal audit? Describe. (5 Marks)
Following are Step-wise approach for Internal Audit Process:
Step 1: Establish and communicate the scope and objetives for the audit to appropriate management.
Step 2: Develop an understanding of the business area under review.
This includes objectives, measurements and key transaction types.
This involves review of documents and interviews. If required, flow charts and narratives may be created.
Step 3: Describe the key risks facing the business activities within the scope of the audit.
Step 4: Identify control procedures used to ensure each key risk and transaction type is properly controlled and monitored.
Step 5: Develop and execute a risk-based sampling and testing approach to determine whether the most important controls are operating as intended.
Step 6: Report issues and challenges identified and negotiate action plans and solutions with management to address the problems.
Step 7: Follow-up on reported findings at appropriate intervals. Internal audit departments maintain a follow-up database for this purpose
Explain compliances specified in the Regulation 24A regarding applicability of secretarial audit under the Securities and Exchange Board, of India (Listing Obligations and Disclosure Requirements) Regulations, 2015. Also state the exemptions provided from this Regulation. (5 Marks)
- Applicability of Secretarial Audit under Regulation 24A of the SEBI (LODR) Regulations, 2015:
- every listed entity and its material unlisted subsidiaries incorporated in India is required to undertake secretarial audit and shall annex with its annual report, a secretarial audit report, given by a company secretary in practice, in From No. MR-3 from the year ended March 31, 2019.
- The regulations also require for the Annual secretarial compliance report on an annual basis covering a broad check on compliance with all laws applicable to the entity.
- SEBI Regulations and circulars/guidelines issued thereunder consequent to which, the PCS shall submit a report to the listed entity in the format prescribed by SEBI.
- The annual secretarial compliance report shall be submitted by the listed entity to the stock exchanges within 60 days of the end of the financial year.
- Exemptions: As per regulation 15 of the SEBI (LODR) Regulations, 2015 the compliance specified in regulation 24A, shall not apply, in respect of:
- the listed entity having paid up equity share capital not exceeding rupees ten crore and net worth not exceeding rupees twenty five crore as on the last day of the previous financial year.
- the listed entity which has listed its specified securities on the SME Exchange. However, in case of other listed entities which are not companies but body corporate or are subject to regulations under other statutes, the provisions of regulation 24A shall apply to the extent that it does not violate their respective statutes and guidelines or directives issued by the relevant authorities.
Highlight inclusion of Emphasis of Matter (EOM) in an audit report. (3 Marks)
- Emphasis of matter (EOM) is included in the audit report to seek the attention of the reader to make the reader aware about the specific ‘ instances which are not in the general course of business. Such matters can have the positive as well as negative impact on the affairs of the company in future.
- The purpose of an EOM paragraph is to draw the users’ attention to a matter already disclosed but the auditor believes that, it is fundamental to their understanding and should be a part of the report.
- Examples of the matters which should be considered as emphasis of matter:
- An uncertainty relating to the future outcome of exceptional litigation or regulatory action.
- When there is uncertainty about exceptional future events, pending litigations.
- Early adoption of new accounting standards.
- Adoption of new technology.
- Recent changes in the regulatory environment.
“Working papers should be prepared using the appropriate cross referencing.” Justify. (3 Marks)
- Working papers should be prepared using the appropriate cross referencing. A cross reference from the Audit Procedures to the primary working paper provides a reference to where the work was performed.
It is not necessary to cross refer all work papers to the Audit Procedures – only the primary work paper should be cross referred.
- Cross-references should be used to refer information useful in more than one place or to other relevant information including the source of information, composition of summary totals, or other documents or examples of transactions.
- To encourage conciseness, documents/information only single copy of the working papers should be placed in working file for cross referencing.
Explain the term ‘conflict of interest’ regarding audit engagement as per the Company Secretaries Auditing Standard (CSAS)-l. (3 Marks)
As per CSAS-1 Auditing Standard on Audit Engagement “Conflict of Interest”:
The Auditor shall not have any substantial conflict of interest with the Auditee.
“Substantial Conflict of Interest” means holding of more than 2% in the paid up share capital or shares of nominal value of rupees fifty – thousand, whichever is lower or more than 2% voting power as the case may be, by the Auditor singly or along with partners, spouse, parent, sibling, and child of such person or of the spouse any of whom is dependent financially on such person.
Any conflict of interest other than substantial conflict of interest, must be disclosed by the Auditor before accepting the Audit Engagement or as soon as the Auditor becomes aware of the same as the case may be.
Indebtedness of the Auditor for an amount exceeding rupees five lakh other than that arising out of ordinary course of business of the Auditee. However, any indebtedness that may seriously impair his independence shall also be considered as substantial conflict of interest.
Where an Auditor was in employment of the Auditee, its holding or subsidiary company and 2 (two) years have not lapsed from the date of cessation of employment, the same shall be considered as substantial conflict of interest.
Differentiate Fine and Penalty as per the Companies Act, 2013. (3 Marks)
Difference between Fine and Penalty
|Basis of Distinction||Fine||Penalty|
|Companies Act, 2013||Cannot be imposed under Companies Act, 2013.||Can be imposed under Companies Act, 2013.|
|Who can Impose?||Fine can be imposed only by a Court of law.||Penalty can be imposed even by an administrative officer.|
|Way of Imposition?||Imposition of fine requires prosecution in a Court of law.||Penalty be imposed by way of adjudication.|
What do you mean by Ethical Dilemma? (3 Marks)
Ethical Dilemma is the situation where a person’s view regarding selecting an object or the alternative includes series of outcomes, which is very confusing. Each outcome has a serious overlapping outcome, which cannot be at a time wrong for one person but the same may be ethically wrong for the other.
Ethical dilemma is also known as moral dilemma. Ethical dilemmas make the situations too difficult. A person has to choose only one way from two of them – a moral or an immoral way. Ethical dilemmas can be seen everywhere in daily lives. However everybody has their own particular experience towards ethical dilemma. Ethical dilemmas assume that the chooser will abide by societal norms, such as codes of law or religious teachings in order to make the choice ethically impossible.
Example(s) of Ethical Dilemma:
Ex 1: A doctor refuses to give a terminal patient morphine but the nurse can see the patient is in agony.
Ex 2: A secretary discovers her boss has been laundering money and she must decide whether or not to turn him.
Write a note on establishment and functions of Quality Review Board under the Company Secretaries (Amendment) Act, 2006.
As per the provisions of Company Secretaries (Amendment) Act, 2006:
Section 29A: Establishment of Quality Review Board:
- The Central Government shall, by notification, constitute a Quality Review Board consisting of a Chairperson and four other members.
- The Chairperson and members of the Board shall be appointed from amongst the persons of eminence having experience in the field of law, economics, business, finance or accountancy.
- Two members of the Board shall be nominated by the Council and other two members shall be nominated by the Central Government.
Section 29B: Functions of Board: The Board shall perform the following functions:
- to make recommendations to the Council with regard to the quality of services provided by the members of the Institute.
- to guide the members of the Institute to improve the quality of services and adherence to the various statutory and other regulatory requirements.
- to review the quality of services provided by the members of the Institute including Secretarial Audit Services.
“Audit as a monitoring device is essential in corporate governance also”. Substantiate the statement. (5 Marks)
The need for Corporate Governance Audit is as follows:
- The audit serves as a monitoring device and is essential in corporate governance also.
- The audit ensures commitment of the Board in managing the company in a transparent manner.
- For receiving higher market valuations.
- 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.
XYZ Limited has 9 directors on its Board. Registered office of the company is situated in Mumbai 4 directors of the company reside outside Mumbai. The company held 7 board meetings during the financial year 2018-19. In all the meetings video conferencing facility was provided.
Prepare check list for verifying the compliances relating to video conferencing in relation to Notice. Quorum and the Matters not allowed through video conferencing. (5 Marks)
Checklist for verification relating to Video Conferencing in relation to Notice, Quorum and Matters not allowed through Video Conferencing:
- Check whether Notice in writing was sent to every director at his address registered with the company either by hand delivery or by post or by electronic means at least seven days prior to the meeting.
- In case meeting of the Board was called by giving not less than seven days’ notice, ensure that at least one independent director, if any was present at the meeting.
- In case of absence of independent directors from such a meeting of the Board, check that decisions taken at such a meeting were circulated to all the directors and are ratified by at least one independent director, if any.
- Check whether the notice to be supported by agenda giving writeup on each item.
- Check where there is quorum presence in a meeting through physical of directors, any other director may participate conferencing through video or other audio visual means.
- Check the quorum for a meeting of the Board of Directors of a company was present Le. one third of its total strength or two directors whichever is higher and the participation of the directors by video conferencing or by other audio visual means was also counted for the purpose of quorum.
Matters not allowed through Video Conferencing:
- The approval of the annual financial statements.
- The approval of the Board’s report.
- The approval of the prospectus.
- The Audit Committee Meetings for consideration of financial statement including consolidated financial statement if any, to be approved by the board under sub-section (1) of section 134 of the Act.
- The approval of the matter relating to amalgamation, merger, demerger, acquisition and takeover.
Attempt all parts of either Q. No. 6 or Q. No. 6A
Appraisal of management decisions involves a number of steps. Enumerate them. (5 Marks)
|Step 1:||Whether the management decision are well defined or not.|
|Step 2:||Whether the Objectives and desired output has been set out clearly and relate explicitly with the policy or strategy adopted by the company to help in post event evaluation of the management decisions.|
|Step 3:||While taking decision, whether the management has considered the effect of the associated risk, time availability, scale and location, scope for alternative arrangements with other public bodies, degree of involvement of regulators and civic bodies, capacity of the market to deliver the required output, alternative asset uses, use of new or established technology and environmental issues.|
|Step 4:||In case of the major investment decision, whether the various possible options were considered.|
|Step 5:||Whether such potential options are analyzed reviewed in terms of value, costs, benefits, risk and uncertainties of options.|
|Step 6:||Whether the options are selected after due analysis and a consensus decision is taken after a manager has analyzed all the alternatives.|
|Step 7:||Whether the selected alternative implemented efficiently.|
|Step 8:||Ongoing review of management decision control and evaluation system actions needs to be monitored.|
Snehal Sansthan a non-profit organization registered under Section 8 of the Companies Act, 2013 is enlisted under the Foreign Contribution (Regulation) Act, 2010 (FCRA) to procure foreign money. The organization is actively engaged in development of children of slum areas of Mumbai. For this purpose the organization is getting donation of $100K from Helping Hands, a social organization of California. As a Company Secretary in Practice, guide the organization about procurement and utilisation of this donation. Also state the due diligence and reporting requirements. (5 Marks)
Procurement and Utilisation: FCRA legislation state that an organization cannot receive funding from a foreign source, unless it is registered under the Foreign Currency (Regulation) Act, 2010 or has obtained special government approval for a specific project. The funds must be utilised for the charitable purpose for which fund is raised.
Due Diligence and reporting Requirements: Refer Answer of Question 50 in Chapter 19.
Explain the planning stage of peer review process. (5 Marks)
Planning Stage of Peer Review Process:
- On acceptance of the peer review by the selected reviewer, the Practice Unit (PU) will be notified.
- Reviewer may require the Practice Unit (PU) to provide any other information the reviewer considers necessary to facilitate the selection of a sample of attestation services engagements, representative of the practice unit’s client portfolio for review.
- In consultation with the practice unit, date(s) will be set for the on-site review to be carried out. Flexibility will be permitted to ensure that practice units are not inconvenienced at especially busy periods. The on-site review date(s) will be arranged by mutual consent such that the review is concluded within sixty days of notification.
- Sample of Attestation services Engagements:
- From the complete attestation services client list, an initial sample will be selected by the reviewer.
- Practice units will be notified of the selection in writing about two weeks in advance, requesting the relevant records of the selected attestation services clients to be made available for review.
- At the execution stage, the initial sample may be reduced to a smaller actual sample for review. However, if the reviewer considers that the actual sample does not cover a fair cross-section of the practice unit’s attestation services engagements, he may make further selections.
OR (Alternate Question to Q. No. 6)
Describe auditing risk and its components. (5 Marks)
Auditing risk means that an auditor accepts/presumes some level of uncertainty in performing the audit work, which means that the auditor accepts the risk that the audit opinion given by the auditor might be wrong. Only a very small degree of audit risk would be acceptable as otherwise the audit process may lose its purpose.
The audit risk has three components:
1. Inherent Risk: Inherent risk is the susceptibility of a class of transaction to misstatement that could be material, individually or when aggregated with misstatements in other transaction, assurning that there were no related internal controls.
For example: Genuineness of the related party transactions.
2. Control Risk: Control Risk is the risk that a misstatement that could occur in an class of transactions and that could be material individually or when aggregated with misstatement on other transaction, will not be prevented or detected and corrected on a timely basis by the internal control systems.
For example: Delay in the filing of forms.
3. Detection Risk: Detection Risk is the risk that an auditor’s substantive audit procedures will not detect a misstatement that exist in class of transactions that could be material, individually or when aggregated with misstatement on other transaction.
For example: While certification of e-form, the auditor has overlooked the compliance of the Secretarial Standards.
The auditor should maintain the high level of the assurance/confidence while expressing the audit opinion, and this is the most important steps in the audit planning to ensure that the audit team will gather competent, relevant and reasonable audit evidence at minimum cost.
State the obligation of the auditor to maintain confidentiality regarding auditee information. (5 Marks)
The Auditors of a company while performing the audit assignment access the various confidential information of the company and it is most required for the auditors to maintain the confidentiality of the
The principle of confidentiality imposes an obligation on the auditor to abstain from:
1. Disclosing information acquired as a result of professional relationships without proper arid specific authority or unless there is a legal or professional right or duty to disclose; and using information acquired as a result of professional relationships to their personal advantage or the advantage of third parties.
2. An auditor should maintain confidentiality even in a social environment. The auditor should be alert to the possibility of inadvertent disclosure specifically in circumstances involving long association with a business associate or a relative.
3. An auditor should also maintain confidentiality of information disclosed by a prospective client or employer.
4. An auditor should also consider the need to maintain confidentiality of information within the firm or employing organization.
5. An auditor should take all reasonable steps to ensure that staff under the auditor’s control and persons from whom advice and assistance is obtained respect the auditor’s duty of confidentiality.
ABC Limited is a non-compliant listed entity suspended under the Standard Operating Procedure for non-compliances under the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015. The company has complied with the requisite requirements after the date of suspension but failed to pay the applicable fine. State the procedure to be followed by the recognised stock exchange for revoking the suspension of trading of its shares. Also state the consequences for failing to pay the applicable fine by the company. (5 Marks)
If the non-compliant listed entity complies with the Requisite requirement(s) after the date of suspension and pays the applicable fine, the recognized stock exchange(s) shall revoke the suspension of trading of its shares by following the below procedure:
If the non-compliant listed entity complies with the aforesaid requirement(s) and pays the applicable fine after trading is suspended in the shares of the non-compliant entity, the recognized stock exchange(s) shall on the date of compliance, give a public notice on its website informing compliance by the listed entity.
The recognized stock exchange(s) shall revoke the suspension of trading of its shares after a period of 7 days from the date of such notice.
While issuing the said notice, the recognized stock exchange(s) shall send intimation of notice to other recognized stock exchange(s) where the shares of the entity are listed. After revocation of suspension, the trading of shares shall be permitted only in ‘Trade for Trade’ basis for a period of 7 days from the date of revocation and thereafter, trading in the shares of the entity shall be shifted back to the normal trading category.
The recognized stock exchange(s) shall intimate the depositories to unfreeze the entire shareholding of the promoter and promoter group in such entity aswell as all other securities held in the demat account of the promoter and promoter group after three months from the date of revocation of the suspension.
Consequences for failing to pay the applicable fine by the Company: If the non-compliant listed entity fails to pay the applicable fine within 6 months from the date of suspension, the recognized stock exchange(s) shall initiate the process of compulsory delisting of the non-compliant listed entity 1n accordance with the provisions of the Securities Contracts (Regulation) Act, 1956, the Securities Contracts (Regulation) Rules, 1957 and the Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009 as amended from time to time.