Key Topics Covered:

• International Taxation
• FEMA
• Audit
• Income Tax
• Companies Act, 2013
• Audit

Updates

• Direct Tax
• Indirect Tax
• Companies Act, 2013

This article is contributed by Partners of SBS and Company LLP - Chartered Accountant Company. You can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

Key Topics Covered:

• Income Tax Act 1961
• Indirect Tax
• Audit

Updates

• Direct Tax
• Indirect Tax
• Companies Act, 2013

This article is contributed by Partners of SBS and Company LLP - Chartered Accountant Company. You can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

1.1  Introduction:

Profit potentiality, limited liability, tax benefits, free transferability would make investment in equity preferable, however there is other side to the coin in terms of high risk, market fluctuations which prudent investor should always consider.

Normal tendency of investors while making investments is to look at the track record of the Board of Directors, CEO and management team along with company performance and risks adherent to such company and industry. In spite of those measures, history revealed so many scandals, Inspite of impressive track record of the Board of Directors and CEO,investors lost their money, Enron scandal would be prompt evident supported by ZZZZ Best Inc, Centennial Technologies Inc, Bre-X Minerals, Worldcom and many other scams.

It is evident that, apart from the mentioned measures, an investor should also consider how risks are managed in the company, strength of its control environment and its effectivegovernance to make better decisions.

What shall an investor consider can know easily, but how? is a million-dollar dividend question.

Through this article I made an endeavour, how an Internal Audit system is relevant for investors while making investment decisions.

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2.1  Relevance of Effective Internal Audit

Though internal audit doesn’t assure any commercial success, effective internal audit in an organisation assures good governance. It provides the management and stakeholders with an independent view on organisation’s risk and control environment.

Many stock exchanges across the world recognised the importance of internal audit, they made mandatory for the listed companies to have internal audit in place. In India as per the clause 49 of listing agreement, every listed company should possess internal audit mechanism, same requirement is also there in Companies Act,2013. As per section 138 of Indian Companies Act 2013 read with Rule 13 of Companies (Accounts) Rules, 2014, appointment of internal auditor is mandatory for every listed company in India.

One of the surveys conducted by ACCA (the Association of Chartered Certified Accountants) found that more than 85% of respondents felt that the provisionof non-financial information (such as corporate governance practices and corporate social responsibility issues) would serve their (investment) decision making purposes and audit brought value for their decision making.

As described by IIA, “Internal audit is a key pillar of good governance. It provides the board of directors, the audit committee, the chief executive officer, senior executives and stakeholders with an independent view on whether the organisation has an appropriate risk and control environment, whilst also acting as a catalyst for a strong risk and compliance culture within an organisation”.

Presence of effective internal audit system will always provide better insight into the company’s governance and risk mitigation, on the other way we may not.

2.2 Internal Audit Importance:

2.2.1 Introduction of internal audit standards, risk assessment procedures by internal auditors improved reliability on internal audit for external auditors to the notable extent. There were instances where internal audit analysis reports made external auditors to qualify their Audit Report.

“Well-controlled, well-managed organizations cost less to audit,”“Internal audit is a key part of a well-controlled, well-managed organization. Our coordination with internal audit is very helpful in making sure that the work we do is efficient.”

-Greg Weaver, chairman and chief executive officer at Deloitte &Touche.

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2.2.2 Internal Audit can improve management and accountability, both financial and non–financial.Internal audit can be a pivotal activity to provide assurance to the board of directors, the audit committee, and the chief executive officer, and stakeholders that the organisation is governed effectively by

?Providingindependent, unbiased assessment of the operations of the organisation.

?Providingmanagement with information on the effectiveness of risk management, control and governance processes.

?Actingasa catalyst for improvement in risk management, control and governance processes.

?Informingmanagement what it needs to know, when it needs to know it.

3.0  Conclusion:

While making investment, apart from company growth, industry risk, management capabilities, Insight into the organisation’s risk mitigation, governance and ethical culture etch will always bring value advantage to investment decisions.

Though internal audit doesnot assure any commercial success, effective internal audit in an organisation assures good governance, provides insight into the organisation’s both financial and nonfinancial aspects which a prudent investor should always consider.

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Substitution of a new sub-section (9) in place of the existing sub-

section, there providing time frame, within which the director

has top refund the unauthorised remuneration drawn by him

from the Company.

Amendment of sub-section (10) of Section 197, relating to the _{Welcome Amendment, and ease of} authority for waiver of the refund of unauthorised remuneration _operations.

drawn by the Director.              The earlier authority of Central

Government, is proposed to replaced with the Shareholders of

the Company, who will have to pass a special resolution within

two years from the date the sum becomes refundable; and to

include a proviso to the sub-section that in cases where any term

loan of any bank or public financial institution is subsisting or the

company has defaulted in payment of dues to non-convertible

debenture holders or any other secured creditor, their prior

approval is required before the obtaining the approval of the

members.

Amendment of sub-section (11) of Section 197, the requirement ^{Welcome Amendment, and ease of} as to obtaining of Central Government approval, in case the ^operations.

Company is not able to comply with the provisions of Schedule-V,

for any increase of remuneration payable to the Directors.

Insertion of two new sub-section (16) & (17) to Section 197, ^{Welcome Amendment, to have} firstly sub-section (16) to provide that the Auditors in their ^{better transparency and better} report, to report on the remuneration drawn by the directors and ^{Corporate Governance.}

whether the same are within the limits or not.  Secondly, sub-

^{Insertion to give clarity.}

section (17) relating to the fate of applications pending with the

remuneration to the Director, other than in accordance with the

provisions of the Schedule.

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