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Audit committee - an overview

Page no : 2

CS Vijay Daxini (At Practice) (732 Points)
Replied 12 January 2012

txs for sharing sir ....it tis really helpful for conceptual clarity...

krishna Patel (M.COM. CA FINAL CS Professional(Final))   (420 Points)
Replied 12 January 2012

really sir.........

its a very useful article........

Thank u sirsmiley

Lovely kumari (Practising CS) (501 Points)
Replied 12 January 2012

abhi abhi padha hai ..... u helped in revising .............thnx !!!!!!!!!!:-)

Aditya Maheshwari (CA in Practice) (35817 Points)
Replied 12 January 2012

Thanks bhai for sharing this knowledge with us.

Resham (Carpe Diem !!!) (6535 Points)
Replied 12 January 2012

Corporate Governance was a part of recent exam syllabus.  Sir Adrien Cadbury was the key member to have pioneered the concept of CG.

 

What we had in course was about two to three pages on the same but its such vast implication is a boon to read. the kind of efforts that you have put in compiling, writing, disclosing the above is spell bounding..!!! As always it is worth preserving for future reference too...

Suresh Prasad (www.aubsp.com) (15565 Points)
Replied 12 January 2012

Thanks a lot sir, for such a nice Article on CCT .............!!!!!

*RENU SINGH * (✩ §m!ℓ!ñġ €ม€§ fℓม!ñġ ђ♪gђ✩ )   (21607 Points)
Replied 12 January 2012

maine ye sare corporate governance ke liye likhte waqt pad rakha tha angel

bas sec 292A or clause 49 ka comparison ni pada tha.

Language is smooth ... acha likha h ... well I enjoyed, rocking one yes

5 Like

CA Devender Chauhan (Group Financial Accountant)   (1526 Points)
Replied 12 January 2012

bookmarked............. thanks for sharing

Lekshmi (Chartered Accountant) (1255 Points)
Replied 12 January 2012

Thanks for the really informative and useful share!!!!

RG - A Helping Hand (Company Secretary) (13867 Points)
Replied 12 January 2012

Originally posted by : TusharSSampatM.Com CA,CS-FINAL

Very useful article sir ji....keep sharing.


Wonderful sharing Sanjay Ji. Thanks

Charu Srivastava (Company Secretary) (4205 Points)
Replied 12 January 2012

Thanks a lot for this post.

will surely help many of us. 

 

 

BALU.... (CCI STUDENT....) (44614 Points)
Replied 13 January 2012

Thanks a lot for posting in detail and sharing the knoweledge with us, East r west Sanjay ji is the best..CCI charming from legend like you people sir...Thanks for being with us and keep sharing your valuable knowledge with us...

 

Thanks

Balu


(Guest)
An Audit Committee consists of three to five members formed to serve as communication link among various departments. Audit Committee has a four fold relationship and therefore has to interact with management, internal auditor, statutory auditor and the public. The Scope of Audit Committee can be discussed as follows :- (i) Review of annual financial statements before submission to the Board of Directors. (ii) Selection of the Statutory Auditor (iii) Act as lies on between the Statutory Auditor and Board of Directors (iv) Administrative control of the internal control functions through the feedback between the Internal Auditor and the Audit Committee. (v) Over seeing internal central operation. (vi) Over seeing internal audit operations and feedback between internal audit committee and developing the internal auditing authority through broad based internal audit programming. (vii) Review and approval of financial information for publication (viii) Review proposed changes in accounting system and procedures. (ix) Help resolve differences between management, internal and statutory auditor. (x) Report on the audit committee acting in the Annual Reports of Board of Directors. (xi) Ensure reliability of organisation’s financial statements and operational activities. To be effective and purposeful, the audit committee should maintain the following :- (a) Audit Committee should have the independence of management, Statutory Auditor and Internal Auditor. The Board of Directors allow full freedom to the audit committee to investigate into any areas of operation. (b) The relation between the audit committee and management should be cordial and congenial towards optimum efficiency and healthy growth of the organization. (c) There should be a regular line of communication through occasional meetings with the management. (d) There should be good communication relationship interwoven among management, internal auditor and Statutory auditor.
1 Like

(Guest)
MANAGEMENT AUDIT (A) Definition Management audit is the audit to examine, review and appraise the different policies of the management on the basis of certain prescribed standards. It is not like a traditional audit but is a comprehensive and critical review of all aspects of management performance. “The Management Audit may be more specifically defined as being an investigation of a business from the highest level downwards in order to ascertain whether sound management prevails throughout, thus facilitating the most effective relationship with the outside world and the most efficient organization and smooth running internally”- Taylor and Perry. “The Management Audit is an informed and constructive analysis, evaluation and series of recommendations regarding the broad spectrum of plans, process people and problems of an economic entity”- Camp Field. “The Management Audit may be defined as a comprehensive and constructive examination of an organization structure of a company, institution or branch of Government or any component thereof, such as a division, or department, and its plan and objectives, its means of operation and its use of human and physical facilities.”- William P. Leenard. In short the Management Audit is a forward looking audit. It emphasizes on problem identification rather than problem solving, it pinpoints the areas requiring attention of management, it evaluates the existence of well defined objectives and examines whether policies are consistent with objectives and understood properly at all functional levels, it goes far behind the areas of financial accounting and cost accounting, it seeks to review, appraise and evaluate the corporate plans and policies based on certain standards of objectivity. Though this type of audit is made mandatory in Sweden and USA, it is yet to take appropriate momentum in India. (B) Need of Management Audit The following are the circumstances wherein the management audit is useful- (i) To overcome the human limitations of Top Management. INFORMATION SYSTEM AUDIT AND MANAGEMENT AUDIT (ii) To improve the management’s production. (iii) Circumstances of corporate planning deficiencies, organization’s structured defects, ineffective management control system etc. warrants the necessity of management audit. (iv) In the circumstances of acquisition of another business entity, the acquiring organization needs to evaluate financial aspects, technical aspects and management aspects and analysis of these aspects takes the form of management audit. (v) Society at large likes to be assured that the top and middle level management discharge their functions efficiently and to the best advantage to the society, the management audit satisfy the different interest of groups like customers, employees, citizens, government etc. of the society and also guide the management in the application of scientific methods of business management for social well being. (vi) The statutory financial audit is generally annual and concerned with the past without having any forward approach. Statutory financial audit and internal audit along with statutory cost audit are essentially legalistic in terms of time given for its completion and nature of certification fails to provide the insight to the management in regard to unsuitability of structure to meet the entity’s needs, poor leadership, inability to make decisions, poor vision and the enlightened managers realizes this fact and feels the need of management audit to identify the problems and guidance to overcome them. (vii) Foreign collaborators, while investing in other organizations feel the necessity of management audit to ensure that the funds invested are to be used properly for growth and expansion. (viii) Financial institutions conduct the management audit, while participating in equities of a company to avoid possible losses arising from inefficient management. (ix) Company itself feels the need of management audit to assess its managers’ performances and link an incentive system to the results of such assessment. (x) While advancing loans, banks like to get the management audit conducted. (C) Scope of Management Audit The scope of management audit can be as broad as the management process itself. It is concerned with the whole field of activities of a business concern from top to bottom of a management hierarchy. Management audit concerns with the appraisal of management policies, methods and performance, it includes review and appraisal of an organization to determine 1) Better means of control. 2) Greater improved methods. 3) More efficient operations. 4) Greater use of human and physical facilities and 5) Waste and deficiencies. (D) Management Audit Process Fundamentally the activities to be undertaken by management auditor in its review of material management, production management, industrial engineering management, sales management, financial management, general administration etc. include- (i) Collection and analysis of relevant statistics and reports used by the management. (ii) Establishment of priorities for various functional activities to be reviewed. (iii) Interviews and meetings with the senior, middle and supervisory management levels in order to ascertain 1) How plans are developed. 2) How resources are controlled and 3) How performances are evaluated. Who can conduct the management audit? The management audit can be conducted by – (A) Company Talent- Which may include- (1) An administrative staff. (2) An audit committee. (3) An officer on special duty. These personnel have sufficient knowledge of operations and talent necessary for the study, have no vested interest and are acceptable to other persons responsible for the area. (B) Outside Management Consultants- Who may be Chartered Accountants, Cost Accountants or Management Consultants having no vested interest in the company management, having no loyalty to any individual in the organization, having an impartial and objective approach, having wide range of specialties, have already developed the skill to carry on management audit. AUDITING 435 (C) Company Talent as well as Management Consultants- Considering the prevailing circumstances in a company a combination of company talent and outside management consultants would be a best team to conduct the management audit. The advantages of each compliment the other. Whoever maybe appointed as management auditor, should possess the following qualities- (i) Ability to understand the problems of the business. (ii) General understanding as to nature and objects of the organization. (iii) Expert knowledge of the principles of delegation of authority, management by objectives, management by exception, management control, budgetary control, internal control, flow charts, use of computers etc. (iv) Sufficient knowledge and experience in preparing different reports for presentation to the different levels of management including top management. (v) Background of engineering, costing, statistics, management accounting, financial accounting, industrial psychology, managerial economics etc. (vi) General understanding of different laws and regulations like company laws, tax laws, etc. (vii) Tactfulness, perseverance, pleasing & dynamic personality. (E) Advantages of Management Audit- (i) The company’s personnel know the organizational policies, plans, personnel operations, personalities and working relationships, the political climate, the functional importance, and some of the problems themselves. (ii) The audit team need not spend an unduly long time for familiarizing themselves with the background information for study. (iii) It may be easier to get the support of the higher management, because such audit in the form of selfappraisal apparently involves no extra cost. (iv) The acceptance of the findings may be comparatively easier because the concerned personnel may readily accept the recommendations from the internal management audit team (consisting of co-workers) than from the external management auditors (or consultants). (v) The implementation of the new method of operation or organizational arrangement may be easier because the personnel who designed and advised it are on the premises. The constant co-operation necessary in the implementation phase are greatly facilitated. (vi) The experience and expertise gained by the company personnel in the conduct of management by selfappraisal could be gainfully utilized for subsequent audits. (F) Limitation of Management Audit (i) The company personnel possess experience limited only to their organization. The company might have faced difficulties and constraints due to limited experience of the company personnel. (ii) They are more likely to take facts for granted and may not probe into the details to unearth problems. (iii) There may be a tendency to suppress unfavorable facts relating to some of the fellow personnel. (iv) The company may not have the talent necessary to conduct such management audit involving complicated studies. (v) It may not be possible for the company to spare personnel for the studies as these may take long time. (vi) It may be possible, due to conflicting interests that the audit work may be prolonged and as a result, the action on findings and recommendations may be delayed. (vii) The vested interests of the operational executives may prevent the management audit team from being objective. (viii) In a management audit scheme, the areas of investigation should fruitfully cover the entire management system, and so the situation demands the audit team to complete the studies under a time constraintwhich may result in not covering some of the important appraisal areas.

(Guest)

Sanjay Ji,

 

Pls clarify my certain doubts which proped up in my mind :

1.   In Article point B says

 

(B) Meeting of Audit Committee

The audit committee shall meet at least thrice a year. One meeting shall be held before finalization of annual accounts and one every six months.

 

While tablulated presentation in article says -

 

Meeting of Audit Committee

The Audit Committee Shall meet at least four times in a year and not more than four months shall elapse between two meetings.

No such requirement under section 292A.

 

 

 

2.  In article it is mentioned that -

 

II Audit Committee.

A. Qualified and Independent Audit Committee

A qualified and independent audit committee shall be set up and shall comply with the following:

(i) The audit committee shall have minimum three members. All the members of audit committee shall be non-executive directors, with the majority of them being independent.

                  (i.e. 51% constitutes majority)

Tabular presentation says :

 

Composition

Clause 49 requires that the Audit Committee shall have minimum three directors as members and two-thirds of the member of Audit Committee shall be independent directors. All members shall be financially literate and at least one member shall have accounting or related financial management expertise.

Section 292A requires that the Audit Committee shall consist of not less than three directors and such number of other directors as the board may determine. Two-thirds of the total no of the Audit Committee shall be directors other than the managing and whole-time directors.

 

Sanjay Jee, with due respect, pls let me know and clarify which provision should be followed because of inconcistancy ?

 

Thanks

 

Neha Jain

 

 

 

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