Level 1: CA Final Audit – Chapter 7 – Audit Commitee and Corporate Governance MCQs

The LODR Regulations are divided into how many parts?

The Audit Committee under LODR Regulations shall have minimum of how many directors as members?

How many members of audit committee under LODR Regulations shall be independent directors

In case of a listed entity having outstanding superior rights equity shares, the audit committee shall comprise of how many director as independent directors?

Who of the Audit Committee shall be an independent director and he/she shall be present at Annual General Meeting to answer shareholder queries.

The Company Secretary shall act as the _________ to the committee

The Audit Committee shall meet at least how many times in a year

Which of the following is a power of audit Committee?

The Audit Committee under section 177 shall consist of a minimum of how many directors with independent directors forming a majority?

Fill in the blanks with the correct option:
The Board of directors of the top 1000 listed entities shall have at least ____________

The auditor of a listed entity ensure that no listed entity shall appoint a person or continue the directorship of any person as a non-executive director who has attained the age of how many years?

As per LODR Regulations A person shall not be a director in more than ____ listed entities.

Any person who is serving as a whole time director / managing director in any listed entity shall serve as an independent director in not more than _______ listed entities.

where the Chairperson of the Board is a non-executive director, ________ of the Board should comprise of independent directors

Assuming, listed entity not having a regular non-executive Chairperson, ________ of the Board of Directors should comprise independent directors

The auditor should ensure that the board of directors of the top 2000 listed entities shall comprise of not less than how many directors?

Which of the following shall constitute a Risk Management Committee.

The Risk Management Committee shall have minimum of how many members with majority of them being members of the board of directors

The Risk Management Committee shall have at least ___ independent director

In case of a listed entity having outstanding SR equity shares, _____of the Risk Management Committee shall comprise independent directors.

The risk management committee shall meet at least ___ in a year

The quorum for a meeting of the Risk Management Committee shall be either ____ members or ____ of the members of the committee, whichever is higher, including at least one member of the board of directors in attendance.

M/s Bajaj & Associates have been appointed as the statutory auditors of PNGC Ltd. for the FY 2020-21. PNGC Ltd. is a listed company dealing in the manufacture of iron and steel bars and it is among the top 1000 listed entities. FY 2020-21 is the first year after the incorporation of the company. The company has duly complied with the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations 2015. When the audit was started, the management of PNGC Ltd. discussed with Mr. Bajaj (the engagement partner) about the strong internal control system of the company. The management discussed about the whistle blowing policy of the company, the HR policies, company code of conduct and ethics policies. Mr. Bajaj was told that the audit team can rely on the information provided to them and the entity level controls without any second thought. The management advised the auditor not to waste time in checking the direct entity level controls and instead to concentrate on indirect entity level controls during their conduct of audit. Further PNGC Ltd. has constituted its qualified Audit Committee and a Risk Management Committee as per the relevant regulations. Since it was the first year after incorporation of the company, the meetings of both the committees were held twice during the year based on the company’s requirement where all the company’s important matters were duly discussed.
The Board of Directors of the company had their meeting four times in the FY 2020-21. Till first meeting, the company had 5 directors and two additional directors joined the company after the first meeting only. The statutory auditors considered its implication while certifying Corporate Governance as per SEBI Regulations. The annual remuneration of one of the non-executive directors, Mr. Sushil, exceeds 10% of the total annual remuneration payable to all nonexecutive directors. The Company however, did not obtain the approval of shareholders by special resolution. Also, the auditors found that one of the independent directors, Ms. Rupali, is already independent director in seven other entities. Out of the seven entities, equity shares of four entities are listed on stock exchange. Further, while conducting the audit, the auditor found that a Management Discussion and Analysis Report is a part of the Directors Report. With respect to the non-financial information like industry structure and development, opportunities and threats, the auditor was asked by the management to verify those particular facts and to comment on the same.
Since FY 2020-21 is the first year after the incorporation of PNGC Ltd., the company is in the process of exploring the market and venturing towards its expansion plans. The management will be approaching the banks for the purpose of raising funds for its projects. The management accordingly, requested the auditor to mention in their audit report or the compliance certificate about the entity’s future viability. Further, in one of the meetings of Audit Committee conducted
during the FY 2020-21, the internal control system and auditor’s report
of PNGC Ltd. were discussed. Mr. Bajaj was also present at the meeting and the Audit Committee called for the comments of Mr. Bajaj, if any. Certain important decisions regarding the changes in the internal control system were duly taken by majority voting.

Based on the above facts, answer the following:-

1. What should be Mr. Bajaj’s audit plan regarding the checking of direct entity level controls and indirect entity level controls after considering the management’s advise?

Is company justified in holding meeting of its Audit Committee and Risk management Committee twice in the FY 2020-21?

With respect to the meeting of Audit Committee attended by Mr. Bajaj, what all rights can be exercised by Mr. Bajaj?

With respect to the annual remuneration payable by PNGC Ltd. to Mr. Sushil, is the company correct in not obtaining the approval of shareholders by special resolution?

What is the responsibility of M/s Bajaj & Associates so far as the Management Discussion and analysis report of PNGC Ltd. is concerned?

What should M/s Bajaj & Associates do with respect to the management’s request to the auditor regarding mentioning about company’s future viability?

ABC Limited is a manufacturing company having three manufacturing facilities in India and ranked within top 500 listed companied on stock exchanges in India. Company marked turnover of INR 15000 crore and profit before tax of INR 2000 crore during FY 2020-21. Company has not accepted any deposits from public since its incorporation. Mr. A is promotor and Chief Executive Officer of the company. Mr. B, son of Mr. A, non-executive director of the company. he holds graduate degree from IIT Bombay and post graduate degree from IIM Ahmedabad. company has an Audit Committee, Nomination and Remuneration Committee, Stakeholders Relationship Committee, Risk Management Committee etc. in order to comply with Securities and Exchange Board of India (Listing Obligation and Disclosure Requirements) Regulations also known as ‘LODR Regulation’. During oversight of financial reporting process and its disclosure by Audit Committee, the Committee noted that Company has disclosed contingent liability of INR 200 crore on account of retrospective increase in wages of contract labours. Majority of members of Audit Committee were of view that such retrospective increase in wages is certain and company is liable to pay the same in near future and therefore should be provided for rather than disclosing as a contingent liability. Accordingly, Audit Committee requested management to revisit current treatment of retrospective increase wages of contract labours. Further, report of Internal Auditor of one manufacturing facility was presented in Audit Committee meeting by management. Internal auditor highlighted that the current controls for vendor payment process are not adequate (i.e. weak) and this poses a risk of fraud. Audit Committee members decided to appoint expert consultant to investigate / review internal financial controls for vendor payment process.
Stakeholders Relationship Committee of ABC Limited was responsible for looking into various aspects of interest of the shareholders, debenture holders and other security holders. Stakeholders Relationship Committee authorized Mr. P who is Company Secretary to deal with any queries and concerns of the Stakeholders. Stakeholders Relationship Committee last met on June 2019 and has not met during FY 2020-21 as there were no communication to Stakeholders Relationship Committee for any Stakeholders’ concerns.

On the basis of the abovementioned facts, you are required to answer the following MCQs:

1. Select best course of action to ensure compliance with Section 177 of Companies Act 2013 in relation to establishing vigil mechanism where directors and employees can report genuine concerns.

As on April 1, 2021, Board of Director would like to appoint Mr. B as Chairperson of the ABC Limited. You are requested to provide assistance to ABC Limited to determine compliance with Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations?

ABC Limited Company had not conducted any meeting of Stakeholders Relationship Committee during FY 2020-21 and there was no disclosure provided in the annual report. Company wants to know whether frequency of conducting meeting of Stakeholders Relationship Committee is in compliance with as per LODR Regulations?