The document discusses new corporate governance norms introduced in the Companies Act 2013 that require Indian companies to establish internal financial controls, a risk management policy, an internal audit function, and outlines related responsibilities of management, directors, and auditors as well as penalties for non-compliance. It also provides an overview of Spire Advisors Pvt Ltd, a firm that assists companies with complying with the new regulatory requirements through risk management services.

1. Spire Advisors Pvt Ltd
Enhanced Corporate Governance Norms
Companies Act 2013
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SpireDecember 2015
Management Ensures
Auditors Assure

2. About Us
Spire Advisors Private Limited (Spire), established in 1994,
has been successfully carrying out its professional activities
to facilitate timely and prompt Risk Management services.
The core execution team consist of professionals certified
from renowned professional bodies that cater to the needs of
its clients in the following specific areas of Enterprise Risk
Management defined in the new Companies Act 2013:
 Risk Management Policy [Sec 134(3)]
 Internal Financial Controls [Sec 134(5)]
 Internal Audit [Sec 138]
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3. Contents
Sr.
No.
Particulars Page
No.
1. Preface: Enhanced Corporate Governance 4
2. Key Norms: Effective Corporate Governance 5
3. Internal Audit Applicability 6
4. New Age Internal Audit Charter 7
5. Enterprise Risk Management 8
6. IFC Regulatory Provisions 9
7. IFC Applicability & Penal Provisions 10
8. Conclusion 11
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4. Preface: Enhanced Corporate Governance
 The Companies Act 2013 has brought a radical change in the
way corporates are governed in India, with an objective, to
improve corporate regulatory framework and governance
model.
 The 2013 Act, has laid down specific responsibilities on the
Executive Management, Board of Directors and Audit
Committee of the Companies.
 The provisions are not just restricted to Listed Companies but
also extended to certain Unlisted Public Companies and all
Private Limited Companies.
 The 2013 Act has not only raised the bar by increasing a number
of Risk Management and Governance requirements, but has also
stated stringent penalties for non-compliance to these
provisions.
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5. Key Norms: Effective Corporate Governance
Risk Management Policy: [Sec 134(3)(n)]
 Board of Directors, in the Directors Report, in case of all companies must
include a statement indicating development & implementation of Risk
Management Policy.
 Risk Management Policy to include identification of elements of risk, if any,
which in the opinion of the Board may threaten the existence of the company.
Internal Financial Controls: [Sec 134(5)(e)]
 Board of Directors to assume responsibility for laying down IFC & ensuring
that such IFC are adequate & operating effectively.
 Statutory Auditors of all companies to report on adequate IFC system and their
operating effectiveness.
Internal Audit: [Sec 138]
 Every company, notified under the Act, is required to appoint an internal
auditor to conduct internal audit of its functions and activities.
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6. Enterprise Risk Management
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ERM was not mandatory under Companies Act 1956. However, as per the 2013
Act, there are specific requirements that “ALL COMPANIES” need to comply:
The Board of Directors, in the Directors report must include a statement indicating
development and implementation of a Risk Management Policy for the company,
which shall include identification of elements of risk, if any, which in the opinion of
the board may threaten the existence of the company.
The Audit Committee shall act in accordance with the terms of reference specified
in writing by the board, which shall, inter alia, include evaluation of risk
management systems.
Independent directors should satisfy themselves that systems of risk management
are robust and defensible.
Section 134: Risk Management Policy
Section 177: Evaluation of Risk Management System
Schedule IV: Responsibility of Independent Directors

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Schedule IV: That deals with the code for Independent
Directors, emphasizes the requirement for independent
directors to satisfy themselves on the strength of financial
controls and the systems of risk management and ensure that
the same are robust and defensible.
Section 143(3)(i): In the auditors
report, the Statutory auditor of “All
Companies” have to report on adequate
internal financial control systems and
their operating effectiveness.
Section 134(5)(e): In the Directors
Report, the Board of Directors of listed
companies have to assume
responsibility of laying down internal
financial controls and ensuring that
such controls are not only adequate but
are also operating effectively.
Section 177: Audit Committee should act in accordance with
the terms of reference specified in writing by the Board, which
should, inter alia, include evaluation of internal financial
controls and risk management systems in the Company.
The New Companies Act 2013
IFC Regulatory Provisions
Sub-clause III (D): Role of the audit
committee includes evaluation of
internal financial controls and risk
management systems.
Sun-clause IX(C): CEO & CFO, to certify to the Board that they
accept responsibility for establishing & maintaining internal
controls for financial reporting & that they have evaluated the
effectiveness of internal control systems of the Company
pertaining to financial reporting.
SEBI’s revision of the Clause 49 of the Listing Agreement

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IFC Applicability: Type of Companies
Companies
Act 2013
(Section)
Responsibility Listed
Company
Unlisted
Public
Company
Private
Limited
Company
134(5)(e) Director’s Report Yes Yes1 Yes3
177 & Sch (IV) Audit Committee Yes Yes2 No
143(3)(i) Auditors Report Yes Yes Yes
Notes:
1. While Sec 134(5)(e) specifies “Listed companies”, Rule 8(5)(viii) of Companies (Accounts)
Rules, 2014 read with Rule 8(4) talks about listed as well as unlisted public companies having a
paid up share capital exceeding Rs. 25 crs at the end of preceding year.
2. Rule 6 & 7 of Companies (Meetings of Board and its Powers) Rules, 2014 the Board of every
public company with paid up capital exceeding Rs. 10 crs or turnover exceeding Rs. 100 crs or
having an aggregate outstanding loans / borrowings / debentures deposits exceeding Rs. 50 crs
must constitute an Audit Committee.
3. Chapter IX of The Companies (Accounts) Rules 2014 requires the Board Report of Unlisted
Companies (including every Private Limited Company) to contain the details in respect of
adequacy of IFC with reference to its Financial Statements only.

9. New Age Internal Audit Charter
In wake of recent changes in regulatory framework, role of internal audit
has become very important in helping Board, Audit Committee and
Management to fulfill their oversight responsibility and legal duties.
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Reporting on Internal
Financial Controls Robust Enterprise Risk
Management Process
Enhanced Fraud Risk
Assessment Comprehensive Regulatory
Compliance Framework
New Age
Internal
Audit
Charter
Internal Audit function is expected to add value by highlighting leading
industry best practices, acting as independent advisor to all
stakeholders & actively participate in enterprise risk management.

10. Internal Audit Applicability
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Criteria Listed Companies Unlisted Companies
Public Private
Income (I) Always Applicable 200 crs & above 200 crs & above
Loan (L) Always Applicable 100 crs & above 100 crs & above
Capital (C) Always Applicable 50 crs & above NA
Deposit (D) Always Applicable 25 crs & above NA
Significance of an effective Internal audit function in an organization:
 It ensures business continuity with a continuous focus on shifting from a
person driven organization to a process driven organization.
 It is structured to enable both the maintenance of independence and
objectivity, as well as proximity to the business, to establish and maintain
relationships with an in-depth understanding of the business.
 It acts like a third line of defense that plays an integral role in the governance
structure aligned with stakeholders, clearly articulated in its mandate and
widely understood throughout the organization.

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Where professional or other misconduct by an Auditor is
proved by the National Financial Review Authority
(NFRA), they shall have the power to make order for
imposing penalty:
 Not less than Rs. 1 lakh but which may extend to 5 times
of the fees received, in case of individuals and not less
than Rs. 10 lakhs but which may extend to 10 times of
the fees received, in case of firms.
 Debarring the member or the firm from engaging
himself or itself from practice for a minimum period of
6 months or for such higher period not exceeding 10
years as may be decided by NFRA.
The Company shall be punishable
with fine exceeding Rs which shall
not be less than Rs 50,000 but it may
extend to Rs 25 lakhs.
Every officer of the Company who is in default shall be
punishable with imprisonment for a term which may
extend to 3 years or with a fine which shall not be less than
Rs 50,000 but it may extend to Rs 5 lakhs or with both.
Violation of provisions of Section 134 (Director’s Report)
Penal Provisions
Auditor shall be punishable with
fine which shall not be less than Rs.
25,000 but may extend to Rs. 5 lakhs.
In case such violation is committed
knowingly or willfully, punishment
shall include:
 An imprisonment up to 1 year
 Fine which shall not be less than
Rs. 1 lakh but which may extend
to Rs. 25 lakhs.
Violation of provisions of 143 (Auditor’s Responsibility)

12. Conclusion
 At Spire Advisors Pvt. Ltd., we fully endorse revisions made to the
provisions related to Corporate Governance by the new Companies Act
2013.
 We strongly believe that an inclusive legislation by the regulatory bodies
would go a long way in facilitating compliance and promoting highest
standard of corporate governance in India.
 Management at all companies must sense the urgency & act expeditiously
on these new statutory requirements that are in force effective FY 2014-15.
 This will ensure adequate assurance being provided to the Directors &
Statutory Auditors to report on the adequacy & operating effectiveness
of internal financial controls and risk management process.
 Based on global experience, where reporting on financial controls has been
mandated, it would be not be unreasonable to expect, that significant
efforts will be required to develop a robust and effective internal control
process to meet these requirements.
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13. Risk Consulting Team
 The lead client service Head for Risk Consulting practice, Mr. Prashant P.
Jain, has obtained his Certified Internal Auditor (CIA) designation from
Institute of Internal Auditor’s (IIA), Florida (USA). He is also an Associate
Member of the Association of Certified Fraud Examiners (ACFE), Texas
(USA).
 His overall risk management experience of more than 15 years includes
wide spread exposure to BFSI, Media, Engineering, Construction &
Manufacturing segment.
 Prior to his association with the firm, he has worked in various capacities
with top Indian NBFC’s, Global MNC’s and Big4 consulting firms.
 Most recently, he has been instrumental in setting up the Group Internal
Audit function with a leading systematically important NBFC in India.
 He is supported by a team of experienced professionals, that are also
academically certified by top professional institutions and includes
Chartered Accountants, Company Secretaries and MBA’s.
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Thank You
Mr. Prashant Jain
(Director – Risk Consulting)
Direct: +91 22 4315 3075
Mobile: +91 98331 76543
prashantjain@spireindia.com
www.spireindia.com
Spire Advisors Private Limited
5, Ground Floor, Onlooker Building,
14, Sir P.M. Road,
Fort, Mumbai – 400001.
Board: +91 (22) 4315 3000
Fax: +91 (22) 4315 3015