CLAUSE 49 RELATED SERVICES
Clause 49 of Stock Exchange Listing entrusts the management of SEC registrants with the responsibility of annually reporting the effectiveness of their internal control structure and procedures for financial reporting, and attesting the financial statements. Senior management must provide assurance on the existence, adequacy and effectiveness of internal controls – and also requires each firm’s external auditor to attest and report on management’s assessment.
Recent corporate scandals have eroded investors’ trust to some extent in corporate reporting. To reduce corporate malfeasance and protect investors, revised Clause 49 of Stock Exchange Listing Agreement was promulgated by the regulators in India. These legislations defined a new system of checks and balances to rebuild investor confidence.
Today’s corporate stakeholders expect greater assurance, more oversight and clear evidence of internal controls. The confidence of the investing community will only be restored after the gap between investor expectation, in terms of corporate governance and reporting, and what they have received in the past is bridged.
Clause 49 provides impetus to close the expectation gap by altering and expanding the responsibilities of key participants in the corporate reporting process. These legislations focus on improving the accuracy and reliability of corporate reporting..
HOW Clause 49 IMPACTS FINANCIAL REPORTING IN INDIA?
India took new corporate governance norms under the Revised Clause 49 of Listing Agreement which came into effect from 31 December 2005 and is mandatory for all listed companies. Some of the important provisions are as follows-
• As per the Clause 49, it is mandatory for a company with Executive Chairman, to have 50% independent directors on Board. If the company has no Executive Chairman, 1/3rd of the directors should be independent.
• CEO/CFO’s are required to assess internal controls and take corrective measures to check the deficiencies.
• CEO/CFOs are also required to certify the Financial Statements.
• All the companies are required to submit quarterly Compliance Reports at Stock Exchanges.
• A Compliance Certificate from auditors is to be obtained and annexed with Directors’ Report.
• Establishment of an Audit Committee.
• Clause 49 was revised to incorporate wider definition of independent directors and increasing the responsibility of audit committee.
• Whistle Blower Policy is to be set out to provide security to those who retaliate against wrong doers.
• Formal Code of Conduct is to be laid down for Board of Directors and Senior Management of the organization.
• Related Party Transactions are to be disclosed separately making the financial statements more transparent.
Clause 49 is an essential law which has brought discipline in financial reporting process. The transparency brought by this act is boosting investor’s confidence that further helps building a strong capital market in the economy.
What Ishtar Traders and Consultants LLP Offers
Ishtar Traders and Consultants LLP have developed solutions to help organizations reach the desired level of compliance as mandated by these legislations. Our service offerings cover the entire Clause 49 Compliance lifecycle, including continuous monitoring and review:
• PROJECT MANAGEMENT: We can help your Project Management Office in executing a project charter, building the project team and performing an enterprise risk assessment.
• DOCUMENTATION & REVIEW: We can assist you in documenting controls, defining test cases and planning any remediation activity that may be needed. Alternatively, we can provide an independent review of existing documentation, assisting corporates to document and evaluate internal controls.
• CONTROL TESTING: Providing assistance in developing Internal Control Framework, Performing key controls testing, Providing assistance in developing Risk Management Framework And also we can carry out an independent evaluation of both the design and the operational effectiveness of internal controls, helping you to identify control gaps and assisting you in their remediation.
• ONGOING Clause 49 COMPLIANCE: Our flexible resource pool can also help you to cope with the fluctuating resource demands of on-going testing and certification – riding out the peaks and troughs of Clause 49 activity with minimal impact on your business, Clause 49 Compliance lifecycle, including continuous monitoring and review.
• TRAINING PERSONNEL: Training personnel on COSO, methods of documenting controls, etc.