Taxmann’s Auditing and Corporate Governance by Taxmann

Preface to Fifth edition The focus on governance has been widened to include business sustainability encompassing corporate governance, business ethics and CSR. While corporate governance is a system by which power is exercised over the corporate entities, corporations should be run ethically for creating long-term value to all of the stakeholders. Auditing is one of the tools which empower the stakeholders especially the shareholders of a company by ensuring that financial statements prepared by the managers exhibit a true and fair view of financial position and financial results of the company. Besides enabling informed decisions, it gives assurance as to the efficacy of internal control system within the company to prevent and detect errors and frauds. Thus, auditing and corporate governance are conjunctionally interconnected. The Sarbanes-Oxley Act, 2002 in the USA and the Indian Companies Act, 2013 contain provisions to ensure independence of auditors and responsibility of management on the truth and fairness of the financial statements. National Financial Reporting Authority (NFRA) is constituted in India on the lines of PCAOB to enhance audit quality. It is our pleasure to present fifth revised edition of text book on Auditing and Corporate Governance for the under-graduate students of B.Com (Hons), B.Com (Programme), BBA, BMS of Delhi University and other universities. We would like to thank the readers-teachers and students for their overwhelming response and support to the third edition. The recent changes in the Indian Companies Act, 2013 and SEBI (LODR) Regulations have been incorporated of relevant places in this revised edition. This book contains eleven chapters. The first three chapters contain conceptual aspect of auditing-objects, principles, techniques including role of auditing in Corporate Governance. Chapter four lays down the theoretical aspects of corporate governance including the models of corporate governance prevalent in most countries of the world. Board committee is the important mechanism of corporate governance which is discussed in chapter fifth. Chapter sixth is devoted exclusively to corporate governance in India - the reforms undertaken, the initiatives of the SEBI, Government of India and CII in the direction of better governance of companies. The issues of insider trading, whistle blowing, class-action, shareholders’ activism and credit rating are discussed in the next chapter. Corporate scams leading to the collapse of big corporations is an area of concern worldwide. Chapter eight of the book presents major scams taken place in different parts of the world including Enron, WorldCom, Vivendi, BCCI, Andersen worldwide, Maxwell Communications, Satyam and downfall of Kingfisher Airlines. Chapter nine contains the standards and codes of corporate governance as developed in the UK, USA and also the international codes like OECD Principles on corporate governance. The basic concept of ethics is laid down in chapter ten which also contains discussions on corporate code of ethics. This chapter extends the concept of ethics to include principles and theories of business ethics.

I-5

N O I T I D E H T F I F O T E C A F E R P

I-6

The last chapter of the book is most contemporary. It addresses the buzz word “Corporate Social Responsibility”. This chapter discusses various views on CSR and also highlights the internal processes besides external standards relating to CSR. We are thankful to our teachers, colleagues, friends and the students who have been the driving force for writing this book. The publisher Taxmann and its executives deserve appreciation for their efforts in bringing out this volume in time. We would welcome suggestions from our colleagues and the students to make improvements in the subsequent edition of this book.

1st January, 2022

ANIL KUMAR LOVELEEN GUPTA JYOTSNA RAJAN ARORA

Syllabus

B.COM. (HONS.): SEMESTER-VI

Paper BCH 6.1: AUDITING AND CORPORATE GOVERNANCE

s e u q i n h c e t d n a s e r u d e cs . od rr pa ,d s e n l a p t i s c na l i r n po i gs ns i e t i f d o ur ap dd nn aa es ct nn ae nm re e r i vu oq ge er t l a a r g oe pl rt on ce fr o r eu gc dh ei t l ww oe nc kn ea dd i r v o oc rc pa on Ti Course Objective

: o t e l b a e b l l a h s t n e d u t s e h t , e s r u o c e h t g n i t e l p m o c r e t f A Course Learning Outcome

l o r t n o c l a n r e t n i , k c e h c l a n r e t n i r o f y l l a i c e p s e g n i t i d u a f o s t c e p. se a c tn n a en r r e e f f v i o d g ne et ea wr to e p br o ec t a l i l t a n r ee r v e o f f r i o d :f 1 d On Ca n a m r o f e c n e s s e s t i d n a s n o i t a s i n a g r o n i e c n a n r e v o g e t a r o p r o c f o t p e c n o c e h t d n a t s r e . dt nn ue :m 2 e Og Ca -

. s m a c s e t a r o p r o c d n a n o i t a s i n a g r o f o e r u l i a f o t g n i d a e l n o i t a m r o f n i e t a l i m i s s a d n a e d i v o r p : 3 O C

y r o t a l u g e r t n e r e f f i d y b d e d i v o r p n o i t a s i n a g r o n a r o f k r o w e m a r f e c n a n . rd e va oo gr eb hA t d dn na ea hi ed r n pI mn i os ce :i 4 d Oo Cb . s s e n i s u b n i s c i h t e f o e c n e s s e e h t e s i n g o c e r : 5 O C

Course Contents

l a nwn oeo i Cv i t lea r a nrN re ; e e) t PB n O I ;A e ,c g C nnP i a( n nd nr r ae l a vo P o tg B i d t h ueg t a Ar i s ,o t r i pe d urv o AcO g fnn o ii t sn nr oo u i to t i a c cdc u i f AA i s y s fn a o a l C ep l ;o m g nRo i C ; t t i i c d . i d ) l uu b A AA uR flPF o at ;N sni e rd( e y ut ut qn Ar i i I n fo o h h cdwt ene u Tai A dkvg c e ne n r i ah tr t sCno e e ld l p a p e i nnR c e nrp e l i t ei a r n dc PI nn c-I i a l s d n o a ni ra Bt F Unit I: Auditing

,g r ro n e i vta t ocr gef r i ed o t e tl a n r o oer pds , r onm cer p i ef dd nn y r aI o tds n i env d maa eey r gu x at o nc r aup r, Mt ,sd s dn e ra l a p m i o s c i B n; v i i r t ec pc na da r nn e ar d l eeo cvh noe agr cea i th. f a i s n r n ;o s gon i i p t s roc i ,o A t g cc nf s ns i oua n l asfC ee l r i , Md e g hn :ot e i cMdw no n adal nnsb rae e e et st l ve s ti i or i Go mh eemW h t s Toe a r ;cc i oe d pcr n rna e oa og Cnba Unit II: Corporate Governance

. e s dBe N i r wPu l ,i ds l a e r nF oi e lt Wr ia nAr ero s p er r ho e sC di nfs Agu n i ,K o ) i A, r a Ss v Urn (ei h t d mo e orc i CBt . no d aN l r oms Whm e ,el L ) b , Ad o St r ULP (se nec ocn i rv a nr n r Eee S ,r v ) o Ke UtG (un npo omm i o t m C a c o m i C n a; uy s i ts ma i mSr ,C o) p e Cc u ln o l e ar wrG F x( S ai F Md& n L ,e ) I vd Ki UVn (,a I)s t CAi S e CU H B(

Unit III: Major Corporate Governance Failures and International Codes

I-7

S U B A L L Y S

D C E O , ) K U ( 2 9 9 1 . e) eA t S t i U m( m2 0 o0 C2 yt , r uc bA d) aX CO S n( ay i r e dl Ax rO i s S e :n e ca nb ar na rS e d vn oa Ge ec t n a a r n or pe rv oo CG ne ot sa dr ro a p dr no aC t f S o ds nl e ap sc i e

n di o r I-8

, ) 9 9 9 1 ( a l r i B m a l a g n a M. ) 7 r1 a 0 m2 u( Ke e ,t ) t 7 9i 9m 1m ( ) o I C I Ck (a yt r o t s uK y da nd I nU ad i d n na I ) f5 o 0 n0 o2 i ( t a e r e e t t di em f n om Co -C s y mh t rr ou f e M r da nn aa y sa e r va i t N a i t R i n N I Unit IV: Corporate Governance Framework in India

d n a s n o i t a g i l b O g n i t s i L : I B E S , 3 1 0 2 , t c A s e i n a . p5 m1 o0 C2 , f) o R sD nO oL i s ( i v s on ro pt i tl a n au vg ee l R e Rt s :n k re om we r ei mu q ae r f R ye r r ou t s a l o u l c gs ei RD . s n o i t u t i t s n i l a i c n a n i f g n i k n a b n o n , g n i k n a b , r o t c e s c i l b u p n i e c n a n r e v o G e t a r o p r o C

e h t l a c i h t E ; s c i h t E d n a e c n a n r e v o G e t a r o p r o C ; s c i h t E . fe o e t et ci nm am t r o oc ps mc i Ih ;t s e e ud l n a Va s dc i nh at sE c f i h o t e Ed so s C e ; ns i s e i ur Bo Unit V: Business Ethics and Corporate Social Responsibility (CSR)

t sc s e e p ns i s A ul Ba t dn ne am Rn So r Ci v ,n y t E i l i ; b y ap no i r a h t t s n ua . a Sl i id eh t n PI a r en ot i pa rrR ooS pC Cr do; nCR adS RnC f Sao CRs ;Sr y e Cv t i l i ,r i e b cD i s n, na R on S pr C se e vf Roo lGs a t e i i f c t e a or n So epe t rb a od r n oCa p s rdl one Cad fRo o SM tC, p ,R es ccS i C nh ot f CEo

Contents E G A P

Preface to fifth edition

I-5

Syllabus

I-7

Chapter 1 u

BASIC OF AUDITING

Chapter 2 u

INTERNAL CONTROL

Chapter 3 u

ROLE OF AUDITORS IN CORPORATE GOVERNANCE

Chapter 4 u

CORPORATE GOVERNANCE

Chapter 5 u

BOARD COMMITTEES

Chapter 6 u

CORPORATE GOVERNANCE IN INDIA

Chapter 7 u

103

SOME ISSUES OF CORPORATE GOVERNANCE

Chapter 8 u

125

MAJOR CORPORATE GOVERNANCE FAILURES

Chapter 9 u

164

CODES ON CORPORATE GOVERNANCE

Chapter 10 u

172

BUSINESS ETHICS

Chapter 11 u

197

CORPORATE SOCIAL RESPONSIBILITY

I-9

S T N E T N O C

I-10

E G A P

B. Com. (Hons.) CBCS (2018) Semester VI

229

B. Com. (Prog.) CBCS (2018)

230

B. Com. (Hons.) CBCS (2019) Semester VI

231

B. Com. (Hons.) CBCS (2020) OPEN BOOK EXAM

232

g n i w o l B e l t s i h W

s C F B N d n a s k n a B n i e c n a n r e v o G e t a r o p r o C u

U S P n i e c n a n r e v o G e t a r o p r o C u

s m r i F g n i s i v d A y x o r P u

n o i t c A s s a l C u

m s i v i t c A ’ s r e d l o h e r a h S u

s e i c n e g A g n i t a R u

g n i d a r T r e d i s n I u

SOME ISSUES OF CORPORATE GOVERNANCE CHAPTER

CHAPTER OUTLINE

s dd er no i o w cr se a h wt o dn ni ad yn au l o p f ls u n oo f i t aa et t o a n cn i d o nc i e ov t i t sa e g s e un ee eh r t e f d e i r o av ea o l t t s t i . ” s h i r wv e i l t t t mc a oat c“ ri f r v si o e c ” vS s i e r Uh e dat c ,i rr n e es wd “ oa” , l Ns b r ehe l p t m l s a r i h Rf o wyn i b“ ms s r0 e 7a t 9 h e1 c hn u Ti s

TAXMANN®

Whistle Blowing

r/sw udnl a cno, i cat s a o r n g o oe yi t l t t l a i a a l v l u i rg t u c gie e ae hr lrt o a ,et ge elk( u a l y l r l i ma l . ) r, s owyne a aru tl e s m s t a e s x nfse i r oo e e rh h n o w so t i )h on il d t t daboi eleiw o t l t gi a d evsz i e l i l ahn n a r ae ,eWg t b .r c c n on uyo o dai ec t nmp hs t o u t p cc rnu s uri i o h mdot r nci g so dwo e cnet s s alr oi p , pms oo x a ei ednp o d i oet re hga e e l wl hm lo i t e nav o h oeyot sht t T r o e e ,t f . e pn a , l s osp e ai i dmc stn a i an za xe rn i e heg watra l g a t or on l f oe( b e h en,ym l l d a l t e a s c nun i a r i h r r o e wgf f t n n rn i Ar oi e -

o o t h t w c , u d n o c s i m e h t t r o p e .r y ny aa pm em r a s or sc e r r e w i . we o s e ohli b t l c e b n l n i eh t l e s t ti g s i i wha h t wrWn o .e tr s i s e m i oe t e pt i Mu c nr .s l o ef a r no rn re o e e e t s w yn x a eoo l rlsr opre e lmp h a t ne o rwer d e oi o t l s l n t r e i u o efot ba a o l nt yo u at g te c mc r ruu, d d e a n i wno d ooc e c l s s b im eim , m l s t r s tr te ir h ooy wppw er ea Ar l internal whistleblowers External whistleblowers

. sn’ ye 1 l b vrt . it e al chn non te i ovo n si cwm a e d t ae ea g r a tn g h a et ni i n ca s n oo i om a ss ir tt s i a asam hm i er t tr rI o u ‘ no .tt of c n i c n t ouu i a i r d t t mra s n rozt o i onn n c f oae s n i i d t g i a r nm fu l oe , o n gnpo ee aei r d t ur p n n i srh i u oot nr r l siao c s wwhc i ayg, d l s u t i e e y o r c hn r oh i t t ah c eftta r u bo r i aop r n l n f c oo s oa i i e m t t e dn a s n zo eu ov i t abnt draau etrgo r n s ooog uc n n onk i a mft i n a rop i e e eu h t p c t s nri r ae owi s sd c g i t i , ni t gvn i s o nee d i emdr wb go o e n o l gow b t ar e l esnwp e a l t tm vm s u e i i i sos h l i e b n Wb ma I

What is Whistle Blowing?

. e f i L c i l b u P n i s d r a d n a t S n o e e t t i m m o C K U e h T . 1

103

d n a m o C d l r o W f o r e p o o C a i h t n y C s r e w o l b e l t s i ” h . r wa de eY me h at nf eo ns i z n a o gs ar me P “ s t i s ,a 2 0n 0o 2r nn I . E mf oo Cs dn l i r k o t Wa dW nn ao nr r oe r nh ES : s w o l l o f s a e r a y c i l o p r e w o l b e l t s i h w f o s t c e p s a y e k e h T

d n a g n i n o i t s e u q r e h t r u f r o f w o l l a o t s g n i o d g n o r w f o s m i a l c h t i w s e m a n r i e h t g n i t t i m b u s

f o y t i l i b i s s o p e h t e s a e r c n i y a m s m i a l c s u o m y n o n a e l i f o t s e e y o l p m e g n i w o l l A . n o i t a g i t s e v n i g n i e b s m i a l c e s l a f f o y t i l i b i s s o p e h t e s a e r c n i o s l a y a m t i t u b s g n i o d s i m f o s m i a l c f o g n i t r . od pl e ei r f

e h t h c a e r y e h t l i t n u y h c r a r e i h a w o l l o f o t , y l e v i t a n r e t l a , r o , r e c i f f o e c n a i l p m o c a s a h c u s , n o s

e n o h p e l e t e d u l c n i y a m s m s i n a h c e m g n i t r o p e r e h T . s r o t c e r i d f o d r a o b e h t r o e e t t i m m o c t i d u a . s e x o b n o i t s e g g u s r o , s e t i s b e w , s e n i l t o h l i a m e r o

t c u d n o C f o e s d r o o t C i d u d A n f a s o y n r e o e c i t b n a s i e l r e d u b c i g n t g d n e e n c n a o p R i a e i t r f d n t d p n y a a n o r e l t o n I s n T t i i m a e c o f r p s i n m o i t e u t s h d o i r a a t k d f u r h c l e r i e r c a o s s s o h a n r a i i i n C T H U F D D L V I

s u c , s r o d n e v , s e e y o l p m e o t d e t a c i n u m m o c e b o t s i y c i l o p r e w o l b e. l s tr s e i h d l wo h Ae r a h s d n a , s r e m o t

gr ne i l p i f n i na i t r we oc l l a o f o dt l s u m oi ha sc l sr e i ee yh ot l t p c me r ei sd s o e t cs or re pw eo hl t b sl e s t e s r i dh dw ae dr l i u u oq he sr yy ca i l m o s pn ro e i t wa oz l i b n ea l g t s r i O h . ws Am i a l c r i e h t

e l b a t r o f m o c l e e f s e e y o l p m e e r e h w e r e h p s o m t a n a e t a e r c o t s i l a o g e h t e s u a c e b t n a t r o p m i : e r a n w o l b e b d l u o h s e l t s i h w

s si i h y t wl i a yi t nn ae fd o i f tn r o a pC tl . n a ai t t r n oe pd i mf in no ac t sp i e yk t i l a e i b t n eo dt i s f i n y ot ct i ’n s r e e d wi s or l b e ew l t o s l i b h e wt l s gi nh i w t c ee t h o rT P. y c i l o p r e w o l b e l t h c i h w r o f r o d e t r o p e r e b o t d e r i u q e r e r a h c i h w s e i t i v i t c a r e p o r p m i / s e c i t c a r p l a c i h t e n u f o e m o S

m i a l c . h at i ga nf i d l i o f o eg nn oi yg nn ai t tc a a hs t i re e h ms / ie a l h c s t i a d h at d en da us l c t s ni i x de l e u u os hs si yn ca i t l a o h pt rf e e wi l e ob l b e el l b t s a i n h o ws a Ae r e v a h t s u m

, s r e m o t s u c , s r o d n e v , s e e y o l p m es . ei e gt av i r i ut oc ca nt en e ol t u sd du oa hr t f e f mo s ee dc un l a c t ns i n oi st l r a o dp l e u r oo ht ss yr ce i d l l o o Ph .e y r t a i r h os hd t u n aa

nni n oos i ti tn c a o i es l t a r o t e r e pp r r d oee t nuc ode i f nf t a ea ni ve i mgh iet r y bb c s se i r d s tei w n w e o r l vb e ee h r t lo pt se di l hg u a owt h n sea yhv cTd i a .s l s o g i pn d ri y e on wda ogo l n b t eot l u trp s w i h g tn r Wo i e pb er r o ob ho wj r se e h e/ ys oi l h p g mn i es tl o s nm i a o gr af

r o e h t n i . h n t i o wt i a sz l i a n ua dg i r v i o d e nh i rt e h vt oi cw s ds l e u n oi hs su yb cc t i l u o pd n ro e wc o oh l b ew l s t s e i i t h r wa p Al a n r e t x e s a l l e w s a n o i t a z i n a g

Process.

Communication.

Disclaimer.

Non-Retaliation Provisions. u

Confidentiality.

Define Individuals Covered. u

TAXMANN®

n i s l a d n a c s g n i t n u o c c a f o e r u s o E p C x N e a A i N d R e E V m O e d G i E w T d A l R r O o P w R e O h C t F o O t S e E u U d S n S o I i t E n M e O t t S a d e r e n r a g e v a h s r e w o l b e l t s i h W 104

Time

Components of a Whistleblower Policy

E C N A N R E V O G E T A R O P R O C F O S E U S S I E M O S

ho ch i w h wn ,o e s cr ne ep f f a o . lor t a e li nu c i f mff imo r rt c a n th i e e m dne o at i c mc r o saf a yn hn e 2aw 0 g a 0n l 2i a ,k t ao c Att re yo c ef n l ,e x n f Oo f -s o s il e a nrr ape n bi d rs e a Srf ,aa wet u ayo 0 l e1b c a non ato npi rut e a vdm onr Gao ef en n t i i a f l r u oyf pbh r t e ol u Cb r t Sas h Us e i rn d i e v duo npr sp Ui

dr eo dr ae r b t m ye l c m i l b y un pa , fy o c sn e e eg ya ot l n p e mm ee c or t o nf on i e t c w ea t o l rr po sy dr o nt ea t l x u eg e 2r 0l 0a 2r ,e t d c e Af yy en l a x Oo -t s d e u na ar bf rt a r So p ee hr t o fh o w 6s 0e 8i n na op i t m c eo Sc ny on i a t a f l o u s gn eo r i sa t i h l o Ti .v e ef yo on l o p i t ma eg i et s he t rv e n vi on ya t n i r i os t hi t s u s aa r yo r on so i i v t r a e pm ur so f hn t i i we d ni ov so r r e pp yo nh aw rs or ,e s w s o e l r b g e nl t os Ci fh o w et ea t h t i t ms e ma t ot cs mm oo rc f de eh t t c f eo t o t rn pe g ea r a r no or , i t o a t l c u a gr et r n ro oc eb l u u rs , Cr o Et Sc a yr nt an ro oc , se r e e y do l o l hp em r e a , hr se ti c s f nf i o a gy an da uy ab r f n oi o t t ga i nl i a t t a e l e r r f wo am l r l a o r f e y dn ea f

e t a r o p r o c g n i c u d e r d n a g n i w o l b e l t s i h w n i e l o r a e k a t o t s e e t t i m m o c t i d u a s e r i u q e r o s l a X O S . y n a p

, g n i d r o c e r e h t r o f s m s i n a h c e m g n i t r o p e r p o l e v e d o t s e e t t i m m o c t i d u a s l e p m o c , 1 0 3 n o i t c e S . d u a r f . y l l a i t n e d i f n o c d n a y l s u o m y n o n a s e e y o l p m e y b d e d i v o r p n o i t a m r o f n i n o g n i t c a d n a , g n i k c a r t

o t n i e m a c h c i h w 8 9 9 1 , t c A e r u s o l c s i D t s e r e t n I c i l b u P e h T . o s l a K U e h t n i t s i x e s n o i s i v o r p r a l i m i S o t e c a l p k r o w e h t n i e c i t c a r p l a m t u o b a s n r e c n o c e s i a r o t e l p o e p s e g a r u o c n e 9 9 9 1 , y l u J 2 n o e c r o f : y b d n o p s e r s n o i t a s i n a g r o t a h t e r u s n e

e h t y b d e s s a p l l i B e h T . t n e m a i l r a P e h t n i d e c u d o r t n i s a w 0 1 0 2 , l l i B s e r u s o l c s i D e h t g n i k a M s n o s r e P

s n i a t n o c l l i B e h T . ’ 1 1 0 2 , l l i B n o i t c e t o r P s r e w o l B e l t s i h W ‘ e h t s a d e m a n e r s a w 1 1 0 2 n i a h b a S k o L e r u s o l c s i d g n i k a m n o s r e p e h t f o n o i t a s i m i t c i v t s n i a g a s d r a u g e f a s e t a u q e d a e d i v o r p o t s n o i s i v o r p y n a t s n i a g a n o i t e r c s i d f o e s u s i m l u f l i w r o r e w o p f o e s u s i m l u f l i w r o n o i t p u r r o c f o n o i t a g e l l a y n a n o

s r e w o l b e l t s i h w o t d e d i v o r p e b o t n o i t c e t o r p e h t s s e r d d a t o n s e o d l l i B e h t , r e v e w o H . t n a v r e s c i l b u p . r o t c e s e t a v i r p e h t n i

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n o i t s a d t r n a e z s a e H r p y e t r e s f i a S M t e n c e a m l P e t k a r t o S W l a f c i o n k a c n a i L F u

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dfg n eoi t ed s s i l lu o ebh has t fn ooo t rs taa f ee e Fr l e s.h y i ct gl i no e i b wpo s oi t l h s b t m r e l o e t f e s i s d h ea t wp t t noe oed . yvny caec v i h i l l l o s a o pen p i enoe s a hp r h t e t fmp g o ori n ncot oysn i e e nr t p m oaoe dmcl tsp ao em fn l t o i ,t e y el m s ce o i or tt o a f hn es cu l e p eto i r n ho ea t f pp ,n y ym U r o.bo t e c a dme s di i h ncn t aea d mo hf co -t n et oy s nnmo a am gp k hc n c m i e oua Bc sb m s i n a h c e m g n i w o l b e l t s i h w g n i h st : i l a b h at t s s e e d ni v oo sr np ot i sc i A v oe rh pt f co i f i 7 c e7 p1 sn o ei hc t t e sS a hy . 3n 1a 0p 2m ,o t c c Ac i sl e b i u n ap pd e mt oi s Cl ea hy Tb -

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stne nco h rut it e d f a cn zo no i n oc mo cf is t toc r r i e oev p pdt r eos i c a r nh si o’ a C y t g na sa e e h epst d ymr o oo t a l cus p s ge mee hf et c E ac C rfsa N ooet A fnt c N moae i R ui r tq E s a i l V no ed O ai dw G hvao E crrl T eool A m,fa deo R s O audl P fai rva R o f od O C ndrn pa e ot F i O t o, cs m ue S t l p s E i a i U tsdn . s ” u S n s slae S i I ruhs E eooca hec M hls m O tas l ue a S et e r n uciho santt i n,afp erpoe u m lc oo di i x l a v c u ve oa a n hhe i h o seT e b h sl e .w e t y a t i c c i sm n i i l e ah o e tp pe ym mn soo l ouc C p i ct h t mi ut eo h eed Tbrfu “aooA 106

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. r d n e e dix i d i s n nu m i s oi er s t uan ase cem ele buc r ser i o hf sT i n h .e n To d .i n l ta a gay emr l rt l i o n sfu i n o i ne c oh o i t tt a y or mt t sn rs oe u f co n i cc eam deo i v s r a f nh i y l ntt oon n a doc ed i f s i a on bh g i gws nsy i r r d oa at v r sd t e rvn e na di x i re s e l nh p i t m so e o i o r c t t e rr n i ua a ofg cnn i sud usa oir g i t r n a i r d e va d nt i rs I -

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Functions of Credit Rating Agencies

s e i c . f nf ea gt as gd ne i n t i a a r r yt y bl eh g di ah me h st e i y t i b r ud ce es s s e ec ho t r fp o n to n i et ma sm s r e o s f s n a i ee hh Tt n o d e s a b d n a e l b a i l e r , c i t n e h t u a s i

, s xr eo t ss i e sv e i n c nis . ede e gd i an t i r geu t nn c i i t e a es r h e yth y bb t f de o el db y i t at v odo rnn pak t tr s y n t t eei d mn w su e s h e yt s l i s s d a a n eea hes t r Ta r e hd cn i u h wo t se l o s i bt r me yp s x ge no i t n a r e v fa o sh mh c ri e h t nw i f do ee s s m e r o ps

s aee gi ed t de i i r lu v owc roe pn s ske e h e i t c s i nt p er u geapk c gxi e ne p i t y ha a t r hm yt bi s r dwo edt s de i e dv v oin rvI o pr . s tp e n i e t er i r ma u ssc s r e oe s s t s . s es a e /ehc gvtn n nI h e i t .i t r s a e wf r r ode et r hsep Tetk a v nii s c i o r es r s ha i t e h yst bnr re tu n p t ee s mra tdt s nn e vae nkm i ss t ri e orv f en hi st i s r a no bof 1. Provide Independent Opinion.

2. Provide Professional Assessment.

3. Provide Easily Understood Information.

4. Provide Basis for Investment.

E C N A N R E V O G E T A R O P R O C F O S E U S S I E M O S

se e h i t t i r r ue cd en. s s ue eso hn t t or i i rt e oa h t gt i i n l n obo mos rr i ye e l s h w ut o oi lr ul r fo nu i fb t n e ooh ctt e s sn p e i l e i p c e nik c es s gi g adn rt i ge a nd i r t ne a uh r st er n he Tww oo rd r g on bi r ee hw t so pl ef eo r ka te I f .e mh eT h. t s e yi bi t r du ec t a e r s 5. Keep a Discipline on Borrowers.

kde v cni i aa t u ln qe r eve ket ala l t k sy ni ar n cea s m h r ote s t h s s t e e g s vs n na o i ,ym s l e a k i c t e i i c r i uuo cqh eyc s as eme hst t a t nrl i o os i t c se a g f v nn o i I s t l a . a e r g edn a hm i t t a h R e t i b. Wot y tr i tu n c ee ms td s e e t va . nr e i l eb eh a ht l t i fa to v u s a on br s t aun t se e nr m of t i os s i e ev c t ea n dr i ney eha vtm i p g er s se g o k no t s i t t e a rv r e n eh i ht , t d e yhe l d wa s u r oeg d uc i n ne w i t do n ond cag c n ss i we e ei b t i i v g r eu n r i yct cea nsr eea gse o ah s a gtc n ni i n t s i a r r , o . e es y t l t p he i t r svmu n a Ai c x e ee s hr / t t on , s Fe e . i m f t i f u r o r ut t ci s el n li s e / e s s t h ot n t er g mo n i l utl rn e t s ef s nmo i etk s he n t vh i ont t i

1. Facilitate Investment Decisions.

2. Facilitate Review of Investments.

sn r e ov t i s g e vg ni n i t ea vr i t h c eg. piy sHc . or t re p pu u sr es k hi n t ea hb ot t f afo eok s ds s i i e r nn ai m h etu r vo m i g i wn ti si e dm i e c nrd ecn g a ady n t gae f nha i t t s g a n f Re o r e t s c ln a a i r c u ns as na i f n fa o s ee ei v r g g ey di t r eu hc t e ts u oa bo at

,sn s ei r ce e kum odi ret brr kse i ci ohh T t t s . . e r fsve n o a u o s s eiy s s cc i i i ae v emh dd t at sf r eno o ket s ss ame t t e tsvn e n o i vIh nn .r t diso egnw o eni i t s nk i i d c sae e e m r d i t c i t e r e l n ui h chet ewmn s to s s t ns e n i v y o ni sl i a r t onga t an m s ir e yk t vi o af nr n I uti n ci e es h s r t eo g t hs n t e i rv s on y l sia r en e kha ntd afn o bs a tt g n rn aot i hfc f ce e r l l eo e hc mt g un ri t v s a nh i s re i e i t hi t r u rc oe f ss g e h nt i t t a p r e tc i c d ea r o c t hd gn i e h t er s vo at hs e tv a n hI t . st r e e k ur sa s m I / e s e h i t n am po mr f ot . s s Co e t ca rr e t s we or l e tt a n si dw no ul ft ta e k gs sr i t n s es e ml

TAXMANN®

s r o t s e v n i e h t f o t s u r t d n a e c n e d. i e f g n oa cm si e e t t a a er r o c p r go nc i t s a e r c tn i d a eh r n c e hn gr i u Ht n i s i h T . y n a p m o c e h t t u o b a r i e h t e c i r p n a c s r e u s s I . s e i t i r u c es . s r so t t b s ee dv rn oi f w te e kn re a h t mo st e t t u a eo r h c c a ge nr i t d a r n ta i s d g en r i Ct a r e h t r e p s a s e u s s i / ns wt on ne km ru e r s t s s e n l i r di ne ah t sr e i o n f as pg mi n oa t cr dh l e g i hh yf l o e s e os l a C c n i s e i t i r u c e s s t i r o f s r o t s e v n i d n i f y a m s. e s i e n i t ai pr u mc oe cs

e h t e t a t i l i c a f d n a s t b e d r o f t e k r a m. n eo t i a s en r a c p sx e e i c nd en ga ah t gw no i t r a g r r to i d f ey r l i Cs a e e c n a n i f t e g o t s e i n a p m o c 1. Improves Corporate Image.

2. Lower Cost of Borrowing.

3. Market for Debts.

4. Easy to Raise Funds for Closely-held Companies.

5. Aid Growth and Expansion.

109

Benefits of Rating Agencies to the Investors

3. Safeguard against Bankruptcy.

4. Saving in Cost and Efforts.

Benefits to the Issuers/Companies

essey e e r hi be i t r n o v t t man e opusm e rmoi f t o c o i sc c r tu t e s eo b b c h et es ms df a eonsh s Its h. i t a e sbi g e r r ne dc oe n ufe t r sog t gs s i e nl a i a u e k g i s echs n i enti t f s a y a nor si r e fsei t n i v d n oed i ant e rr paa oc sg ms iff t oel o b n no ci el e nh lmo t or a er p eoi r e i c h nwcut n t q i i ad , r es l a eprh i brdyt c nrf de o a nh o t at tu t s l se t ks u a ce rs s t es e e hstar n cai sa as i e e s i htA ec i t dnt . , s a i eei e v i ogedc ra nn pgmIe n ogg st i t na e a i nie c d nro t u h i i ed l t n c i ge f p no ar i o gcs e dn nes l . i r h t t Teoon r a y .p wb a r t t x te r i keedo d h ep erdtt a r nfa m Cmao ri

Dubious Role of Credit Agencies

. r oPPm F&&r f .SSi s , e udyh l n oa r t i a b n l usio e dcms i i g S ev n br.t i e s t oSb a t r s e ” dr de noy d t us a vr oe ag f ve t nnhn eIde s e’ nm by das t so se a e hos v n sMsi o e ,l “ i e s c t ncei engt gaup arhe F e k g t n i y ni p l i lst a t a e a I s r d n fr e y i o vn t i a al en l Upa o rimm edor hnca t e eP ,vhf i s t o e e cVfs nfop aoga t enl l s i nst o p a i c ar l yl e eh no h ac t t mfe e r o d o nea f i e ,srb a g y l cns e y t nwa a i n,od d e ul 0 t t p o 1 r omni l f t adn n xd iu Ue

. s e i c n e g a g n i t a r t i d e r c f o e l o r s u o i b u d e h t d n i h e b s n o s a e r / s r o t c a f e h t e r a g n i w o l l o f e h T

ge h nt i t f a o r g. gn ni 8 i r0 d e 0 i v w2 oo f rl o po s i nts i di r rac e ee hl t ym o ai r hmp c asb eeu r hus s t d i s n we a r epn t e o e s r pe n mh E oTf c . o s ni e e en s t a f ac o pe smh e t o i c cn n i eyd gbe adt a gec nui s i d t s i n a i Rss e i a t i w r us ca es s d er ha t d on t a t ss e cg i n v i r t a e s r

se ey ha d i t v wo ml r oa p r e f r o nu s osl a i s t e . s a t r e s s pi i e l r a ece n ehe t r t g n i esa d ma g t e os n t i ce c t i nra l e i f rn t sn ,o e visc e f l o o me r vtt io nc i i lym f sn no e i oat c e ncMs eo.i gtsr t i aef e s o v gi i r nrp g i s t e h a s v c t r i i i fg h o ww s i lh os e dTri e g o. n o mmt a p sesm h s e t i e o nycc i sbne e udg h a Be t t o g a r nt i s gt e a nr c i i e v er bh e st s e i ny n r aoa l psl t i mi s c n ox cea

s ee ho t yd s bt n de ei t l a c gr ee i r g h et s m do er t f e l s p e i mc n oe cg sa ne oh i t t c ny ub fd e hv ci r e a c ee s . rm e ee r dmh not acy nb si e td l a a e h s n t ro g i i e s ss h, a s t peg n eri u et e kc b tus r s t g us n met i ka si l r e i se c l h nlt eat gWc a e e s f ge f nn a i t it a h o RCn . 1

d n . a s t y n t e i i l l i c b a r t i e n . u h s t r o o c o t t c a a s l e u e c g c . i e n d v r e r a s t h e e s o k n l g c r e n s a i i o t d m t a y r d e e l e h n v t t o a o y r n u g q b p n e s m e i d i i r a c e e n d e e b n b g t e t a s r s u m u g m n o m i s t r s e a f i e r c i d c f n e n o e r e g r g g a n a. b a i g g r e e o nn d h t in i e t i to a b y n r o i t fc t b m o s d n u e r eu m v e c f s i ne e o s c ah l e c i nt e c rn n r e e s b e e vi g e y o d l a f c g n g g u e o e t n i n h r a i a t t s r a a p os e p r r r n e e e ra h h h or T T T Ct . 3 . 4 . 5 . 2

Suggestions

Shareholders Activism TAXMANN®

s eg nh et n edi t r ea e l R e wu . s sfe e hi i cc c nin ehe gwg asa geg. i n t ni d i i t r e t a u s a r p c r a teyl s i b l d o d n ee c e r t vl y E c a i C tlg e N ae t A hrsa N tegm n g R 1a i i t t E 1g l a V 0t u O 2rr G yoeh hi c E rmt h T a A uet R nhuw O aTot P J.he k R n8t 0ir O i 0wa C d d 2 m F e e n O ti t e e S r h k E oSr t U pUa r S e a S remo h I n E otns n o i M s et i e O s s S inbe w m et i vr i moa d ol t u hc Ce te ymos r lne i a d u i m l qc u i nno r I p a sncb i s i s i f u i s r ei s Chr e ltch l f a t a i o i c d nsce arnp e n a l l ne b ia i F h f 110

1. Competitive Pressure.

2. Conflict of Interest.

ra yei bce t rnha uets u er of l i ce v ni d o ai l hyvo h ea oe bm t r ssn ta ’ h n r es oe i l dml t l e a a o r g y oha b pe rrn oaan chmo s ahhd e tt eci ciwo nh v ewee unur l g i f oa n sl t i y aa naih awdt cs s ml su a os r r o e f o r de p l go o mnr hu ip g en r nl a aa her r m sa tr n hee o cr f i e mo h he t wT ge .au ns n i r s yeas anmi. 2 r s ww a g odl n as n u i a c t sa i e i t s e sr r mt a op m sht i g c l v i eaa r i r t u tn ri c aidun e rhfoa b o t e a’ s dg d l y s nr o nn i ar hs a o i ec bep r c r m a n e eo hx o hc Se c t

, , ss e e d s r v h e r n e i t r e r t kd i a e ne s al i c morgon yheepo cewrtc n r i oae a l d o p s h c n r ps ea do r ln fa e t o Ac a a u l i .o nd e s u r cg oi v e i v ne r t i di er n d l e enueo l t i hhh f t rntet. a g s ne eoifri a e o s i l hr hi cn t ss t t ei e oa l gd y v vp t i nl at i o i m d r a ei r hv eo ot ue tn c i t a r r p hniay a i m t ah b s y y cs g e c e d si nv i hl lt i e i a o a t d et , hp pu s ce o e lod nR dc i a. n n nha ny aa i ws rl p s kr sn e vwmrori o o o t oos ol t t cwe gs s u l tfeveo ei v o t n e s ne a lmi b i a a r fl l r t r oa o i ae f p, p ltnh s rt s a a ot e os cg i ci f yerto e u v l t t ni t i l n t i i e u t a i h scq s s a e r T n r hi e e ee.t e dc s v fee l he h n o o i t r t n hao nf g a ent o o r n r p i e t e i t a t m c a c hvu r eho o sob icttf fgr o s o i f r et s o t p e n n ta s o n e o g r a eo n h c n c t i e mphn s y m ergo do n gout ir a ac o a n gdhcw em n t nn h uop l n Eaa ft i

: g n i w o l l o f e h t h g u o r h t d e t s e f i n a m g n i t t e g s i m s i v i t c a s r e d l o h e r a h S

t e nsr a u e I t hu c a .i t s t s emec r i r a o n t uea r s pe s h p nt ,v ms e y n olori l e c a t l ga r si c n n e pe i o up smt i ose u rer at g sagt i h e r go s s nt n i lmi s l a l de e i o t e h rvn n t T ak. i c n oltod s a l cn bb e u g eo ,n isd ht t a e d u gh ri l t o ot c n t shas i n h n n oIyci o e . h ms s t ’ r t p O oo o e t t cEk s ee C n c cv i o t r nse t oi e s f cgd e , th nse n r t a al on nt t lr i r sm oaee pfvva o o nx mtg i e is le e ea nr t r n ae a o s etri e n o t r c i p u a i er t t sh c oia t r otcsr n r t ei p s oc e , g vfnsn e n e nu i i i t ur t l n lrf a snnu u ni o i o oc y n i c c tna a u a t pcdd , e i t mspe s d o non g l i c n e u ee a v fe hh h ld Tt a c

Institutional Investors

m o c . a i d e p o t s e v n i . 2

E C N A N R E V O G E T A R O P R O C F O S E U S S I E M O S

. nhyis cct e wi s i c l n oh i o i t rwpe c i a e nshr t hi t sitp y hetgr u i n s n i ot ia a l t n t b p en h um u gsl po ueo .c orv K p r . er eb U r h o sI )f dta I s nfh o Cd ad r .(a .r A aKsd . r . U S o on . t bes a U t e hes eh v t ht d n n t e fi I h nos l i s teai sc l r emnb o op riu t t xe p s u e e t Hi o vy, tl s s neA . i na lh. I t s S a t. fa na o U h oh ls i i ec t w e u h i nn tt t i u ua t onop s nti m C i F e . gsEe o nhRc c i c nc d C i i -al ah n ewAr b l u ,Aep ys I v ne To S ad,g e U Mol ee .cpt ’ e a s h m ca r r t o onx n t aepi a r n l g rron u geoct i evF s n o r .oe t sgs v tn e a en t i ve da orn s ooimn -

leee eeta g e a s v g k hh n i gt ua i t aaa v t t r h c dts m u une aad mosoaf f r ern c m e a ceeetd n nw hsl r s e r r o o aomto e i d h npmns t t n l rgoo eu t ea er e c s n o v a vi edn t hhhm oo r e r ,sisste Gv l e a lsoh a l b eep r b nao t t n s h o a s me o t i os i t r c ti i a i d e or t u u vwn pexnt t rxeai n a i t n i oerps t , oe s l Cdomn i f n c t fn,oiiaa n n ‘ ) e o c a c 8 o a s h i i 0ht se s0 n e n t e r t du u l i n i e 2w i t c p v i ( o mv i i t l os eeyr o c o mg d np n t pI i oui oe l r g i gCo t o.ca Pn b ss i l e e d i l r s Dt a t vo a e n i o i Con d t p o e v c Evi r pd u rbas o r Oi o i r c e emor e t Ch eh , ot s e ht n antnc Ci t on afc e.r ti gt K s o a s e a nt . a y t i egm ca sUn d n s r u,eeeluio a e d l f nhdd c M u r d l neTlo e e u C . c i v er s p o nt r e ee heheiu i dt T d h , i i s nnsT o . a s wi s e b pr i .snn e dom s a o e t l e t d cas o r p osolv v r i e wrcot me’ o r k c h e i t . aobt ss heee s e etrjhmcme dv fabt her onohofot me s f i ci t o sl t o wdn lg ea y a e i nn gs t t tr’ n a i i a n c l s ui otoi or r a e i i b d ot b t t e e d i u n n pu s d en mi t rt ar l odo i n t ot t ls c e o s ah a cs dp tt nrnri e -

t sc e i ei e s o s i pyt r n gr e ee nednr a oee eat r so h u ht h hno i a ‘ctst Mtgtucadms

TAXMANN®

)ne. to fi sesedos ds cehetCi v eu sr t e r c g a d k v ’ i o a t mn a n l b aMi ndr f e p e . i e h A e d b m msutdeng ( n l f l h s l e e os ceuroiasot r ’ l i d e h t e i cu goi n t b i e e n r e s edn oh o aog r uwee h i h d e r a r t a tgut d p h n a p h c s h q ndl n t o aa r s r t m i I nan t , i o t o s row i nud n o t j c d i r f i oa s a s Ce eo e e efe gm a h t l s k n h l t v i k n s t a r f u e n n c i r n e ou r i t b l cua efi v t e t o m o s s l s S m n h v uupe asi ea e ‘ t m e y nmev.s n u s l o r g v i t nmstra oe i a a e r r meai i n f f i t rnSy o e onv u shhei i a t i f r i h l e s e t yt t pc i Myt euhiu e,e s b cr n t ya hmhbtmi t se t a n no t t n e m ri r i f s f at i n hr s eo e o nsr senserte f i h h e r ree A h s sv n t v t s h o e t a n i ly t t vnht o ns yul oi sg oiws i euoabot i s s gesu g dnf v r i b d e ehemcc unl neo n t i i o e e t i i ’ l a dt fn ltfkhaml y s c a r e eea e ssg h oopesaal d m pt hsrnitrt as n o p h e p rsmTn a i n‘ gua oeo.i ethmli r f u u f s c o s r s ce c t lmo rcg a a nteruni o f r t c n e b i a i t nuys h s ec s sr i sit nn tna yr ’ t r enee iy uaouac oh v e t tinkvensdvmpn h s s a g i e e mi g o , t e t e p nfm r un g, r vci oy e o iv net ca eampss o i s t o r i i stdoric eew o l ve a c I e n r a r h w a o r t npdbt oIedBe o g r n E x oonmnpna g h n i e i a S U u r n o t i T , oew.0 i re i k u nni t t ty,o .o l t cn s ascmf a i n1fi t i t i o n o t os t t s a0sc rw 2 noampetsp e f i an e b p s d i o t nr hi i r fa hmc rp n it lpoa o ncfowf o i e r r t o e do egca dncs r l r d l I i l n e h a e eMu o to i .or t repsr h s s i f p a r utngegh eorao o n i o I r e p i f l he t fo i n s e .t Fo t sps n d a a h v , e . y ynelpoh etdues i s u i n t l s a t t n deu t ms t ra e a s mrm n i o i l g r eeofepc rbroen c u l r h p o h i s i a i s c m t a f t l e o e eql r s r rheoh foo i e ho od ns Pt ctpcbt t ti

,ee fend fgdi sno set rdo eo r r I hieva nn)hh e a i t t . F a h t e s a r A r g e hs u st c e n n i .i o ds c s S e r t i a i r o l t ye e ns n, c t t l i Ks b eo ea r et a ae n nU rh ae natscho a o i e t a t grs n(dtrdr n dsTm m nee t e n g l e i r n t . n c on o v I ns pi ne,eooe s ri r e i i o f h v o t he ot t t n i e p gi eo oa s rt i n ig odba i irr n f e s n g e t a yh s aapo r naecaptn o t h i a i p l t i o t e or s ss tdmc n u c a i vta s m r ot etot cnnc i I e esgnooAtspai a i n f n n ’ a r r n c r p c m f v i s fa go i vi od a a oins lrr o i sgtaaoeracsdr rte i s t d f p p naf e n o i m a yucl o d o t v e f oer d m o i . bi s i o srg o t s n b v h m n a e p n o d s g i u i a e s e c v t e uo-i d r t d o r r s h h n g s i nea ot Aae nei t dtf h a v e c i h l Sdvf t sin r ndb in y n d n t S e e e a K f av a o e a B i o t t ona o t r K U n m e m a s sind d . s a i i sr s ne U e , r s a t c t d t s e y e s or s e t o I l n i i l i s e e i n e h f h u e n . e t i aT ma vno r h t s ke s a s p) r r ogi rp Tt i e si Ao rotg.epr c a w y a . y h t S c p oe me el i l mlsn t s e r c e sh e A a m h r s e i r s ohafoT (e t t e c o n a s nvhcdeoiI n n n l r o e ho s t . n t sc i aopmtBaoiu y i r s i , o E f i h e t n o n t e y t a h o s i ers a mSen r a dw s c f r i r m st l e ec heo p e c n s a t v o h f e m sosut hcnrehdof l hl i s p n e T z s i dosh ub ea o s r e o e . b s o d n r o s o c w Ae pc de i r t a os t n y v e n e ,gt ph n l h l d e t spritnnngaoi o n o a n i o e e r s t w c i i ye i uc e erdeevt t tal t p h p o i l i a r mr a l tnlfsnu n s e e ci notnp auionuaq h e o hi h cdno aecrmunhpoe r wt w r a d e e b r n m m e i a r t g v z e r a a se v i e haofdroo ngon e v n o o e o r t c t c g i e i a d n f r g e a rdSa tt e z ca l t hman n obeg i e r n t ea i o nerl e di dtmo ho ukl in waodabr-t p n u s oca t e a i e n nA r t eo orar cl es ph ha us e. fm ttst tl e p t n dbs e c ue e dhmemi,ansdnm y e h n e r t d l ort ov peAtli s o v o a o o e t r n oa d c n f wn nd s i r ,t oe i l gde i ov heph l e h e g i s b n r o t v r mngest i e r n g h e n eo,oa mn i i t l K u i e n i ec dtl a tz rad , 0hnid r enp6sadada,hnioee n p e e l i e f a m hwm9i cr hi an t k i t oa1amvli s r o i g d e t h n a oe nx ur or fn e l nk hU nr l nl o ei cpt I Iwcoi

Shareholders’ Associations

111

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:gddsr ss) o nne n nnsf e i oi oby aoc i t s s r y usyxu i i e r e ab c c bn e o eem; gsi c d d s r t t eh ye e n ens h t i gmeet a n a e i cr r r ,moo s oeee t t l my s phh vae r t s l i vwp t ows on p op c y p i ra sd lnami l r a aa e d t pi ednon n b a c , r s eme ;a ss moppnnt s o t g e a i acsn n s t os deri i e l s nhov ag i g utyiu ra ffraqno i g noawckjn a n a a ; i s i i s l a ml r ; d t e e regm r s e ; s bo n e a s s i e e Cm(et a l s r v eo enc it i l l s mone i r c t t i d on e u el l;j lo i a l b ho n t t ooep si s i p fe r: p t o raa oo a sfcistd c o g s d g o n e r ngn sn a i a is t nz io , e i ias s b esr e u f s o v ma . hober h y pt s y e t ey n e u s ng hb l a e ac an t p r ;i i fse tpz em r o m r i ca e r o i o ref r o b c f g e c f hd n e wmoi ot h t oedd unt pmensaaf r ee;lo e g a s e e t vh mn t t i i p i s a a p s t i m u g h uye a ; ic sc l l g b c e r n d ; pi x r s e e g ed d narbun e h i eai d svr i g hmn i o c w a t ke s p ack e er eh e aar r fh po a acbt t ) 2 ( .nna l fg o t nain e c ei t e ct s e o i t m erv e o a od nmbt eemtn hhehu t t gf Mi ef n ri . voy ea i axh t e r cdote r n ee ec pv r r oghao a g t h f teu y g h o h e n rh gth i i t dtT r o enr.v l l haoo l a t e t emnps vioao s at r dp hden f o snpat a r n mh e i ei be g g c ndr mai r s elt p oe e Mge v si n .i dg m nt t l e ac a er hA e mn fs e eeoi hgwn t eoa ghhp ntsm i dyo y nbC f i eee c t th et o pa vT s o . ,l st l g g tn o nh i p i t ge t y i e r eb ee mg mh n ltei h t a et . o r s v e v t n naa f o ehko i s gya i ec ee s eh pae hT scd t ) 3 ( t sys a r hau nm yi nd arM po . aGl mr E a t ot i cxnp eEaa hfrc o t o f g f n g i n i no t Mi i o l t Gl i v a s Ac i p u u ndq an ei d la r l a a ep cmh e e od Th t . t )om Bs f e o Llt t Cai n (yte n dae c rmg a r osre Brep e m 0 de wl 1 ao t Lhys n a yeae nr l aagt h n pS a i s m.s g u n oMc i CGs d l io e hAdh t r n or s oaf t e g )d yn l Ml i p t o Gh pc au Ee yd(r anga nh oi mc ts rn e y e bieb d mdMe e l et a n l r mu g e i an s yf ee ne AdGb TAXMANN®

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. d) ry i n h a t op wm to tc s e a h et l tf a o ( s sr r oe t b c em r e i d m ey hb t td n e i t o n pi po ap p oa t te) . h s ( gbr i oo r t etc d he e t r er i id vu aqe heh srt r se i e v byo mnm eae Mpr m .o o t ct h cg i l i b r ue ph at e fv o a sh r oo t s c l ea r y i d e h fT o ) 4 ( s d i o e h ss e s xr a i f a p d e g nn b ai o s rs t oa d t pe i d r i uyu abq y e en r ha t e pr tm a n i o y o cn pe a ph p at m ofo t o tsc h e rh ge i bt r f emo hes t t mn e . veuy ahon ca htc sya p b r lm e da be o uc mvn e eonh Mmat eef .r ho e T g b.n g i nn t at i e ce e se m r oma l t lr i a d e urn Aee n .eg n l oga e i u t hn a t r n ta e nae unh o mt i t t eu r la ) 5 (

. ey bn oa t p dm e o r c i u . e n qh o et i r t f a so i r a dgl i nc a i e t pe d ee e b m h olt t f a dro e s nn y ee a dg d i v l0 i a d 3 eun n i hn h Ta t i . e hw t d tn a e d yi nv ai pd e mh ot ce ei v he t c fe o r so r t e t bh mi g er me h et he t v ya bh ds er ve ob rm p pe aM ) 6 (

c ei r l a b su e p r a a hf so ee s s a a cc nn i i ( ( es t e a r ca i f h i s t r f e co r ee r f a f ho st h eg vi i r e ce ev r i e oc t e tr h o gt i r ; es hee . r t a r e h a vsh a r s he s f ss u r n n e ao br b mt e eov t i M; e ) .m c e rr oo f lt a d cn i a s y ; ) hy pn na i p dm l e o hc ) 7 (

e h t f o n o i t c e t o r p t a d e t c e r i d e r a h c i : h e r wa te c s Ae h st e i f n o ae pm mo oS C. s nr ae i d d l no I h e er ha t h ns i l i sa nt oe i r s i r v o oy rt pi r yo nn ai mm f eo r a t s ee r r e e t hn Ti

n”n ori e i s ds tl c e ol eh l e er rro oasd f he e et sSp e n i dl uo lr i a v p omdp rSna p“ a t(se c sub r oy Ae ha sd e ltm i y o n t r h n ae o t ec pr mawe r ohti s f Cl d o el a a e hm uh Ts l c a u tvS s l. g a s nne oin i mma op an mfm ooo rsc f e c i r l ra b oh t u s c egp r d n i e i d t d s l ’o i s l r ha e drn l e i o d ) ho l y eh n r a ea hrp sam o lhc s l a a c ms i l sn b aau e p fm o a

1. Appointment of the Small Shareholders’ Director.

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Companies Act, 2013

Right of access to Documents and Books

Right to make Fundamental Corporate Decisions.

Right of participation in General Meeting

Right to appoint Directors

Right as to Accounts and Audit

Right to participate in the profits of the company

Shareholding Rights

suo motu

h t n e t e n o r o s r e d l o h e r a h s l l a m s d n a s u o h t e n. or s te s d a l eo l h te a r fa o h s el cl i a t o m ns l ea ht t o nt of po us r re od l yo nh ae pr a mh os cl l aa ym bs

f frro oo oo t srfys. l t r e n a i y h s a naf n gs i a eupf r l bmap sei oem r r hT cho e f T etc e n ne hi .ht ot t h cn nt teoyo f c mtbi to y Ael oa t p gp g sa u pni e i t i n ad s g n n aaneei v r pmae nd scti n mi snri omt eow Crh r gsfo t eoi k n sf h r l Tygeaa t i nmnn .r i e a t oo u ec j b r a vg i sr mfa r T e o ybe etf hn imt h t ed ycoeo rmMt -be .n d r np o r o o i 0 a t i i eo s 1t t s e b a e g r nnep i pi e l pdmhi t l f oo r o e o t fht s o sa l e n r s so ao r ct n h e a lcc t t e a t rn r a i y o u d ms e b h t r i ne n T r i i dTo . l so y epn r p e hha a de T/ p l r . o em a s hh s vo es e oc r r 0 a dme h0eeh s1r rt nfafy e t oohoi . r r i r d t a t c o o n p ht urj a s oes c a o e e smnb m r e t h i I n d vi eat .h i g d g o y e ntr nn tpi n e t p a c o ohat Aav s c nwr seeo e ol e hvimt i e t t i n a t eco e ara t t r t s pol n i e mfueydl s s nme eb oo sh ure a Ci tn cpt t ea eol lu fr va ht o e n t Te ftr meo c a s egyl er e t o r t e ie pstr y es no nw r jao oa i cp lat a i lg nysma b n o t t or i i ph i t p t o g o ai r av oe a l ptnrca e ooitr t rvesa o pebeh t l oh e fb stsh o l aa pt mu r f meyof ri af do es t t nmt an s a n y pe s r s eec r t r e ted r r e p oe llf og f p dnoim9 aihd r s e 4 y o oarn a n t t yhan e sbs p v e e rymce i t n e g orn i ahr e t ocp i pi v menf a ,io1h 5 os s m r cr s o r moge n et t i c c e he d d t el t l s r r oo i i y od d hh s t 2. Protection against Oppression and mis management

3. Appointment of Directors by Proportional Representation.

e eh r t a hy sb s ye t i s r s oo nl i e mh t dr no af lt l r a u mo sc ro e t wm oi pa l mc ea og t n ti n g en i mr ub ry t s b ny i l ee hi v t t sc i e l tl i o u sc s nt oh i g t i c ar r si s e . a hy l t n C r a op f m to h gc i f a oo f t ss r n e o di l t o c ha

TAXMANN®

ersees s e s w ubehho t t r a l ei nl dr cme a neretn omrhno a i maowd t yfnn c y mb oea t oy r f s me cl a s a aepmdl v roec i ht e t e chcmh i wettat l s o , slnost e noa i c mh u od set s se e r y w r u t e b a a s n pe . sdli y t fs nenu t o e r r o w r a s rp i uo t e p j w c ee n br ra ai e l n ms snhe o i s us erg l a e nn e l r n boi C eo e s i s gs eh h.v t r r a wr a e agn l p, tuhni o af i i soucogd s e nhnv w p i ouwiwr l t a l o ol l ebs n a l r l n ep e a tgn s o r os a e aor er e ht t iippeb t u i ts fpo eo i d r dt u ssaares r i e gr t wh sb ae e atai b l n tmmm r aIma . o uae sp rpndm i uf h e oseg cs h rr r a s t e g a ea f f l af l f o i c a o sd le l a l da sl a i v af l reh e ouTdot o s n v s s o.a n n p t i I , m ug ro s. i e a rnnyl t a o o t g i wc a trt e mawaeh h gm t a at e l l fo fa aa l l no Ai s class suit

class action

4. Class Action Suit.

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Class Action

sel yg dr hli n ee t t u t a ,fw o nm s a o i i s g d odee i c n rr I cr op uf e ,e ns s I f e h. Su i t r d s t , uUy s n e r a e uo hh r ot f t t ci nh ndei u h c ra si t e r h t eoow s t t h e s s e wtyv , t e s r g nr na a i op i ec t em l p eeha r t i r d c e i n nd wi e i e h r e r oe t ph r dthho e,w w y f hn y e sa i s nmr l pa au b ampco t omsc s c e e omr l a c e l l ya e h e t wth g a e aetSl u ,s feo s o hn e nlt s ae a rd ccne a t h wenf o a . a ans s o i l r e n d yt ,e s o n ni o p i t rIa au l a n psa l i i t u mnr i e p oeu oi s i gso ct n ha rcant oani o f tm sat s sa mcud t bn a i l yssa u sces e n kl a gd nI au o. rc i a S e mr t c hr o f a aUtf de seodn h h s de t t a eoo n l na C nwt i

s nr oe i t t o c em t o o rr pp es du i o v l ou rp pu r oc t s en mu ie t th s t r i m f o er hf t s re og f : sas t me i u d i sav d ngo on r i ip t c mt aic saA l s c e a r l h c o t f dt f o ei cu 5 us4 de2 l oi n rf t oi o n t t i c 3me 1eS 0h . 2t s ,ge t i nn c i Al a b sa p e m n i n eo ay c pb f mso ors r Coo t nst c aee v i n d r i i ne d I h et d ho n Tt a

r yg eneo hidf e t s rr fbo i o e t ,r s i r ma s e o e b y p hn me t a d e fp o r m o sm s o s s t a ci r l e c erb yhom t nf y ao ne rsam or e iph m sa r f ot oa f f co t i s eef oh hl pt t a ef h fe do o b rt s oc t ny : s rue ol d on r le t e a i m t o s na n oci un p ereb, o i s r hT dt r t ,n e s o ed et r hr e ml t o be a eg i mg r c n eai oi mndfw a e u o j bl r e omr l no ep rh of e i e btrth a e mtnct a i l f ehnp t o a mn py foman o i ana n ar ri n e p eo boii l dll f mee ,a uht s g ntcr n u f o i ho t di k c ns e e ur ooe Sa cps ) 1 (

s i h c i h w t c a n a g n i t t i m m o c; y mn oa rp f ym no ac pe h mt of co em hu t d nn i a a r r t o s e m r e om t

s ’ y n a p m o c e h t f o n o i s i v o r p y n a f o h c a e r b g n i t t i m m o c m o r f ; s ye l nc at i pr ma or co em hu t d nn i a a r r t o s e m r e om t

r o s e l c i t r a e h t

ultra vires

t fn i de i m o vt e sa a t s yns ai pm my ob cd e en hi t a t fb o o sr e l o c s i tc t r a a f rl oa i r me ut da nm af r oo n mo es i ms e er hp t p gus ; ns r i y o r t bi e t s do l a ep s ns e oa d i pr t u so l a o s swr e e n r b o at i m eu e r lm a o l s c e e er h de t ht o ot t

s i h t f o s n o i s i ; v n o o r i t p u e l o h s t e o r t h y c r u a s t r n n o o g c n s i i t h c c a i ; e c m hr o wo r tf f cn s ai r n g o a t n c i ge e n r b i ie d o s dm t i i t m d o e n r h a f t y yr n no a af p pw a m ml o or c ce h e et h ho t t ny n i i n a a a r r t t r s s o e e r r t c o t oA t

e h t y b d e s s a p n o i t u l o s e r y n a o t y r a r t n o c n o i t c a g n i k a t m o r f y n a p m o c e h t ns ; i r a e r t b s e m r e om t

l gu nf i w d al a en l s iu , mt n re ol ru e d pu oa rr pf my in ya nr o af rr oo f t yr no ap pe mr t oi cd eu ha t s i fh o n mi r reo i d; f t tac i mu d usd ar n gao nlc u i cr d i o t ur l t ac c npa i fl ro u otf t g n i en d o umr ae tw ea ht r t so -

rr oo l tu c f ew r r a ol cn nu i , yt nnt ; e al r a rup d ou f s i nah r of syn r o nt e pac ru ro e d hfn t ro o oc yyr nno aat rpc oma y ol tc n e aei k t hl l t u y son nt a oe r cd o rat omc u r t on d se n i o v mc de at r o a rt t os c tga r nu l e pif d xa g ee n lo ys nir amw -

frdt s o een svua e r sc e hs i bci l i p ep mh ha ewt ms fr ,o o r de et eb gn r a a d t c nmn i ; l uee s p e hmc p r r se et aa ni h es . t ofph i f r nonti e r te ae t m hb h nat e h t e smatr d h s n o u t e o y l s i a i tnst s l i h o e m a d l n t n no l o to , a lt o a n ence t u i hgeu p b t h d n a i fi t r co s d T o m l eho t r e u h : athts n c e t h eser j s b st r e l b a e l ae h ut y a gnbs d h i nom,o s e s vneyd m r aamnn e e hh aa p r b r s yto l m s r m n l s r e a o e a e e h m c pl bcl t o l mt ea o m f h y o on t e d crm n fa i a r e o a o k b fyylp a o n e na e t e m i a v e u s p s pra a n a o e h cmocr t , t o s e eo - i s c s r h e i s a t e l u ha hs q nt ish e i r e h T ) 2 (

l a t o t e h t f o h t f i f e n o n a h t s s e l t o n , l a t i p a c e r a h s a g n i v a h t o n y. ns ar pe mb om ce am ft s o i ef s o a r ce eb hm t nu i n

; - rt t or s a n tp i c a r g ai a le u h r f t o g r m no o os r ri t w f n rn o o o i t t l c c u u a f d e w l n b ao l a n c t i ur u s ,o r tn n e o ei h l s t u s o di y u m n a o a r r d fo n yt a nc m aa e rl y d oe r fk o sl i r n o y o t n i ca t er a r s n io e dc t s p t u m i d o rn c oo r yc o n r s a o e g pn a mo i m os s a ci d em ho m t i a l c o t

TAXMANN®

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Proxy Advisory Firms

) rt di s ne y ahl sta nfn ooA i g t h nc a i dt r ns a eae c s me e R mh ot( cnI eiB r E m S se e f ho r t a pd) i ea ( r ) 1 po( tt2 a sn ha o t ot i ns a osl i ru t e a g de zl i R n o[ ahr ge e r r f oa f yho s nr c i ao l b rsu or op lt a a usr deo v i ns v i i e d lu nas i n s oi yi y nt c ui at l io ot t sp sn y i r n e e a f ] hf e 4 t r 1 ’ro0 o t r 2 c ofe , s e s i p c n v s i o dv e i r ad t a nl yai u xse e ov g te ri o Pg vR ‘ p

l s s syeoha i e e nl h c ov r n r r r d t oa u d p a o i i lepsi av t h u t t y d a o s s y a u c x di ne rr t ua oxp nt ui i l o t r e era s s r)h s r npp mavdi p n t e r i s d e m s e a n e e o r i h o dav t oe dl t o i ev gt cd onov tn s el oohwr o i r y p o e o r v p t ghll prnh) r a neae n c k i r e s i h e r ahh t a p msoa o htat y s et rdl vs n i s s t na f eeea e e s ( a dmdt r a yt m i ncc r m g v o o o eanonrns S p s e i i rl i f av .esc t f my pa o o dm hs ydexvr n r g i coi oro eaa i re pnfh y t h n s p y t oa x de wr r l oaAo v ohr m c spds n h e . P i t y i i g i e e h n v . . n f l n r s c t o andwt a i a e u th a s nn i s f e e l o, oo ne soa i h ayte o csuxgcimrtp n u o d o t n r na t m oi ri l i a r v a a pd d t o e eci s n u r n d c d s e d n r o n e e i nh ni i d nv r tce a m v nt c e o ts hea omar ao n t r s o p r er sgo’ su e y o r e e dp e h c q e n t s w ne c e a dr , a ai dl eh r y tn cl pv pt o e o r d l ta el me nahpn s dl s er u os nahyr oao c n e , g g i m a u t eniahcaao , nf hihps,t n a v t h i m t o d a o d o ,( gn i y ei t o s s , t n e r c a r h csa g o a e n w c s n n s e d r e i n s r d o t r h l a go i e ot e me e t et ah t ts e rf yapso i m d e e a f vgem b r r n v n o sn yt i r a nec het r r e h o oniem ta d e i l s k e si l a vwtvo i ami ln o v ay h dcototshxte arincurtosr i c t o e o e r s u e t i ca yet r l pi s xs h xhi a i e e vs ,r ev c s ott r r d s e oo ro sn et i nd Pf v a i ipssa -

sle a r mu u rt s i uo f l eMc s (i s e I d hB t d rEn oSa f g den ehi ett ndo eev t ha e h Tr t .on 0 pi 8r 9o y c 1c n ene cir Ia nB i s p E s AS n S. a r U0 t 1e e0 h2 r t o nym i l r ta g n n eer i l a ni viu eeq r e pcr a l 0 ep t 1 i u k0 qo2 n noi ets e n bmo i eat vca l asu hmg sae yR mt ra ) i t fSn yee r ohm std i nn v dee ahm ywA xt( ol ) re s pfd esn hau TwF

E C N A N R E V O G E T A R O P R O C F O S E U S S I E M O S

s ner i ne sud mJl o ri nh i f e ydk e r a t or t sa S i t , v ) s da S ai A I ydI xn( oIs rfe poi c fmv o r re ei cfS nyy err o gos s r i i e v v mdd eaA ys fx o r eoo t r s s p i e r tv . s d er ne vi I h af ls gea i l shnb i t o h a i t Tsts a u .wt e i s t r n ’s s oe e ne t s cIb i e vvee h r ne t v i e a lSk h a i hl nc ) s S or i amE t e S u r( i s t f i e t s l s e a nRr c i i nev ervr e ee hv s t S yont bGen he nt sI m‘ em recr ohne iw n T S .. o ea 0p hi t d1m

fn0 oI2E

l a r e n e g e h t t a g n i t o v r o f p u e m o c s r e t t a m e h t n o . gs ne i i s n i v a dp am so i sc mf ro i s f g en s i e t e he t fm o r ne oh i t t c o n ud fn ra os j g a n i mt ee he Tm

t. n c at ce i , f y i n n ga i p s m no i yc ne ah pt f mo os ce i ec hl i t o np i e sh t t h gn i i r s ge ng i n t o a vh c r, i s e r ho t t gc e nr i s i i d c r e e h xt ef no i t n se r e m dt l n o i ho ep r p a ha se h dt i a e k si ml s rn i f o i es s i e c he Td

. h y t t i i t w n s e r e o h s t t e f v o n e i c e n h a t n o r t e e v s o i g v d e a t a y r l o e p m r i o t c e e d i h v t o n r o p g n o t i t s . a e s i r r o r nt o as t pe r v o mn p oi e ce r eh a ht e tf d fo o i v s s t o ks s r i e p r r e o rt s o n l ti a i s ne h m ot r mt i f c o e st y l r o o ar s sp i m v o rt d i a f y ew x se o ei r hv P Ta

Functions of Proxy Advisory Firms u

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The Guidelines on Corporate Governance for CPSEs Applicability of Guidelines

(i) Composition of Board -

Auditing and Corporate Governance AUTHOR PUBLISHER DATE OF PUBLICATION EDITION ISBN NO PAGE NO. BINDING TYPE

: ANIL KUMAR, LOVLEEN GUPTA, JYOTSNA RA JAN ARORA : TAXMANN : JANUARY 2022 : 5TH EDITION : 9789393656292 : 242 : PAPERBACK

Rs. 495 | USD 37

Description The objective of this book is to impart the basic knowledge of the following: u

Auditing

Corporate Governance

Corporate Social Responsibility

Issues in corporate governance, ethics, and auditing

This book covers the entire syllabus for undergraduate students of B.Com. (Hons.), B.Com. (Programme), BBA, BMS of Delhi University and other Universities. This book is a recommended textbook by the University Grants Commission (UGC) for undergraduate students of B.Com. (Hons.) and allied courses under the Choice Based Credit System (CBCS) Programme. This book incorporates all the latest amendments and Rules concerning company audit and corporate governance provisions laid down by SEBI (LODR) Regulations/Clause 49 of the Listing Agreement & the Companies Act, 2013. The Present Publication is the 5 th Edition, authored by Anil Kumar, Lovleen Gupta, and Jyotsna Rajan Arora, with the following noteworthy features: u

[Simple, Systematic and Comprehensive Explanation] of the concept and theories underlying Auditing & Corporate Governance

[Organised Analysis] of the theories and issues underlying corporate governance and business ethics

[Most Updated & Amended] This book incorporates all the latest amendments and rules concerning company audit and corporate governance provisions.

[Student-Oriented Book] This book has been developed, keeping in mind the following factors:

Interaction of the authors/teachers with their students in the classroom

Shaped by the authors/teachers experience of several years

Reaction and responses of students have also been incorporated at different places in the book

This book also incorporates the previous year’s question papers:

B.Com. (Hons.) CBCS (2018) Semester VI

B.Com. (Hons.) CBCS (2018)

B.Com. (Hons.) CBCS (2019) Semester VI

B.Com. (Hons.) CBCS (2020) OPEN BOOK EXAM

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