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Clause 49 Compliance

Clause 49 Compliance

One of the most important challenges for board members is to build a foundation of trust with management, the investment community, regulatory agencies, and the public. The stakes are high and the margin for error is low. Even as new standards emerge, one thing remains clear: the responsibility to adopt sound governance practices has been placed squarely on corporate directors and officers.

Clause 49 of the listing agreement requires the board of directors, audit committee, senior management, and company secretary / compliance officer to comply with the provisions listed in the circular issued by the Securities and Exchange Board of India on 29 October, 2004. Compliance with mandatory requirements is to be reported in the form of a quarterly report and in the annual report of the company. The annual report should also include the company’s position on compliance with non-mandatory requirements. The clause is also applicable to entities seeking to list for the first time.

The revised Clause 49, which has incorporated certain provisions of the Sarbanes-Oxley Act prevalent in the US, requires the CEO and the CFO to certify to the board that the annual financial statements are in the prescribed format and that the establishment of internal control systems and processes are in place. CEOs and CFOs are, thus, accountable for putting in place robust risk management and internal control systems in their organizations.

KPMG in India has developed tailored products to meet the needs of its clients. These are supported by tools, databases, methodologies, and resources to help provide maximum value.

Risk management framework:

Based on the COSO risk management framework, we help clients conduct high-level risk assessment reviews, whereby key events/risks impacting business objectives are identified, assessed, profiled, and responses developed to mitigate them. We also assist clients in developing risk policies and strategies to achieve timely evaluation, reporting, and monitoring of key business risks.

CEO/CFO certification:

We assist companies in evaluating the effectiveness of their internal control framework. We conduct detailed risk reviews for key business processes to identify and evaluate strategic, financial, reporting, and compliance-related risks and controls at business and process levels. We also develop a control evaluation reporting framework to facilitate CEO/CFO certification on internal control effectiveness.

Potential benefits:

The methodology would assist in implementing a robust risk management and CEO/CFO certification process, and help clients in delivering value beyond compliance. The potential benefits are listed below:

  • Assists in identifying and managing business risks proactively in a focused manner
  • Provides assurance that the key controls are operating effectively
    Allows each key personnel to become a ‘risk thinker’ and a ‘risk manager’
  • Reduces the probability of fraud by providing a robust control environment
  • Enables management to identify opportunities to improve processes and take them to the next level

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