Corporate governance theory, shareholder's grievance committee, audit committee.
- 1. Acharya Narendra Dev College Bcom (H), Section-B Semester- 6 Audit & Corporate Governance – Assignment
- 2. 1. Theories of Corporate governance There are many theories of corporategovernancewhich addressed thechallenges of governanceof firms and companies from time to time. The Corporate Governanceis the process of decision making and the process by which decisions are implemented in large businesses is known as CorporateGovernance. There are various theories which describethe relationship between various stakeholders of the business whilecarrying out the activity of the business. following are the theories of corporategovernance. Agency Theory Stewardship Theory Resource Dependency Theory Agency theory Agency theory defines the relationship between the principals (such as shareholders of company) and agents (such as directors of company). According to this theory, the principals of the company hire the agents to performwork. The principals delegate the work of running the business to the directors or managers, who are agents of shareholders. Theshareholders expect the agents to act and make decisions in the best interest of principal. On the contrary, it is not necessary that agent make decisions in the best interests of the principals. The agent may be succumbed to self-interest, opportunistic behavior and fall shortof expectations of the principal. The key feature of agency theory is separation of ownership and control. The theory prescribes that people or employees are held
- 3. accountable in their tasks and responsibilities. Rewards and Punishments can be used to correctthe priorities of agents. StewardshipTheory The steward theory states that a steward protects and maximizes shareholders wealth through firm Performance. Stewards arecompany executives and managers working for the shareholders, protects and make profits for the shareholders. Thestewards aresatisfied and motivated when organizational success is attained. It stresses on the position of employees or executives to act more autonomously so that the shareholders’ returns aremaximized. The employees take ownership of their jobs and work at them diligently. Resource Dependency Theory The ResourceDependency Theory focuses on the role of board directors in providing access to resources needed by the firm. Itstates that directors play an important role in providing or securing essential resources to an organization through their linkages to the external environment. The provision of resources enhances organizational functioning, firm’s performanceand its survival. The directors bring resources to the firm, such as information, skills, access to key constituents such as suppliers, buyers, public policy makers, socialgroups as well as legitimacy. Directors can be classified into four categories of insiders, business experts, supportspecialists and community influential.
- 4. 2. What is shareholder’s grievance committee ? Explain its main functions. (a) Criteriafor formationof Shareholders grievance Committee. The Board of a Company which has more than 1000 shareholders, debenture holders, deposit holders and any other security holders at any time during a financial year is required to constitute a Shareholders’ grievanceCommittee. (b) Composition of ShareholdersgrievanceCommittee Chairperson of the Committee shall be non-executive director. The Board of Directors shalldecide the other members of this committee. The chairperson of each of the committees constituted under this section or, in his absence, any other member of the committee authorized by him in this behalf shall attend the general meetings of the company. (c) Functions To specifically looking into mechanismof redressalof grievances of shareholders, debentureholders and other security holders of the Company To monitor, review any investor complaints and ensuring timely and speedy resolution to it.
- 5. The Company shall monitor and review on annual basis the Company performancein dealing with Stakeholders grievances. The Committee shall haveaccess to any internal information necessary to fulfill its role. 3. Discuss the concept of Audit committee. Write in detail about its composition and role. Establishmentof AuditCommittee The requirement of Audit Committee as per sub section (1) of section (177) of the Companies Act, 2013 has been limited to Every Listed Public Company. The Following Class of Companies. All public companies with a paid-up sharecapital of Rs. 10/- crores or more; or. All public companies having turnover of Rs. 100/- croreor more; or All public companies which have, in aggregate, outstanding loans, debentures and deposits, exceeding Rs. 50/- crore Compositionof AuditCommittee Sub section (2) of section (177) of the Companies Act, 2013 deals with the composition of Audit Committee The Audit Committee shall compriseof minimum of 3 directors, with majority of the Directors being IndependentDirectors. Majority of members of Audit Committee including its chairperson hall be person with ability to read and understand the financial statement.
- 6. Every Audit Committee of a company existing immediately beforethe commencement of this Act shall, within one year of such commencement, be reconstituted in accordancewith sub-section (2). Roleof AuditCommittee Sub section (4) of section 177 of Companies Act, 2013 deals with the function of Audit Committee. The terms of referenceof the Audit Committee inter alia includes Recommendation for appointment, remuneration and terms of appointment of auditors of the company. review and monitor the auditor’s independence and performance, and effectiveness of audit process. examination of the financial statement and the auditors’ report thereon. approvalor any subsequentmodification of transactions of the company with related parties. scrutiny of inter-corporateloans and investments. valuation of undertakings or assets of the company, wherever it is necessary;
- 7. evaluation of internal financial controls and risk management systems; monitoring the end useof funds raised through public offers and related matters. Thank you