Valuation Certificate by Registered Valuer

Only Registered Valuer can issue valuation certificate

The Companies Act, 2013 has introduced the concept of Registered Valuer vide Section 247 of the Act which makes it mandatory that where the valuation is required for any stocks, shares, debentures, property, securities and/or goodwill or any other assets or the net worth of a company and/or its liabilities by and under the provisions of the Act, the valuation shall be done by a registered valuer. 

Provisions which require valuation

A brief look at the Act would show that there are a few provisions which mandate valuation through a registered valuer.  Some of them are briefly referred here-under:

·         Section 62(1)(c): Further issue of share capital

·         Section 192(2): Restriction on non-cash transaction involving directors

·         Section 230(2): Scheme for corporate debt restructuring

·         Rule 8 of Companies (Share capital and debentures) Rules, 2014:  Issue of sweat equity: the price shall be determined by a registered valuer.

Valuer under other Acts

Even SEBI regulations and IBC requires valuation by a registered valuer.

Designated Authority for RV

The Central Government has designated the IBBI- Insolvency and Bankruptcy Board of India to be the authority under the Rules.  The IBBI website shows that around Eleven Registered Valuers Organisations have been recognized by it as on 23.04.2019

Who can apply for the Valuation Examination

What is the process to be followed to become a Valuer member?

1. ·        An individual has to first enroll as a valuer member with Registered Valuers Organisation and complete 50 hours Educational Course conducted by the RVO.

• ·        On completion of the Course and receiving a certificate of participation, the valuer member has to clear examination conducted by IBBI.
• ·        After clearing examination, valuer member to enroll with RVO and to make an application to the Authority in Form A of the Annexure II of the Companies (Registered Valuers and Valuation) Rules, 2017.

Syllabus

 Valuation Standards

As per Rule 8 of Companies (Registered Valuers and Valuation) Rules, 2017, the registered valuer shall, while conducting a valuation, comply with the valuation standards as notified or modified under rule 18: 2 Provided that until the valuation standards are notified or modified by the Central Government, a valuer shall make valuations as per-

(a) internationally accepted valuation standards; 

(b) valuation standards adopted by any registered valuers organisation.

Appointment

The registered valuer has to be appointed by an audit committee and in its absence the Board of directors.

Inter branch supply to be done at transfer price under GST

One of the many pangs of having SGST and CGST structure within GST and which is likely to continue is tax on inter-branch supply

For companies with a presence in multiple states, the Karnataka Appellate Authority for Advance Rulings has upheld the levy of goods and services tax on services rendered by one office branch to other centres. 

In-house service functions such as human resources and payrolls, if carried out from a centre in one state for offices in other states, will attract GST for which it will have to issue an invoice. 

A large business based in New Delhi with centralised finance, IT and HR unctions for branches across states would be deemed to be providing support services to the other locations and would need to raise invoices charging GST. 

“We uphold the ruling dated 27.07.2018 passed by the Karnataka Authority for Advance Ruling…,” the AAAR said in its order. 

The decision has wide ramifications for companies with offices in many states, adding to their transaction costs and compliance burden even though the tax paid can be adjusted against their final GST liability. 

However, adjusting the tax paid on in-house transfers is not an option for companies that deal in goods or services that are exempt from GST. These include sectors such as healthcare and education, which are exempt from GST, and petroleum and liquor, which are out of the ambit of the tax.

The Authority for Advance Rulings had in response to an application by Bengaluru-based Columbia Asia Hospitals held that the employer-employee relationship in the corporate office exists only there and not with other office units even if they are part of the same legal entity, as far as the GST law is concerned. 

The company then approached the appellate body against the ruling, saying that the Authority for Advance Rulings had erred in holding that activities carried out at the India Management Office in relation to employment such as accounting, other administrative and IT systems maintenance, which indirectly benefit units located in the other states, was between distinct persons as per Section 25 (4) of the act and shall be treated as supply as per entry 2 of Schedule I of the act. 

“The Appellant has placed reliance on a few CESTAT (Central Excise and Service Tax Appellate Tribunal) decisions to buttress their case. We have gone through all case laws relied upon and hold that the said decisions will not be applicable to the matter at hand since they were rendered in the context of the Service Tax law,” the Appellate Authority said. 

Although these rulings are case specific, they have a persuasive impact on tax assessment of other companies under similar circumstances. Tax experts said the salary of employees should not to be added as the employment contract is specifically kept outside the ambit of GST. 

“This ruling, however, clearly states that employee cost also has to be added as well, though it indicates that strategic, control, coordination and policy related work done from head office may not qualify as a ‘service,’” said Pratik Jain, national indirect tax leader at PwC. 

Companies will need to undertake a proper transfer pricing study to comply. “The GST council needs to examine this issue in detail and either come up with a clarification or amendment in law so that this concept does not cause undue hardship for the industry,” Jain added. 

By  Deepshikha Sikarwar 

ET Bureau | Dec 29, 2018

Tax on Income from other sources,gift tax, angel tax

ANGEL TAX

Valuing Private Company

Section 56(2)(viib), also called the ‘Angel Tax’, is a tax levied by the government on any private company that raises capital above its fair-market value. The difference between this FMV and the price at which the shares are issued are taxed in their hands at the maximum marginal rate. The concept of taxing capital receipts and investments as income is unique in the principle of taxation and exists only in India in this clause.

Though the law offers the choice of valuation to the assessee company, what we’re witnessing is the asessing officers disregarding this freedom and instead taking it upon themselves to value the company. These officers ignore the valuation report prepared by a merchant banker or a chartered accountant in favour of the current net worth of the company.

Source of Investment

To establish the creditworthiness of the investor (Section 68), the assessing officers are demanding the bank statements, income tax returns and financial statements of all the investors from these companies.

Given the sensitive nature of these documents, not every investor feels comfortable sharing them with their investee company.

In spite of the tax department having these documents on record, which can be accessed by them via the investor’s Permanent Account Number, these heavy demands are made of the companies with a very narrow compliance timeframe.

GIFT TAX

Taxable gift

·         Amount received When any amount received exceeds Rs 50000 (from other than specified relatives) than whole received amount will be taxable or

·         Any immovable property is received without consideration if stamp duty value of such property is more than Rs.50000/- than stamp duty value of such property will be taxable.

·         If any immovable property is received for a inadequate consideration, (means consideration is less than stamp duty value of property) which stamp duty value exceeding Rs.50, 000, the stamp duty value of such property as Exceeds such consideration will be chargeable.

However wef A.y 2019-20, the above provision has been amended which is as follows:U/s 562(x)

If any immovable property is received for a consideration , the stamp duty value of which exceeds  105 percent of the consideration and the difference between stamp duty and consideration exceeds Rs 50000, than the difference amount between stamp duty and consideration  shall be taxable as income from other source.

It should be noted that, that where the date of the agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of the agreement may be taken for the purposes provided that the the amount of consideration for the said immovable property , or a part thereof, has been paid by any mode other than cash on or before the date of the agreement for the transfer of such immovable property.

Movable property is received without consideration which aggregate fair market value is more than Rs.50000/- than tax will be charge on aggregate fair market value of movable property.

If movable property received for a lesser consideration, means consideration is less than the Fair market value but Fair market value exceeds by Rs.50, 000, than the fmv as exceeds such consideration will be chargeable to tax.

For example if Gold Jewellery Rs 1050000 received for consideration 200000 than whole 850000 will be taxable in the hand of recipient.

Foreign Remittance requirements in India

Change of Procerss-Foreign Remittance-online Submission of Form A2  

Ther are major changes in rules relating to furnishing of Information in respect of payment to the Non -Resident with effect from 01.04.2016.

For remittances abroad, you might be required to furnish information in the four forms:

1. Form A2 (Required as per FEMA)

2. Application cum Declaration for purchase of foreign exchange under LRS (Required as per FEMA)

3. Form 15 CA (Required as per Income Tax Act)

4. Form 15 CB (Required as per Income Tax Act)

Your remittances to non-residents abroad will be governed by FEMA (Foreign Exchange Management Act). Additionally, the authorized dealer banks need to ensure that your remittance is in compliance with the Income Tax laws i.e. tax has been duly paid on the funds being remitted and TDS, if any has been deducted.

Further, Remittances under LRS do not require RBI approval. RBI has delegated the power to Authorized dealer banks. Authorized dealer bank has to satisfy itself that the remittance/drawal of foreign currency is not in contravention of FEMA or Income Tax Act.

• For compliance with FEMA, it may rely on Form A2 and declaration under LRS.
• For compliance with Income Tax Act, it will rely on Form 15 CA and Form 15 CB, if required.

Earlier, Form A2 was submitted manually with the Authorized dealer bank along with other requisite documents. Now, it will be submitted online along with 

applicable purpose code (Refer the attached Circular for code list).

Changes in Furnishing Form A2 for Foreign Remittances w.e.f. 01.04.2016:

• Authorized dealer banks, offering internet banking facility to their customers allow online submission of Form A2 (Application for Remittance Abroad) and also enable uploading/submission of documents, if any. Therefore it is mandatory to file online Form A2.The application cum declaration for purchase of foreign exchange under the Liberalized Remittance Scheme (LRS) of USD 250,000 has been clubbed with Form A2.Form A2 will be submitted to the Authorized dealer bank mentioning the Purpose Code for the remittance

Advance Income Tax Liability - Computation based on estimated income less tax deductions and credits

Difference in advance tax schedule of Companies and Individuals removed
The current advance tax payment schedule for a company is 15%, 45%, 75% and 100% (cumulative) of income tax payable on the full financial year's income to be paid by 15th June, 15th September, 15th December and 15th March, respectively. 

Till last financial year, individuals liable to pay advance tax, had to pay 30%, 60% and 100% (cumulatively) of tax payable on the full fiscal's income by 15th September, 15th December and 15th March, respectively. An individual with a tax liability of Rs 10,000 or or more in a financial year is required to pay advance tax in that year as per current income tax law. Budget 2016 has replaced the separate advance tax payment schedule for individuals with the same schedule as applicable to companies. 

Computation of Advance tax

 Applicability of Advance Tax requirements in MAT Cases

With the introduction of section 115JB ,clarity on the issue of advance tax was brought in by by CBDT which issued circular saying that the advance tax is applicable and so also section 234B & 234 C for MAT payment for section 115JB.

Example of Advance tax default which cannot be avoided : in case estimated income keeps increasing every quarter

Analysts adjustments to Financial Statements

Definition of 'Pension Shortfall'

A situation in which a company offering employees a defined benefit plan does not have enough money set aside to meet the pension obligations to employees who will be retired in the future.

With a defined benefit plan, the employer bears the risk of the investments in the plan. Therefore, when investments such as stocks perform poorly, a shortfall occurs, meaning there isn't enough money in the pension plan to meet the needs of people about to retire. A company can rectify a pension shortfall by increasing investment returns (usually an unlikely course of occurrence) or putting aside more money into the pension plan, thereby reducing the company's net income.

As an example, in August 2002, UBS Warburg reported that General Motors had a pension shortfall of $22.2 billion, equal to 83% of the company's market value. This means that $4 of the first $5 that GM earns per share each year stands to get eaten up by pension obligations.

Fund Raising : Debt Funds other than Bank Finance - External Commercial Borrowing (ECB), Commercial Paper

External Commercial Borrowing (ECB),

The Reserve Bank of India has issued a Circular dated 30 November 2015, outlining the new framework for External Commercial Borrowings (ECB), replacing the existing guidelines issued about a decade ago. The overarching principle of the new framework has been to liberalise and encourage long term ECBs denominated in foreign currency, and ECBs denominated in INR. 

For this purpose, these ECBs have been segregated from other ECBs as separate ‘Track II’ and ‘Track III’ respectively under the new framework. Further, there have been various amendments made in respect of other ECBs having average maturity of less than 10 years.



Commercial Paper - unsecured and cost effective way of raising short term funds for corporates having a good credit rating

1. Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note. CP as a privately placed instrument, was introduced in India
in 1990 with a view to enabling highly rated corporate borrowers to diversify their sources of short-term borrowings and to provide an additional instrument to investors.

2. CP can be issued for maturities between a minimum of 15 days and a maximum upto one year from the date of issue.

3. The minimum credit rating shall be P-2 of CRISIL or such equivalent rating by other agencies.

4. CP can be issued in denominations of Rs.5 lakh or multiples thereof. Amount invested by single investor should not be less than Rs.5 lakh (face value).

5. An FI can issue CP within the overall umbrella limit fixed by the RBI i.e., issue of CP together with other instruments viz., term money borrowings, term deposits, certificates of deposit and inter-corporate deposits should not exceed 100 per cent of its net owned funds, as per the latest audited balance sheet.

6. CP will be issued at a discount to face value as may be determined by the issuer.

7. The initial investor in CP shall pay the discounted value of the CP by means of a crossed account payee cheque to the account of the issuer through IPA. On maturity of CP, when the CP is held in physical form, the holder of the CP shall present the
instrument for payment to the issuer through the IPA.Issuing and Paying Agent (IPA)

8. Disclosure In Financials:
---> Shown Under Current Liabilities
----> Interest: Total Interest cost shall be taken as pre paid interest and same shall be charged to Profit and Loss account.

CPs guidelines from 30th June 2001.
1. Cps Should be in Dmat form with NSDL\CDSL
2.Can now be issued as
-Standalone Facility (means without approval from Consortium Bankers)
-Against Working Capital Requirements
3.Eligibility Criteria to issue CPs
a.Tangible NW not less than 4.00cr
b.should have Working capital limits sanctioned by Banks\FI
c.The borrower account should be classified as Standard Asset
d.Should have valid credit rating from ICRA\CRISIL\FITCH\CARE
e.The rating should be current & not due for renewal at the time & during issue
f.Borrowing should not exceed the rating amount or maximum amount authorized
by BOD by way of resolution
4.Who Can Act as IPA(Issuing & Paying Agent)
Any Scheduled Bank can act as IPA
5.General Guidelines
CP will be issues at discount value
No CP Issue can be underwritten
Period not <15> one year
Minimum Denomination - 5,00,000.00 & multiples thereof(each ofFV 5.00L as1 unit)

6.Breif Process
Approach IPA, enter into IPA agreement & it should stamped as per stamp duty law
Issuer should have agreement with Depository(NSDLis alloting ISINs for Cps)
Issuer can get ISIN (created based on maturity date)by submitting Letter of Intent in the format prescribed by NSDL & it is same for whole CP programme. ISIN number should be known to IPA through Issuer \Registrar
As per RBI requirement the entire CP Prog should completed within 2 weeks from date of commencement of issue.
IPA Should open 3 accounts one is CP - Account for crediting the funds second CP- Allotment account & thirdly CP Redemption Account.
Upon the instructions of the Issuer, Registrar will credit the Cp units to CP Allotment A/C .
Upon Redemptin all investors transfer their Dmat Cps to CP - Redemption a\c with written instruction to IPA to pay the amount. Subject to availability of funds IPA settles the CP Account & advice the Registrar to cancel the Dmat CP as a Debit Corporate action..
7.List of details submitted to IPA
Original Rating letter (one time).
Jumbo CP\Demand Promissory Note with duly stamped.
Deal Confirmation signed by both parties(BSCPL & Bank)
Confirmation to eligibility norms prescribed by RBI (with supporting Copy of Board
resolutions, copy of Latest audited B\S & rating letter).
CP Placement Deal (Value date)i.e.Request letter.
The docs submitted to RBI also should be through IPA only.
ISIN Number from NSDL.
Board Resolutions (293(1)(a),293(1)(d), & for issue of Cps)
8. Docs to NSDL
Master file creation form(company details, CP details & IPA details)
Coporate action form for CPs(regarding fell details of CPs)
Letter of intent for ISIN No.
9.Docs to Bank
Undertaking that total borrowing is within the limits.
Letter of Offer for CPs
Deal Confirmation \Contract Note.
RTGS request.

Acceptance of Deposits by companies under new companies act 2013

ELIGIBLE COMPANY WHICH CAN RECEIVE DEPOSITS FROM PUBLIC

“Eligible Company” means a public company as referred to in sub-section (1) of section 76, having a net worth of not less than Rs. 100 Crores or a turnover of not less than Rs. 500 Crores and which has obtained the prior consent of the company in general meeting by means of a special resolution and also filed the said resolution with the Registrar of Companies before making any invitation to the Public for acceptance of deposits.

Provided that an eligible company, which is accepting deposits within the limits specified under clause (c) of sub-section (1) of section 180, may accept deposits by means of an ordinary resolution;

 QUANTUM OF DEPOSITS THAT CAN BE ACCEPTED

A. From members

• No Eligible company shall accept or renew any deposit from its members, if the amount of such deposit together with the amount of deposits outstanding as on the date of acceptance or renewal of such deposits from members exceeds 10% of the aggregate of the paid-up share capital and free reserves of the company and
• No other company shall accept or renew any deposits from its members if the amount of such deposits together with the amount of other deposits outstanding as on the date of acceptance or renewal of such deposits exceeds 25% of the aggregate of the paid-up share capital and free reserves of the company.

B. From public

• No eligible company shall accept or renew any deposit from public, if the amount of such deposit other than the deposit received from members, together with the amount of deposits outstanding on the date of acceptance or renewal exceeds 25% of aggregate of the paid-up share capital and free reserves of the company.
• No Government company eligible to accept deposits under section 76 shall accept or renew any deposit, if the amount of such deposits together with the amount of other deposits outstanding as on the date of acceptance or renewal exceeds 35% of the paid-up share capital and free reserves of the company.

CONDITIONS TO BE SATISFIED FOR ACCEPTING DEPOSITS

o   Resolution to be passed by company in general meeting.

o   Rules as may be framed by RBI to be complied with.

o   Circular to be issued to members showing financial position of the company, the credit rating obtained, details of outstanding deposits, if any, and other particulars as given below.

o   Deposit Repayment Reserve Account to be opened with a scheduled bank and atleast 15% of amount of deposits maturing during the current and next financial year to be deposited in the account. This account cannot be used for any other purpose.

o   Deposit insurance to be provided in the manner prescribed below:

ü  Every company referred to in sub-section (2) of section 73 and every other eligible company inviting deposits shall enter into a contract for providing deposit insurance at least thirty days before the issue of circular or advertisement or at least thirty days before the date of renewal, as the case may be

ü  The deposit insurance contract shall specifically provide that in case the company defaults in repayment of principal amount and interest thereon, the depositor shall be entitled to the repayment of principal amount of deposits and the interest thereon by the insurer up to the aggregate monetary ceiling as specified in the contract

ü  In the case of any deposit and interest not exceeding twenty thousand rupees, the deposit insurance contract shall provide for payment of the full amount of the deposit and interest and in the case of any deposit and the interest thereon in excess of twenty thousand rupees, the deposit insurance contract shall provide for payment of an amount not less than twenty thousand rupees for each depositor

ü  The amount of insurance premium paid on the insurance of such deposits shall be borne by the company itself and shall not be recovered from the depositors

ü  If any default is made by the company in complying with the terms and conditions of the deposit insurance contract which makes the insurance cover ineffective, the company shall either rectify the default immediately or enter into a fresh contract within thirty days and in case of non-compliance, the amount of deposits covered under the deposit insurance contract and interest payable thereon shall be repaid within the next fifteen days and if such a company does not repay the amount of deposits within said fifteen days it shall pay fifteen per cent interest per annum for the period of delay and shall be treated as having defaulted and shall be liable to be punished in accordance with the provisions of the Act.

o   Certificate to be provided regarding absence of any default by the company in repayment of deposit or interest thereon, either before or after the commencement of this Act.

o   Repayment of deposit and interest may also be secured by creation of charge on the assets and property of the company in compliance with rules in this regard.

o   Deposits which are unsecured or partially secured shall be so mentioned in all documents related to invitation or acceptance of deposits.

o   Credit rating should be obtained for accepting deposits from public

o   Every deposit accepted by a company under this section shall be repaid with interest in accordance with the terms and conditions of the agreement entered between the company and depositor.

o   In case of failure of company to repay deposits or interest thereon, the depositors can approach the Tribunal to obtain necessary orders for the company to make the payment or for any loss or damage incurred

DEBENTURE - COMPLIANCE

Debenture Redemption Investment is to be made before 30th April @15% of debentures to be redeemed up to 31st March of next year.

Every company required to create/maintain DRR shall on or before the 30th April of each year, deposit or invest, as the case may be, a sum which shall not be less than fifteen percent of the amount of its debentures maturing during the year ending on the 31st day of March next year in any one or more of the following methods, namely: (a) in deposits with any scheduled bank, free from charge or lien (b) in unencumbered securities of the Central Government or of any State Government; (c) in unencumbered securities mentioned in clauses (a) to (d) and (ee) of section 20 of the Indian Trusts Act, 1882; (d) in unencumbered bonds issued by any other company which is notified under clause (fl of section 20 of the Indian Trusts Act, 1882; (v) The amount deposited or invested, as the case may be, above shall not be utilized for any purpose other than for the repayment of debentures maturing during the year referred above, provided that the amount remaining deposited or invested, as the case may be, shall not at any time fall below 15 per cent of the amount of debentures maturing during the 3lst day of March of that year'

CHAPTER X of SEBI

GUIDELINES FOR ISSUE OF DEBT INSTRUMENTS

10.3 Creation of Debenture Redemption Reserves(DRR)

10.3.1 A company has to create DRR in case of issue of debenture with maturity of more than 18 months.

10.3.2 The issuer shall create DRR in accordance with the provisions given below,

(a) If debentures are issued for project finance for DRR can be created upto the date of commercial production.

(b) The DRR in respect of debentures issued for project finance may be created either in equal instalments or higher amounts if profits so permit.

In the case of partly convertible debentures, DRR shall be created in respect of non-convertible portion of debenture issue on the same lines as applicable for fully non-convertible debenture issue.

In respect of convertible issues by new companies, the creation of DRR shall commence from the year the company earns profits for the remaining life of debentures.

(e) DRR shall be treated as a part of General Reserve for consideration of bonus issue proposals and for price fixation related to post tax return.

Company shall create DRR equivalent to 50% of the amount of debenture issue before debenture redemption commences.

Drawl from DRR is permissible only after 10% of the debenture liability has actually been redeemed by the company.

The requirement of creation of a DRR shall not be applicable in case of issue of debt instruments by infrastructure companies.

Section 117C requires every company to create a Debenture Redemption Reserve (DRR) to which 'adequate amounts' shall be credited out of its 'profits' every year until such debentures are redeemed, and shall utilize the same exclusively for redemption of a particular set or series of debentures only. Thus, the quantum of DRR to be created before the redemption liability actually arises in normal circumstances should be 'adequate' to pay the value of debentures plus accrued interest (if not already paid), till the debentures are redeemed and cancelled. Since the Section requires that the amount to be credited as DRR will be carved out of profits of the company only, there is no obligation on the part of the company to create DRR if there is no profit for the particular year.

Management control, internal control, accounting control, Risk Based Internal Audits

RISK MANAGEMENT

In implementing its goals and objectives, Organisations shall face risks that are potentially increasing and complex due to the dynamics of the development and demand, both internally and externally. Therefore, it requires a comprehensive and integrated risk management with the strengthening in the aspect of internal control.

The implementation of risk management shall be conducted by referring to the best international best practices divided in three (3) categories. First, risk management of first line of defense conducted by the working unit implementing business process. Second, risk management of second line of defense conducted by the working unit which has the risk management function and independent from the work unit conducting business process. Third, risk management of third line of defense conducted by the working unit implementing the function of internal audit to ensure the activities of risk management are performed effectively.

With the availability of this risk management in three phases, it is expected that the process of duty implementation of Organisations, in particular in decision making can be conducted by observing the aspects of prudentiality, good governance principle, and obtaining optimum result toward the performance, finance and credibility of policy.

Based on the above framework, the internal audit has the important role in the quality assurance to the overall work process in Organisations. The scope of internal audit function includes the implementation of internal audit and consultation through the provision of opinion and recommendation toward the process of governance, risk management, and Controlling.

The implementation of internal audit function of Organisations shall use the methodology of Risk Based Internal Audit. The high the audit target risk, the higher the frequency of internal audit implementation. The work process with high risk shall be audited every year, whereas the work process with medium risk and low risk shall be audited in a longer time span, namely once in 2 or 3 years.

Internal Controls – Thinking Inside the Box (COSO Cube)

As the financial year 2015-16 crosses the midway, many companies would still be in the process of coming to terms with the new ICFR (Internal Controls over Financial Reporting) in the Indian scenario.

Any new thing that comes up for implementation generally has some teething issues, simply because change management as a process is frictional and for any successful implementation; a well-defined and well managed project plan is a must.

Business as we see through the lens of Internal Audit, starts off with a vision (mostly emanating from ideas) translates into a mission with a strategy defined to achieve that mission, and strategy further rolls down to objectives (Strategic, Operational, Financial, Compliance) for each of the business processes, which are managed by people; duly supported with technology & resources to ensure that they are in compliance to the policies, laws & regulations while achieving their strategy and mission.

Simply put: Vision & Mission --> Strategy --> Goals & Objectives --> Mapped to business processes --> which are managed by people --> For ensuring achievement of Goals & Objectives --> resulting into Implementation of strategy --> resulting into achieving the mission.

The COSO framework has been used globally and is time tested and has a very rational approach for implementation. Where most companies struggle to achieve a proper implementation of internal controls is they think of Internal Audit as a value adding function / activity and are almost asking for an “Out of the box approach / thinking” and that is where some of those organizations completely miss the point. Internal Audit is not only about value creation but equally about Value Protection, and in today’s scenario, more about risk management, that is where Risk Based Internal Audits have become the fad.

The need today is not to have number of controls but to have right quality of controls, simply because there is a cost to every control you implement in the organization (in terms of time and resources involved).

Where most organizations would do well is, while doing their Enterprise Risk Management exercise, they should define their goals and objectives (which should be enablers for implementation of the strategy and for achievement of objectives) and further map each of those goals & objectives to the business processes and identify risk champions to ensure that those goals and objectives are met within the timelines, keeping in view the overall timeline for fully implementing the strategy.

Once this is done, the role of internal audit function would be enhanced qualitatively and that is where the internal auditor will have to think constructively inside the box (COSO cube), because all 5 parameters of the cube will be inextricably linked to strategic, operational, financial and compliance objectives and that is where the organizations would begin to appreciate the right set of controls being implemented for their business.

Disclaimer: The views expressed in this post are personal views

Statutory Requirement of Internal  audit u/s 138

RISK CONTROL MATRIX