14 th National Conference of Practicing Company Secretaries on “ Integrating Growth, Governance and Challenges Beyond”

1. 14th National Conference of Practicing Company Secretaries on “ Integrating Growth, Governance and Challenges Beyond” ON JULY 19-20, 2013. PRESENTED BY: CS R.Sridharan R Sridharan & Associates Company Secretaries, New No. 5, Sivasailam Street, T. Nagar, Chennai - 600017

2. R.Sridharan & Associates , Company Secretaries THEME

3. R.Sridharan & Associates , Company Secretaries PEER REVIEW- MEANING PEER = Person of same standing or a person who is equal to another in abilities. REVIEW = A report or evaluation of past events PEER + REVIEW = Evaluation of an similar standing person’s work i.e.., evaluation of performance in same profession.

4. Peer Review means an examination and review of the systems, procedures and practices to determine whether they have been put in place by the practice unit for ensuring the quality of attestation services as envisaged and implied/ mandated by the Technical Standards and whether these were effective or not during the period under review. R.Sridharan & Associates , Company Secretaries …… Contd

5. Peer Review has been defined as “ The examination and review of systems and procedures to determine whether the systems and procedures are in: • Subsistence • Efficiency • Constant working during the period under review • Established by the practice Unit”. R.Sridharan & Associates , Company Secretaries PEER REVIEW - DEFINITION

6. R.Sridharan & Associates , Company Secretaries HISTORY • The first recorded editorial prepublication peer-review process was at “ The Royal Society” in 1665 by Henry Olderburg.  • In the 20th century, peer review became common for science funding allocations, • A professional peer-review process is found in the Ethics of the Physician written by Ishaq bin Ali al-Rahwi (854–931).

7. Peer review has been a touchstone of modern scientific method only since the middle of the 20th century, the only exception being medicine. Before then, its application was slack in other scientific fields. • The ICAI Peer Review Board was setup in the year 2003. • ICSI Peer Review Guidelines came into effect from the year 2011. R.Sridharan & Associates , Company Secretaries ….CONTD

8. R.Sridharan & Associates , Company Secretaries WHY PEER REVIEW? • Evaluation of attestation services provided by PCS • Maintenance and enhancement of the quality of attestation services • Assurance of compliance with the Technical standards issued by ICSI from time to time and other regulatory and statutory requirements • Assisting members in identifying the areas of improvement and receiving guidance from their peer members

9. R.Sridharan & Associates , Company Secretaries ….ContD • Upholding the standards of the profession and building greater faith and confidence in the eyes of the stakeholders • Sharing of good practices, experience and mutual learning among peer members of ICSI • Recognition of quality performance by PCS in the form of issue of peer review certificate • Improving global presence of the members of ICSI in practice

10. Need was felt to introduce a Peer Review of Practising Company Secretaries in 2003 on the basis of the recommendations issued by Naresh Chandra Committee in November 2002 Establishment of Peer Review Board Guidelines for Peer Review of Attestation Services by Practicing Company Secretaries R.Sridharan & Associates , Company Secretaries Genesis of Peer Review Process in ICSI

11. Exposure Draft of the Guidelines released at the 12th National Conference of Practicing Company Secretaries held at Ooty during July 13-14-15, 2011 Approved by the Council in its 202nd Meeting held on August 25-26, 2011 ICSI Guideline No. 1 of 2011 – Guidelines for Peer Review of Attestation Services by Practicing Company Secretaries notified in the official Gazette of India dated October 18, 2011 R.Sridharan & Associates , Company Secretaries ….CONTD

12. Attestation Services means services involving the secretarial audit issuing of various certificates, but does not include: • Management consultation • Representing a client before the Authorities; • Testifying as expert witness; and • Providing expert opinion on points of principle, • The phrase ‘Attestation Services’ is used in the guidelines interchangeably with secretarial or compliance audit Services, Attestation Functions and secretarial audit functions. R.Sridharan & Associates , Company Secretaries ATTESTATION SERVICES

13. One of the main Objective of Peer Review is aimed at review of the following attestation services rendered by a Practice Unit: • Signing of Annual Return pursuant to Section 161(1) of the Companies Act, 1956 • Issue of Compliance Certificate pursuant to Section 383A(1) of the Companies Act, 1956 • Issue of certificate of Securities Transfers in compliance with the Listing Agreement with Stock Exchanges • Certificate of reconciliation of Capital as per SEBI Circular dated Dec. 31, 2002 • Conduct of Internal Audit of Operations of Depository Participants • Certification under Clause 49 of Listing Agreement R.Sridharan & Associates , Company Secretaries ATTESTATION SERVICES COVERED UNDER PEER REVIEW

14. To ensure that in carrying out their attestation services and professional assignments, the Practicing Company Secretary (PCS) is to – • Comply with the Technical Standards laid down by the Institute, and • Have in place proper systems (including documentation systems) for maintaining the quality of the attestation services work they perform. R.Sridharan & Associates , Company Secretaries OBJECTIVES OF PEER REVIEW

15. Peer Review does not seek to redefine the scope and authority of the Technical Standards specified by the Council but seeks to enforce them within the parameters prescribed by the Technical Standards. Peer Review is directed towards – • Maintenance as well as enhancement of quality of attestation services • Providing guidance to members to improve their performance and adhere to various statutory and other regulatory requirements. R.Sridharan & Associates , Company Secretaries …..contd

16. The peer review process is directed at the attestation services of a practice unit. (1) Once a practice unit is selected for review, its attestation engagement records pertaining to the immediately preceding financial year shall be subjected to review. R.Sridharan & Associates , Company Secretaries SCOPE OF PEER REVIEW

17. (2) The Review shall focus on: • Compliance with Technical Standards. • Quality of Reporting. • Office systems and procedures with regard to compliance of attestation services systems and procedures. • Training Programs for staff (including apprentices) concerned with attestation functions, including appropriate infrastructure. R.Sridharan & Associates , Company Secretaries …. contd

18. Technical Standards means and includes – • Secretarial Standards issued by ICSI, • Guidance Notes on Secretarial Standards issued by ICSI, • Compliance of Guidance Notes on other subjects issued by ICSI, • Notifications / Directions issued by the Council of ICSI, • Compliance of the provisions of the various relevant Statutes and/or Regulations, applicable in the context of engagements being reviewed. R.Sridharan & Associates , Company Secretaries TECHNICAL STANDARDS - MEANING

19. Adherence to statutory, documentary and regulatory requirements by the Practice Unit, • The Practicing Unit will have an opportunity to correct the deficiencies and thereby enhance his professional competence, • If a peer review certificate is issued in favor of the practicing unit , it enhances his credibility in the eyes of the general public, • Clients of the practicing unit will benefit from knowing that their Practicing unit is periodically reviewed by ICSI. R.Sridharan & Associates , Company Secretaries BENEFITS OF PEER REVIEW

20. Simple, Spacious and cluster free space, • Document management system to prove efficiency, • Time management for timely compliances, • Office library for references, • Office equipments and other tangible assets and • Updated circulars for easy access. • Making a Ready – Referencer about the clients R.Sridharan & Associates , Company Secretaries OFFICE SYSTEMS

21. 5S :- • Sorting • Setting in order • Sweep • Standardize • Sustain Office administration in a PU is a crucial area of importance for carrying out the Peer Review Process. R.Sridharan & Associates , Company Secretaries .… contd

22. Every professional work needs to be backed up by adequate documents. • Broadly documents can be classified into two files : • Permanent (must contain the letter of engagement, correspondences, constitution of the entity, nature and history of business, location and work details) & • Current (must contain appointment letter, acceptance letter, work assignment, queries raised and explanations received, checklists, other expert’s opinion, applicable secretarial standards and their appliance details, detailed working papers) R.Sridharan & Associates , Company Secretaries OFFICE SYSTEMS - DOCUMENTATION

23. R.Sridharan & Associates , Company Secretaries

24. R.Sridharan & Associates , Company Secretaries

25. UNDER COMPANIES ACT , 1956: • Companies (Central Government’s) General Rules and Forms, 1956; • Companies (Disqualification of Directors under Section 274(1)(g) of the Companies Act, 1956) Rules, 2003. • Companies (Issue of Share Certificates) Rules, 1960. • Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988. • Companies (Director Identification Number) Rules, 2006. • Companies (Electronic Filing and Authentication of Documents) Rules, 2006. • Companies (Transfer of Profits to Reserves) Rules, 1975. • Companies Unpaid dividend (Transfer to General Revenue Account of the Central Government) Rules, 1978. R.Sridharan & Associates , Company Secretaries SECRETARIAL AUDIT (LAWS TO BE COVERED)

26. UNDER SEBI :- • Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. • Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992. • Securities Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. • Securities Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008 • Securities Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 • Securities Exchange Board of India (Delisting of Equity Shares) Regulations, 2009. R.Sridharan & Associates , Company Secretaries ….CONTD

27. OTHER LAWS:- • Investor Education and Protection Fund (Awareness and Protection of Investors), Rules 2001 • The Depositories Act, 1996, Regulations and Bye-laws made under the Act. • Non Banking Financial Companies Auditors Report (Reserve Bank) Directions, 1998 • Non-Banking Financial Companies (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007 • The Equity Listing Agreement with National Stock Exchange Ltd., and Bombay Stock Exchange Ltd. • RBI Directions, Norms, Notifications, Guidelines as applicable to Non-Banking Financial Companies. • Secretarial Standards issued by the Institute of Company Secretaries of India. • Corporate Governance Voluntary Guidelines, 2009 issued by the Ministry of Corporate Affairs, Government of India. R.Sridharan & Associates , Company Secretaries ….CONTD

28. STATEMENT OF CONFIDENTIALITY : High Level of Integrity is commanded in the conduct of peer review process and all the persons involved in the Peer Review Process. Before accepting to undertake a Peer Review , the Reviewer and Authorised Assistant are required to sign a Statement of Confidentiality and submit the same to the Peer Review Board. R.Sridharan & Associates , Company Secretaries OTHER SIGNIFICANT FEATURES

29. EXISTENCE OF CHINESE WALL : In view of the necessity of safeguarding the interest of the Practice Units , ICSI has ensured to bring in existence a “ Chinese Wall ” between the Peer Review Process and Disciplinary Proceedings that in the event of any deficiencies noticed by the Peer Reviewer, no Disciplinary Proceedings shall be initiated against the Practice Unit. R.Sridharan & Associates , Company Secretaries ….contd

30. IMMUNITY FROM LIABILITY: A Practice Unit , which shall make all the documents or records or any information available shall not be liable for violation of the Code of Conduct under the Company Secretaries Act, 1980. R.Sridharan & Associates , Company Secretaries ….contd

31. DISPUTE RESOLUTION MECHANISM : Any matter of dispute arising between the Practice Unit and the Peer Reviewer in the matter of Peer Review, the same shall be forwarded to the Board within 2 months and the Board shall decide the matter within 6 months. On dissatisfaction by the Practice Unit , it shall refer the same matter to ICSI Council within 2 months. R.Sridharan & Associates , Company Secretaries ….contd

32. Peer Review Process- An outstanding tool for (a) Reviewed firms to improve their practices; and (b) Users of PCS services to make decisions on whom to hire • Upholding the standards of profession by providing reassurance of maintenance and enhancement of quality of professional services rendered by ICSI members • Peer Review Certificate – Hallmark of excellence in services rendered by PCS • Enhanced Global presence by Peer Reviewed Firms/PCS • Peer Reviewed Firms/PCS may get privilege over other firms in case of listed companies R.Sridharan & Associates , Company Secretaries FUTURE OUTLOOK

33. Practice Unit (PU) shall – • Provide access to any record or document as may be asked for by the reviewer. • Afford and provide explanation or further particulars in respect of anything produced before the Peer Reviewer • Provide all assistance in connection with peer review • Allow the reviewer to inspect, examine or take any abstract of or extract from a record or document or copy there from which may be required by the reviewer. R.Sridharan & Associates , Company Secretaries Obligations of the Practice Unit

34. Should be courteous, professional and helpful, • Should be appreciative of good practices while suggesting areas of improvement, • Collaborative approach and minimum disruption • Provide practical and insightful comments, • Should try and give value addition to PU • In determining subjective issues, the Reviewer has to verify the process followed in exercise of judgment by the PU. Verification of the process will include verification of working papers maintained by the PU. R.Sridharan & Associates , Company Secretaries THE REVIEWER’S APPROACH

35. Well acquainted with the technical aspects • Awareness on the provisions of Code of Conduct of ICSI • Should have studied the provisions of the Code of Conduct of ICSI • Acquaintance with decisions of various courts on “deficiency in service” . R.Sridharan & Associates , Company Secretaries Expected Qualities of Reviewer

36. Knowledge on relevant provisions of CS Act, 1980, Consumer Protections Act, Evidence Act, IPC, etc. • Good in Drafting and Communication skills. • Professional ethics and courteous behavior while on visit • Recognizing his limitations R.Sridharan & Associates , Company Secretaries ….contD

37. Offsite Review • Study of information given by PU in the Questionnaire and based on the same make own observations about possible areas where enhancement is possible and note other aspects to be discussed in personal meeting with PU R.Sridharan & Associates , Company Secretaries METHODOLOGY TO BE FOLLOWED BY REVIEWER

38. Onsite Review • Authentication of information given by Practice Unit (PU). Test checks in respect of attestation assignments handled by PU • Communication with the staff & trainees of PU should be part of Peer Review • Inspection of the records of the client maintained by PU to verify compliance R.Sridharan & Associates , Company Secretaries ….contd

39. Intimation to PU about impending Peer Review along with Questionnaire and list of three suggested Peer Reviewers. • Reply by PU within 15 days. • Questionnaire to be returned within one month • Sampling of Attestation Services Engagements • Confirmation of visit by Reviewer. • Initial Meeting. • Compliance Review – General Controls. • Selection of attestation services engagements to be reviewed. • Review of Records. R.Sridharan & Associates , Company Secretaries Peer Review - Planning

40. On site review for two or three days on the assumption that the PU has made records and information ready on hand. Initial Meeting to discuss the agenda and confirm the accuracy of the responses in the Questionnaire. Compliance Review on General controls based on their installation , operation and maintenance. R.Sridharan & Associates , Company Secretaries Peer Review - Execution

41. Selection of attestation services engagements to be reviewed which include the number of attestation services engagement, not to undertake services subject to disciplinary proceedings. Review of Records to adopt either a compliance approach or substantive approach R.Sridharan & Associates , Company Secretaries .... Contd

42. R.Sridharan & Associates , Company Secretaries PEER REVIEW - REPORTING

43. (1)The Board shall be established by the Council. (2) The Board shall consist of a maximum of seven members to be appointed by the Council, of whom at least four shall be from amongst the Members of the Council. (3) The balance members of the Board shall be drawn from amongst prominent members of high integrity and reputation, including but not limited to former public officials, regulatory authorities etc. (4) The Council shall appoint the Chairman and the Vice-Chairman from amongst the Members of the Council. R.Sridharan & Associates , Company Secretaries ESTABLISHMENT OF ICSI PRB

44. (5)At least one-half of Council Members on the Board shall hold Certificate of Practice. (6) The tenure of the Peer Review Board shall be co-terminus with the tenure of the Council and the term of a member shall be for such period as may be prescribed by the Council. (7) Any vacancy(ies) on the Board shall be filled in by the Council. (8) Members of the Disciplinary Committee of the Institute of Company Secretaries of India shall not concurrently serve on the Board. R.Sridharan & Associates , Company Secretaries …contd

45. R.Sridharan & Associates , Company Secretaries ICSI PRB

46. The main objective of Peer Review is to ensure that in carrying out the assurance service assignments, the members of the Institute : (a) Comply with Technical, Professional and Ethical Standards as applicable including other regulatory requirements thereto and (b) Have in place proper systems including documentation thereof, to amply demonstrate the quality of the assurance services. R.Sridharan & Associates , Company Secretaries OBJECTIVE OF ICSI PRB

47. Thus Peer Review is meant for the purpose of enhancing quality of professional work, transparency in technical standards used, world class procedures and techniques resulting into more reliable reports and it has no relationship whatsoever with any disciplinary or any other regulatory mechanism. The review begins with the assumption that professionals discharge their responsibilities properly and the aim of review is to enhance those attributes of professionalism that serve to keep the profession in India. R.Sridharan & Associates , Company Secretaries …contd

48. R.Sridharan & Associates , Company Secretaries POWERS OF ICSI PRB

49. Peer Review , as a self – regulatory mechanism allows a professional to reassure the society and the stakeholders at a large that this profession is conscious of its responsibilities and is determined to do its best by ensuring the members to observe high standards. R.Sridharan & Associates , Company Secretaries CONCLUSION

50. R.Sridharan & Associates , Company Secretaries THANK YOU