CS Final Group I : Secretarial Management and Systems Audit - December 2008

CS Final - Group I • Secretarial Management and Systems Audit • December 2008

This Paper has 46 answerable questions with 0 answered.

Roll No…………
Time allowed : 3 hours	Maximum marks : 100
Total number of questions : 7	Total number of printed pages : 3

PART — A
(Answer ANY TWO questions from this part.)

PART — A

(Answer ANY TWO questions from this part.)

(a)

Choose the most appropriate answer from the given options in respect of the following :

(i)

A member of the ICSI, whose reply to a prize query is published in the Chartered Secretary journal will be entitled to programme credit hours of –
(a) Six hours
(b) Three hours
(c) Four hours
(d) Five hours.

(0)

(ii)

No person shall be entitled to have his name entered as a fellow member in the register of members of the Institute of Company Secretaries of India unless he is an associate member for a continuous period of not less than –
(a) Five years
(b) Six years
(c) Three years
(d) Ten years.

(0)

(iii)

The prescribed form of share transfer deed is –
(a) 1AA
(b) 7B
(c) 1AB
(d) 7A.

(0)

(iv)

Under the provisions of the Companies Act, 1956, share certificate is required to be delivered from the date of allotment within –
(a) Six months
(b) Four months
(c) Three months
(d) Two months.

(0)

(v)

In the case of misconduct of a member of the ICSI which falls within the scope of Second Schedule to the Company Secretaries Act, 1980, the Institute would refer the case to the –
(a) District Court
(b) Board of Discipline
(c) High Court
(d) Disciplinary Committee.

(0)

(vi)

The filing fee payable to the Registrar of Companies for registering or recording of any document by a company with a nominal capital of Rs.5 lakh is –
(a) Rs.300
(b) Rs.500
(c) Rs.700
(d) Rs.200.

(0)

(vii)

In India the scheme of merger, demerger or amalgamation need to be approved by the –
(a) District Court where the company is situated
(b) High Court
(c) Supreme Court
(d) Regional Director.

(0)

(viii)

If the articles of association so provide, the interim dividend can be declared by the –
(a) Members in AGM
(b) Board of directors
(c) Members in extra–ordinary general meeting
(d) Board of directors with the approval of the Central Government.

(0)

(ix)

An Export House (EH) with average FOB/FOR value during the current plus preceding three licensing years worth Rs.500 crore is–
(a) Three Star EH
(b) Five Star EH
(c) Four Star EH
(d) Two Star EH.

(0)

(x)

In case of a company having paid–up share capital of less than Rs. 1 crore, which of the following does not require approval from the Central Government –
(a) Exemption or extension of time for repayment of deposits
(b) Declaration of dividends out of reserves
(c) Approval of contracts under section 297
(d) Appointment of cost auditor.

(0)

(1 mark each)

(b)

Discuss the compliances to be ensured by debenture trustees under the SEBI (Debenture Trustees) Regulations, 1993.

(0)

(5 marks )

(c)

Discuss the penal provisions under the Companies Act, 1956 in respect of the following :

(i)

Prospectus issued includes any untrue statement.

(0)

(2 marks )

(ii)

Default in repayment of application money and interest in case of issue of shares/debentures.

(0)

(3 marks )

(a)

State, with reasons in brief, whether the following statements are correct or incorrect :

(i)

A company shall not issue shares at a discount unless it is authorised by the members of the company in a general meeting and sanctioned by the court.

(0)

(ii)

Amount received as premium on issue of shares may be utilised by the company for payment of interest on share capital during construction of factory.

(0)

(iii)

A floating charge on the assets of the company crystallises when the borrowing becomes ultra vires the company.

(0)

(iv)

The Central Government has power to call an annual general meeting of a company.

(0)

(v)

A petition to the court for winding–up of a company cannot be made by the employees of the company.

(0)

(2 marks each)

(b)

Critically examine and comment on the following cases :

(i)

In a petition filed before the Company Law Board, the petitioner sought registration of one–third of the shares, held by her late father and mother collectively, in her name. The respondent company contended that the petitioner had instituted a suit for partition claiming one-third of the shares held by her parents and since that suit was filed prior in time and is pending, the petitioner could not be allowed to prosecute parallel proceedings. Moreover, she also failed to produce either a will or probate or succession certificate as sought by the company. Whether the petitioner will succeed ?

(0)

(ii)

The petitioner was a selling agent of the respondent company and he had applied for certain shares in the company at the behest of the directors and made payments therefor. The Board of directors allotted 16,000 equity shares to him subject to the approval of the shareholders. The company also filed Form No.2. Later, the petitioner found that his name was not appearing in the register of members. He petitioned to the Company Law Board for rectification of register of members for inclusion of his name.

The company contended that the shareholders of the company did not approve allotment of shares to the petitioner and therefore the allotment, which was made subject to the approval of the shareholders, was not valid and binding on the company. Whether the allotment made by the directors is valid and binding on the company ?

(0)

(5 marks each)

(a)

Examine the implications of the following in the context of bonus issue and suitably advise the Board of directors:

(i)	The Board approved the bonus issue in its meeting held on 30th January, 2008. Bonus issue is to be made in August, 2008 after the audited accounts for the year 2007–08 are available.
(ii)	A ratio of 3 bonus shares for every 10 shares held was originally approved. It is proposed to change it to 2 shares for every 10 shares held.
(iii)	As on 31st January, 2008 there were some unpaid shares.
(iv)	There are fully convertible debentures (FCDs) and partially convertible debentures (PCDs) due for conversion after July, 2009.
(v)	There are defaults in the repayment of certain matured deposits.
(vi)	Rights issue was made in September, 2007.
(vii)	Articles of association has no provision for capitalisation of reserves.
(viii)	Consequent to the bonus issue, the subscribed and paid-up capital exceeds the authorised capital.

(0)

(8 marks )

(b)

Prepare a check–list for issue of compliance certificate by the Company Secretary relating to transfer of unpaid dividends to the Investor Education and Protection Fund.

(0)

(4 marks )

(c)

Abhinav Ltd., the petitioner company, failed to file its balance sheet and profit and loss account with the Registrar of Companies. The Registrar filed a criminal complaint before the appropriate court. The court had taken cognizance of the offence and issued summons on the company and its directors. In the proceedings, witness of the complainant was examined and the accused directors&nrsquo; statements were also recorded. At the fag end of the proceedings, the petitioner company raised the bar of limitation and pleaded for dismissal of the complaint. The court rejected the objection against which the appeal was filed before the High Court. Whether the offence is a continuous offence during the proceedings or not ? Examine.

(0)

(4 marks )

(d)

Lakshya Ltd., the petitioner company, opted for the corporate debt restructuring (CDR) scheme with its bankers. Accordingly, 10% of the equity share capital of the petitioner company was to be reduced. The reduction of capital was approved by the Board of directors as well as by the shareholders. Secured creditors, i.e., banks agreed to reduce interest on loan. The reduction of capital resulted in the increase of promoters stake in the company which was a pre–condition to CDR. The petitioner company filed a petition for confirmation of the reduction of capital. Examine whether such a capital reduction would be confirmed by the court.

(0)

(4 marks )

PART — B
(Answer Question No.7 which is compulsory and any two of the rest from this part.)

PART — B

(Answer Question No.7 which is compulsory and any two of the rest from this part.)

(a)

A company has been directed by the Central Government to get its cost accounting records audited. The company proposes to appoint a person, who is a FCS and FICWA and practising as a Company Secretary, as the Cost Auditor for the purpose. Comment.

(0)

(4 marks )

(b)

‘Internal control’ has four components. Explain.

(0)

(4 marks )

(c)

State, with reasons in brief, whether the following statements are correct or incorrect:

(i)

No statutory professional qualification has been prescribed for appointment as an Internal Auditor in contrast to Statutory Auditor or Cost Auditor.

(0)

(ii)

Management audit would stifle the initiative and dynamism of managers.

(0)

(2 marks each)

(d)

The Board of directors of Excell Ltd. is of the opinion that the management performance and thereby the overall performance of Excell Ltd. would have been much better if a few obvious shortcomings in the following areas were set right :

(i)
(ii)

Organisational structure; and
Personnel management policies and methods.

Managing Director of Excell Ltd. has requested a Practising Company Secretary (PCS) to undertake management audit with focus on the aforesaid matters.
Suggest the pertinent points to be reviewed by the PCS and the recommendations, if any.

(0)

(8 marks )

(a)

Manish has recently taken over as the Chief Internal Auditor of Agro and Aqua Products Ltd. On a general review of the policies and methods of keeping the books of account, it was noticed inter alia that the company has followed cash basis of accounting in certain transactions of substantial value; the company has not been complying with accounting standards.

Explain whether there is any violation of the provisions of the Companies Act, 1956 and also suggest the points to be highlighted by Manish in his report to the Managing Director.

(0)

(7 marks )

(b)

Several weaknesses in internal controls were noticed by the Internal Auditor and reported to the Managing Director of the company. Adequate and timely action was not taken by the management. On the other hand, the Internal Auditor was asked to substitute it with a favourable report and produce the amended report if and when asked by the statutory auditors. The Internal Auditor complied with the same. Critically examine and offer your comments.

(0)

(7 marks )

(c)

The Production Manager of Rozy Ltd. is experiencing difficulties like, higher labour absenteeism, power shortage and non–availability of raw material on time. This has caused decline in production. As the Management Consultant of Rozy Ltd., make an in–depth study of the above said problems and prepare a report to the management suggesting suitable solutions.

(0)

(6 marks )

(a)

Suggest an effective system of internal check to be placed in a company for credit sales.

(0)

(6 marks )

(b)

During the course of internal audit, you come across the following matters. State how you would deal with them:

(i)	At a meeting when a proposal to buy another business for cash was approved and carried out, it was later on found that the quorum was not present at the meeting.
(ii)	The minutes book is maintained in a loose leaf form and the Chairman is signing the last page of the minutes of each meeting.

(0)

(6 marks )

(c)

One of the reco mmendations made by the O&M department of a large company is that in the interest of economy, the internal audit department should be dispensed with in view of the soundness of the accounting system and the existence of external auditor. State with reasons whether you, as a Practising Company Secretary, agree with such a recommendation.

(0)

(8 marks )

(a)

Choose the most appropriate answer from the given options in respect of the following:

(i)

Information system (IS) audit is required as –
(a) IT is becoming more complex
(b) IT controls are inherently unreliable
(c) A tool for providing assurance to management
(d) IT security is inadequate.

(0)

(ii)

It is mandatory for an IS auditor to have –

(a)	Proficient programming skills
(b)	Sound knowledge of business operations, practices and compliance requirements
(c)	A general understanding of system design and project management concepts
(d)	A general knowledge of systems software and data processing.

(0)

(iii)

The process of testing all individual modules together after individual testing is known as –
(a) System testing
(b) Acceptance testing
(c) Interface testing
(d) Unit testing.

(0)

(1 mark each)

(b)

Re–write the following sentences after filling–up the blank spaces with appropriate word(s)/figure(s):

(i)

The primary objective of IS auditing is to test the __________ at the system or process level.

(0)

(ii)

The most critical factor to be considered while designing an IS audit plan is the identification of areas subject to __________ .

(0)

(iii)

The process of writing the programme is called __________ .

(0)

(1 mark each)

(c)

State, with reasons in brief, whether the following statements are correct or incorrect :

(i)

Control objectives refer to the systems of control.

(0)

(ii)

The most critical concept in segregation of duties is to ensure that personnel are performing only those duties stipulated for their jobs and positions.

(0)

(iii)

Errors in manual system tend to occur stochastically and errors in computer systems tend to be deterministic.

(0)

(2 marks each)

(d)

Comment on the following statements:

(i)

There are certain pre–requisites for an efficient IS auditor.

(0)

(ii)

Based on controls to be reviewed, IS audit can be classified into specific areas.

(0)

(4 marks each)

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