CS PROFESSIONAL

NEW SYLLABUS
REVISION NOTES
FOR JUNE, 2019

CORPORATE GOVERNANCE. RISK

MANAGEMENT, COMPLIANCE MANAGEMENT
AND ETHICS
VOLUME-II

BY CS SOMYA KATARIA
CS Somya Kataria (8461967667)
UNIT 12: COMPLIANCE MANAGEMENT

Compliance means the complete alliance of various parts of the business – whether commercial, financial,
or regulatory. It necessitates following the rules, both external and internal.

 External compliance is about the regulatory aspects, which are enforced by the law to ensure that
the business is adhering to legal parameters defined by the state.
 Internal compliance concerns the standards and policies designed by the firm to deliver a product
or service.

Corporate compliance management involves a full process of research and analysis as well as investigation
and evaluation. It is the method by which corporate manage the entire compliance process. It includes the
compliance program, compliance audit, compliance report etc. and in other words it is called compliance
solution:

 The compliance program consists of the policies and procedures which guide in adherence of laws
and regulations.
 The compliance audit is independent testing of level of compliance with various laws and regulations
applicable.

IMPORTANCE OF COMPLIANCE MANAGEMENT SYSTEM

 Image building of a responsible corporate citizen

 Stake holders can trust in the working of the corporate

 Prevent improper conduct in the organization

 It keeps things running smoothly and minimizes risks

 It helps the company in maintaining a good reputation

 Real time status of legal/statutory compliances

 Prevent unintended non compliances/ prosecutions

 Higher Productivity in the Company

 Building Positive Reputation

 It enhances credibility/creditworthiness being a law abiding company

USE OF TECHNOLOGY IN COMPLIANCE MANAGEMENT

A well-designed compliance management programme has abilities to perform the following key functions
across the enterprise:

 Compliance Dashboard: The compliance programme must provide a single enterprise-wide

dashboard for all users to track and trend compliance events.

 Policy and Procedure Management: Ensuring that these policies and procedures are in conformity
with the ever-changing rules and regulations is a critical requirement.

 Event Management: The compliance management system must have ability to capture and track

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 events, cases and incidents across the extended enterprise.

 Rules and Regulations: A well-designed compliance management solution must offer capabilities
for organization to continuously stay in sync with changing rules and regulations. As soon as there
are regulatory changes, the various departments should be notified proactively through “email
based” collaboration.

 Audit Management: Internal audits, financial audits, external audits, vendor audits must be
facilitated through a real-time system.

 Quality Management: Most organizations have internal operational, plant-level or departmental

quality initiatives to industry mandates like Six-sigma or ISO 9000. A well-designed compliance
management program incorporates and supports ongoing quality initiatives.

 Training Management: Most compliance programs often require evidence of employee training.
Sarbanes-Oxley Act, stress on employee training.
 Compliance Task Management: Organizations must plan, manage and report status of all compliance
related activities from a centralized solution.

CORPORATE COMPLIANCE PROGRAM

A corporate compliance program is generally defined as a formal program specifying an organization's

policies, procedures, and actions within a process to help prevent and detect violations of laws and
regulations. The essential of a successful compliance program may be list out as under:

1. Development of written Compliance Policies, Procedures and framing of Standards: Until and
unless one have a written policy, how the deviation from the set standard will be measured. Hence
it is of utmost necessary that there shall be a compliance policy in existence duly approved by the
Board of Directors.
2. Designation of a compliance officer and compliance committee:

The Compliance Policy shall contain a clause of appointment of a designated compliance officer, who
shall take care of the regulatory compliance related functions and he shall be responsible to ensure to
have the adherence of the compliance policy and discuss with the Board periodically.

3. Developing open lines of communication:

The Compliance Policy shall have internal mechanisms for reporting instances of potential fraud and abuse
i.e. whistle blowing policy. The name and designation of the reporting official shall be kept confidential.

4. Appropriate training and education: For effective implementation and inculcation of the compliance
policy, there is need of proper training and education to the field functionaries and policy
implementing officials.
5. Internal monitoring and auditing: The compliance policy shall contain a clause for having the
effective auditing and monitoring plans.
6. Response to detected deficiencies: Wherever the deficiencies in the prescribed procedure come in
the knowledge of the concerned official, there shall be a reporting system to make a report to the
designated official.
7. Enforcement of disciplinary standards: There shall be a clause in the compliance policy to take the
disciplinary action against the erring official, who have not adhered the prescribes set of rules and
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 regulations.
8. Effective use of Information technology: By using available tools of information technology
compliances can be managed effectively. There are various compliance management software
available now which facilitate compliance management.

COMPLIANCE SOLUTIONS

Risk/Cultural Assessment: Through employee surveys, interviews, and document reviews, a company’s
culture of ethics and compliance at all levels of the organization is validated. Our Reports and
recommendations with detail observations identify gaps between company’s current practices and
benchmarks with international practices.

Program Design/Update: In this phase, compliance solution providers help company in creating guideline
documents that outline the reporting structure, communications methods, and other key components of the
code of ethics and compliance program.

Policies and Procedures: In this phase compliance solution providers help company to develop or enhance
the detailed policies of the program, including issues of financial reporting, antitrust, conflicts of interest,
gifts and entertainment, records accuracy and retention, employment, the environment, global business,
fraud, political activities, securities, and sexual harassment, among others.

Communication, Training and Implementation: Even the best policies and procedures are useless if they are
not institutionalized— they must become part of the fabric of the organization. Compliance solution
providers help company to clearly articulate, communicate, and reinforce not only the specifics of the
program, but also the philosophy behind it, and the day-to-day realities of it. In this way, key stakeholders
and other personnel are more likely to embrace the program and incorporate it into their attitudes and
behaviours.

Ongoing self-Assessment, Monitoring and Reporting: The cultural assessment, mechanisms, and processes
put in place including employee surveys, internal controls, and monitoring and auditing programs, help
organisations achieve sustained success.

ROLE OF COMPANY SECRETARIES

Company Secretary is the professional who guides the Board and the company in all matters, renders advice
in terms of compliance and ensures that the Board procedures are duly followed, best global practices are
brought in and the organisation is taken forward towards good corporate citizenship.

I. Understanding the Background of the company

II. Identification of applicable laws

III. Individual responsibilities on compliances to be clearly defined

IV. Evaluation
V. Bridging the gap between compliance in letter and compliance in letter and spirit
VI. Updation

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 UNIT 13 -INTERNAL CONTROL

Internal control, as defined in accounting and auditing, is a process for assuring achievement of an
organization's objectives in operational effectiveness and efficiency, reliable financial reporting,
and compliance with laws, regulations and policies. It is a means by which an organization's resources are
directed, monitored, and measured.

Internal control can broadly be classified into two categories viz.:

1. Accounting controls/financial controls:

(1) Accounting controls

Accounting controls comprise the plan of organisation and all methods and procedures that are concerned
mainly with and relate to, the safeguarding of assets and the reliability of the financial information. Internal
control relating to accounting system aims at ensuring that:

— the transactions are executed in accordance with the management’s authorisation;

— all transactions are promptly recorded in an appropriate manner to permit the preparation of
financial information and to maintain accountability for assets;

— the access to assets is permitted only in accordance with the management authorisation;

— the assets are reviewed and verified at reasonable intervals and appropriate action is taken with
regard to the variances.
2. Administrative controls.:

They are concerned with the authorisation of transactions and include anything from plan of organisation
to procedures, record keeping, distribution of authority and the process of decision-making. They include
controls such as time and motion studies, quality control through inspection, performance budgeting,
responsibility accounting and performance evaluation etc

ELEMENTS OF INTERNAL
CONTROL

(i) Segregation of duties

(ii) Organisational structure

(iii) Objectives and Policy Statements

(iv) Authorisation and approval
(v) Personnel

(vi) Management

(vii) Records and Reports

(viii) Accounting Controls

(ix) Protection of assets

(x) Supervision

Limitations of Internal Control ( as laid down by SA 315)

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  Internal control, no matter how effective, can provide an entity with only reasonable assurance about
achieving the entity’s financial reporting objectives. The likelihood of their achievement is affected by
the inherent limitations of internal control.
 controls can be circumvented by the collusion of two or more people or inappropriate management
override of internal control.
 in designing and implementing controls, management may make judgments on the nature and extent
of the controls it chooses to implement, and the nature and extent of the risks it chooses to assume.
TECHNIQUES OF INTERNAL CONTROL SYSTEM
(1) Internal Check: 'internal check’ refers to allocation of duties in such a manner that the work of one
person is checked by another while that other is performing his own duties in a normal way
(2) Internal Audit: 'Internal auditing' in its traditional parlance, meant an audit on behalf of
management to ensure only: (a) the adequacy and effectiveness of internal controls; (b) accuracy
and timeliness of financial and other records and reports; (c) adherence to the laid down policies
and procedures by each unit of the organisation
(3) Flow Charts

(4) Internal Control Questionnaire

(5) Inter firm and Intra firm Comparisons.

Relationship of Objectives and Control

A direct relationship exists between objectives, which are what an entity strives to achieve,
components, which represent what is required to achieve the objectives, and entity structure (the
operating units, legal entities, and other structures).

COSOs Internal Control - Integrated Framework

The relationship can be depicted in the form of a cube.

 The three categories of objectives are represented by the columns.

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  The five components are represented by the rows.

 The entity structure, which represents the overall entity, divisions, subsidiaries, operating units, or
functions, including business processes such as sales, purchasing, production, and marketing and to
which internal control relates, are depicted by the third dimension of the cube.

 Internal Control : The Internal control is a process, effected by an entity’s board of directors,
management,
and other personnel, designed to provide reasonable assurance regarding the achievement of
objectives relating to operations, reporting, and compliance.
 Internal Check : Internal check is an arrangement of as duties allocated in such a way that the work
of one clerk is automatically checked by another while internal audit is an independent review of
operations and records undertaken by the staff specially appointed for the purpose.
 Internal Audit : Internal audit is a dynamic profession involved in helping organisations achieve their
objectives. It is concerned with evaluating and improving the effectiveness of risk management,
control and governance processes in an organisation.
 Vigil Mechanism : Vigil mechanism shall provide for adequate safeguards against victimization of
persons

who use such mechanism and also make provision for direct access to the chairperson of the Audit
Committee in appropriate or exceptional cases.

CS Somya Kataria (8461967667)

 Unit 14 -Reporting
FINANCIAL
REPORTING

Financial reporting is the process of producing statements that disclose an organisation's financial
status to management, investors and the government.

Financial reporting serves two primary purposes. First, it helps management to engage in effective
decision- making concerning the company's objectives and overall strategies. The data disclosed in the
reports can help management discern the strengths and weaknesses of the company, as well as its overall
financial health. Second, financial reporting provides vital information about the financial health and
activities of the company to its stakeholders including its shareholders, potential investors, consumers,
and government regulators. It's a means of ensuring that the company is being run appropriately.

Objectives of Financial Reporting

The following points may be summed up as the objectives and purposes of financial reporting –

1. Providing information to management of an organisation which is used for the purpose of

planning, analysis, benchmarking and decision making.
2. Providing information to investors, promoters, debt provider and creditors which is used to
enable them to male rational and prudent decisions regarding investment, credit etc.
3. Providing information to shareholders & public at large in case of listed companies about various
aspects of an organisation.

4. Providing information about the economic resources of an organisation, claims to those

resources (liabilities & owner’s equity) and how these resources and claims have undergone
change over a period of time.

5. Providing information as to how an organisation is procuring & using various resources.

6. Providing information to various stakeholders regarding performance management of an

organization

Importance of Financial
Reporting

The importance of financial reporting cannot be over emphasized. It is required by each and every
stakeholder for multiple reasons and purposes. The following points highlight the importance of financial
reporting –

1. In helps and organisation to comply with various statues and regulatory requirements. The
organisations are required to file financial statements to ROC, Government Agencies. In case of
listed companies, quarterly as well as annual results are required to be filed to stock exchanges
and published.

2. It facilitates statutory audit. The statutory auditors are required to audit the financial statements

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 of an organisation to express their opinion.

3. Financial Reports forms backbone for financial planning, analysis, bench marking and decision
making. These are used for above purposes by various stakeholders.

4. Financial reporting helps organisations to raise capital both domestic as well as overseas.

5. On the basis of financials, the public in large can analyze the performance of the organisation as
well as of its management.

6. For the purpose of bidding, labour contract, government supplies etc., organisations are
required to furnish their financial reports & statements.

International Integrated Reporting

Framework

Integrated reporting

A process that results in communication by an organisation, most visibly a periodic integrated report, about
how an organisation’s strategy, governance, performance, and prospects lead to the creation of value over
the short, medium and long-term.” It promotes a more cohesive and efficient approach to corporate
reporting and aims to improve the quality of information available to providers of financial capital to enable
a more efficient and productive allocation of capital.

The following Guiding Principles underpin the preparation and presentation of an integrated report,
informing the content of the report and how information is presented:

 Strategic focus and future orientation

 Connectivity of information

 Stakeholder relationships

 Materiality

 Conciseness

 Reliability and completeness

 Consistency and comparability

CORPORATE SUSTAINABILITY
REPORTING

Corporate sustainability is an approach that creates long-term stakeholder value by implementing a business
strategy that considers every dimension of how a business operates in the ethical, social, environmental,
cultural, and economic spheres.

A sustainability report is an organizational report that gives information about economic, environmental,
social and governance performance. Sustainability reporting aims to communicate an organization’s
sustainability priorities, policies, programs and performance to its investors. Sustainability reporting

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requires companies to gather information about processes and impacts using Global Reporting Initiative
(GRI) Sustainability Reporting Framework.

REPORTING UNDER SEBI (LODR), 2015, SEBI (SAST), 2011 and insider trading- discussed in 2nd unit

Minimum Standards for Code of Conduct to Regulate, Monitor and Report Trading by
Insiders:

1. Reporting by the Compliance Officer

2. Information on need to know basis

3. Internal Code of Conduct for the Designated Persons

4. Closure of Trading Window

5. Re-opening of Trading Window

6. Pre-clearance by the Compliance Officer

7. Restricted List

8. Declarations from persons not having the unpublished price sensitive information

9. Time frame of trading days

10. Specification of period for not executing contra trade

11. Format of application for pre-clearance

12. Sanctions and disciplinary actions

CS Somya Kataria (8461967667)

 Unit 15- BUSINESS AND ETHICS
BUSINESSETHICS

Business ethics constitute the ethical/moral principles and challenges that arise in a business
environment. Some of the areas related with – and not limited to- business ethics include the following:

1. Finance and Accounting: Creative accounting, Earnings management, financial analysis, Insider
trading, Securities Fraud, Facilitation payment.
2. Human Resource Management: Executive compensation, Affirmative action, Workplace
surveillance, Whistle blowing, Occupational safety and health, Indentures servitude, Union
busting, Sexual Harassment, Employee raiding.
3. Sales and Marketing: Price fixing, price discrimination, green washing, spamming, using addictive
messages/images in advertising, Marketing to children, False advertising, Negative campaigning.

Business Ethics is the application of ethical principles and methods of analysis to business. Business
ethics deals with the topic of study that has been given its due importance in business, commerce and
industry since last three decades.

ORGANISATION STRUCTURE AND ETHICS

Because of the top-down approach and the distance between employee and decision-maker,
centralized organizational structures can lead to unethical acts. If the centralized organization is very
bureaucratic, some employees may behave according to “the letter of the law” rather than the spirit.

Organizational structure touches on many issues related to ethics. Such as:

1. The alienation experienced by workers doing repetitive work

2. The feelings of oppression created by the exercise of authority

3. The responsibilities heaped on the shoulders of managers.

4. The power tactics employed by managers who are anxious to advance their career ambitions.

5. Health problems created by unsafe working conditions.

6. The absence of due process for non-unionized employees.

Four fundamental ethical principles

The Principle of Respect for autonomy

The Principle of Beneficence

The Principle of no maleficence

The Principle of justice

ETHICAL DILEMMA

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 Dilemma is a situation that requires a choice between options that are or seem equally unfavorable
or mutually exclusive. By definition, an ethical dilemma involves the need to choose from among two or
more morally acceptable courses of action, when one choice prevents selecting the other; or, the need
to choose between equally unacceptable alternatives

A dilemma could be a right vs. wrong situation in which the right would be more difficult to pursue
and wrong would be more convenient. A right versus wrong dilemma is not so easy to resolve. It often
involves an apparent conflict between moral imperatives, in which to obey one would result in
transgressing the other. This is also called an ethical paradox.

Steps to Resolving an Ethical Dilemma

Considering the options available

Considering Consequences – positives

and negatives of each option

Analysing Actions

Decision Making and Commitment

Equating System

CODE OF ETHICS

A corporate code of conduct may be defined as a document containing the core values and moral
principles which all those working in the company are expected to follow in the course of their duties as
well as in their daily activities. It reflects commitment of the company to ensure ethical behaviour on the
part, of its members. It also indicates how an employee should act in general or in specific situations. A
code of conduct lays down 'do’s' and `don'ts'. It describes socially acceptable and responsible behaviour.
Hence, a code of ethics is a tangible guide to ethically desirable behaviour.

Compliance with the Code

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 The future of the organisation depends on both technical and ethical excellence. Not only is it
important for employees to adhere to the principles expressed in this Code, each employee should
encourage and support adherence to the code by other employees.

Adherence of professionals to a code of ethics is largely a voluntary matter. However, if any of us do

not follow this code by engaging in process misconduct, the matter would be reviewed by the Board and
its decision shall be final. The Company reserves the right to take appropriate action against the guilty
employee.

ADVANTAGES OF BUSINESS ETHICS

1. Attracting and retaining talent

2. Investor Loyalty

3. Customer satisfaction

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 UNIT 16-Sustainability and Corporate Social Responsibility

WHAT IS CORPORATE SUSTAINABILITY?

Corporate sustainability indicates new philosophy, as an alternative to the traditional growth and
profit- maximization model, under which sustainable development comprising of environmental
protection, social justice and equity, and economic development are given more significant focus while
recognizing simultaneous growth of the corporate and profitability.

Concern towards social, environmental and economical issues, i.e., covering all the segments of the
stakeholders, are now basic and fundamental issues which permit a corporate to operate in the long run
sustainably. Following key drivers need to be garnered to ensure sustainability:

 Internal Capacity Building strength – In order to convert various risks into competitive
advantages.
 Social impact assessment – In order to become sensitive to various social factors, like
changes in culture and living habits.
 Repositioning capability through development and innovation: Crystallisation of all
activities to ensure consistent growth.
 Corporate sustainability is a business approach creating shareholder value in the long run.

CORPORATE SOCIAL RESPONSIBILITY

(CSR)

Corporate Social Responsibility (CSR) is a concept whereby companies not only consider their
profitability and growth, but also the interests of society and the environment by taking responsibility for
the impact of their activities on stakeholders, environment, consumers, employees, communities, and all
other members of the public sphere. The basic premise is that when the corporations get bigger in size,
apart from the economic responsibility of earning profits, there are many other responsibilities attached
to them which are more of non-financial/social in nature. These are the expectations of the society from
these corporate to give something in return to the society with whose explicit or implicit help these
entities stand where they are.

The vedic philosophy of “Sarva loka hitam” i.e. ‘‘the well-being of all stakeholders”, has regained
importance in the current business environment. The concept has evolved over the years and now used
as strategy and a business opportunity to earn stakeholder goodwill.

Corporate Sustainability and Corporate Social

Responsibility

Although scholars and practitioners often interpret Corporate Sustainability and Corporate Social
Responsibility as being nearly synonymous, pointing to similarities and the common domain. The two
concepts have different backgrounds and different theoretical paths. According to management science, the
notion of Corporate Sustainability can be defined first as the capacity of a firm to create value through the

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product and services it produces, and to continue operating over the years. Sustainability, in this context,
entails the creation of a sustainable competitive advantage.

FACTORS INFLUENCING CSR

→ Globalization – coupled with focus on cross-border trade, multinational enterprises and global supply
chains — is increasingly raising CSR concerns related to human resource management practices,
environmental protection, and health and safety, among other things.

→ Governments and intergovernmental bodies, such as the United Nations, the Organisation for
Economic Co-operation and Development and the International Labour Organization have
developed compacts, declarations, guidelines, principles and other instruments that outline
social norms for acceptable conduct.

→ Advances in communications technology, such as the Internet, cellular phones and personal
digital assistants, are making it easier to track corporate activities and disseminate information
about them. Non-governmental organizations now regularly draw attention through their
websites to business practices they view as problematic.

→ Consumers and investors are showing increasing interest in supporting responsible business
practices and are demanding more information on how companies are addressing risks and
opportunities related to social and environmental issues.

→ Numerous serious and high-profile breaches of corporate ethics have contributed to elevated
public mistrust of corporations and highlighted the need for improved corporate governance,
transparency, accountability and ethical standards.

→ Citizens in many countries are making it clear that corporations should meet standards of social
and environmental care, no matter where they operate.

→ There is increasing awareness of the limits of government legislative and regulatory initiatives to
effectively capture all the issues that corporate social responsibility addresses.

→ Businesses are recognizing that adopting an effective approach to CSR can reduce risk of business
disruptions, open up new opportunities, and enhance brand and company reputation

Definition of CSR

The term ‘CSR’ is defined in the Companies (Corporate Social Responsibility Policy) Rules to mean and
include but not limited to

 projects or programs relating to activities specified in the Schedule VII of the Act; or
 projects or programs relating to activities undertaken by the Board in pursuance of
recommendations of the CSR Committee as per the declared CSR policy subject to the
condition that such policy covers subjects enumerated in the Schedule VII of the Act.

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 CSR Committee

Companies that trigger any of the aforesaid conditions must constitute a Corporate Social
Responsibility Committee of the Board to formulate and monitor the CSR policy of a company. Section
135 of the 2013 Act requires the CSR Committee to consist of at least three directors, including atleast
one independent director. Where a company is not required to appoint an independent director under
sub-section (4) of section 149, it shall have in its Corporate Social Responsibility Committee two or more
directors. However, CSR Rules exempts unlisted public companies and private companies that are not
required to appoint an independent director from having an independent director as a part of their CSR
Committee.

The CSR Committee of a foreign company shall comprise of at least two persons wherein one or more
persons should be resident in India and the other person nominated by the foreign company.

The Board's report shall disclose the composition of the Corporate Social Responsibility Committee.

Functions of the CSR Committee

○ The Corporate Social Responsibility Committee shall formulate and recommend to the Board, a
Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the
company as specified in Schedule VII.
○ The Corporate Social Responsibility Committee shall recommend the amount of expenditure to
be incurred on the activities to be undertaken by the company as specified in Schedule VII.
○ Further, the CSR Committee is under an obligation to monitor the implementation of the CSR
policy from time to time.
○ The CSR Committee shall also institute a transparent monitoring mechanism for implementation
of the CSR projects or programs or activities undertaken by the government.

SUSTAINABILITY
REPORTING

The new approach is an integrated one seeking to link strategic management, management accounting
and reporting. The reporting contemplated here covers the whole information communication process
comprising internal and external stakeholders. Sustainability reporting is a part of the new approach.

Sustainability reporting is a process for publicly disclosing an organization’s economic, environmental,

and social performance. Many companies find that financial reporting alone no longer satisfies the needs
of shareholders, customers, communities and other stakeholders for information about overall
organizational performance. Through sustainability reporting, organizations report on progress against
performance goals not only for economic achievements, but for environmental protection and social well-
being.

International Integrated Reporting Framework (IIRC)

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 IIRC has developed an International Integrated Reporting Framework to establish Guiding Principles
and Content Elements that govern the overall content of an integrated report, and to explain the
fundamental concepts that underpin them. The Framework:

 Identifies information to be included in an integrated report for use in assessing the organization’s
ability to create value; it does not set benchmarks for such things as the quality of an organization’s
strategy or the level of its performance

 Is written primarily in the context of private sector, for-profit companies of any size but it can also
be applied, adapted as necessary, by public sector and not-for-profit organizations.

The following Guiding Principles underpin the preparation of an integrated report, informing the
content of the report and how information is presented:

 Strategic focus and future orientation: An integrated report should provide insight into the
organization’s strategy, and how it relates to the organization’s ability to create value in the short,
medium and long term, and to its use of and effects on the capitals

 Connectivity of information: An integrated report should show a holistic picture of the combination,
interrelatedness and dependencies between the factors that affect the organization’s ability to
create value over time

 Stakeholder relationships: An integrated report should provide insight into the nature and quality of
the organization’s relationships with its key stakeholders, including how and to what extent the
organization understands, takes into account and responds to their legitimate needs and interests

 Materiality: An integrated report should disclose information about matters that substantively
affect the organization’s ability to create value over the short, medium and long term

 Conciseness: An integrated report should be concise

 Reliability and completeness: An integrated report should include all material matters, both positive
and negative, in a balanced way and without material error

 Consistency and comparability: The information in an integrated report should be presented: (a) on
a basis that is consistent over time; and (b) in a way that enables comparison with other
organizations to the extent it is material to the organization’s own ability to create value over time.

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 Unit-17 Measuring Business Sustainability
Sustainable Development is fast emerging in the forefront of the business agenda the world over. In recent
years different business reporting models have evolved that guide companies to understand, demonstrate,
communicate, report and improve their sustainability performance.
Risk Management

Commercial lending institutes such as banks acting as financial intermediaries that acceptdeposits from
public and lend it out to borrowers. The borrowers, in turn, repay the amount borrowed along with an
additional sum known as the interest. This interest is fixed by the bank in a way that it covers the cost of
operations, the cost of sourcing funds, and the yield for the shareholders of the bank's equity. But the whole
operation of borrowing and lending may not be running as smoothly as expected.

A bank may face external or internal fluctuations or disruptions in its daily operations which are
known as risks. These risks could be related to macro (industry related) or micro (firm specific) factors in
which the firm operates. A financial institution is exposed to operational, credit and market risks in its
daily course of business.

Operational risk is the risk which is not inherent in the business. It relates to human error, fraud, or
breakdown of systems and processes.

Credit risks primarily arise from the risk of default of borrowers when the borrower fails to make
required payments back to the financial institution.

Market risk is appears in forms of fluctuation in prices in the financial markets and the possibility for
an investor to experience losses

ECONOMIC VALUE ADDED

(EVA)

EVA is promoted by a consulting firm Stern Steward & Co., which was established in 1982 and
pioneered the EVA concept in 1989. EVA is a performance measure that captures the true economic profit
of an enterprise. EVA is used by over 300 successful companies.

Concept of Economic Value Added (EVA)

EVA is a value based financial performance measure. It is an investment decision tool and it is also a
performance measure reflecting the absolute amount of shareholder value created. It is computed as the
product of the “excess return” made on an investment or investments and the capital invested in that
investment or investments.

 “Economic Value Added (EVA) is the net operating profit minus an appropriate charge for the opportunity
cost of all capital invested in an enterprise or project. It is an estimate of true economic profit, or amount
by which earnings exceed or fall short of the required minimum rate of return investors could get by
investing in other securities of comparable risk
 MVA: Market Value Added (MVA) is the difference between the total market value of the Company and the

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 economic capital. A Company’s total market value is equal to the sum of the market value of its equity and
the market value of its debt. In theory, this amount is what can be “taken out” of the Company (i.e. when
all shares are sold and debt is repaid) at any given time.
 Operational Risk: Operational risk is the risk not inherent in financial, systematic or market-wide risk.
It is the risk remaining after determining financing and systematic risk, and includes risks resulting from
breakdowns in internal procedures, people and systems.
 Credit Risk: Credit risk is most simply defined as the potential that a bank borrower or counterparty will fail
to meet its obligations in accordance with agreed terms. The goal of credit risk management is to maximise
a bank's risk- adjusted rate of return by maintaining credit risk exposure within acceptable parameters.
 Market Risk: Market risk is the possibility of an investor experiencing losses due to factors that affect the
overall performance of the financial markets in which he or she is involved. Market risk, also called
"systematic risk," cannot be eliminated through diversification, though it can be hedged against.

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 Unit-18 Anti-Corruption and Anti-Bribery Laws in India

INTRODUCTION

The Indian economy is characterized by the presence of a big government – the Indian political
structure encompasses central and state governments, as well as various local self-governance structures.
Apart from performing functions such as regulation and licensing, the government also operates large
commercial enterprises in several sectors, including education, defence, aviation, railways (a near
monopoly), infrastructure and healthcare – accordingly, interactions with the government (in its various
forms) and government owned enterprises are unavoidable for entities looking to do business in India. It
is also important to bear in mind that Indian laws and regulations often provide for considerable
discretion in the hands of government agencies and personnel, and this can make interacting with
government a subjective and time-consuming exercise.

While Indian anti-corruption laws are fairly stringent, corruption is not uncommon in India, and until
recently the enforcement of anti-corruption laws left much to be desired. This has led to unfortunate
notion (particularly outside India) that corruption is an accepted practice in India – however, this notion
is misplaced, and recent years have been marked with growing public dissatisfaction over corruption and
its cost to the Indian economy. Over the past five to six years, there has been a strong public sentiment
against corruption, and high-profile instances of corruption have become key political and election issues
– for example, the incumbent Indian government has also taken a hard line stance on corruption issues.

(A) PREVENTION OF CORRUPTION ACT, 1988 (THE

PCA)

The PCA criminalises the acceptance of gratification (pecuniary or otherwise) other than the
acceptance of legal remuneration by public servants which is paid by their employers in connection with
the performance of their duties. Aiding and abetting the commission of bribery is also an offence, such
that any person, who bribes or attempts to bribe a public servant or acts as a middleman for such bribing
may also be held liable. Further, the PCA creates an adverse presumption if a public servant’s assets are
disproportionate in value to his or her income and cannot be satisfactorily accounted for. The provisions
of the PCA apply regardless of the location or jurisdiction of the commission of an offence, as long as the
same is committed by a ‘public servant’ as defined under it. Judicial decisions have also interpreted the
term ‘public servant’ in the PCA to include a wide variety of persons, such as bank employees in both
private and government owned banks.

The Prevention of Corruption Act, 1988 (No. 49 of 1988) is an Act of the Parliament of India enacted
to combat corruption in government agencies and public sector businesses in India. This law defines who
a public servant is and punishes public servants involved in corruption or bribery. It also punishes anyone
who helps him or her commit the crime corruption or bribery. It extends to the whole of India except the
State of Jammu and Kashmir and it applies also to all citizens of India outside India.

Features of bribery offences

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 The PCA is primarily directed at public servants, which is broadly defined to include any person who is:
empowered to conduct elections,

○ appointed to perform public duty,

○ an office bearer of Government aided cooperative society,

○ an employee of any service commission, or

○ a member of any university.

(B) LOKPAL AND LOKAYUKTA ACT, 2013 (THE

LLA)

The Parliament of India also enacted the LLA to constitute a Lokpal for the Union and Lokayukta for
States to inquire into allegations of corruption against certain public functionaries. The LLA requires each
State to establish a Lokayukta by law under the state legislature. The Lokpal has the jurisdiction to inquire
into all complaints arising from the PCA against certain public functionaries, including an incumbent or
past Prime Minister, an incumbent or past Union Minister and any person who is or has been a member
of Parliament. The LLA provides that after the completion of investigation with respect to a complaint
under the PCA, the Lokpal can itself initiate prosecution against the accused and/or impose penalties via
its prosecution wing or initiate prosecution in the special court proposed to be established to try offences
under the PCA.

Composition of Lokpal

As per the law, Lokpal is a statutory, multi-member body which has no constitutional backing. It consists of
one Chairperson and a maximum of 8 members. The Members of Parliament, Members of State Legislative
Assembly, Members of Panchayat and Municipality, persons convicted of any offence, politicians, people who
are removed from the public services due to their inappropriate actions, persons holding any office of trust
or business organization are not eligible to hold the coveted post of Chairperson in Lokpal.

Lokpal’s Jurisdiction

As per the law, all public servants come under the purview of the anti-corruption ombudsman. It does not
matter whether the public servant was inside or outside the country at the time of the alleged crime. Even
the Prime Minister of the country comes under the ambit of the law under certain conditions. Other people
who come under the purview of the Lokpal include the Union Ministers, Members of Parliament, Officers
coming under Groups A, B, C and D, and persons who are in charge of any society or organization set up by
the Central Act or any other body financed or controlled by the Central Government. The persons who get
involved in the act of abetting, giving or taking bribe also come under the ambit of the law automatically.

Working of Lokpal

When citizens air their complaints, Lokpal receives them. Then, the anti-corruption ombudsman analyzes
them to check their veracity. Once it decides to go ahead, Lokpal would order a preliminary inquiry. This
would be done either by the inquiry wing or any other Central Government agency.However, the time of
inquiry can be extended for further 90 days if the enquiring official requests in writing with sufficient reasons

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for it. This inquiry would find out whether there is any prima facie case to go ahead. Further
recommendations on the case would be done on a case-to-case basis..

Powers of Lokpal

Its inquiry wing has the power to search and seize objects – both movable and immovable objects – and make
reports based on them. These reports would be taken up by the 3-member Lokpal benches for further
scrutiny. The benches would give the opportunities for the allegedly corrupt officers to say in their defense.
After this, the benches would undertake any of the following alternatives.

1. If the officers are found guilty, the benches would grant their sanction to the prosecution wing
or CBI to file charge sheets against them. The benches can also direct the concerned government
departments to start proceedings against them.

2. If the officers are found innocent, the benches would direct the filing of the closure of case
reports before the Special Court. Now, the benches would proceed against the complainants for
filing false complaints.

(C) FOREIGN CORRUPT PRACTICES ACT, 1977 (THE

FCPA)

The idea of Foreign Corrupt Practices Act (FCPA) is to make it illegal for companies and their
supervisors to influence foreign officials with any personal payments or rewards. The FCPA applies to any
person who has a certain degree of connection to the United States and engages in foreign corrupt
practices. The Act also applies to any act by U.S. businesses, foreign corporations trading securities in the
U.S., American nationals, citizens, and residents acting in furtherance of a foreign corrupt practice
whether or not they are physically present in the U.S. This is considered the nationality principle of the
act. Any individuals that are involved in those activities may face prison time

(D) CENTRAL VIGILANCE COMMISSION ACT,

2003

The preamble of the Act provides that it is an Act to provide for the constitution of a Central Vigilance
Commission to inquire or cause inquiries to be conducted into offences alleged to have been committed
under the Prevention of Corruption Act, 1988 by certain categories of public servants of the Central
Government, corporations established by or under any Central Act, Government companies, societies
and local authorities owned or controlled by the Central Government and for matters connected
therewith or incidental thereto.

The Central Vigilance Commission (CVC) is the body constituted by the Government in the year 1964 on the
proposal of the Santharam Committee on the Prevention of Corruption. The body was established with an
intention to check corruption in the Government departments.

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(E) ICSI ANTI BRIBERY
CODE

Objective

To ensure that neither the company nor any of its employees, directors or authorised representatives indulge
in bribery in any of their actions taken for and on behalf of the company in the course of economic, financial
or commercial activities of any kind.

Scope

The Code shall be applicable to the company and its

(i) Board of Directors,

(ii) Employees (full time or part-time or employed through any third party contract),

(iii) Agents, Associates, Consultants, Advisors, Representatives and Intermediaries, and

(iv) Contractors, Sub-contractors and Suppliers of goods and/or services.

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