Zion Ltd., is one of the listed leading companies in the pharmaceutical sector. Meta Ltd. acquired 75% Equity shares of Zion Ltd. five years ago and is being retained by Meta Ltd. till date. The shareholding pattern of M

CS Professional · Governance, Risk Management, Compliances and Ethics · PYQS · June 2023
Zion Ltd., is one of the listed leading companies in the pharmaceutical sector. Meta Ltd. acquired 75% Equity shares of Zion Ltd. five years ago and is being retained by Meta Ltd. till date. The shareholding pattern of Meta Ltd. includes the following: The Government of Punjab and Government of Haryana each hold 18% of the paid-up share capital. The Government of Rajasthan's share is 15.5%. During the course of audit for the financial year 2019-20, the Auditors made the following observations: (i) The company was not maintaining proper records with respect to the fixed assets. The value of fixed assets of the company amounts to approx. ₹ 1.50 crore. (ii) The physical verification of the assets was not carried out at regular intervals. The last physical verification was conducted on 31st July 2018. On 29th June 2020, Mr. Sam, the Auditor of Zion Ltd., resigned from his post, citing medical reasons. However, he had forgotten to inform about his resignation to the concerned authorities. Casual vacancy so created was filled up with the appointment of RMT & Co. Chartered Accountants as statutory, auditors of Zion Ltd. As far as RMT & Co. Chartered Accountants are concerned, Mr. R, who is one of the partners of the firm had borrowed a sum of ₹ 3.00 lakh from Meta Ltd. He had also purchased goods worth ₹ 1.89 lakh from the company. Both the sum borrowed and the cost of the goods bought are not yet paid by Mr. R does not sign the financials of Zion Ltd. In the above circumstances: Discuss the role of Audit Committee in such situation.

Answer & Explanation:

Under Section 177(4) of the Companies Act, 2013, the role of audit committee with respect to appointment of auditors, review of financial statements and reporting of fraud is as below: Every Audit Committee shall act in accordance with the terms of reference specified in writing by the Board. Terms of reference as prescribed by the board shall inter alia, include- (i) the recommendation for appointment, remuneration and terms of appointment of auditors of the company; (ii) review and monitor the auditor's independence and performance., and effectiveness of audit process; (iii) examination of the financial statement and the auditors' report thereon; (iv) approval or any subsequent modification of transactions of the company with related parties; Provided that the Audit Committee may make omnibus approval for related party transactions proposed to be entered into by the company subject to such conditions as prescribed under rule 6A of the Companies (Meetings of Board and its Powers) Rules, 2014: Provided further that in case of transaction, other than transactions referred to in section 188, and where Audit Committee does not approve the transaction, it shall make its recommendations to the Board: Provided also that in case any transaction involving any amount not exceeding one crore rupees is entered into by a director or officer of the company without obtaining the approval of the Audit Committee and it is not ratified by the Audit Committee within three months from the date of the transaction, such transaction shall be voidable at the option of the Audit Committee and if the transaction is with the related party to any director or is authorised by any other director, the director concerned shall indemnify the company against any loss incurred by it.

Topics: Auditors

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