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in
 Gauhati University Auditing and Corporate
Governance Solved Question Paper 2022
B.com 6 Semester Honors
Paper: COM-HC-6016
(Auditing and Corporate Governance)
Full Marks: 80
Time Three hours

The figures in the margin indicate full marks for the questions.

Answer Group-A and Group-B in Separate Answer books.

GROUP-A (AUDITING)

1. Answer as directed: (any four) 1x4=4

(i) Final audit starts after the end of the financial year.
(State whether the statement is True or False)
Ans: True

(ii)_____audit is done by the staff of the employer. (Fill in the blank)

Ans: Internal Audit.

(iii) Write the meaning of fraud.

Ans: Fraud refers to any intentional act of deception,
misrepresentation, or concealment of facts that results in an unfair or
unlawful gain to oneself or a loss to another party.

(iv) The auditor's report is addressed to the members of the company.

(State whether the statement is True or False)
Ans: True.

(v) Write two types of negative audit reports.

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Ans: Adverse opinion and Disclaimer of opinion.

(vi) What is a management audit?

Ans: Management audit is a systematic evaluation of the effectiveness
and efficiency of the management of an organization in achieving its
objectives.

(vii) One of the objects of cost audit is to reconcile cost accounts

and____accounts. (Fill in the blank)
Ans: Financial accounts

(viii) Write the meaning of internal audit.

Ans: Internal audit is an independent, objective assurance and
consulting activity designed to add value and improve an
organization's operations by evaluating risk management, control, and
governance processes.

2. Answer the following: (any three)2x3 = 6

(i) What is meant by vouching?

Ans: Vouching refers to the process of verifying the authenticity of
transactions recorded in the accounting books by examining
documentary evidence such as receipts, invoices, bills, etc. It helps the
auditor to ensure that all the transactions are properly authorized,
supported by valid documents, and recorded accurately in the books of
accounts.

(ii) Write the meaning of the Audit Notebook.

Ans: The audit notebook is a document prepared by the auditor during
the course of the audit, which contains all the relevant information,
notes, and observations made by the auditor during the audit process.
It serves as evidence of the auditor's work and helps in preparing the
audit report.

(iii) Who is a company auditor?

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Ans: A company auditor is an independent professional appointed by
the shareholders of a company to conduct an audit of the company's
financial statements, compliance with laws and regulations, and
internal control systems.

(iv) Write two points of distinction between frauds and errors.

Ans: Two points of distinction between frauds and errors are:

A). Fraud is an intentional act of misrepresentation, whereas errors

are unintentional mistakes.
B). Fraud involves an element of deception, while errors do not involve
any deception.

3.Answer the following questions: (any two) 5 x 2 = 10

(i)Removal of a company's auditor

(ii) Features of a good internal check system
(iii) Advantages of an audit programme
(iv) Objectives of cost audit

Answers of the above Questions:

(i) Removal of a company's auditor: The removal of a company's

auditor may be initiated either by the company or the auditor
himself/herself. If the company wishes to remove the auditor, it must
follow the procedures laid down in the Companies Act or the articles of
association of the company. Some of the reasons for removal of an
auditor include the expiry of the auditor's term, the resignation of the
auditor, the inability of the auditor to perform his/her duties, or the
removal of the auditor due to misconduct.

(ii) Features of a good internal check system: A good internal

check system has the following features:

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1.Separation of duties: The work of different employees should be
segregated in such a way that no one person has complete control
over any transaction.

2.Authorization and approval: All transactions should be properly

authorized and approved by designated personnel.

3.Recording and documentation: All transactions should be

properly recorded and documented in the books of accounts.

4.Physical controls: The assets of the organization should be

properly safeguarded through physical controls such as locks, alarms,
and security systems.

5.Supervision and review: The work of all employees should be

properly supervised and reviewed by higher authorities to ensure
compliance with policies and procedures.

(iii) Advantages of an audit programme: An audit programme has

the following advantages:

1. It helps the auditor to plan and organize the audit work more
efficiently.
2. It ensures that all areas of the organization are covered during
the audit.
3. It provides a framework for the auditor to identify and assess
risks and controls.
4. It helps to ensure that the audit work is completed within the
allocated time and budget.
5. It provides a basis for monitoring and evaluating the
performance of the audit team.

(iv) Objectives of cost audit: The objectives of cost audit include:

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1.To determine the accuracy of cost accounting records and
statements.
2.To ensure compliance with the relevant laws and regulations.
3.To identify inefficiencies and areas for cost reduction.
4.To provide management with information for decision-making.
5.To improve the overall cost-effectiveness of the organization.

4. Answer the following questions: (any two) 10×2=20

(a) Discuss the auditor's duty regarding detection and prevention of

errors and frauds. 10
Ans: Auditors have a critical role in detecting and preventing errors
and frauds in financial statements. The following are the auditor's
duties regarding detection and prevention of errors and frauds:

1.Planning and Risk Assessment: The auditor must develop a

thorough understanding of the client's business, industry, and the risks
associated with it. Based on the understanding, the auditor should plan
and design the audit procedures that are necessary to detect material
misstatements in the financial statements due to error or fraud.

2.Internal Controls Assessment: The auditor must evaluate the

client's internal control systems to ensure that they are adequate and
effective in preventing and detecting errors and frauds. If there are
any weaknesses in the internal controls, the auditor must report them
to the management and suggest corrective actions.

3.Detection of Fraud: The auditor must obtain sufficient and

appropriate evidence to detect fraud, including fraudulent financial
reporting and misappropriation of assets. The auditor should also be
aware of the common fraud schemes and the red flags that could
indicate fraud.

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4.Communication: The auditor must communicate any suspected
fraud to the appropriate levels of management, and if necessary, to
the audit committee or the board of directors. The auditor should also
document the nature and extent of the suspected fraud and the
response of the management to it.

5.Professional Skepticism: The auditor must maintain a skeptical

attitude throughout the audit and should not rely solely on the
management's representations. The auditor should look for evidence
that corroborates the management's assertions.

6.Reporting: The auditor must report any significant findings to the

management, audit committee, and other stakeholders. The auditor
should also issue an opinion on whether the financial statements are
presented fairly, in all material respects, in accordance with the
applicable financial reporting framework.

In conclusion, the auditor's duty regarding detection and prevention of

errors and frauds is a critical component of the audit process. The
auditor must exercise due care and professional skepticism in
performing the audit and must communicate any significant findings to
the appropriate stakeholders.

(b) Discuss the contents of an audit report. 10

Ans: An audit report is a formal document that provides the opinion of
the auditor on the financial statements of a company. The following
are the typical contents of an audit report:

i) Title: The audit report should have a title that clearly indicates that
it is an independent auditor's report.

ii) Addressee: The audit report should be addressed to the appropriate

parties, such as the shareholders, board of directors, or audit
committee.

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iii) Introduction: The audit report should include an introduction that
identifies the financial statements that were audited, the period
covered by the audit, and the responsibilities of the auditor and
management.

iv) Scope: The audit report should state the scope of the audit,
including the audit procedures performed and the limitations of the
audit. The auditor should also indicate whether any areas were not
audited or were audited by another auditor.

v) Opinion: The audit report should include the auditor's opinion on the
financial statements. The opinion should state whether the financial
statements are presented fairly, in all material respects, in accordance
with the applicable financial reporting framework.

vi) Basis for Opinion: The auditor's opinion should be supported by a

basis for opinion section that explains the auditor's reasoning and the
evidence obtained during the audit.

vii) Key Audit Matters: For audits of listed entities, the auditor is
required to communicate the key audit matters in the audit report. Key
audit matters are those matters that, in the auditor's professional
judgement, were of most significance in the audit of the financial
statements.

viii) Other Reporting Responsibilities: The audit report may also

include a section on other reporting responsibilities, such as reporting
on other information included in the annual report, reporting on the
internal control system, or reporting on regulatory requirements.

ix) Auditor's Signature: The audit report should be signed by the

auditor or the audit firm.

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x) Date of the Report: The audit report should include the date of the
report, which is the date that the auditor has obtained sufficient
appropriate audit evidence to support the opinion.

In conclusion, an audit report is a formal document that provides the

auditor's opinion on the financial statements of a company. The report
should include various sections such as title, addressee, introduction,
scope, opinion, basis for opinion, key audit matters, other reporting
responsibilities, auditor's signature, and date of the report.

(c) What is the meaning of vouching of Cash Book? Write the

procedure of vouching of cash sales. 2+8=10
Ans: Vouching of Cash Book: Vouching of cash book is a process in
auditing where the auditor verifies and examines the cash transactions
recorded in the cash book with the supporting documents or vouchers.
The main objective of vouching is to ensure that all cash transactions
are properly recorded and supported by adequate documentation, and
to detect any errors, omissions or frauds.

Vouching of cash sales involves verifying the accuracy and

completeness of the transactions related to cash sales. The following
are the procedures for vouching of cash sales:

i) Obtain the cash sales register or journal: The cash sales register or
journal contains all the details of the cash sales transactions, including
the date of sale, the name of the customer, the amount of the sale,
and the mode of payment. It is essential to obtain the register or
journal to ensure that all the transactions have been recorded
accurately and completely.

ii) Select a sample of cash sales invoices: From the cash sales register
or journal, select a sample of cash sales invoices for a particular

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period. The sample size should be appropriate to ensure that it is
representative of the overall transactions for the period.

iii) Verify the accuracy of the cash sales invoices: Verify the accuracy
of the selected cash sales invoices by comparing them with supporting
documents such as the sales invoice, the cash register, and the bank
deposit slip. Ensure that the details such as the date of sale, the name
of the customer, the amount of the sale, and the mode of payment are
consistent across all the documents.

iv) Verify the authenticity of the cash sales invoices: Check the
authenticity of the selected cash sales invoices by verifying the
customer's signature, stamp, or other identifying information. Verify
that the customer details are genuine and that the invoices have not
been altered or forged.

v) Trace the cash sales invoices to the cash register and bank deposit
slip: Trace the selected cash sales invoices to the cash register and
bank deposit slip to ensure that the amount of cash sales has been
recorded accurately and completely in the books of accounts.

vi) Verify the completeness of the cash sales transactions: Ensure that
all the cash sales transactions have been recorded in the cash sales
register or journal. Check for any unrecorded or under-recorded
transactions.

vii) Check for any discrepancies: Check for any discrepancies such as
overpayments, underpayments, or wrong recording of transactions.
Investigate any such discrepancies and take corrective actions as
necessary.

viii) Document the findings: Document the findings of the vouching of

cash sales transactions in the working papers. Report any significant
findings or issues to the management for further action.

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By following these procedures, the accuracy and completeness of the
cash sales transactions can be verified and any discrepancies can be
identified and corrected timely.

(d) Describe the important advantages of cost audit. 10

Ans: Cost audit is an independent examination of a company's cost
accounting records and procedures to ensure that they are accurate,
efficient, and compliant with applicable laws and regulations. The
following are the important advantages of cost audit:

i) Detects errors and fraud: One of the most significant advantages of

cost audit is that it helps to detect errors and fraud in a company's
cost accounting records. The cost auditor reviews the cost accounting
system, procedures, and practices and identifies any deviations or
discrepancies. By detecting and correcting errors and fraud, cost audit
ensures the accuracy and reliability of the cost accounting records.

ii) Helps in cost control: Cost audit helps in identifying areas of cost
overruns, wastages, and inefficiencies. The cost auditor examines the
cost accounting records and identifies opportunities for cost reduction.
This helps the management to control costs and increase profitability.

iii) Facilitates decision making: Cost audit provides reliable information

to the management for decision making. The cost auditor examines
the cost accounting records and provides detailed information on the
cost of production, the profitability of products, and the
cost-effectiveness of various activities. This helps the management to
make informed decisions regarding product pricing, product mix, and
cost reduction measures.

iv) Ensures compliance: Cost audit ensures that the company's cost
accounting records and procedures comply with applicable laws and
regulations. The cost auditor examines the cost accounting records

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and ensures that they are accurate, complete, and comply with the
legal and regulatory requirements.

v) Improves efficiency: Cost audit helps in improving the efficiency of

the cost accounting system. The cost auditor examines the cost
accounting procedures and identifies areas where efficiency can be
improved. By implementing the recommendations of the cost auditor,
the company can improve the efficiency of the cost accounting system
and reduce the time and resources required for cost accounting.

vi) Enhances credibility: Cost audit enhances the credibility of a

company's cost accounting records. The cost auditor provides an
independent assessment of the cost accounting records and
procedures, which increases the confidence of stakeholders in the
accuracy and reliability of the records.

vii) Facilitates benchmarking: Cost audit provides information on the

cost structure of the company and enables benchmarking with other
companies in the same industry. This helps the management to
identify areas where the company is lagging behind and take
corrective measures to improve competitiveness.

In summary, cost audit provides several important advantages such as

detecting errors and fraud, facilitating cost control, aiding decision
making, ensuring compliance, improving efficiency, enhancing
credibility, and facilitating benchmarking. By conducting regular cost
audits, companies can ensure the accuracy, efficiency, and compliance
of their cost accounting records and procedures.

(e) What is meant by 'continuous audit'? State the merits and demerits
of such an audit. 2+8=10
Ans: Continuous audit is a method of auditing in which the auditor
continuously reviews and tests the accounting system and transactions
throughout the year, rather than conducting an audit once a year. It

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involves the use of technology to automate the audit process and
perform real-time monitoring of transactions.

Merits of Continuous Audit:

i) Timely detection of errors and fraud: Continuous audit enables the

auditor to detect errors and fraud in real-time, which helps to prevent
further losses and damages to the organization. It ensures that the
accounting system is functioning properly and transactions are
recorded accurately and timely.

ii) Improved internal control: Continuous audit helps to improve the

internal control system of the organization by providing regular
feedback on the effectiveness of internal controls. It enables the
management to identify weak areas and take corrective actions timely.

iii) Increased efficiency: Continuous audit reduces the time and effort
required for the audit process by automating the audit procedures. It
enables the auditor to focus on high-risk areas and perform in-depth
analysis of transactions.

iv) Facilitates risk management: Continuous audit helps the

organization to identify and manage risks effectively. It enables the
auditor to provide real-time feedback on the risk exposure and helps
the management to take corrective actions timely.

Demerits of Continuous Audit:

i) High cost: Continuous audit requires significant investment in

technology and resources, which may be expensive for small and
medium-sized organizations. It involves the use of sophisticated
software and tools, which require regular maintenance and upgrades.

ii) Increased dependence on technology: Continuous audit relies

heavily on technology, which may be prone to technical glitches and

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errors. Any technical failure can result in disruption of the audit
process and affect the accuracy and reliability of the audit results.

iii) Requires skilled auditors: Continuous audit requires skilled auditors

who are trained in the use of technology and have expertise in data
analysis. Such auditors may be difficult to find and may require
significant investment in training and development.

iv) Difficulty in maintaining independence: Continuous audit may pose

challenges to maintaining auditor independence, as the auditor may
become too involved in the day-to-day operations of the organization.
This may compromise the auditor's objectivity and impartiality.

In summary, continuous audit provides several advantages such as

timely detection of errors and fraud, improved internal control,
increased efficiency, and effective risk management. However, it also
has some disadvantages such as high cost, increased dependence on
technology, difficulty in finding skilled auditors, and challenges to
maintaining independence. It is important to carefully evaluate the
costs and benefits of continuous audit before implementing it in an
organization.

GROUP-B ( CORPORATE GOVERNANCE)

Answer the following questions as directed: (any six) 1×6=6

(a) A company cannot issue redeemable preference share for a period

exceeding

(i)5 years
(ii) 10 years
(iii) 15 years
(iv) 20 years

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(Choose the correct answer)

Ans: (i)5 years

(b) The concept of corporate social boro responsibility originated in

which period?

(i) 1920's and 1930's.

(ii) 19th century
(iii) 1980's and 1990's
(iv) 1960's and 1970's
(Choose the correct answer)
Ans: (iii) 1980's and 1990's

(c) In which year Maxwell Communication Corporate was established?

(i) 1974
(ii) 1982
(iii) 1964
(iv)1994
(Choose the correct answer)
Ans: (iii) 1964

(d) Pillar of corporate sustainability is

(i) the environmental pillar

(ii) the social pillar
(iii) the economic pillar
(iv) All of the above
(Choose the correct answer)
Ans: (iv) All of the above

(e) As per the Companies Act, 2013, the maximum strength of

directors on the Board is 15. (True/False)

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Ans: True.
(f) Every Director can have only one DIN (Director Identification
Number) (True/False)
Ans: False. Every Director must have a unique DIN (Director
Identification Number).

(g) Write the full form of UNDO.

Ans:

(h) The German model of corporate gover is two-tier board model.

(Indicate whether True or False)
Ans: True. The German model of corporate governance is a two-tier
board model consisting of a supervisory board and a management
board.

2. Answer very briefly of the following: (any two) 2×2=4

(a) What is meant by corporate philanthropy?

Ans: Corporate philanthropy refers to the practice of a company
donating money, resources, or time to charitable causes or community
organizations.

(b) What is green governance?

Ans:Green governance refers to the implementation of sustainable
practices and policies in the management and operation of a company,
with the aim of reducing its environmental impact.

(c) Write two features of corporate governance.

Ans: The following are the two features of corporate governance:

1).Transparency: It means that the Board of Directors should release

all important and relevant information to the stakeholders. They must
disclose all the significant financial and operational data to the
stakeholders.

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2).Accountability: The Chief Executive Officer and Board of Directors
must be stand accountable for their actions to the stakeholders and to
the entire society.

(d) What is meant by business ethics?

Ans: Business ethics refers to the principles and values that guide
behavior in the business context. It involves making decisions that are
morally and socially responsible, and that take into account the
interests of various stakeholders such as customers, employees, and
the wider community

3. Write short answer of the following: (any two)5x2 = 10

(a) Discuss the benefits of corporate sustainability.

Ans: Benefits of corporate sustainability:

1. Improved reputation: By adopting sustainable practices, a

company can enhance its reputation and brand image among
consumers and investors.
2. Cost savings: Sustainable practices such as energy and
resource conservation can lead to cost savings for a company.
3. Risk management: Sustainability practices can help a company
mitigate environmental and social risks associated with its
operations.
4. Innovation: Pursuing sustainable practices can lead to new
products, services, and business models that create opportunities
for growth and competitiveness.
5. Employee engagement: Sustainability initiatives can increase
employee engagement and satisfaction by providing a sense of
purpose and social responsibility.

(b) Explain the factors which affect business ethics.

Ans:The Following are the Factors affecting business ethics:

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 1. Leadership: The ethical tone of a company is set by its leaders,
who play a crucial role in shaping the company culture and
values.
2. Organizational culture: The values, norms, and beliefs that
guide behavior within a company can influence ethical
decision-making.
3. Stakeholder pressure: The expectations and demands of
stakeholders, such as customers, employees, and investors, can
affect a company's ethical behavior.
4. Legal and regulatory framework: Laws and regulations can
provide guidance and set standards for ethical conduct in
business.
5. Personal values: The personal values and beliefs of individuals
within a company can influence their ethical decision-making.

(c) Explain the principle of corporate governance.

Ans: Principle of corporate governance:The principle of corporate
governance refers to the set of guidelines, principles, and practices
that govern the management and control of a company. It involves
balancing the interests of various stakeholders, including shareholders,
employees, customers, and the wider community. The key principles of
corporate governance include transparency, accountability, fairness,
and responsibility.

(d) Discuss the differences between ethics and morality.

Ans: Differences between ethics and morality:Ethics refers to the
principles and values that guide behavior in a particular context, such
as business or professional conduct. It is typically based on reasoning
and critical thinking, and may vary depending on cultural, social, and
legal norms. Morality, on the other hand, refers to the principles and
values that guide behavior in general, such as honesty, integrity, and
compassion. It is typically based on religious or philosophical beliefs,
and may be seen as universal and timeless. While ethics and morality
are related, they are not interchangeable, and the distinction between

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them is important in understanding ethical decision-making in different
contexts.

4. Write long answers of the following: (any two) 10×2=20

(a)Write the meaning of good corporate governance. Discuss any two

theories of corporate governance. 2+(4×2) = 10
Ans: Good corporate governance refers to the processes, principles,
and practices by which a company is directed and controlled. It
involves a system of checks and balances that ensures that the
interests of all stakeholders are taken into account, including
shareholders, employees, customers, suppliers, and the wider
community. The goal of good corporate governance is to promote
transparency, accountability, and ethical behavior in the management
of a company.

Here are two theories of corporate governance:

Agency Theory:
The agency theory of corporate governance is based on the
assumption that there is a separation between ownership and control
in a company. Shareholders entrust the management of the company
to professional managers who are expected to act in the best interests
of the shareholders. However, there is a potential conflict of interest
between shareholders and managers, as managers may prioritize their
own interests over those of the shareholders. The agency theory
proposes that effective corporate governance should involve
mechanisms that align the interests of managers with those of the
shareholders, such as executive compensation schemes and board
oversight.

Stakeholder Theory:
The stakeholder theory of corporate governance suggests that a
company should not just be accountable to its shareholders, but to all

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its stakeholders. This includes employees, customers, suppliers, and
the wider community. The theory proposes that a company's
long-term success is dependent on its ability to balance the interests
of all stakeholders and create value for them. Effective corporate
governance should involve mechanisms that ensure that the company
considers the interests of all stakeholders in its decision-making
processes.

In conclusion, good corporate governance is essential for the

long-term success of a company. It involves promoting transparency,
accountability, and ethical behavior in the management of a company.
The agency theory and stakeholder theory are two important theories
of corporate governance that provide different perspectives on the
relationship between shareholders, management, and other
stakeholders.

(b) Describe about the major corporate scandals in India.

Ans: The major corporate scandals in India:

i) Satyam Scandal (2009):

The Satyam scandal, also known as India's Enron, was a corporate
scandal that erupted in 2009. The founder and chairman of Satyam
Computer Services, Ramalinga Raju, confessed to a massive
accounting fraud worth Rs. 7,136 crore. The fraud involved inflating
revenues, falsifying profits, and creating fake bank statements to
deceive shareholders and investors.

ii) Nirav Modi Scandal (2018):

The Nirav Modi scandal involved fraudulent transactions worth over Rs.
11,000 crore at the Punjab National Bank (PNB). Nirav Modi, a
diamond merchant, and his associates allegedly used fake letters of
credit to obtain loans from PNB, which were then used to fund his
overseas businesses. The scandal came to light when PNB discovered
the fraud and reported it to the authorities.

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iii) IL&FS Scandal (2018):
The Infrastructure Leasing & Financial Services (IL&FS) scandal
involved a massive default on debt obligations by the company, which
had led to a liquidity crisis in the Indian financial markets. The crisis
was triggered by a series of defaults by IL&FS and its subsidiaries,
which had borrowed heavily to finance infrastructure projects.

iv) Yes Bank Scandal (2020):

The Yes Bank scandal involved allegations of financial irregularities and
mismanagement by the bank's founder and former CEO, Rana Kapoor.
The Reserve Bank of India (RBI) took control of the bank in March
2020, citing serious governance issues and deterioration in the bank's
financial position. Kapoor was arrested by the Enforcement Directorate
on charges of money laundering.

In conclusion, these corporate scandals highlight the importance of

corporate governance and ethical behavior in the Indian business
environment. They have led to a greater focus on transparency,
accountability, and regulatory oversight, and underscore the need for
companies to adopt sound ethical practices and maintain high
standards of corporate governance.

(c) Discuss the essential requisites for a good ethics programme.

Ans: The essential requisites for a good ethics program:

i) Top Management Commitment:

The commitment of top management is crucial for the success of an
ethics program. Senior executives must demonstrate their
commitment to ethical behavior and communicate the importance of
ethics to all employees.

ii) Written Ethics Code:

An ethics program must have a written code of conduct that outlines
the company's values and ethical standards. The code should be easy

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to understand and should provide guidance on how to deal with ethical
dilemmas.

iii) Training and Education:

Employees must receive regular training and education on the
company's ethics program. Training should cover the ethics code,
ethical decision-making, and reporting mechanisms.

iv) Reporting Mechanisms:

An effective ethics program must have a system in place for
employees to report ethical violations without fear of retaliation. The
reporting system should be easily accessible and should ensure
confidentiality.

v) Monitoring and Enforcement:

An ethics program should have a monitoring and enforcement
mechanism to ensure that employees are complying with the code of
conduct. This may involve regular audits, investigations, and
disciplinary action for violations.

vi) Continuous Improvement:

A good ethics program should be continually reviewed and updated to
ensure its effectiveness. Feedback from employees, customers, and
other stakeholders should be incorporated into the program to ensure
that it remains relevant and aligned with changing ethical standards.

In conclusion, a good ethics program requires top management

commitment, a written code of conduct, regular training and
education, effective reporting mechanisms, monitoring and
enforcement, and a commitment to continuous improvement. By
implementing these requisites, companies can create a culture of
ethical behavior and ensure that they are operating in an ethical and
socially responsible manner.

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(d) Explain different provisions of the Companies Act, 2013 relating to
corporate social responsibility.
Ans: The provisions of the Companies Act, 2013 relating to corporate
social responsibility:

i) Applicability:
The CSR provisions apply to companies with a net worth of Rs. 500
crore or more, or a turnover of Rs. 1,000 crore or more, or a net profit
of Rs. 5 crore or more during any financial year. Such companies are
required to constitute a CSR committee consisting of three or more
directors, one of whom should be an independent director.

ii) Expenditure:
The Companies Act, 2013 mandates that eligible companies must
spend at least 2% of their average net profits made during the three
immediately preceding financial years on CSR activities. This
expenditure should be made in accordance with the company's CSR
policy, which should be approved by the CSR committee and the Board
of Directors.

iii) CSR Activities:

The Act provides a broad list of activities that can be considered as
CSR activities, such as eradicating hunger, poverty and malnutrition,
promoting education and gender equality, supporting rural
development projects, contributing to the Swachh Bharat Abhiyan, and
more. The Act also allows companies to collaborate with other
companies or entities to undertake CSR activities.

iv) Reporting Requirements:

Companies are required to disclose their CSR activities in their annual
reports, including details of the CSR policy, the activities undertaken,
the amount spent, and the impact of such activities. If a company fails
to spend the required amount on CSR activities, it must provide an
explanation for such non-compliance in its annual report.

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In conclusion, the Companies Act, 2013 requires eligible companies to
spend at least 2% of their average net profits made during the three
immediately preceding financial years on CSR activities, and mandates
that such companies constitute a CSR committee, develop a CSR
policy, and disclose their CSR activities in their annual reports. The Act
also provides a broad list of activities that can be considered as CSR
activities.

(e) Explain the arguments in favor of and against corporate social

responsibility.
Ans: Corporate Social Responsibility (CSR) is a business concept that
refers to a company's voluntary efforts to engage in activities that
contribute to the betterment of society, the environment, and the
economy. Arguments in favor of and against CSR are as follows:

Arguments in favor of CSR:

Enhanced Reputation: Companies that engage in CSR activities are

perceived as socially responsible, ethical, and caring about the
well-being of society. This perception can enhance a company's
reputation and increase customer loyalty.

Improved Financial Performance: CSR activities can also lead to

improved financial performance. When a company invests in its
community and environment, it creates goodwill and trust with
stakeholders, which can lead to increased sales and profits.

Employee Motivation: CSR activities can also improve employee

motivation and retention. When employees feel that their work is
making a positive impact on society, they are more likely to be
engaged and motivated to do their best.

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Arguments against CSR:

Increased Costs: Engaging in CSR activities can increase a

company's costs, which may ultimately affect profitability. This is
particularly true for small and medium-sized businesses that may not
have the resources to implement CSR programs.

Diverted Focus: Some argue that CSR activities divert a company's

focus away from its core mission of maximizing shareholder value. If a
company is too focused on CSR activities, it may neglect its primary
responsibility of generating profits for its shareholders.

Lack of Accountability: Critics of CSR argue that there is no way to

hold companies accountable for their CSR activities. Unlike
government regulations, CSR activities are voluntary, and there is no
guarantee that companies will follow through on their commitments.

*****

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