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Appendix Solved CSEP M-II Paper 6

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  1 Free of CostISBN: 978-93-5034-587-0  Appendix   CS Executive Programme Module-II ( Solution upto June - 2013 & Questions of Dec - 2013 Included) Paper - 6: Securities Laws and   Compliances Chapter - 1: An Overview of Legal & Regulatory Framework 2013 - June [5]  (b)Insider trading generally means trading in the share of a company by the persons whoare in the management of the company or are close to them on the basis of undisclosedprice sensitive information regarding the working of a company, which they process butwhich is not available to others.Section 15 G of SEBI Act, 1992 lays down that if any insider–(i)either on his own behalf or on behalf of any other person, deals in securities ofa body corporate listed on any stock exchange on the basis of any unpublishedprice sensitive information; or(ii)communicates any unpublished price sensitive information to any person, withor without his request for such information except as required in the ordinarycourse of business or under any law; or(iii)counsels, or procures for any other person to deal in any securities of any bodycorporate on the basis of unpublished price sensitive information.He shall be liable to a penalty of twenty five crore rupees or three times theamount of profits made out of insiders trading, whichever is higher. Chapter - 3:   Capital Market Instrument2013 - June [4]  (a), (b) (i)(a)Rule 3 of Companies (Issue of Share Capital with Differential Voting Rights) Rules,2001, enables companies limited by shares to issue shares with differential rightsas to dividend, voting or otherwise, subject to fulfillment of the following conditions:-   Appendix CS Executive Programme Module-II Paper 6 2   (i)The company has distributed profits in terms of section 205 of the CompaniesAct, 1956 for preceding 3 financial years preceding the year in which it wasdecided to issue such shares.(ii)The company has not failed to repay its deposits or interest thereon due date orredeems its debentures on due date or pay dividend.(iii)The company has not defaulted in meeting investors grievances.(iv)The company has not been convicted of any offence arising under SEBI Act1992, FEMA, 1999, SCRA, 1956.(v)The holder of the equity shares with differential voting rights shall enjoy all otherrights to which the holder is entitled to except the differential rights.(vi)The share with differential voting rights shall not exceed 25% of the total sharecapital issued.(vii)The company has obtained the approval of shareholders in general meeting bypassing resolution as required. (b) (i) Tracking Stocks A Tracking stock is a type of common stock that “tracks” or depends on thefinancial performance of a specific business unit or operating division of acompany, rather than the operations of the company as a whole. As a result, ifthe unit or division performs well, the value of the tracking stocks may increase,even if the company’s performance as a whole is not up to mark or satisfactory.Tracking stock carries dividend rights tied to the performance of a targeteddivision without transferring ownership or control over divisional assets. Chapter - 4:   Credit Rating 2013 - June [3]  (b)Every credit rating agency develops its own rating parameters/ model/ weightages forrating respective instruments. Some of the common factors that may be taken intoconsideration for credit rating are –-Issuer Company’s operational efficiency-Level of technological development-Financials-Competence and effectiveness of management-Past record of debt servicing-Capital structure-Working capital etc.   Appendix CS Executive Programme Module-II Paper 6 3   Chapter - 6: Stock Exchange 2013 - June [2]  (a) (i), (iii), (iv)(i) ‘Initial margin’ and ‘Maintenance margin’  “Initial margin” means the minimum amount, calculated as a percentage of thetransaction value, to be placed by the client, with the broker, before the actualpurchase. The broker may advance the balance amount to meet full settlementobligations.“Maintenance margin” means the minimum amount, calculated as a percentage ofmarket value of the securities, calculated with respect to last trading day’s closingprice, to be maintained by client with the broker.(iii) ‘Call option’ and ‘Put option’ Call option contract conveys the right to the option buyer to buy specified quantity ofunderlying asset at specified rate (the strike price) for a limited length of time (untilexpiration). The buyer of call option expects that market will go upward direction.Put option contract conveys the right to the option buyer to sell specified quantity ofunderlying assets at specified rate (the strike price) for a limited length of time (untilexpiration). The buyer of put option expects that market will go downward direction.The buyer of option has unlimited profit but limited loss upto option premium.(iv) ‘Bullish trend’ and ‘Bearish trend’ Bear market is a weak or falling market characterised by the dominance of sellers,whereas Bull market is a rising market with abundance of buyers and relatively fewsellers. When the price of shares moves in a particular direction which persists for aperiod of time, a price line is regarded as established. When the movement is upward,the trend is called ‘BULLISH’ and when the movement is downward it is called‘BEARISH’. 2013 - June [3]  (a) Composition of Audit Committee As per clause 49 of listing agreement, a qualified and independent audit committee shallbe set up giving the terms of reference subject to the following:(i)Audit Committee shall have minimum three directors as members.(ii)2/3rd of the members of Audit Committee shall be independent directors.(iii)All members of Committee shall be financially literate and atleast one membershall have according or related financial management expertise.(iv)Chairman of the Audit committee shall be an independent director. Role and Responsibilities of Audit Committee The role and responsibilities of the audit committee shall include the following:1.Oversight of the company’s financial reporting process and the disclosure of itsfinancial information to ensure that the financial statement is correct, sufficient andcredible.   Appendix CS Executive Programme Module-II Paper 6 4   2.Recommending to the Board, the appointment, re-appointment and, it required, thereplacement or removal of the statutory auditor and the fixation of audit fees.3.Approval of payment to statutory auditors for any other services rendered by thestatutory auditors.4.Reviewing, with the management, the annual financial statements beforesubmission to the board for approval, with particular reference to:(a)Matters required to be included in the Director’s Responsibility Statement tobe included in the Board’s report in terms of clause (2AA) of Section 217 of theCompanies Act, 1956.(b)Changes, if any, in accounting policies and practices and reasons for thesame.(b)Major accounting entries involving estimates based on the exercise of judgment by management.(d)Signification adjustments made in the financial statements arising out of auditfindings.(e)Compliance with listing and other legal requirements relating to financialstatement.(f)Disclosure of any related party transactions.(g)Qualifications in the draft audit report.5.Reviewing, with the management, the quarterly financial statements beforesubmission to the board for approval.6.Reviewing, with the management, the statement of uses/ application of funds raisedthrough an issue (public issue, rights issue, preferential issue, etc), the statementof funds utilized for purposes other than those stated in the offer document/ prospectus/ notice and the report submitted by the monitoring agency mentoringthe utilization of proceeds of a public or rights issue, and making appropriaterecommendations to the Board to take up steps in this matter.7.Reviewing, with the management, performance of statutory and internal auditors,and adequacy of the internal control systems.8.Reviewing the adequacy of internal audit function, if any, including the structure ofthe internal audit department, staffing and seniority of the official heading thedepartment, reporting structure coverage and frequency of internal audit.9.Discussion with internal auditors any significant findings and follow up there on.10.Reviewing the findings of any internal investigations by the internal auditors intomatters where there is suspected fraud or irregularity or a failure of internal controlsystems of a material nature and reporting the matter to the board.11.Discussion with statutory auditors before the audit commences, about the natureand scope of audit as well as post-audit discussion to ascertain any area ofconcern.

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