Auditing and EthicsQuestion 5696 of 212
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3. With reference to reporting on the internal financial controls system under the Companies Act, 2013, which of the following does not fall within the nature of responsibility of GHB Ltd?

Options

AIn accordance with the terms of reference specified in writing by the Board, act of every audit committee to include evaluation of internal financial controls and risk management systems.
BDirectors' responsibility statement to state that the Directors had laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively.
CBoard of Directors have to appoint an expert to state that the internal financial controls of the company are commensurate with the size and nature of its business. AUDITING AND ETHICS 3 SUGGESTED ANSWER
DIn terms of code for Independent Directors, independent directors to get themselves satisfied that financial controls and systems of risk management are robust and defensible.
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Correct Answer

✅ Option C — Board of Directors have to appoint an expert to state that the internal financial controls of the company are commensurate with the size and nature of its business. AUDITING AND ETHICS 3 SUGGESTED ANSWER

All Options:

  • AIn accordance with the terms of reference specified in writing by the Board, act of every audit committee to include evaluation of internal financial controls and risk management systems.
  • BDirectors' responsibility statement to state that the Directors had laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively.
  • CBoard of Directors have to appoint an expert to state that the internal financial controls of the company are commensurate with the size and nature of its business. AUDITING AND ETHICS 3 SUGGESTED ANSWER ✓
  • DIn terms of code for Independent Directors, independent directors to get themselves satisfied that financial controls and systems of risk management are robust and defensible.

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Detailed Solution & Explanation

To determine the correct answer, let's analyze each option in relation to the reporting on the internal financial controls system under the Companies Act, 2013, and identify which one does not fall within the nature of responsibility of GHB Ltd.
Option A discusses the role of the audit committee in evaluating internal financial controls and risk management systems, which is a specified responsibility under the Companies Act, 2013, particularly for certain classes of companies. This is indeed a part of the responsibilities related to internal financial controls.
Option B refers to the directors' responsibility statement, which includes stating that internal financial controls have been laid down and are adequate and operating effectively. This is a direct responsibility of the directors under the Companies Act, 2013, specifically Section 134(5)(e), which requires the directors to state that they have laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively.
Option C mentions that the Board of Directors has to appoint an expert to state that the internal financial controls of the company are commensurate with the size and nature of its business. However, under the Companies Act, 2013, the primary responsibility for evaluating and stating the adequacy and effectiveness of internal financial controls lies with the management (directors) and not with an appointed expert in the manner described.
Option D talks about independent directors satisfying themselves that financial controls and systems of risk management are robust and defensible, which aligns with their role in ensuring the company's governance and oversight.
Given the analysis, Option C stands out as it inaccurately represents the responsibility regarding internal financial controls under the Companies Act, 2013. The Act does not specify that the Board must appoint an expert for this purpose in the way described.
Hence, **Option C** is the correct answer.

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