Compliance and audit

80 terms · each links to a full explanation with a worked example and the exam traps

Accounting mismatchThe gap between a derivative, measured at fair value, and the exposure it hedges, usually measured at cost — the very mismatch hedge accounting exists to offset.
Annual Impact ReportThe yearly report of social impact every social enterprise registered on or raising funds through an SSE must file under LODR Regulation 91E, covering at least 67% of the previous year's programme expenditure.
Audit trailThe traceable record of the data, decisions and stakeholders behind a Social Impact Report — required as a component of the report itself, and needed to retrieve primary data when the assessor checks it.
Capital adequacyThe minimum net worth an intermediary must have to be registered and must keep while registered — e.g. Rs 50 crore for a Category I merchant banker, Rs 75 crore for a custodian, Rs 10 crore for a debenture trustee.
Cash Flow Hedging ReserveThe equity account in which the fair-value gains and losses of a derivative designated as a cash flow hedge are parked until the hedged forecast transaction hits profit and loss.
Code of Fair DisclosureThe code every listed company's board must formulate and publish on its website under Regulation 8 of the PIT Regulations, setting out how it will disclose price sensitive information fairly and promptly.
Co-minglingMixing an NPO's unutilised, listed-issue funds with its other money — expressly prohibited; the unutilised amount must sit in a separate bank account until the funds are fully used.
ComplianceThe set of actions by which securities market intermediaries and issuers conform to the rules of SEBI, the exchanges, the depositories and their own boards — records, policies, reports and submissions.
Compliance auditA yearly audit of an Investment Adviser's regulatory compliance, conducted by a recognised accounting or company-secretarial professional, with material findings disclosed to clients.
Compliance OfficerThe separately appointed officer of a merchant banker, listed company or intermediary who monitors compliance with securities law, handles investor grievances, and reports non-compliance to SEBI independently.
Compliance Test ReportThe annual self-certification an AIF manager prepares in SEBI's prescribed format, testing the fund against the AIF Regulations and routed through the sponsor and trustee for comment.
Comprehensive Annual Activity ReportThe yearly activity report every AIF files with SEBI on the SEBI Intermediary Portal within 30 calendar days from the end of March; it also carries the March quarter's data.
Conflict of Interest RegisterThe record an AIF keeps of each actual or potential conflict of interest — naming the related party, the nature of the relationship, the date it arose, the proposed investment and its market price.
Contingent liability on written optionsThe entry an option seller must record for a probable commitment to buy or deliver goods on exercise, since a written option is an open-ended obligation, unlike a purchased option, which is simply an asset.
Contra trade restrictionThe cooling period of not less than six months — two months for mutual fund units — during which a designated person who has been permitted to trade may not take the opposite side of that trade.
Designated DirectorThe person a reporting entity designates to ensure overall compliance with Chapter IV of the PMLA — and, where the entity is located in an IFSC, the person heading that entity in India.
Designated personsThe people a listed company, intermediary or fiduciary formally names as subject to its insider trading code of conduct, chosen by the access their role gives to price sensitive information.
DifferentiatorsThe 11 disclosure heads — vision, target segment, strategy, governance, management, operations, finance, compliance, credibility, social impact and risks — every offer document on an SSE must cover.
Document Repository platformAn online platform set up by the stock exchanges on which merchant bankers upload and maintain electronically the documents they relied upon while conducting due diligence in a public issue.
Dual reporting lineThe compliance officer's two reporting duties — to the board of the entity that appointed him, and, for any non-compliance of the SEBI Act or regulations, immediately and independently to SEBI.
Engagement fileThe assembled record — hard copy or soft copy — of an assessor's engagement documentation, which must be completed within about 60 days of the social impact assessment report and then kept, not discarded.
Engaging partyThe person who engages the social impact assessor for an assessment — often the donor — and who may or may not be the same as the responsible party actually implementing the project.
Exit priceThe ICAI Guidance Note's definition of fair value for a derivative — the price to sell or transfer the position to a willing counterparty today, factoring in available collateral.
Firm-level performance auditA SEBI-mandated audit covering every portfolio a manager runs, discretionary and non-discretionary together, so the aggregate performance figures a firm publishes match its actual combined track record.
Fit and proper due diligenceSEBI-mandated review an AMC must run on a distributor who crosses set size thresholds — over 20 locations, over Rs 100 crore AUM industry-wide, or over Rs 1 crore (or Rs 50 lakh from one fund) in annual commission.
Form 1AOne of the Social Stock Exchange's adopted reporting formats, covering a Social Enterprise's general and governance disclosures that do not depend on a statutory financial audit.
Form 1BOne of the Social Stock Exchange's adopted reporting formats, covering general, governance and finance aspects that reference audited financial statements and filings with regulators.
Form 2.1The reporting format for a Social Enterprise's own Annual Social Impact Report, prepared under Regulation 91E(1) of the SEBI LODR Regulations, 2015.
Form 3.1The reporting format for the independent Social Impact Assessor's Annual Social Impact Assessment Report, prepared under Regulation 91E(2) of the SEBI LODR Regulations, 2015.
GIINThe Global Intermediary Identification Number a Category III AIF obtains from the US IRS to register as a Reporting Financial Institution and meet its FATCA due diligence obligations.
Hedging disclosure normsSEBI's requirement, dated 15 November 2018, that a listed company disclose its commodity risk policies and, for each commodity, its exposure and the extent hedged in domestic and international markets.
Hedging instrumentIn hedge accounting, the derivative — a forward, future or option — used to reduce the risk of the hedged item, whose gains and losses are matched against that item under the ICAI Guidance Note.
Incident Response TeamThe two-member team — a QRTA's Managing Director and Chief Technology Officer — responsible for declaring a technology disaster and invoking the business continuity plan.
Inherent limitationThe standing clause at the end of a social impact assessment report stating that it is not an opinion, attestation, certification or any other form of assurance.
Inoperative FundA SEBI-granted status for an AIF scheme holding money beyond its fund life that wants to surrender registration, or keeping registration only for pending litigation — no new schemes, no management fees.
Intended usersThe person, persons or class of persons for whom a social impact assessor prepares the report — the third leg of the assessment engagement, alongside the assessor and the responsible party.
Key Management PersonnelThe key investment team of an AIF's manager, the employees who decide on behalf of the fund, and anyone else the AIF or manager declares as such — named in the PPM and bound by the Code of Conduct.
Legitimate purposesSharing UPSI in the ordinary course of business with partners, lenders, advisers and similar parties — permitted under the PIT Regulations if not done to evade them; the recipient becomes an insider.
Limited Quarterly Activity ReportThe quarterly activity report every AIF files with SEBI within 15 calendar days of each quarter end — except the March quarter, whose data goes into the Comprehensive Annual Activity Report.
Liquid Net WorthThe part of a merchant banker's net worth deployed in unencumbered liquid assets, counted after a prescribed haircut on each asset type — a second capital test that net worth alone cannot satisfy.
LODR RegulationsSEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 — the post-listing rulebook, whose Chapter IX-A sets out what a social enterprise on an SSE must disclose and when.
Material departureA significant failure to follow the Social Impact Assessment Standards, which the assessor must draw attention to in the report rather than leave unsaid.
Material eventAny event that may have a material impact on a listed social enterprise's planned outputs or outcomes, which must be disclosed to the exchange within 7 days and updated until it stops being material.
Materiality policyThe board- or management-approved policy a listed social enterprise must frame and disclose, setting out how it decides whether an event is material enough to report to the exchange.
Material subsidiaryUnder SEBI's LODR Regulations, a subsidiary whose income or net worth exceeds 10 percent of the listed group's consolidated income or net worth in the immediately preceding accounting year.
Obligations of trusteesThe duties SEBI places on a mutual fund's trustees: hold scheme property in trust, review every AMC-associate transaction quarterly, and certify to SEBI half-yearly that nothing improper happened.
Outside in approachThe perspective separating a Social Impact Assessment from a financial audit — judging an organisation by how its non-financial stakeholders experience it, not by how its own managers see it.
Physical presence requirementThe requirement that an IFSC unit keep its office premises open with its people physically there, including the Principal Officer and Key Managerial Personnel, who are mandated to be based out of the IFSC.
Post-issue reportsThe reports a lead manager files with SEBI after an issue — for a public issue a final report within seven days of the basis of allotment; for a rights issue an initial report in three days and a final one in fifteen.
PPM AuditThe mandatory yearly audit of a Category III AIF's compliance with the terms of its PPM, with findings reported to the trustee or board or designated partners, the manager's board and SEBI within 6 months of year end.
PPM Compliance AuditThe mandatory annual audit, at each financial year end, of a Category I or II AIF's compliance with the terms of its private placement memorandum — findings to the trustee, manager's board and SEBI within 6 months.
Prospective effectiveness testingThe forward-looking test, done at hedge inception and at every reporting date after, that checks whether a hedge is expected to offset nearly all of the change in the hedged item.
Qualified opinionThe modified conclusion a social impact assessor issues when unable to obtain sufficient evidence, or when the impact report as a whole is not free from material mismanagement.
Regulated EntityIFSCA's term for a unit that holds its licence, recognition, registration or authorisation — the entity the IFSCA (AML, CFT and KYC) Guidelines, 2022 place their duties on.
Reporting entityUnder Section 2(1)(wa) of the PMLA, a banking company, financial institution, intermediary or person carrying on a designated business or profession — the entity that must keep records and report to FIU-IND.
Responsible partyIn a social impact assessment, the person or persons of the social enterprise who implement the social project — one of three parties, with the assessor and the intended users.
Restricted listThe confidential list of securities an intermediary's compliance officer maintains, used as the basis for approving or rejecting applications for pre-clearance of trades by designated persons.
Retention periodsHow long AML records must be kept: five years from the transaction for transaction records, and five years after the relationship ends or the account is closed, whichever is later, for identity records.
Retrospective effectiveness testingThe mandatory check, at each reporting date, that a designated hedge actually was highly effective — its results falling within 80 to 125 per cent — as a condition of continuing hedge accounting.
Ring-fencing of schemesThe duty on an AIF's manager and trustee to keep each scheme's assets, liabilities, bank accounts and securities accounts segregated from every other scheme of the same fund.
SAS 1100The thematic standard for slum development, affordable housing and resilient cities, illustrated by Swagruha's Niwas project, which repaired 1,265 slum homes in Mumbai.
SAS 1300The thematic standard for promoting financial inclusion, illustrated by CP LLP's E-Diksha project, which delivered financial and digital literacy to over 2.5 lakh people across three states.
SAS 200The thematic standard for health care, mental healthcare and safe drinking water, illustrated in the workbook by a cataract-surgery case study screening over 50,000 people.
SAS 400The thematic standard for gender equality, women's empowerment and LGBTQIA+ communities, illustrated by NGO Sakhi's women's healthcare programme reaching over 20,000 direct beneficiaries.
SAS 500The thematic standard for environmental sustainability, climate change and conservation, illustrated by AB Responsible Services' watershed programme across 18 villages in Maharashtra.
SAS FrameworkThe overarching document setting what any Social Impact Assessment engagement must cover — a frame of reference for assessors and users, but with no thematic-specific standards of its own.
Scheme auditorThe auditor appointed by the trustees to audit a mutual fund scheme's accounts, independently of the separate auditor the AMC appoints for its own corporate accounts.
Scope limitationThe situation where a social impact assessor cannot obtain enough appropriate evidence, forcing a qualified opinion, a disclaimer of opinion, or withdrawal from the engagement.
Social Impact AssessmentA systematic evaluation of the social, ethical, cultural and environmental consequences of a project or organisation — positive and negative, intended and unintended — taking an "outside in" view.
Social Impact Assessment OrganisationAn entity that employs Social Impact Assessors and has either a 3-year SIA track record or at least two full-time assessors with 3 years' experience each, who sign the report; it assesses AIRs of listed projects.
Social Impact Assessment StandardsICAI's sixteen thematic standards, SAS 100 to SAS 1600, mirroring the SSE's eligible activities; compliance is mandatory for social impact assessments of social enterprises listed on an SSE.
Social Impact AssessorAn individual registered with an SRO (under ICAI or another SEBI-specified agency) who has passed the NISM certification and holds a valid certificate; performs independent verification of impact reports.
Strategic Business UnitThe ring-fenced unit through which a merchant banker may carry on fee-based, non-fund-based activities SEBI does not regulate, with the segregation due on or before December 31, 2026.
Suo motoA Social Enterprise's power under SEBI LODR Regulation 91(D) to confirm or deny, on its own initiative, any reported event or information, without waiting to be asked by the exchange.
Surveillance PolicyThe internal monitoring framework NSDL requires each DP to build, sized to its own business and client base, to generate alerts that catch suspicious client transactions.
Target segmentThe specific population a Social Enterprise's project affects, and how — a mandatory ICDR disclosure item for NPOs, and a required field in the Annual Impact Report's Strategic Intent section.
Trading windowA notional window used to monitor trading by designated persons — closed by the compliance officer whenever they can reasonably be expected to possess unpublished price sensitive information.
Unauthenticated news guidelinesSEBI's guidelines requiring intermediaries to control staff access to blogs and chat forums, keep logs of that access, and route market-related news staff receive through the Compliance Officer first.
Wind-down planA QRTA's mandatory plan for transferring its entire operations to another SEBI-registered RTA if its net worth erodes, it becomes insolvent, or it can no longer provide critical services.
Written representationsA written statement obtained from an NPO's management, and its governance body, on material assessment issues — necessary audit evidence for a Social Impact Assessor, but never sufficient on its own.