Composition and Role of Audit Committee

Composition and Role of Audit Committee

January 05, 2017
     
Composition-Role-Audit-Committee

Composition and Role of Audit Committee

Applicability :

Section 177 read with the Companies (Meetings of Board and its Powers) Rules, 2014 provides that:—


Every listed company and certain classes of public companies to constitute an Audit Committee, comprising a minimum of three directors, with Independent Directors forming a majority. Majority of members of Audit Committee including its Chairperson must have the ability to read and understand the financial statement.

Rule 6 provides that the Board of directors of every listed company and the following classes of companies shall constitute an Audit Committee of the Board-

(a)  all public companies with a paid up capital of ten crore rupees or more;
(b)  all public companies having turnover of one hundred crore rupees or more;
(c) all public companies, having in aggregate, outstanding loans or borrowings or  debentures or deposits exceeding fifty crore rupees or more.

The paid up share capital or turnover or outstanding loans, or borrowings or debentures or deposits, as the case may be, as existing on the date of last audited Financial Statements shall be taken into account for the purposes of this rule.

Composition:

The Audit Committee shall consist of a minimum of 3 directors  with  independent  directors forming a majority. The majority of members of Audit Committee including its Chairperson shall be persons with ability to read and understand, the financial statement. The Board’s report under section 134(3) shall disclose the composition of an Audit  committee and where the Board had not accepted any recommendation of the Audit Committee, the same shall be disclosed in such report along with the reasons there for.

Functions of Audit Committee:

The Boards to lay down in writing the terms of reference for the Audit Committee.

The terms of reference to include:
1.  Recommendation for appointment, remuneration and terms of appointment of the auditors;
2.    Review and monitor auditor’s independence and performance and effectiveness of the audit process;
3.      Examination of the financial statement and auditor’s report;
4.      Approval or modification of related party transactions;
5.      Scrutiny of inter corporate loans and investments;
6.      Valuation of assets;
7.      Evaluation of internal financial controls and risk management systems;
8.      Monitoring of end use of funds of the public offers;
9.  Vigil  mechanism  for  all  listed  companies  and  such  other  companies  as prescribed by the Rules;
10. Access to Audit Committee chairperson under vigil mechanism
11. Discuss issues with internal and statutory auditors;
12. Audit Committee to call for comments of the auditors about internal control systems, scope of audit including the observations of the auditors and review of the financial statements before submission to the board;
13. The auditors and the key management personnel will have a right to be present when the financial statements is considered by the Audit Committee but will not have a right to vote; and
14. Details of establishing the vigil mechanism will have to be disclosed on the company’s web site and in the Director’s report.

Every Audit Committee to have an authority to investigate into any matter in relation to the items specified above or referred to it by the board and for this purpose the Audit Committee to have power to obtain professional advice from external sources and have full access to information contained in the records of the company.

Powers of Audit Committee:

The Audit committee shall have the authority –
1.To call for the comments of the auditors about internal control systems, the scope of audit, including the observations of the auditors and review of financial statement before their submission to the Board
2.To discuss any related issues with the internal and statutory auditors and the management of the company.
3.To investigate into any matter in relation to the items or referred to it by the Board
4.To obtain professional advice from external sources
5.To have  full access to information contained in the records of the company.

The auditors of a company and the KMP shall have a right to be heard in the meetings of the Audit Committee when it considers the auditor’s report but shall not have the right to vote.

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