Audit Committee

Audit committee (AC)

Ø  Relevant Provisions under Companies Act, 1956 – Section 292A, which requires establishment of audit committee by public company if it’s paid up capital is 5 crore or more.

Ø  Corresponding Provisions under Companies Act, 2013 – Section 177, it provides that every listed company and such class or classes of companies as may be specified shall constitute audit committee (AC). Rules 6 of Companies (Meetings & Powers of Board) Rules, 2014 specify the classes of companies being all the public companies which fulfill any of the following given conditions:

·         Paid up capital ≥ 10 crore; or

·         Turnover ≥ 100 crore; or

·         O/s loans or borrowings or debentures or deposits > 50 crore

These limits as existing on the last date of audited financial statement shall be taken.

Composition of audit committee

It shall have minimum 3 directors with independent directors in majority. [Section 177(2)]

Transition time period

Ø  Already existing AC in a company shall be reconstituted as per section 177(2) within one year from the commencement of this act. As the provisions of this section are effective from April 1, 2014 therefore one year time period should be reckoned from this date.

Ø  Also, in case a company which is not covered under section 292A of Companies Act, 1956 but fulfill the criteria as specified under Rule 6 of the above mentioned rules shall observe the compliance of section 177 within 1 year from the commencement of the said rules or appointment of Independent director whichever is earlier.

Functions of Audit Committee (AC)

As may be specified by the board in writing and including following:

a.     Recommendation for appointment, remuneration and terms of appointment of auditors of the company;

b.     Review and monitor the auditor’s independence and performance, and effectiveness of audit process;

c.        Examination of the financial statement  and the auditors’ report thereon;

d.     Approval or any subsequent modification of transactions of the company with related parties;

e.        Scrutiny of inter-corporate loans and investments;

f.         Valuation of undertakings or assets of the company, wherever it is necessary;

g.       Evaluation of internal financial controls and risk management systems;

h.       Monitoring the end use of funds raised through public offers and related matters.

Powers of Audit Committee (AC)

a.      To call for the comments of the auditor regarding:

·         Internal control;

·         Scope of audit;

·         Observation of audit;

·         Review of Financial Statement,

before their submission to board

b.  Discuss any related issues with internal and statutory auditor and management of company

c.       Power to investigate for matters covered under functions of AC

d.      Can obtain professional advice from external sources

e.       Full access to information contained in the records of the company.

Disclosure in Board Report U/s 134

• Composition of AC and
• Reasons for not accepting the recommendation of AC.