Clause 49 of listing agreements provides for the compliance of mandatory requirements and non mandatory requirements for better Corporate Governance. Committee on Financial aspects of Corporate Governance recommended that all listed companies should establ ish an audit committee and places great emphasis on the importance of properly constituted audit committees in raising standards of Corporate Governance. In U.K. there is a steady growth in the number of audit committee. Audit committees are now established in 53% of the top 250 industrial firms and the figures raises to 66% if unlisted companies and foreign subsidiaries are excluded from the calculation. Audit Committees are well established in the United Stated, where they have been a listing requirement of the New York Stock Exchange since 1978. 97% of the major corporations have audit committees. Report of Kumar Mangalam Birla Committee indicates that a system of good corporate governance promotes relationships of accountability between the principal actors of sound financial reporting - the board, the management and the auditor. It holds the management accountable to the board and the board accountable to the shareholders. The Audit Committee's role flows directly from the Board's oversight function. It acts as a catalyst for effective financial reporting. The committee recommends as how to constitute the audit committee; frequency of meetings and quorum; powers of the audit committee, functions of the audit committee. Naresh Chandra Committee report as well as N.R. Narayanamurthy committee report provide for the establishment of audit committee. Clause 49 of listing agreement provides the following for audit committee:

A qualified and independent audit committee shall be set up, giving the terms of reference subject to the following: The audit committee shall have minimum three directors as members. Two thirds of the members of the audit committee shall be independent directors;
y All members of audit committee shall be financially literate and at least one member shall have accounting or related financial management expertise; y The Chairman of the Audit Committee shall be an independent director; y The Chairman of the Audit Committee shall be present at Ann ual General Meeting to answer shareholder queries; y The audit committee may invite such of the executives, as it considers appropriate to be present at the meetings of the Committee, but on occasions it may also meet without the presence of any executives of the company. The Finance Director, head of internal audit and a representative of the statutory auditor may be present as invitees for the meetings of the audit committee;

the appointment. 1956. ROLE OF AUDIT COMMITTEE: The role of audit committee shall include the following: Oversight the company's financial reporting process and the disclosure of the financial information to ensure that the financial statement is correct. y Major accounting entries involving estimates based on the exercise of judgment by management. y Recommending to the Board. if it considers necessary. with the management. y Significant adjustments made in the financial statements arising out of audit findings. the quarterly financial statements before submission to the Board for approval. the statement of uses/application of . y Compliance with listing and other legal requirements relating to financial statements. re -appointment and. y Reviewing. y Approval of payment to statutory auditors for any other services rendered by the statutory auditors. in accounting po licies and practices and reasons for the same. y Reviewing with the management the annual financial statements before submission to the board for ap proval.y The Company Secretary shall act as the Secretary to the Committee. if required. y Reviewing. with the management. y Qualifications in the draft audit report. y Disclosure of any related party transactions. with particular reference to: y Matters required to be included in the Director's Responsibility Statement to be included in the Board's Report in terms of Clause (2AA) of Sec. sufficient and credible. POWERS: The Audit Committee shall have the powers which should include the following: To investigate any activity within its terms of reference. y To secure attendance of outsiders with relevant expertise. 217 of the Companies Act. The quorum shall be either two members or one third of the members of the audit committee whichever is greater. the replacement or removal of the st atutory auditor and the fixation of audit fees. but there should be a minimum of two independent members present. y To obtain outside legal or other professional advice. y To seek information from any employee. y Changes. if any. MEETING: The audit committee should meet at least four times in a year and not more than four months shall elapse between two meetings.

Sec. and making appropriate recommendations to the Board to take up steps in the matter. and y The appointment. audit or accounts. The above are the requirements to be complied with by the listed companies in respect of audit committee for better Corporate Governance. if any. including the structure of the internal audit department. y Management letters/letters of internal control weaknesses issued by the statutory auditors. y Reviewing the adequacy of internal audit function. about the nature and scope of audit as well as post audit discussion to ascertain any area of concern. y Discussing with statutory auditors before the audit commences.funds raised through an issue. shareholders and creditors. y Internal audit reports relating to internal control weaknesses. adequacy of the internal control systems. 158 of the Companies Bill. 1956 does not indicate a bout Audit Committee. y Reviewing. y Carrying out any other function as is mentioned in the terms of reference of the Audit Committee. performance of statutory and internal auditors. REVIEW OF INFORMATION BY AUDIT COMMITTEE: The Committee shall mandatorily review the following information: Management discussion and analysis of financial condition and results of operations. y Discussion with internal auditors any significant findings and follow up thereon. with the management. y Statement of significant related party transactions submitted by management. in case the same is existing. removal and terms of remuneration of the Chief Internal Auditor shall be subject to review by the Audit Committee. debenture holders. reporting structure coverage and frequency of internal audit. y To look into the reasons for substantial defaults in the payme nt to the depositors. The Companies Act. . y To review the functioning of the Whistle Blower mechanism. y Reviewing the findings of any internal investigations by the internal auditors into matters where there is suspected fraud or irregularity or a failure of internal control systems of a material nature and reporting the matter to the Board. the statement of funds utilized for purposes other than those stated in the offer document/prospectus/notice and the report submitted by the monitoring agency monitoring the utilization of proceeds of a public or rights issue. 2008 provide the following in respect of audit committee: Ø The Audit Committee shall consist of a minimum of three directors with independent directors forming a majority and at least one director havi ng knowledge of financial management. staffing and seniority of the official heading the department.

the same shall be disclosed in such report along with the reasons therefore. including the observations of the auditors and review financial statements before their submission to the Board. wherever it is necessary. the scope of audit. . It is also required that one member of the audit committee should have the knowledge in accounting. Ø The auditors of a company and the key managerial personnel shall have a right to attend the meetings of the Audit Committee when it considers the auditor's report but shall not have the right to vote. among other things. Importance is given to independent directors to participate in the Audit Committee. valuation of undertakings or assets of the company. shall. transactions of the company with related parties.Ø The Chairman of an Audit Committee shall be an independent director. evaluation of internal financi al controls and related matters. Ø The Audit Committee may call for the comments of the auditors about internal control systems. within one year of such commencement. Thus much importance is given to the Audit Committee. The good working system of Audit Committee in a company will bring a better result and image to the company. Ø The Audit Committee shall have authority to investigate into any matter in relation to the items referred to it by the Board and for this purpose shall have power to obtain professional advice from external sources and full access to information contained in the records of the company. Ø Every Audit Committee shall set in accordance with the terms of reference specified in writing by the Board which shall include. be reconstituted in accordance with the above two points. financial wing. Ø Every Audit Committee of a company existing immediately before the commencement of this Act. Ø The Board's report shall disclose the composition of an Audit Committee and where the Board had not accepted any recommendation of the Audit Committee. examination of the financial statements and auditors' report thereon. the recommendation for appointment of auditors of the company.

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