AUDIT COMMITTEES AND CORPORATE GOVERNANCE
Audit Committee Statute in India
Audit Committees. The new provision covers every public company having a paid-up capital of Rs. 5
crore and above. The Board of Directors is required to constitute an audit committee consisting of not
less than three directors and such number of other directors as the Board may determine of which twothirds
of the total number of members shall be directors, other than managing or whole time directors.
Similarly, Clause 49 of the uniform listing agreement prescribed by Securities and Exchange Board of
India (SEBI), which is applicable to all companies listed in India, requires the setting up of a qualified
and independent Audit Committee.
Sub-section (6) of Section 292A requires that the Audit Committee should have discussions with the
auditors periodically about internal control systems, the scope of audit including the observations of
the auditors and review the half-yearly and annual financial statements before submission to the Board
and also ensure compliance of internal control systems.
Sub-section (7) of Section 292A provides that the Audit Committee shall have authority to investigate into
any matter inter-alia in relation to these matters and shall have full access to the information contained
in the records of the company and external professional advice, if necessary.
The clause 49 of the listing agreement provides that the audit committee shall have powers which
should include the following :
(b) to investigate any activity within its terms of reference;
(c) to seek information from any employee;
(d) to obtain outside legal or other professional advice; and
(e) to secure attendance of outsiders with relevant expertise, if it considers necessary.
This clause further provides that the role of the audit committee shall inter-alia include the following:
(b) Oversight of the company’s financial reporting process and the disclosure of its financial information;
(c) Recommending the appointment and removal of external auditor, fixation of audit fee and also
approval for payment for any other services;
(d) Reviewing the annual financial statements with management before submission to the board;
(e) Reviewing external and internal auditors with the management and the adequacy of internal
control systems;
(f) Reviewing the adequacy of internal audit system;
(g) Discussion with Internal Auditors of any significant findings and follow-up action thereon;
(h) Discussion with External Auditors; and
(i) Reviewing the company’s financial and risk-management policies.
Sub-section (8) and sub-section (9) of Section 292A provides that the recommendations of the Audit
Committee will be binding on the Board. In case the Board does not accept the recommendations of
the Audit Committee, it will have to record the reasons and communicate the same to the shareholders.
In short, the provisions related to Audit Committees can be summarized as under :
» All public limited companies having paid up capital of Rs. 5 crores or more are required to establish
a committee of the Board known as Audit Committee.
» The Committee shall have at least three directors as members.
» Two-third of the total number of members shall be non-executive directors.
» The Audit Committee shall act in accordance with terms of reference to be specified in writing by
the Board.
» The Statutory Auditors, the Internal Auditor, if any and director in-charge of finance shall attend
and participate the meetings of Audit Committee but shall not have the right to vote.
» The Audit Committee should have discussions with the auditors periodically about internal control
system, the scope of audit and review of the half yearly and annual financial statements before
presenting the same to the Board.
» The Audit Committee shall have right to investigate any matter covered under the broad terms of
reference.
» In case of any default, the company and every officer who is in default shall be punishable with
imprisonment for a term which may extend to one year, or with fine, which may extend to fifty
thousand rupees or with both.
Audit Committee Statute in India
Audit Committees. The new provision covers every public company having a paid-up capital of Rs. 5
crore and above. The Board of Directors is required to constitute an audit committee consisting of not
less than three directors and such number of other directors as the Board may determine of which twothirds
of the total number of members shall be directors, other than managing or whole time directors.
Similarly, Clause 49 of the uniform listing agreement prescribed by Securities and Exchange Board of
India (SEBI), which is applicable to all companies listed in India, requires the setting up of a qualified
and independent Audit Committee.
Sub-section (6) of Section 292A requires that the Audit Committee should have discussions with the
auditors periodically about internal control systems, the scope of audit including the observations of
the auditors and review the half-yearly and annual financial statements before submission to the Board
and also ensure compliance of internal control systems.
Sub-section (7) of Section 292A provides that the Audit Committee shall have authority to investigate into
any matter inter-alia in relation to these matters and shall have full access to the information contained
in the records of the company and external professional advice, if necessary.
The clause 49 of the listing agreement provides that the audit committee shall have powers which
should include the following :
(b) to investigate any activity within its terms of reference;
(c) to seek information from any employee;
(d) to obtain outside legal or other professional advice; and
(e) to secure attendance of outsiders with relevant expertise, if it considers necessary.
This clause further provides that the role of the audit committee shall inter-alia include the following:
(b) Oversight of the company’s financial reporting process and the disclosure of its financial information;
(c) Recommending the appointment and removal of external auditor, fixation of audit fee and also
approval for payment for any other services;
(d) Reviewing the annual financial statements with management before submission to the board;
(e) Reviewing external and internal auditors with the management and the adequacy of internal
control systems;
(f) Reviewing the adequacy of internal audit system;
(g) Discussion with Internal Auditors of any significant findings and follow-up action thereon;
(h) Discussion with External Auditors; and
(i) Reviewing the company’s financial and risk-management policies.
Sub-section (8) and sub-section (9) of Section 292A provides that the recommendations of the Audit
Committee will be binding on the Board. In case the Board does not accept the recommendations of
the Audit Committee, it will have to record the reasons and communicate the same to the shareholders.
In short, the provisions related to Audit Committees can be summarized as under :
» All public limited companies having paid up capital of Rs. 5 crores or more are required to establish
a committee of the Board known as Audit Committee.
» The Committee shall have at least three directors as members.
» Two-third of the total number of members shall be non-executive directors.
» The Audit Committee shall act in accordance with terms of reference to be specified in writing by
the Board.
» The Statutory Auditors, the Internal Auditor, if any and director in-charge of finance shall attend
and participate the meetings of Audit Committee but shall not have the right to vote.
» The Audit Committee should have discussions with the auditors periodically about internal control
system, the scope of audit and review of the half yearly and annual financial statements before
presenting the same to the Board.
» The Audit Committee shall have right to investigate any matter covered under the broad terms of
reference.
» In case of any default, the company and every officer who is in default shall be punishable with
imprisonment for a term which may extend to one year, or with fine, which may extend to fifty
thousand rupees or with both.
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