Audit Committee is one of the important pillars of the corporate governance mechanism in the company. It is charged with the oversight of financial reporting and disclosures. It boost the confidence in the integrity of the company’s financial reporting, the internal control process and the risk management systems. It review and monitor the auditor’s independence and performance and effectiveness of audit process. It examines the financial statement and the auditor’s report there on.
The constitution of Audit Committee is mandated under the Companies Act, 2013 and SEBI (LODR) Regulations, 2015
♦ Constitution of Audit Committee [Section 177(1) and Rule 6 of the Companies (Meetings of the Boards and its Powers) Rules, 2014]
a. Every Listed Public Companies
b. Public Companies with paid up capital of 10 crore rupees or more
c. Public Companies having Turnover of 100 crore rupees or more
d. Public Companies, having in aggregate, outstanding loans or borrowings or debentures or deposits exceeding 50 crore rupees
The paid up share capital or turnover or outstanding loans or borrowings or debentures or deposits, will be taken into considered as existing on the date of last audited financial statements shall be taken into account for the purpose of this rule.
> Following Unlisted Public Companies are not covered under this rule
a. Joint Venture
b. Wholly Owned Subsidiary
c. Dormant Company under section 455
♦ Composition of Audit Committee [Section 177(2)]
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- Minimum 3 directors, with majority being Independent
- Chairperson should able to read and understand the financial statement
- Requirement of Independent Directors is not applicable to Section 8 Companies
♦ Composition of Audit Committee under SEBI (LODR) Regulations, 2015
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- Minimum 3 Directors
- Two-third members shall be Independent Director and in Listed entity having outstanding SR equity shares, it shall only comprise of Independent Directors
- All members shall be financially literate and at least one member shall have accounting or related financial management expertise
- Chairperson shall be the Independent Director
♦ Number of Meetings and Quorum
> For Unlisted Company
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- It may meet as number of times as it deems fit to serve its purpose
- Minimum number of meetings and quorum may be decided by the Board of Directors
> For Listed Companies
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- It shall meet at least 4 times in a year and not more than 120 days should elapse between meetings
- Two members or One-third of the members of the audit committee, whichever is greater, with at least 2 Independent Directors
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