The primary purpose of a company’s audit committee is to provide oversight of the financial reporting process, the audit process, the company’s system of internal controls and compliance with laws and regulations.
This Committee is sometimes set up as the requirement of law and sometimes setting up as adoption of best practices of good corporate governance.
Constitution of Audit Committee ( Section 177(1) and Rule 6 of the Companies (Meetings of the Board and its Powers) Rules,2014)
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
Composition of Audit Committee [Section 177(2)]
Composition of Audit Committee under SEBI (LODR) Regulations, 2015
Number of Meetings and Quorum
For Unlisted Company
As it deems fit to serve the purpose it may meet as number of times as required.
Minimum numbers of meetings and quorum may be decided by the Board of Directors
Functions of Audit Committee:
Every Audit Committee shall act in accordance with the terms of reference specified in writing by the Board which shall, inter alia, include-
Powers of Audit Committee:
Establishment of Vigil Mechanism:
Every Listed Company and the companies belonging to the following class or classes, as prescribed under Rule 7 of Companies (Meetings of Board and its powers) Rules, 2014 shall establish a vigil mechanism for their directors and employees to report their genuine concerns or grievances-
The Vigil mechanism shall provide adequate safeguards against victimization of employees and directors who avail of the Vigil mechanism and also provide the role of Audit Committee, as the case may be, in exceptional cases.
Action taken against Frivolous Complaints
In case of repeated frivolous complains being filed by a Director or an employee, the audit committee or the Director nominated to play the role of audit committee may take suitable action against the concerned director or employee including reprimand.
The Details of establishment of such mechanism shall be disclosed on the Company’s website and in Board Report, also appropriately communicated within the organization.
Penalty for Violation of Audit Committee Provistions:
For Company: Fine of Rs. 1 lakh to Rs. 5 lakhs
For every officer of Company in default: Imprisonment up to 1 year or with fine of Rs. 25000 to Rs. 1 lakh or with both.