Audit Committee in terms of Companies Act, 2013 vs. SEBI (LODR) 2015

Sec 177 r/w Rule 6 of companies (Meeting of Board & its Power) Rules 2014:

The Board of directors of following companies are required to constitute an Audit Committee of the Board-

1. All listed public companies;[1]

2. All public companies with a paid up capital of Rs. 10 Cr or more.;

3. All public companies having turnover of Rs. 100 Cr or more;

4. All public companies, having in aggregate, outstanding loans or borrowings or debentures or deposits exceeding Rs .50 Cr. or more.

Now, differences in Companies Act and LODR arises specifically w.r.t ‘Composition of Committee and Its Role’ on one side and ‘Meeting and Quorum’ on the other side.

1. Composition

Companies Act, 2013

Min. 3 Directors, Majority has to be Independent Directors, and Majority of members of Audit Committee including its Chairperson shall be persons with ability to read and understand the financial statement.

LODR 2015-

Min. 3 Directors, 2/3^rd of them have to be independent directors.

Apart from this, the Chairperson has to be an independent director, the Company Secretary has to function as the secretary to such committee and all members shall be financially literate and at least 1 member shall have accounting or financial management related expertise.

2. Role of such committee

Companies Act, 2013

1. recommending concerning appointment, remuneration and terms of appointment of auditors of the company.

2. reviewing as well as monitoring auditor’s independence and performance, and effectiveness of audit process;

3. examining financial statements as well as the auditors’ report;

4. approving any subsequent modification of transactions of the company with related parties;

5. scrutinising inter-corporate loans and investments;

6. valuation of undertakings or assets of the company, wherever it is necessary;

7. evaluating internal financial controls and risk management systems as well as monitoring the end use of funds raised through public offers and related matters.

LODR 2015-

1. Looking after the listed entity’s financial reporting process and adequate disclosure of its financial information for ensuring that financial statements are correct, sufficient and credible;

2. recommending appointment, remuneration and terms of appointment of auditors of the listed entity;

3. approving payment to statutory auditors for any other services as provided by the statutory auditors;

4. reviewing the said annual financial statements and auditor’s report along with the management before submitting the same for board’s approval, with specifications like: a) matters required to be included in the director’s responsibility statement and Board’s Report u/s 134(3)(c) of the Companies Act, 2013; b) changes in accounting policies and practices, if any, along with reasons; c) Major accounting entries involving estimates based on the exercise of judgment by management; d) Substantial modifications made in the financial statements because of audit findings; e) Compliance with all the necessary listing and legal requirements pertaining to financial statements; f) Disclosing related party transactions, if any;g) Modified opinion(s) in the draft audit report;

5. Reviewing the said quarterly financial statements with the concerned management before submitting the same to board.

3. Meetings & Quorum

Companies Act, 2013

Not specified u/ Companies Act directly but Sec. 177(7) specifies that the auditors as well as KMPs have the right to be heard in meetings of audit committee; therefore number of meeting not specified.

LODR 2015-

1. The Audit Committee of a listed entity is required to meet minimum four times a year and not more than 120 days shall pass out between two meetings.

2. The quorum for audit committee meeting shall either be 2 members or 1/3^rd of total strength of Audit Committee whichever is higher, and with at least 2 Independent Directors.

[1] Companies (Amendment) Act of 2017; earlier the same was all listed companies.

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