Audit committee is one of the pivotal committees responsible for the overall financial reporting/ controls/ compliances within the organization. Section 177 of the Companies Act, 2013 read with Regulation 18 of the SEBI (LODR) Regulations, 2015 and Rule 6 & 7 of the Companies (Meeting of Board and its Powers) Rules, 2014 explicitly provides the provisions for constitution of Audit Committee.
- Following class of companies are obligated to constitute an Audit Committee as per the provisions of Companies Act, 2013 and SEBI (LODR) Regulations, 2015
- Every listed public company
- Public Companies having paid up share capital of Rs. 10 crores or more
- Public Companies having turnover of Rs. 100 crores or more
- Public Companies having in aggregate outstanding loans, debentures and deposits exceeding Rs. 50 crores
- Minimum number of directors;
- 3 directors required including majorly independent directors capable of reading and understanding the financial statements [as per the provisions of Companies Act, 2013];
- Atleast 2/3rd of the Audit Committee members shall be independent directors and in case of a listed entity having outstanding SR equity shares, the Audit Committee shall only comprise of independent directors [As per SEBI (Listing Obligation and Disclosure Requirment) Regulation 2015].
- Audit committee shall have at least 04 meetings in a year and there should be a gap of maximum 180 days between 02 such meetings.
- Chairperson of the Audit Committee shall be an independent director, who shall be answering to shareholder queries in the Annual General Meeting.
- Company Secretary shall act as the secretary to the Audit Committee.
- Every listed company and below stated class of companies shall put in place a vigil mechanism for its directors and employees-
- Companies which accept deposits from the public
- Companies which have borrowed money from banks and public financial institutions in excess of Rs. 50 crores.
Following Procedure is to be Followed
- Convene a Meeting of Board of Directors [As per section 173 & Secretarial Standard-1 (SS-1)]:
- Issue Notice of Board Meeting to all the Directors of Company at their addresses registered with the Company, at least 7 days before the date of Board Meeting. A shorter notice can be issued in case of urgent business.
- Attach Agenda, Notes to Agenda and Draft Resolution with the Notice.
- Hold a meeting of Board of Directors of the Company and pass the necessary Board Resolution
- Approve the constitution of Audit Committee and/or Vigil mechanism
- To authorize the Director or Company Secretary to do such acts, deeds and things as may be necessary to give effect to the Board’s decision.
- Prepare and Circulate Draft Minutes within 15 days from the conclusion of the Board Meeting, by Hand/Speed Post/Registered Post/Courier/E-mail to all the Directors for their comments. [Refer the Procedure for Preparation and Signing of Minutes of Board Meeting]
- Constitution of Audit Committee
Pursuant to the approval of the Board of Directors, an Audit Committee shall be constituted.
- Formation and Implementation of the Vigil Mechanism Policy
Pursuant to the approval from the Board of Directors, a vigil mechanism policy shall be implemented within the organization for-
- Providing adequate safeguards against victimization of persons using such mechanism;
- Make provision for direct access to the Chairperson of the Audit Committee in exceptional cases.
- Dissemination of Vigil Mechanism Policy on Company’s Website
Listed entity shall disseminate the details of vigil mechanism policy on its functional website. In the event of any change in the content of the website, update the same within 02 working days from the date of such change in the content.
- Role of the Audit Committee
The role of the Audit Committee shall include the following—
- Under Companies Act, 2013:
- recommendation for appointment, remuneration and terms of appointment of company’s auditors;
- reviewing and monitoring auditor’s independence, performance and efficacy of audit process;
- scrutiny of financial statements, auditors’ report, inter-corporate loans and investments;
- omnibus approval/ requisite modification of related party transactions of the company;
- valuation of company’s undertakings/ assets;
- assessment of internal financial controls, risk management systems, end use of funds raised via public offers and related matters;
- Under SEBI (LODR) Regulations, 2015:
- reviewing quarterly Financial statements prior to their submission to the Board for approval;
- reviewing with the management the statement of application of funds raised through an issue;
- reviewing the adequacy of internal audit function and whistle blower mechanism;
- carrying out such other functions as is specified in its Terms of Reference and review such other information as is provided in Part C of Schedule II of the SEBI (LODR) Regulations, 2015.