INTRODUCTION:

The Companies Act, 2013 has made provisions for the constitution of certain committees for better and smooth functioning. These committees are given certain powers to achieve the objectives of the Act. One such committee is the Audit Committee.

As per Section 177 read with Rule 6 of the Companies (Meetings of Board and its Powers) Rules, 2014, the following companies board of directors are required to constitute an audit committee:

• Every public listed company;
• All public companies having paid-up share capital more than or equal to 10crore rupees;
• All public companies having turnover more than or equal to100crore rupees;
• All public companies having outstanding loans or borrowings or debentures more than or equal to 50crore rupees.

CONSTITUTION :

A minimum of 3 directors with independent directors forming a majority shall form an audit committee. They shall be persons with the ability to read and understand the financial statement.

RIGHT TO BE HEARD:

The auditors and key managerial persons of the company shall have the right to be heard in meetings of the audit committee considering the auditor’s report but they do not have the right to vote.

POWERS AND FUNCTIONS:

• Terms of reference: Every audit committee shall act following the terms of reference specified in writing by the Board which shall include-

             (i)  Giving recommendation for appointment, terms of appointment, and remuneration of the auditors of the company;  

            (ii) Examination of auditor’s report and financial statement;

            (iii) Review and monitor the auditor’s independence and performance and effectiveness of the audit process;

            (iv) Valuing the undertakings or assets of the corporation;

            (v) Approval or modification of transactions of the company with the related parties;

            (vi) Scrutiny of inter-corporate loans and investments, etc.

• Authority to investigate: An authority to investigate into any matter relating to the items specified above or matters referred by the board and shall have the power to obtain professional advice from the external sources and have full access to the information contained in the records of the company.

• Call for comments: The audit committee may call for the internal control system, the scope of the audit, observation of the auditor, review of the financial statement before their submission to the board.

• Vigil mechanism: Every prescribed company shall establish a vigil mechanism for their directors and employees to report their concerns and grievances. It provides for adequate safeguards against victimization of the employees and directors who will avail of the vigil mechanism and provide direct access to the Chairperson of the committee or director nominated to play the role of the audit committee, as the case may be, in exceptional cases. Section 177 of the Act provides that the audit committee shall oversee the vigil mechanism through the committee and if any of the members have a conflict of interest in a given case, they shall recuse themselves, and the others on the committees would deal with the matter in hand.

BOARD’S REPORT:

The board report under section 134(3) of the Act will disclose the composition of the audit committee and where the board has not accepted the recommendation of the audit committee the same shall be disclosed in the report along with the reasons thereof.

PENALTY:

In case of contravention of the provisions relating to the audit committee, the company shall be punishable with a fine not less than 1lakh rupees but which may extend to 5lakh rupees, and every officer of the company who is in default shall be punishable with imprisonment which may extend to 1 year or with fine not less than 25000 rupees but which may extend to 1lakh rupees, or with both.

This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being. Further, despite all efforts that have been made to ensure the accuracy and correctness of the information published, White Code Legal and Tax shall not be responsible for any errors caused due to human error or otherwise.