Contents :
- Meaning of Audit Committee .
- Constitution of Audit Committee.
- Powers to Audit Committee.
What is Audit Committee ?
Formation of audit committee for listed companies is part of recommendations made by committee on 'Corporate Governance' to suggest measures to promote and raise the standard of Corporate Governance'. The SEBI considered the recommendations and incorporated clause 49 in the listing agreement to give effect to them. It contains the following provisions relating to audit committee.
Meaning of Audit Committee :
According to an amendment to Companies Act, moved in 1997 every public limited company with a paid up capital of 5 crore or more must have an independent and qualified audit committee. The committee will review the financial statements of the company to ensure that they properly represent the results of operations and financial position of the company. It will also interact with the external auditor and remove weakness of the internal audit function. Existence of audit committee will bring discipline, control and reduce opportunities for fraud.
Constitution of Audit Committee :
The Audit Committee consists of at least three members. If the board of the company decides, there can be more number of directors in the audit committee. All the members must be non-executive directors. Majority of them will be of independent directors and at least one of them must have knowledge of financial and accounting areas. The Chairperson of Audit Committee will be an independent director. The Chairperson of the audit committee shall be elected by the members of the committee from amongst themselves. He/she shall attend the annual general meeting of the company to provide for any clarification on matters relating to audit. The Company Secretary will be secretary to the Audit Committee.
Powers to Audit Committee :
The powers of an audit committee will include the following :
1) Investigation :
An audit committee can investigate any activity falling within its terms of reference. It can investigate into any matter in relation to the items specified in Section 292 A of the Companies Act or referred to it by the board.
2) Information :
It has power to seek any information from any employee. It shall have full access to information contained in the records of the company for the purpose of investigation.
3) Legal or Other Active :
An audit committee can obtain legal or other professional advice from outside sources, if necessary.
4) Invitation for Attending Meeting :
If necessary, it can invite outsiders with relevant expertise to be present at its meeting.