Audit Committee

Team Chartreuse

Topics to be Covered

Introduction Applicability Composition Eligibility of Members Frequency & Quorum Roles & Responsibilities Powers of Audit Committee Vigil Mechanism & Penalty LODR Vs Companies Act, 2013

Introduction Audit Committee is a committee formed by the Board of Directors

of the Company to look into Financial & other Allied matters of the Company.

An Audit Committee is a key element in the Corporate Governance process of any organization to safeguard the interest of the stakeholders.

Governing Section:

Section 177 of the Companies Act, 2013 (“the Act”) read with Rule 6 and 7 of Companies (Meetings of Board and its Powers) Rules, 2014 (“the Rules”) deals with  Audit Committee

Regulation 18 of SEBI (LODR) Regulation s, 2015 deals with Audit Committee.

Applicability Section 177(1) of the Act read with Rule 6 set forth the requirement of constitution of audit committee: all listed companies; and all public companies

with a paid up capital of Rs.10 Crores or more; having turnover of Rs.100 Crores or more; having in aggregate, outstanding loans or borrowings

or debentures or deposits exceeding Rs.50 Crores or more.

Note: The above criteria shall be as per latest audited Financials.

Composition

Companies Act, 2013: The Audit Committee shall consist of a

minimum of 3 directors with independent directors forming a majority.

The majority of members of Audit Committee including its Chairperson shall be persons with ability to read and understand, the financial statement.

The auditors and KMP have a right to be heard in the meetings when it considers the auditor’s report, but have no right to vote.

SEBI (LODR) Regulations, 2015:

The audit committee shall have minimum 3 directors as members of which 2/3rd of the members of the committee shall be independent directors.

All members of audit committee shall be financially literate and at least one member shall have accounting or related financial management expertise.

Chairperson of the committee shall be an independent director & shall be present at AGM to answer.

Company Secretary shall act as secretary to the committee.

Finance director, representative of the statutory auditor shall be invitees.

Frequency & QuorumSEBI (LODR) Regulation:Frequency:The listed entity shall meet at least 4 times in a year and not more than 120 days shall elapse between 2 meetings.

Quorum:2 members or 1/3rd of the committee, whichever is greater, with at least 2 Independent Directors.

Companies Act, 2013:No such specific provisions w.r.t frequency and Quorum, but certain business required to be approved through Audit Committee.

Roles & Responsibilities

Every Audit Committee shall act in accordance with the terms of reference specified in writing by the Board which shall, inter alia, include,—The recommendation for appointment, remuneration and terms of appointment of auditors of the company;

Review and monitor the auditor’s independence and performance, and effectiveness of audit process;

Examination of the financial statement and the auditors’ report thereon;

Conti…

Approval or any subsequent modification of transactions of the company with related parties;

Scrutiny of inter-corporate loans and investments;

Valuation of undertakings or assets of the company, wherever it is necessary;

Evaluation of internal financial controls and risk management systems;

Monitoring the end use of funds raised through public offers and related matters.

Powers of CommitteeThe committee shall have the authority –To call for the comments of the auditors about internal control systems, the scope of audit, including the observations of the auditors and review of financial statement before their submission to the Board: To discuss any related issues with the internal and

statutory auditors and the management of the company.

To investigate into any matter in relation to the items or referred to it by the Board.

To obtain professional advice from external sources. To have full access to information contained in the

records of the company

Vigil Mechanism Every listed company, companies which accept deposits from the public and companies which have borrowed money from banks and

public financial institutions in excess of Rs.50 crores shall establish a vigil mechanism for directors and employees to report genuine concerns in such manner as may be prescribed.

The companies shall oversee the vigil mechanism through the committee and if any of the members of the committee have a conflict of interest in a given case, they should rescues themselves to deal with the matter.

Continues…

Where the companies are not required to constitute an audit committee, the Board of directors shall nominate a director to play the role of audit committee for the purpose of vigil mechanism to whom other directors and employees may report their concerns. The existence of the mechanism may be appropriately

communicated within the organization. The details of establishment of Vigil mechanism shall

be disclosed by the company in the website, if any, and in the Board’s Report.

Penalty Reasons:

Repeated frivolous complaints being filed by1. Director(or)2. Employee

Amount of Penalty: 25000-100000(or) Imprisonment up to 1 year(or Both

Major Differences:Companies Act,

2013 Independent Director

forming majority Chairman need not be

an independent director

CS need not be secretary of the Audit Committee

Majority (including Chairperson )shall be Financially literate

SEBI (LODR) Regulation:

2/3 of member shall be Independent Director

Chairman should be Independent Director

CS of the company should be the Secretary of the Committee.

All member shall be financially Literate

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