Section 177 of the Companies Act, 2013 deals with Audit committee
A new section 177 of the Companies Act, 2013 came into force from 1st April, 2014 which provides for Audit committee. According to this section:
(i) Formation of an Audit Committee: An audit committee shall be constituted by the Board of directors of:
(a) Every listed company, and
(b) Such other class or classes of companies as may be prescribed.
The Companies (Meetings of Board and its Powers) Rules, 2014 have prescribed the following classes of companies that shall constitute Audit Committee:
(a) all public companies with a paid up capital of 10 crore rupees or more;
(b) all public companies having turnover of 100 crore rupees or more;
(c) all public companies, having in aggregate, outstanding loans or borrowings or debentures or deposits exceeding 50 crore rupees or more.
Explanation.- The paid up share capital or turnover or outstanding loans, or borrowings or debentures or deposits, as the case may be, as existing on the date of last audited Financial Statements shall be taken into account for the purposes of this rule.
“Provided that public companies covered under this rule which were not required to constitute Audit Committee under section 292A of the Companies Act, 1956 shall constitute their Audit Committee within one year from the commencement of these rules or appointment of independent directors by them, whichever is earlier:
Provided further that public companies covered under this rule shall constitute their Nomination and Remuneration Committee within one year from the commencement of these rules or appointment of independent directors by them, whichever is earlier”.
(ii) Composition of an Audit committee: According to sub section 2 of section 177, the Audit Committee shall consist of a minimum of 3 directors with independent directors forming a majority.
Provided that the majority of members of Audit Committee including its Chairperson shall be persons with ability to read and understand the financial statement.
Disclosure of composition of Audit Committee: The composition of the Audit Committee shall be disclosed in the Board’s report under section 134(3).
(iii) Transition period: This Act shall, within one year of such commencement, be reconstituted in accordance with the new composition of an Audit Committee as provided for insub section (2) above.
(iv) Responsibilities of an Audit Committee: According to sub section (4) of section 177, every Audit Committee shall act in accordance with the terms of reference specified in writing by the Board which shall, inter alia, include,—
(a) the recommendation for appointment, remuneration and terms of appointment of auditors of the company;
(b) review and monitor the auditor’s independence and performance, and effectiveness of audit process;
(c) examination of the financial statement and the auditors’ report thereon;
(d) approval or any subsequent modification of transactions of the company with related parties;
(e) scrutiny of inter-corporate loans and investments;
(f) valuation of undertakings or assets of the company, wherever it is necessary;
(g) evaluation of internal financial controls and risk management systems;
(h) monitoring the end use of funds raised through public offers and related matters.
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