Introduction to Audit Committee Meeting

Under the Companies Act 2013, the audit committee is a mandatory committee for certain classes of companies, and it is responsible for overseeing the financial reporting process, monitoring the effectiveness of the company’s internal control systems, and reviewing the company’s financial statements.

The applicability of an audit committee meeting under the Companies Act 2013 depends on the type of company and its turnover.

The following types of companies are required to constitute an audit committee under the Companies Act 2013:

1. All listed companies, whether public or private, with paid-up share capital of Rs. 10 crore or more.
2. All public companies, whether listed or not, with a paid-up share capital of Rs. 10 crore or more or a turnover of Rs. 100 crore or more.
3. All private companies with a paid-up share capital of Rs. 10 crore or more.

In addition to the above, the Securities and Exchange Board of India (SEBI) has also mandated audit committees for certain other classes of companies listed on stock exchanges in India. SEBI’s Listing Regulations require listed companies to have an audit committee consisting of a minimum of three directors, with at least one independent director.

Under the Companies Act 2013, the audit committee is required to meet at least four times a year, and the intervals between two meetings should not exceed 120 days. The committee’s meetings should be held at the company’s registered office or any other place as the committee deems appropriate.

Steps to Convene Audit Committee Meetings as per the Companies Act 2013:

1. First, check the provisions of the Companies Act, 2013, and the articles of association of your company to understand the requirements for convening audit committee meetings.
2. Assemble the members of the audit committee. The committee should consist of at least three members and a majority of them should be independent directors.
3. Issue notice of the audit committee meeting in writing to all the committee members at least seven days before the meeting date. The notice should include the agenda of the meeting, the date, time, and venue of the meeting.
4. The agenda for the meeting should include the following items: a. Review and approve the financial statements of the company b. Review and approve the internal audit reports c. Review and approve the external audit reports d. Review and approve the internal control systems and their effectiveness e. Any other matter related to financial reporting, internal controls, or audit that requires the committee’s attention
5. The chairperson of the audit committee should preside over the meeting, and the company secretary should act as the secretary of the committee.
6. During the meeting, the committee should discuss the agenda items, ask questions, and make recommendations to the board of directors.
7. After the meeting, the committee should prepare minutes of the meeting, which should include the decisions taken, the recommendations made, and any dissenting views expressed by the committee members.
8. Finally, the minutes of the audit committee meeting should be presented to the board of directors at its next meeting, and the board should take appropriate actions based on the recommendations made by the committee.

General Procedure to Convene Audit Committee Meeting

1. Identify the members of the audit committee: The audit committee should have at least three members, with a majority of them being independent directors. Identify the members of the committee and send them a notice of the meeting.
2. Fix the date, time, and venue of the meeting: After consulting with the members of the committee, fix a suitable date, time, and venue for the meeting.
3. Send notice of the meeting: Issue notice of the audit committee meeting in writing to all the committee members at least seven days before the meeting date. The notice should include the agenda of the meeting, the date, time, and venue of the meeting.
4. Prepare the agenda for the meeting: The agenda for the meeting should be prepared by the chairperson of the committee in consultation with the other members. The agenda should cover all the important items related to financial reporting, internal controls, or audits that require the committee’s attention.
5. Hold the meeting: The chairperson of the audit committee should preside over the meeting, and the company secretary should act as the secretary of the committee. During the meeting, the committee should discuss the agenda items, ask questions, and make recommendations to the board of directors.
6. Prepare minutes of the meeting: After the meeting, the committee should prepare minutes of the meeting, which should include the decisions taken, the recommendations made, and any dissenting views expressed by the committee members.
7. Present minutes to the board of Directors: The minutes of the audit committee meeting should be presented to the board of directors at its next meeting, and the board should take appropriate actions based on the recommendations made by the committee.

Matters that can be discussed in Audit Committee Meeting

The audit committee is responsible for overseeing the financial reporting process, ensuring the effectiveness of the company’s internal controls, and reviewing the company’s compliance with legal and regulatory requirements. Therefore, the following matters can be discussed in an audit committee meeting:

1. Financial reporting: The audit committee should review the company’s financial statements, accounting policies, and procedures to ensure that they are in compliance with accounting standards and applicable laws and regulations. The committee should also review the company’s financial reporting process, including the adequacy and effectiveness of internal controls over financial reporting.
2. Internal controls: The audit committee should review the effectiveness of the company’s internal controls, including the control environment, risk assessment, control activities, information, and communication, and monitoring. The committee should also review the company’s compliance with its policies and procedures, including those related to fraud, bribery, and corruption.
3. Audit: The audit committee should oversee the company’s external audit, including the appointment, remuneration, and terms of engagement of the auditors. The committee should also review the auditor’s independence, objectivity, and performance and discuss any significant findings or issues raised by the auditor.
4. Risk management: The audit committee should review the company’s risk management policies and procedures, including the identification, assessment, and management of risks. The committee should also review the adequacy of the company’s insurance coverage.
5. Compliance: The audit committee should review the company’s compliance with legal and regulatory requirements, including those related to securities laws, corporate governance, and environmental, social, and governance (ESG) matters.
6. Related party transactions: The audit committee should review the company’s related party transactions to ensure that they are conducted on an arm’s length basis and are in compliance with applicable laws and regulations.
7. Whistleblower mechanism: The audit committee should review the company’s whistleblower mechanism and ensure that it is effective in receiving and addressing complaints related to accounting, internal accounting controls, or auditing matters.

These are some of the matters that can be discussed in an audit committee meeting. However, the specific matters discussed in each meeting may vary depending on the company’s size, the nature of the business, and other relevant factors.

References

1. https://www.mca.gov.in/Ministry/reportonexpertcommitte/chapter4.html