The audit committee plays a critical role in ensuring the accuracy and transparency of a company`s financial reporting. As per the listing agreement, it is mandatory for every listed company to constitute an audit committee. The constitution of the audit committee holds significant importance as it directly affects the financial health and stability of the company.
The listing agreement mandates that an audit committee must have a minimum of three directors as members. All members, including the chairman, must be independent directors. The chairman should be an independent director with experience in finance or accounting. The members of the committee should have adequate knowledge and experience in financial management, accounting, and auditing.
The primary function of the audit committee is to oversee the financial reporting process and ensure its accuracy and reliability. It is also responsible for reviewing and monitoring the auditor`s independence, performance, and effectiveness. The audit committee should also review the financial statements and all related disclosures provided by the company before submitting them to the board for approval. In addition, the committee should review the internal audit reports and the effectiveness of the company`s internal control system.
The audit committee is responsible for ensuring compliance with applicable legal and regulatory requirements. It should review the company`s compliance with accounting policies and correct any deviations from those policies. The committee should also ensure that the company adheres to all tax laws and regulations.
The audit committee has the power to investigate and obtain any information necessary for discharging its responsibilities. It can engage independent professionals, including auditors, to assist in its functions. It can also seek information from senior management and other employees of the company.
Conclusion:
The audit committee is a vital component of proper corporate governance and financial transparency. As per the listing agreement, all listed companies must have a properly constituted audit committee with independent directors as members. The committee`s primary functions include overseeing the financial reporting process, ensuring the auditor`s independence and effectiveness, reviewing internal audit reports, and ensuring compliance with all legal and regulatory requirements. A well-constituted audit committee can significantly contribute to a company`s financial health and stability.
