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Reviewed by Nov 11, 2021| Updated on
Audit committee refers to one of the key committees in a corporate form of organisation to oversee the discharge of statutory audit compliances by the company. It is important for a company to comply with the financial reporting standards and disclosures to various government undertakings.
In India, all public companies having a paid-up capital of Rs 10 crore or more or a turnover of Rs 100 crore or more should have an audit committee. Also, all public companies having outstanding loans or borrowings in excess of Rs 50 crore should constitute an audit committee. Similarly, all publicly-traded companies in the USA should have an audit committee for the purpose of listing on a stock exchange.
In India, the audit committee should consist of at least three directors and other directors as decided by the board of directors from time to time. At least two-thirds of the total members of the audit committee should be other than the whole-time director or managing director. One of the members can be the chairperson who is able to understand the financial statements.
The audit committee should consist of members from the outside of the company, such as those having knowledge of finance and accounting. The duties of an audit committee are to oversee the preparation, presentation, and reporting of financial statements of a company. The members of the committee should sign off the accounting records and are responsible for any misreporting.
The audit committee should work in coordination with the statutory auditors of the company. There should not be any conflict of interest between the statutory auditor and other consulting firms providing services to the company.
Audit committee maintains communication with the top management of a company, such as the CEO or chairman. The committee can initiate an investigation in case they find any issues with the accounting policies or procedures adopted by the company. In such cases, the company can also appoint and take assistance from an internal auditor.