Audit Committees Quality In India

Audit committee is an operating committee of the Board of Directors charged with oversight of financial reporting and disclosure. Committee members are drawn from members of the company's board of directors, with a Chairperson selected from among the committee members.

Though the audit committee is appointed by the board of directors to assist the board in discharging its oversight responsibilities, while performing its duties, the committee will maintain effective working relationships with the board of directors, management, the external and the internal auditor.

The concept of establishing audit committees started in 1939, when a report from the New York Exchange (NYSE) suggested that, “Where applicable, the selection of the independent auditors, by a special committee composed of directors, who are not officers of the company seems desirable”.

Clause 49 of Stock Exchange Listing Agreement, 2004, India states that “all listed companies should have an Audit Committee, consisting of minimum three directors as members, of which two-third shall be independent. All members of audit committee shall be financially literate and at least one member shall have accounting or related financial management expertise. Every public company having paid-up capital of not less than five crore of rupees shall constitute a committee of the Board known as Audit Committee".