Why should an organization have an audit committee?
Audit Committee is an important governance mechanism designed to ensure the adequacy and credibility of the financial statements. The independence of these committees is critical for the survival and growth of corporates, particularly in countries with concentrated ownership such as India, where the potential for value-reducing related party transactions could be high.
Functions of Audit Committee: According to the Clause 49 of the Listing Agreement, the important functions of the audit committee are to:
- provide oversight of the company’s financial reporting process and the disclosure of its financial information to ensure that the financial statement is correct, sufficient and credible.
- review the adequacy of the internal control systems, including the structure of the internal audit department and frequency of
- recommend to the Board regarding the appointment, re-appointment and, if required, the replacement or removal of the
statutory auditor, and
- fix audit fees and decide on the extent of non-audit services that can be rendered by the statutory auditor.