Provisions relating to Audit Committee

Applicability of Section 177

Constitution of Audit Committee
Audit Committee is mandatory
for

All Public Companies

Every listed
company With a paid up Having turnover of Having
capital of ₹10 ₹100 crore or outstanding loans
crore or more more or borrowing or
debentures or
deposits
exceeding ₹50
crores or more
Important points about Audit Committee
Where a company is required to constitute an Audit Committee all
appointments including the filling of casual vacancy of an auditor shall
be made after taking into account the recommendations of
committee.

FUNCTIONS OF AUDIT COMMITTEE

• Making recommendation for appointment.
• Remuneration and terms of appointment of auditor.
• Reviewing and monitoring auditors independence.
• Performance and effectiveness of audit process.
• Examination of financial statements and auditors report.
Composition
• It consists of minimum 3 directors with independent directors
forming majority.
• Helps in ensuring better standards of corporate governance.
 Manner and procedure of selection and appointment of
auditors
Rule-3 of CAAR 2014
Categories of Company required to constitute Audit Committee Company not required
company to constitute audit
committee
Competent Audit committee Board
authority
Responsibility of 1. The competent authority(i.e. Audit Committee)shall taken into consideration All these proceedings
competent • Disqualification shall be done by
authority • Experience Board.
of the auditor to be consider for appointment as auditor
And
such qualifications and experience are commensurate with the size and
requirements of the company.

2. It shall have regard to any order or pending proceedings related to professional All these proceedings
matters of conduct against the proposed auditor before the ICAI/Any court/Any shall be done by
competent authority. Board.
3. It may call for such other information as it my deem Done by the Board
fit.

4. The committee shall recommend the name of

proposed auditor to the Board for consideration.
Board shall recommend
to the members in
5. If the board agrees with the recommendation of Annual General
the Audit Committee , the board shall recommend Meeting for
to the members in the Annual General Meeting for appointment.
appointments.
 AUDIT COMMITTEE after considering the reasons
given by the Board
citing reasons
Shall recommend the for such
auditor to disagreement.
Decides

Board of Directors Refer back to

not to reconsider its Board shall record
original reasons for dis-
Agree Disagree recommendation agreement and send fact
& it’s own
recommendation

Forward the
recommendation of
appointment of
auditor to

Members of AGM Auditor appointed in the annual general meeting shall hold office from the
conclusion of ensuing meeting till the conclusion of sixth annual general
meeting and thereafter till the conclusion of every sixth meeting.
 AUDITOR’S REMUNERATION
Section 142

In general meeting or any

such matter as determined

Authority to fix
remuneration

BOD, in case first auditor

was appointed by them
Removal of Auditor Before Expiry Of Term

Board meeting (to decide After approval from CG

Auditor shall
about the removal) be removed

30 Days Application to CG 60 Days

in form ADT-2
Convene general meeting
Resolution passed Pass special resolution
by the board
 Direction by tribunal in case Auditor acted in a fraudulent
manner
Section140(5) If tribunal is satisfied that
change of auditor is
Suo-motu required , within 15 days
TRIBUNAL of receipt of application ,
On application by CG it shall order that he shall
not function as auditor
On application by an and Central Government
person concerned may appoint another
auditor
Satisfied that auditor has
directly or indirectly acted in
fraudulent manner

Direct the company to

change it’s auditors

The removed auditor shall not be eligible to be appointed as

auditor of any company for 5 years and liable for action u/s447
 Appointment of auditor other than retiring auditor
section140(4)
Special notice requirement to pass a resolution at AGM
Providing

providing expressly that a retiring auditor Appointment of any other person other
OR
shall not be re-appointed than the retiring auditor

Copy of notice to be sent to retiring auditor

Retiring auditor has right to do so
If the auditor makes Notice of resolution given to members stating fact
representations to the company that representation has been made

OR
Copy of notice and representations to be If representation not sent , it shall be read out at meeting orally
sent to every person to whom notice of &
AGM was served Copy shall be filed with Registrar
 Ceiling on Number of Audit
 The number of audits held at any point of time should not exceed 20.

 In the case of firm of auditors, the ceiling limit of 20 shall be applicable for every partner of the firm
who is not in full time employment elsewhere.

 This limit of 20 company audits is per person.

 Where a Chartered Accountant is a partner in a number of auditing firms, all the firms in which he is
partner or proprietor will be together entitled to 20 company audit on his account.

 Exceptions:
• OPC
• Dormant companies
• Small companies
• Private companies having share capital less than 100crore
These all are not counted for limit of 20 companies.
Ceiling on Tax Audit assignments is 60No.
u/S44AB of Income Tax Act, 1961.