This document provides an overview of audit committees, including their definition, composition, responsibilities, roles, and history. An audit committee is a key part of corporate governance that typically oversees financial reporting, risk management, compliance, and the internal and external audit functions. It must be composed of independent directors, with at least one financial expert. The main responsibilities of an audit committee are to oversee the financial reporting process, internal controls, and the selection and independence of external auditors. Audit committees have evolved over time with various regulations and acts, such as the Sarbanes-Oxley Act of 2002, requiring their establishment and independence.

1. AN OVERVIEW OF -ADUIT COMMITTEE
BY
SUJATHA N
ASST PROFESSOR
VIJAYA COLLEGE
DEPARTMENT OF COMMORCE
BANGALORE CENTRAL UNIVERSITY
BANGALORE

2. AN OVERVIEW OF AUDIT COMMITTEE
INTRODUCTION:-
An “Audit Committee” is a key element in the Corporate Governance
process of any organization. The emergence of corporate governance,
which refers to the establishment of a structural framework or
reforming the existing framework to ensure the governing of the
company to best serve interests of all stakeholders, is a vital concept
which has become indispensable in the present capital market state of
affairs so as to safeguard the interest of stakeholders.

3. DEFINITION OF AUDIT COMMITTEE:-
Definition has been developed by the government auditors in the INTOSAI’s
Internal Control Standards: "A committee of the Board of Directors whose role
typically focuses on aspects of financial reporting and on the entity's processes to
manage business and financial risk, and for compliance with significant applicable
legal, ethical, and regulatory requirements.
Institute of Internal Auditors definition: "The Audit committee refers to the
governance body that is charged with oversight of the organization’s audit and
control functions. Although these fiduciary duties are often delegated to an audit
committee of the board of directors, the Practice Advisory is also intended to
apply to other oversight groups with equivalent authority and responsibility, such
as trustees, legislative bodies, owners of an owner-managed entity, internal
control committees, or full boards of directors" (IIA Practice Advisory 2060-2 of
2004).

4. COMPOSITION
Usually, membership of the Committee is subject to the maximum number of 6
persons.In the USA, a qualifying audit committee is required for listed publicly
traded companies. To qualify, the committee must be composed of outside
director independent outside directors with at least one qualifying as a financial
expert.
Institute of Internal Auditors best practice “The audit committee will consist of
at least three and no more than six members of the board of directors.Each
committee member will be both independent and financially literate. At least
one member shall be designated as the "financial expert," as defined by
applicable legislation and regulation”.

5. RESPONSIBILITES
Boards of Directors and their committees rely on management to run the
daily operations of the business. The Board's role is better described as
oversight or monitoring, rather than execution. Responsibilities of the audit
committee typically include ,
Overseeing the financial reporting and disclosure process.
Monitoring choice of accounting policies and principles.
Overseeing hiring, performance and independence of the external auditors.
Oversight of regulatory compliance, ethics, and whistleblower hotlines.
Monitoring the internal control process.
Overseeing the performance of the internal audit function.
Discussing risk management policies and practices with management.

6. ROLES OF AUDIT COMMITTEE
1. Role in the oversight of financial Reporting and Accounting
2. Role in the oversight of External Auditors
3. Role in the oversight of Regulatory Compliance
4. Role in monitoring the effectiveness of the internal control process
and of the Internal Audit
5. Role in oversight of Risk Management.

7. HISTORY OF AUDIT COMMITTEE
Below are a few key milestones in the evolution of audit committees.
1939: The New York Stock Exchange (NYSE) first endorsed the audit committee concept.
1972: The U.S. Securities and Exchange Commission (SEC) first recommends that publicly
held companies establish audit committees composed of outside (non-management)
directors.
1977: NYSE adopts a listing requirement that audit committees be composed entirely of
independent directors.
1988: AICPA issues SAS 61 "Communication with Audit Committees" addressing
communications between the external auditor, audit committee and management of SEC
reporting companies.
1999: NYSE, NASD, AMEX, SEC and AICPA finalize major rule changes based on Blue
Ribbon Committee on Improving the Effectiveness of the Corporate Audit Committee.
2002: Sarbanes-Oxley Act is passed in the wake of corporate scandals and includes
whistleblower and financial expert disclosure requirements for audit committees.
Interaction with the Board, and with non-executive Board Members

8. THE COMPANIES ACT 1956 SEC 292A-AUDIT COMMITTEE
Every Public Company having paid-up capital of not less than five cores of rupees shall
constitute a committee of the Board known as "Audit Committee" which shall consist of
not less than three directors and such number of other directors as the Board may
determine of which two-thirds of the total number of members shall be directors, other
than managing or whole time directors.
Every Audit Committee constituted under sub-section (1) shall act in accordance with
terms of reference to be specified in writing by the Board.
The members of the Audit Committee shall elect a chairman from amongst themselves.
The annual report of the company shall disclose the composition of the Audit
Committee.
The auditors, the internal auditor, if any, and the director-in-charge of finance shall
attend and participate at meetings of the Audit Committee but shall not have the right to
vote.
The recommendations of the Audit Committee on any matter relating to financial
management including the audit report, shall be binding on the Board

9. AUDIT COMMITTEE UNDER SUB-CLAUSE II OF CLAUSE 49 OF LISTING
AGREEMENT:-
(A) Audit Committee.
Qualified and Independent Audit Committee. A qualified and independent audit
committee shall be set up and shall comply with the following:
The audit committee shall have minimum three members. All the members of
audit committee shall be non-executive directors, with the majority of them being
independent.
All members of audit committee shall be financially literate and at least one
member shall have accounting or related financial management expertise.
Explanation
The term “financially literate” means the ability to read and understand basic
financial statements i.e. balance sheet, profit and loss account, and statement of
cash flows. Explanation

10. (B)Meeting of Audit Committee
The audit committee shall meet at least thrice a year. One meeting shall
be held before finalization of annual accounts and one every six months.
The quorum shall be either two members or one third of the members
of the audit committee, whichever is higher and minimum of two
independent directors.
(C)Powers of Audit Committee
The audit committee shall have powers which should include the
following:
To investigate any activity within its terms of reference
To seek information from any employee.
To obtain outside legal or other professional advice.
To secure attendance of outsiders with relevant expertise, if it considers
necessary.

11. (D) Role of Audit Committee
The role of the audit committee shall include the following:
1. 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.
2. Recommending the appointment and removal of external auditor, fixation of audit
fee and also approval for payment for any other services.
3. Reviewing with management the annual financial statements before submission to
the board, focusing primarily on;
(a) Any changes in accounting policies and practices.
(b) Major accounting entries based on exercise of judgment by management.
(c) Qualifications in draft audit report.
(d) Significant adjustments arising out of audit.
(e) The going concern assumption
(f) Compliance with accounting standards.

12. CONCLUSION:-
This paper examines the composition, focus and functions of audit
committees (ACs), the effects of meetings and the criteria used in the
selection of members The functions of ACs are quite diverse and are
classified in three areas: financial statements and reporting, audit
planning, and internal control and evaluation. The review of annual
audited financial statements, discussion and recommendations of audit
fees and review of the effectiveness of internal control were rated very
highly by the respondents. The review of note disclosure and scope of
external audit work are other important functions performed by ACs.