In areas where more focus, specialization, and technical discussions are necessary, committees as a means of boosting board effectiveness and efficiency. These committees lay the framework for decision-making and report to the board of directors at the next meeting. Committees help to better manage the time of the entire board by allowing for the more in-depth inspection and concentrated attention. Let us discuss more Overview of Board Committee Audit Committee in this article.
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Overview of Board Committee Audit Committee-Board Committees
The Board appoints committees to focus on specific areas, make informed judgments within the scope of delegated authority, and make specific recommendations to the Board on issues within their areas of responsibility. All committee decisions and recommendations are presented to the Board for information or approval. The board of directors designates specific matters to the board committees established for that purpose in order to provide better and more concentrated attention to the Corporation’s business. Items are thoroughly reviewed by committees before being presented to the Board for consideration. These committees lay the framework for decision-making and report to the board of directors at the next meeting.
Overview of Board Committee Audit Committee-Purpose and need for committees
A board might be formed for a specific function or to address broader issues like ‘development. They can be formed as a temporary or short-term body for ongoing work, or as a permanent body for continuous activity. Hence, As a result, committees play an important role in corporate governance.
Committees can be constituted for a variety of reasons, such as:
- Selection Committee/Nomination Committee – to appoint Board members, a CEO, and key management and senior management employees.
- Board Development or Governance Committee — to oversee/administrate/support Board and committee members, as well as other executive positions.
- Risk Management Committee
- Investment Committee
- Committee of Inquiry—to enquire regarding certain issues (disciplinary, technical, etc.) and to oversee the organization’s operations in between Board sessions.
- Safety, Health & Environment Committee
- Finance or Budget Committees — in charge of financial reporting, auditing, and so on.
- Marketing and Public Relations Committees —to find new markets, create relationships with the media and the general public, and so on.
Management of Committees
- Board committees can be permanent or ad hoc, with the latter ending when the activities are done. The articles or bylaws should include standing committees.
- The board establishes committee terms of reference, which are carry forward by the committees.
- Committees make the most of board members’ knowledge, time, and commitment while also ensuring that the board has a diverse range of viewpoints.
- They do not take the place of each board member’s responsibility; they work at the board level, not the staff level.
- Also, all Committee meetings should record, and the final minutes give out to the Board.
- Committees make policy recommendations to the entire board for approval.
Some important Committees of Board
Audit Committee
The Audit Committee is one of the primary foundations of every company’s corporate governance framework. The Committee shall be appointed by the Board and shall consist of at least three Directors, each of whom is independent of management and the Company as specified by the Company’s Bylaws, the SEC, the New York Stock Exchange, and Clause 49 of the Listing Agreement. The Audit Committee, which is in charge of financial reporting and disclosure, seeks to increase public confidence in the company’s financial reporting, internal control processes and procedures, and risk management systems. Every public company in India with a paid-up capital of not less than Rs. 5crores was necessary to form an Audit Committee under Section 292A of the Companies Act, 1956. Clause 49 of the Listing Agreement, which applies solely to listed businesses, mandates that all listed corporations form an Audit Committee with certain tasks.
Who all can constitute Audit Committee?
According to Section 177 of the Act and Rule 6 of the Companies (Meetings of the Board and its Powers) Rules, 2014, every listed company and the following kinds of companies must form an Audit Committee of the Board:
- all public corporations with a paid-up capital of at least 10crore rupees;
- Public corporations with outstanding loans, borrowings, debentures, or deposits totalling more than 50crore rupees. For the purposes of this rule, the paid-up share capital or turnover, or outstanding loans, borrowings, debentures, or deposits, as the case may be, as of the date of the most recent audited financial statements shall be taken into account.
- Also, all public corporations with a turnover of at least 100crore rupees;
The powers are in hands of the Audit Committee
The powers of the audit committee should include the following:
- To inquire of any employee for information.
- For seeking legal or other professional assistance from a third party.
- To look into any action that falls within the scope of its mandate.
- Also, if it believes it is necessary, it will secure the attendance of outsiders with appropriate experience.
Meetings of the Audit Committee
The Audit Committee should convene at least four times a year, with no more than four months between meetings, according to the new section 49. Quorum is stating as two members or one-third of the audit committee members, whichever is greater, but at least two independent members must be present.
The Audit Committee, perhaps the most powerful committee, may invite as many executives as it deems suitable (particularly the head of the finance function) to attend committee sessions, although it may also meet without the participation of any corporate officials on occasion.
Final words
Likewise, the pillars of Corporate Governance are the Board Committees. Boards have increasingly developed committees to deal with some of their more detailed work as directors’ responsibilities have grown more demanding.
As a result, it is critical that committees and their functions evaluate on a regular basis. When sitting on a Board committee, members should be aware that their Board obligations do not change, and in some cases, they may upgrade.
