Audit Committee Basics explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Two of these questions cover composition and two cover meetings. The fifth asks how the committee's hours are actually spent.
Composition
- The composition of Audit committee includes Independent Director in majority?
- Are the members of Committee financially literate?
- Does majority of members possess accounting or related financial management expertise?
Meetings
- How many meetings of the Audit committee are determined to be conducted during the year?
- Has the quorum for the meeting been adhered to?
Item 6 is unlike the rest of the checklist. It does not ask whether something was done; it asks how the committee's time was distributed:
What should be the time allocation on business conducted during each of audit committee meetings? — Governance; Risk and Control; Financial matters; External Audit matters; Internal Audit matters; Annual Report; Others.
The reason this matters is that audit committee agendas drift towards the urgent and the quantitative. Financial matters and external audit matters have deadlines, so they consume the meeting. Governance and risk have none, so they get whatever is left.
Setting an intended allocation before the year, and comparing it against what actually happened, exposes that drift. A committee spending eighty per cent of every meeting on quarterly numbers is a reporting committee, not an audit committee — even though the two look identical in the minutes.
Note also the distinction drawn between items 2 and 3. Financially literate applies to the members; accounting or related financial management expertise is required of the majority. Literacy is the floor for everyone; expertise is a higher standard demanded of most.
That pairs with the statutory composition requirement — minimum of three directors with Independent Director forming the majority — to produce two overlapping majorities on a small committee. On a three-member committee, two must be independent and two must have financial expertise.
Information
The checklist then turns to whether the committee can rely on what it receives:
- Whether declaration from each member of Committee has been obtained ensuring information received from the management is sufficient, reliable and timely?
- Whether the audit committee has confirmed that the information received from external auditors is sufficient, reliable and as per the scope determined by the committee?
- Has audit committee of the listed entity reviewed the financial statements?
- Has audit committee of the listed entity reviewed the investments made by the unlisted subsidiary?
The first is unusually demanding. It is not enough that information was received — each member must declare it was sufficient, reliable and timely. A member who received the papers the night before cannot honestly sign that.
The unlisted subsidiary point
The last item addresses a common blind spot. A listed entity's governance framework applies to the listed entity; its unlisted subsidiaries can sit outside the routine reporting. The checklist puts investments made by the unlisted subsidiary expressly within the audit committee's review, which is where value most often leaves a group unobserved.
Applying the audit committee basics
- Confirm the independent majority survives every resignation.
- Test financial literacy for all members and expertise for the majority.
- Fix the number of meetings for the year in advance.
- Set an intended time allocation across the seven categories, and review it at year end.
- Obtain the sufficiency declarations rather than assuming them.
Common mistakes
- Allowing quarterly reporting to consume the whole agenda.
- Treating financial literacy and financial expertise as the same requirement.
- Signing a sufficiency declaration on papers received too late to read.
- Excluding unlisted subsidiaries from committee review.