Audit Committee Chairing 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.
"Board happens all through the year." By the time the committee sits, the chairperson has already had three separate conversations.
The premise
I strongly believe that high quality decisions by a board depend only partly on what goes on at the periodic meetings. I feel that Board "happens" all through the year. Roots of good decisions taken and implemented by the board are spread all over the year rather than only at a particular meeting. Therefore, it is important for the audit committee chairperson to make sure that the pre-work and post-work for the decisions are handled competently, correctly and completely.
Audit committee chairing begins with three preparatory meetings
The audit committee meeting preparation begins 3-4 weeks before the actual meeting.
| With | Purpose |
|---|---|
| The CFO | To understand the issues that have come up or are coming up during the quarter — business issues, or statutory audit issues or internal audit issues. Also, in an open-ended manner if there are any other issues that are bothering the CFO |
| The internal auditors | To review the reports for the audits completed during the quarter and the plan for the next quarter; periodically the entire year's internal audit plan, plus evaluation of the internal auditor's performance |
| The statutory auditors | To figure out the issues that will come up as regards financial reporting for the quarter — typically the top 3 or 5 issues, in a tripartite meeting with the CFO |
The open-ended question to the CFO. Notice that the first meeting has a defined agenda and then goes beyond it — I also check in an open-ended manner if there are any other issues that are bothering the CFO. This gives me an early notice of the impending problems if any.
That question exists because the reportable issues are, by definition, the ones already in the reporting. What is bothering the CFO may be a dispute with a large customer, a system that is failing, or pressure being applied about a treatment — none of which will appear in a paper until much later, if at all.
The tripartite structure of the third meeting matters for the same reason. Statutory auditors raising their top issues with the CFO present means neither party can characterise the position privately, and the chairperson hears the disagreement rather than a reconciled account of it.
Calendarising the year. The second feature is more systematic: several duties and responsibilities have been assigned to the audit committee by the company law and SEBI regulations. I get these listed and allocated over 4 to 6 meetings of the audit committee through the year. This ensures that every aspect of the audit committee responsibility is covered at some meeting or the other.
Then the check: if you aggregate the agenda for all the meetings in a year, all the responsibilities of the audit committee are adequately covered by a discussion at audit committee meetings. This comprehensiveness check ensures that we have a competent process to discharge the responsibilities of the audit committee. This also ensures due diligence.
Note the last three words. An agenda built from the statutory responsibilities, rather than from whatever arises, is itself the evidence that the committee discharged them — which is precisely what a director must be able to show if diligence is ever questioned.
At and after the meeting
At the Audit Committee meeting, having thus prepared very thoroughly, the task is easy. Yet as the chairperson, there is that important task of involving other members of the audit committee and ensuring that the views expressed by all are taken on board and properly dealt with.
The final part is the tracking of agreed action points through periodic checks and follow ups.
The chairperson's own preparation creates a risk the passage acknowledges: a chairperson who knows the issues can dominate the meeting. The counterweight is the explicit duty to draw in the other members.
The annual cycle of audit committee chairing
- List every audit committee responsibility under company law and the listing regulations.
- Allocate them across 4 to 6 meetings.
- Three to four weeks before each meeting, hold the CFO, internal auditor and statutory auditor meetings.
- Run the meeting so that all members' views are taken on board.
- Track agreed action points to closure before the next meeting.
- At year end, aggregate the agendas and confirm nothing was missed.
Common mistakes
- Preparing for the audit committee from the papers alone, a few days before.
- Meeting the statutory auditors without the CFO, or the CFO without the auditors.
- Building each agenda from what arose rather than from the annual allocation.
- Closing a meeting without owners and dates for the action points.