CORPORATE GOVERNANCE AUDIT

GROUP 6

Anjali Moolrajani Jeetu Gambani Ujwal Poojary Anvi Shah

PG-10-66 PG-10-73 PG-10-99 PG-10-107

Institute of Internal Auditors definition: "The Audit committee refers to the governance body that is charged with oversight of the organizations 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).

"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. The Audit Committee typically assists the Board with the oversight of (a) the integrity of the entity's financial statements, (b) the entity's compliance with legal and regulatory requirements, (c) the independent auditors' qualifications and independence, (d) the performance of the entity's internal audit function and that of the independent auditors and (e) compensation of company executives (in absence of a remuneration committee) "Internal Control Standards for the Public Sector

In the USA, a qualifying audit committee is required for listed publicly traded companies. To qualify, the committee must be composed of independent outside directors with at least one qualifying as a financial expert. European Union, 8th Directive on company law Each public-interest entity shall have an audit committee. The Member State shall determine whether audit committees are to be composed of nonexecutive members of the administrative body and/or members of the supervisory body of the audited entity and/or members appointed by the general meeting of shareholders of the audited entity. At least one member of the audit committee shall be independent and shall have competence in accounting and/or auditing.

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.

Audit Committee Qualified and Independent Audit Committee A qualified and independent audit committee shall be set up, giving the terms of reference subject to the following: The audit committee shall have minimum three directors as members. Twothirds of the members of audit committee shall be independent directors. All members of audit committee shall be financially literate and at least one member shall have accounting or related financial management expertise. The Chairman of the Audit Committee shall be an independent director.

Audit Committee The Chairman of the Audit Committee shall be present at Annual General Meeting to answer shareholder queries. The audit committee may invite such of the executives, as it considers appropriate (and particularly the head of the finance function) to be present at the meetings of the committee, but on occasions it may also meet without the presence of any executives of the company. The finance director, head of internal audit and a representative of the statutory auditor may be present as invitees for the meetings of the audit committee. The Company Secretary shall act as the secretary to the committee.

The Audit Committee meets at least twice annually, but more often if desired or necessary, in order to discharge its responsibilities. All meetings may be held by telephone conference call. Unless otherwise authorized by the Board, the Audit Committee will have no power to act on behalf of the Board, but will present its recommendations to the Board for action. The members of the Audit Committee will be persons serving on the organizations board who have no existing financial, family or other personal ties to management of the organization. No staff members of the organization will be eligible to serve on the Audit Committee.

Member qualifications include;

1. A clear understanding of the role of Organization and its services. 2. Financial literacy/expertise (at a minimum, the ability to read and understand financial statements). 3. Courage to ask probing questions and to follow up for answers. 4. Ability to see the big picture. 5. A commitment to safeguard the organization and its assets. 6. A commitment to the staff (employees and volunteers) of the organization. 7. A commitment that the organization will report fairly, accurately, and regularly on its activities and condition. 8. Willingness to do the right thing, not just do things right.

1. Selecting the audit firm to conduct an independent audit of the organizations financial statements. 2. Reviewing and approving the audit scope and fees. 3. Reviewing and approving any proposed involvement of the audit firm in activities other than the annual audit. 4. Ensuring a direct line of communications with the organizations auditor. 5. Providing oversight of managements performance with respect to required and recommended financial responsibilities and disclosure. 6. Consider and review, with management and the auditors, the adequacy of the organization's risk management methodology and internal controls, including computerized information system controls and security.

7. Providing oversight of the organizations conflict of interest policy and keeping the board apprised of any changes required in the policy or its implementation. 8. Reviewing the adequacy of financial reports provided by the board and making recommendations for their improvement. 9. Reviewing and addressing the management letter and auditors comments. 10. Review any serious difficulties or disputes with management encountered during the course of the audits. 11. Review other matters related to the conduct of the audits that are to be communicated to the Committee under generally accepted auditing standards.

Best Practices for the Audit Committee

1. An illustrative list of communication practices
The Audit Committee should always make the external auditor aware of any issues which keep them awake at night. Likewise, the external auditor should inform the audit committee of any concerns they have.

2. Regular meetings The chairperson of the audit committee must be available to the external auditor on a regular basis.
3. Interaction with the audit firm It is important to the success of the audit committee's relationship with the external auditor that the chairperson be consulted with respect to the senior audit team members assigned to the corporation. The chairperson should get to know the lead audit partner and his or her senior team members. 4. Determination and disclosure of audit fees Clause 49 II (D) empowers the audit committee to recommend to the board the audit fees to be paid to the statutory auditors and approve payment to statutory auditors for any other services rendered by them.

5. Statement of corporate governance practices The revised clause 49 of the listing agreement with stock exchanges in its Annexure VI suggests that the following be included in the Report on Corporate Governance in the Annual Report of the companies with reference to the audit committee (A separate report by the Audit Committee is not required): Brief description of terms of reference Composition, name of members and the chairperson Meetings and attendance during the year 6. Evaluation of the external auditor

An important responsibility of the audit committee is to evaluate the external auditor's performance. Clause 49 empowers the audit committee to recommend to the board, the appointment, re-appointment and, if required, the replacement or removal of the statutory auditor and the fixation of audit fees and approval of payment to statutory auditors for any other services rendered by the statutory auditors.