SAMPLE FORMAT OF TERMS OF
REFERENCE FOR AUDIT COMMITTEE
TERMS OF REFERENCE FOR AUDIT
1.1 Unless the context
otherwise requires, capitalized terms have the following meaning:
means the Board of Directors of the Company.
Financial Officer” means the chief financial officer of the Company.
means the Audit Committee.
means ______ Limited.
Secretary” means the Company Secretary of the Company.
mean the Director(s) of the Company.
means the Company and its subsidiaries from time to time.
Rules” means the Rules Governing the Listing of Securities on The Stock
Exchange of BSE NSE.
means heads of divisions, departments or other operating units within the
Group, and directors of subsidiaries.
Constitution 2.1 The Committee was formed pursuant to the resolution passed in the
meeting of Board of Directors of the Company held on ________(date) and was
named as “Audit Committee”.
3.1. The Committee shall assist the Board in the
effective discharge of its responsibilities for corporate governance, financial
reporting and corporate control. In the discharge of its functions, the
Committee shall exercise the powers and responsibilities vested on it under the
Companies Act, 1956, or any re-enactment thereof and the relevant clauses of
the Listing Agreement with Stock Exchanges. The Board will continue to have
the overall responsibility in respect of all such matters.
4.1. The audit committee shall have a minimum three
directors as members. Two-thirds of the members of audit committee shall be
4.2. All members of audit committee shall be financially
literate and at least one member shall have accounting or related financial
4.3. The Chairman of the Audit Committee shall be an
4.4. The Chairman of the Audit Committee shall be
present at Annual General Meeting to answer shareholder queries;
4.5. 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
4.6. The Company Secretary shall act as the secretary
to the committee.
5. Meetings of Committee
5.1. Frequency of the Meeting: Meetings of the
Committee must be held at least four times a year at appropriate times in the
reporting and audit cycle. Not more than four months shall elapse between two meetings. The Committee may have additional meetings
at such additional times as may be required or at the request of any member of
the Committee or the external or internal auditor if they consider it necessary.
5.2 Notice and Agenda of Meetings: The Notice
of a meeting of the Committee shall be given to each member of the Committee
and to any other person required to attend no later than five working days
before the date of the meeting. The notice shall state the venue, time and date
of the meeting and details of any arrangements for participating in the meeting
and shall include or be accompanied by an agenda of items to be discussed at
the meeting. Supporting papers shall be
sent to members of the Committee and to other attendees as appropriate at the
same time as the notice of meeting. The Chairman of the Committee shall plan
the agenda of the meeting in co-ordination with the secretary of the committee.
5.3 Quorum of the Meeting: A quorum for
meetings of the Committee shall be either two members or one third of the
members of the audit committee whichever is greater, but there should be a
minimum of two independent members present.
A duly convened meeting of the Committee at which the quorum is present
shall be competent to exercise all or any of the authorities, powers and discretions
vested in or exercisable by the Committee.
5.4 Resolution of Meetings and Voting rights: Resolutions
of the Committee shall be passed by a majority of votes which can also be
passed by way of unanimous written resolutions. Each member of the Committee
shall have one vote which may be cast on matters considered at the
meeting. Votes can only be cast by
members attending a meeting of the Committee. If a matter that is considered by
the Committee is one where a member of the Committee, either directly or
indirectly has a personal interest, that member shall not be permitted to vote
with regards to that matter. Save where he has a personal interest, the
chairman of the Committee will have a casting vote.
5.5 Minutes of Meetings: The Committee Secretary
shall minute the proceedings and resolutions of all meetings of the Committee,
including recording the names of those present and in attendance and any
interests of members as disclosed by them. The Committee Secretary shall
circulate draft minutes of each meeting of the Committee to all members of the
Committee promptly following the meeting. After receiving the comments, if any
on the draft minutes, with the consultation of the Chairman of the Committee,
the final version of the minutes shall be circulated to all members of the
Board unless it would be inappropriate to do so. The secretary of the Committee
should keep full minutes of all Committee meetings in the loose leaf minutes
binder of the Committee. Such minutes shall be open for directors’ inspection. All
minutes and any relevant annexes must be sent to the external auditor or audit
5.6 Mode of Holding the Meeting: Meetings can
be held in person, or through other electronic means of communication, e.g. by
telephone or by video conference, etc.
6. Annual General Meeting
6.1 The chairman of the Audit Committee shall attend
the annual general meetings of the company to provide any clarification on
matters relating to audit.
7. Remuneration of the
7.1. The members of the Audit Committee receive a
suitable remuneration which is determined by the Annual General Meeting.
8. Powers of the Committee
The committee will have the following powers:
8.1 Investigating activity(ies) within the scope of it's terms of
8.2 Seeking information from employee(s).
8.3 Obtaining professional
/legal advice from 3rd party consultants etc.
8.4 May invite outsiders to attend committee meetings with relevant
expertise, if necessary.
9. Role of Audit Committee
The role of the audit committee shall include the
9.1 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.
9.2 Recommending to the Board, the appointment,
re-appointment and, if required, the replacement or removal of the statutory
auditor and the fixation of audit fees.
9.3 Approval of payment to statutory auditors for any
other services rendered by the statutory auditors.
9.4 Reviewing, with the management, the annual
financial statements before submission to the board for approval, with
particular reference to:
a. Matters required to be included in the Director’s
Responsibility Statement to be included in the Board’s report in terms of
clause (2AA) of section 217 of the Companies Act, 1956
b. Changes, if any, in accounting policies and
practices and reasons for the same
c. Major accounting entries involving estimates based
on the exercise of judgment by management
d. Significant adjustments made in the financial
statements arising out of audit findings
e. Compliance with listing and other legal
requirements relating to financial statements
f. Disclosure of any related party transactions
g. Qualifications in the draft audit report.
9.5. Reviewing, with the management, the quarterly
financial statements before submission to the board for approval
9.5A. Reviewing, with the management, the statement of
uses / application of funds raised through an issue (public issue, rights
issue, preferential issue, etc.), the statement of funds utilized for purposes
other than those stated in the offer document/prospectus/notice and the report
submitted by the monitoring agency monitoring the utilisation of proceeds of a
public or rights issue, and making appropriate recommendations to the Board to
take up steps in this matter.
9.6. Reviewing, with the management, performance of
statutory and internal auditors, and adequacy of the internal control systems.
9.7. Reviewing the adequacy of internal audit function,
if any, including the structure of the internal audit department, staffing and
seniority of the official heading the department, reporting structure coverage
and frequency of internal audit.
9.8. Discussion with internal auditors any significant
findings and follow up there on.
9.9. Reviewing the findings of any internal investigations
by the internal auditors into matters where there is suspected fraud or
irregularity or a failure of internal control systems of a material nature and
reporting the matter to the board.
9.10. Discussion with statutory auditors before the audit
commences, about the nature and scope of audit as well as post-audit discussion
to ascertain any area of concern.
9.11. To look into the reasons for substantial defaults
in the payment to the depositors, debenture holders, shareholders (in case of
non payment of declared dividends) and creditors.
9.12. To review the functioning of the Whistle Blower
mechanism, in case the same is existing.
9.12A. ApprovalofappointmentofCFO(i.e.,thewhole-timeFinanceDirectororany other person heading the
finance function or discharging that function) after assessing the
qualifications, experience & background, etc. of the candidate.
9.13. Carrying out any other function as is mentioned
in the terms of reference of the Audit Committee.
10. Review of information by
The Audit Committee shall mandatorily review the
10.1. Management discussion and analysis of financial
condition and results of operations;
10.2. Statement of significant related party
transactions (as defined by the audit committee), submitted by management;
10.3. Management letters / letters of internal control
weaknesses issued by the statutory auditors;
10.4. Internal audit reports relating to internal
control weaknesses; and
10.5. The appointment, removal and terms of
remuneration of the Chief internal auditor shall be subject to review by the
NOTE: THE ABOVE FORMAT IS MAINLY FOR A LISTED COMPANY;
PLEASE INCORPORATE NECESSARY MODIFICATIONS FOR UNLISTED COMPANIES.