ROLE OF AUDIT COMMITTEE ON CORPORATE GOVERNANCE

Author: DR.R.SRINIVASAN

INTRODUCTION

The concept of CG is no longer a fashion statement as it has been embedded in the statutes of many countries including India. The factors that gave rise to CG are:

Business corporations are no longer small in size.

Multinational as their boundaries are not restricted

Resources tapped from large number of investors across the world.

Companies are diverse, varied commanding large resources, both financial and human.

Corporations Answerable not only to Government, suppliers’ lenders or their shareholders but also to the public at large (Social Responsibility)

 Cadbury Committee, UK defined “the system by which companies are directed and controlled”.

The major objectives of corporate governance are:

To fulfill the long term aims for which the company was incorporated

To ensure shareholder protection

To ensure employee protection

To ensure that responsibilities to the society and environment are carried out

To ensure compliance with laws and regulations

To ensure correct presentation of finances of the company

 Why Corporate Governance?

India was previously a closed system of capital market.But today it is transparent and inter connected globally.

Supply of debt capital was almost from the public sector

Significant share capital held by domestic FIs who played a passive role

Consequently promoters with minority shareholding have been able to influence governance structure.

Major economic reforms from 1991

Establishment of SEBI

Increase in amount of foreign investment

Indian shares were sold to foreign institutional investors

Indian companies began to face competition from foreign firms.

Lowering of trade barriers

Demand for more disclosures transparency and accountability and performance standards from investors and lenders.

Problem of dominant shareholders and limited protection for minority shareholders.

Issues of insider trading

 The role of the audit committee shall include the following:

            Failure to notice 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. 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. Approval of payment to statutory auditors for any other services rendered by the statutory auditors. Reviewing, with the management, the annual financial statements before submission to the board for approval, with particular reference to:

 Matters required being 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.The term “related party transactions” shall have the same meaning as contained in the     Accounting Standard 18, Related Party Transactions, issued by the Institute of Chartered Accountants of India. If the company has set up an audit committee pursuant to provision of the Companies Act, the said audit committee shall have such additional functions/ features as is contained in this clause.

The Audit Committee should have discussions with the auditors periodically about internal control systems, the scope of audit including the observations of the auditors and review the half-yearly and annual financial statements before submission to the Board and also ensure compliance of internal control systems. The Audit Committee shall have authority to investigate into any matter in relation to the items specified in this section or referred to it by the Board and for this purpose, shall have full access to information contained in the records of the company and external professional advice, if necessary

Conclusion:

From the above discussions made, it is felt that, corporate governance is about commitment to values and about ethical business conduct.  This includes company in culture, policies, timely and accurate disclosure of financial information.  Hence the corporate sector needs resource persons to act as independent director on who shoulder lies the responsibility to take the company in the right path.  Independence is a quality that a person nurtures from the beginning of   his life and as it is very difficult to acquire it by training.  Moreover the compensation package is a pittance to the independent directors considering the draconic attendant responsibilities and liabilities under various statues.  Needless to say that good corporate governance starts from the top   to percolate to the bottom.  The best example is Mr. N.R. Narayana Murthy, Former Chairman and Chief Mentor, Infosys Technology Limited. In a nutshell, The Auditors should act as the monitor to the whole system to ensure adherence to ethical value, which is the backbone of the corporate governance.

 

                                                                                                             

Article Source: http://www.articlesbase.com/regulatory-compliance-articles/role-of-audit-committee-on-corporate-governance-1286165.html

About the Author

Dr.R.SRINIVASAN is a Post graduate in commerce and Management. He received his doctoral degree from Alagappa University in 1997. He currently teaches financial management and Research Methodology Subjects in Post graduate and Research Department of Corporate Secretaryship at Bharathidasan Government College for Women (Autonomous), Pondicherry University, Puducherry. Before Joining BGCW, he was teaching in SNR College, Coimbatore, Sindhi college, Chennai& T.S.Narayanasamy College, Chennai for eight years. He was with the industry for a short term at Salzar Electronics Pvt. Ltd, Coimbatore. He has about 20 years of teaching experience and having research experience of 15 years. His interests are in Accounting and finance, Capital Market, Quantitative Methods. He underwent the Faculty Development Programme at Indian Institute of Management Ahmedabad during 2000-01. He has presented 20 papers in national and international conferences and has published twenty papers in the areas of Finance and Human resource Management in National Journals. Co-authored a book titled, ‘Investors Protection, published by Raj Publications, New Delhi He has delivered lectures in contemporary finance topics at Pondicherry University. He is involved in consultancy projects for Godrej Saralee, Chennai in the areas of Statistical Applications. He has supervised a number of research projects in the area of corporate finance and Human Resource Management. He is the Board of examiner in corporate Secretaryship and Management for the past two decades.
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