Question

Prepare your report for the Board, covering the following matters:
a) Discuss the directors’ concerns about the amount of resources being allocated to the monitoring process.
b) Outline the objectives of an audit committee.
c) Recommend terms of reference for the committee.
d) Identify who should constitute the committee.
e) Discuss the interaction between the audit committee and both the internal and external audit functions.

Answer 1

a) Discuss the directors’ concerns about the amount of resources being allocated to the monitoring process.

Monitoring the amount of resources being allocated to the monitoring process. Reviewing, with the management, the statement of uses / application of funds raised through an issue (public issue, right issue, preferential issue, etc.), the statement of funds utilized for purposes other than those stated in the offer document/Draft Prospectus/ Prospectus /notice and the report submitted by the monitoring agency monitoring the utilization of proceeds of a public or rights issue, and making appropriate recommendations to the Board to take up steps in this matter.

b) Outline the objectives of an audit committee.

Objective:

The Audit Committee assists the Board in its responsibility for overseeing the quality and integrity of the accounting, auditing and reporting practices of the Company and its compliance with the legal and regulatory requirements. The Committee's purpose is to oversee the accounting and financial reporting process of the Company, the audits of the Company's financial statements, the appointment, independence, performance and remuneration of the statutory auditors including the Cost auditors, the performance of internal auditors.

c) Recommend terms of reference for the committee.

Every Audit Committee shall act in accordance with the terms of reference specified in writing by the Board which shall, inter alia, include,—

(i) the recommendation for appointment, remuneration and terms of appointment of        

     auditors of the company;

(ii) review and monitor the auditor’s independence and performance, and      

     effectiveness of audit process;

(iii) examination of the financial statement and the auditors’ report thereon;

(iv) approval or any subsequent modification of transactions of the company with

      related parties;

(v) scrutiny of inter-corporate loans and investments;

(vi) valuation of undertakings or assets of the company, wherever it is necessary;

(vii) evaluation of internal financial controls and risk management systems;

(viii) monitoring the end use of funds raised through public offers and related

        matters.

.

d) Identify who should constitute the committee

      The Board of directors of every listed companies and

     The following classes of companies

       as may be prescribed, shall constitute an Audit Committee.

e) Discuss the interaction between the audit committee and both the internal and external audit functions.

Enhance the internal audit function. An organizational structure that has the internal audit team reporting directly to the audit committee contributes to the overall integrity of the internal audit function. Under this structure, the internal audit team can serve as the audit committee’s “eyes and ears” regarding the organization’s ability to meet its financial and compliance responsibilities and ensure that the organization adjusts practices and internal controls as needed.

Oversee the organization’s external audit. An audit committee meets with external auditors to monitor their services and activities to ensure that independence is maintained between the external auditor and the organization’s management team. An audit committee also meets with external auditors to discuss their independent observations on management’s ability to maintain strong internal controls, appropriate financial reporting and sound business practices.