Company Law 2 Assignment

Q1)Audit Committee is one of the main pillars of the corporate governance mechanism in any
company. Explain.
(20 Points)
Ans) The audit committee was created with the intention of increasing trust in the reliability of
an organization's internal control, corporate reporting, and financial reporting processes and
procedures. As a result, one of the primary foundations of the corporate governance structure
in Indian public firms is the Audit Committee.
The major function of an organization's audit committee is to oversee the financial reporting
process, the audit process, the internal control system of the organisation, and legal and
regulatory compliance.
To comprehend the potential impact on financial statements, the audit committee might
anticipate reviewing important accounting and reporting concerns as well as current
professional and regulatory declarations. To determine if reports are thorough and reliable, it is
vital to comprehend how management creates internal interim financial information.
The committee discusses the audit findings with management and external auditors, taking into
account any information that must be shared with the committee in accordance with widely
recognised auditing standards. The committee is responsible for overseeing controls over
financial reporting, information technology security, and operational issues.
The selection, salary, and supervision of the auditor's activities are all under the audit
committee's purview. As a result, CPAs directly answer to the audit committee rather than
management.
In order to discuss topics that the committee or auditors consider should be handled
confidentially, audit committees meet separately with external auditors. The committee also
handles the coordination of the audit effort with internal audit employees and assesses
suggested audit approaches. When an internal audit function is present, the committee will
review and approve the audit plan, examine the staffing and organisational structure of the
function, and have periodic meetings with management and internal auditors to discuss any
potential problems.
It is necessary for audit committees to have control over both internal and external auditors.
Investors will start to trust the financial reports that corporations release as a result of these
safeguards.
Board members must be aware and fluent in the language of finance and accounting, even
though boards should look for members who can offer a variety of competent perspectives
based on their experience and skills. The audit committee has a particularly pressing need for
this.
The Sarbanes-Oxley Act of 2002's requirements for audit committees were implemented by the
Securities and Exchange Commission (SEC) in a rule that became effective in April 2003. This
rule instructs the national securities exchanges and national securities associations to forbid the
listing of any security of an issuer on their respective exchanges or associations. The
prerequisites concern:
a)Members of the audit committee must be independent, and it is their job to choose and
supervise the issuer's independent accountant.
b)how complaints about the issuer's accounting methods are handled;
c)the audit committee's power to consult with consultants;
d)funding for any outside advisers that the audit committee hires, including the independent
auditor.
The Securities Exchange Act of 1934's Section 10A(m)(1), as amended by Section 301 of the
Sarbanes-Oxley Act, is implemented by the rule.Section 301 of the Sarbanes-Oxley Act of 2002,
which was added to Section 10A(m)(1) of the Securities Exchange Act of 1934, is implemented
by the rule. According to the regulation, listed issuers must adhere to the revised listing
requirements by the earliest of their first annual shareholders meeting after January 15, 2004,
or October 31, 2004, whichever comes first. Small company issuers and foreign private issuers
will have more time to comply.
The SEC decided to publish a concept release in July 2015 to solicit feedback from the public on
audit committee transparency requirements, with a particular emphasis on the committee's
control over independent auditors. The SEC is interested in learning more about the
relationship between the audit committee and auditors and whether there is room for
improvement in the information given to investors.
The concept release sought feedback on audit committee disclosures as well as whether SEC
disclosure standards should be improved to give more context to the data the audit committee
used and the variables it took into account when supervising the independent auditor. This
involves, among other things, things like the selection or retention procedure for the auditor
and the auditor's and certain other members of the engagement team's qualifications.
All members of the audit committee ought to be impartial. In order to prevent insiders from
interfering with the committee's oversight and work as well as those of the external auditors,
independence is required. Businesses in specialised industries should be subject to the same
transparency and organisational standards for their audit committees as those in more
mainstream industries. This is due to the fact that businesses operating in specialised niches
face the same conflicts and risks of accounting fraud as more conventional businesses, and as a
result, they must adhere to the same standards for independence and the qualifications of
financial specialists. If this is not possible, they should notify investors of these flaws so that
they are aware of the potential for management influence on the audit committee.
To aid in audits and train audit employees to spot instances of deliberate accounting errors and
irregularities, audit firms should use auditors with backgrounds in forensic audit. Accounting or
earnings management problems should be easy for auditors to spot and so discourage.
The audit committee was created with the intention of increasing trust in the reliability of an
organization's internal control, corporate reporting, and financial reporting processes and
procedures. By its oversight and monitoring responsibilities, the Audit Committee offers the
board a "independent" reassurance. The effectiveness of internal and external audit functions,
the sturdiness of internal audit and internal control systems, the effectiveness of anti-fraud,
ethics and compliance systems, and a review of the whistleblower mechanism are just a few of
the many duties the boards entrust the Audit Committee with. The oversight of the company's
risk.
As a result, one of the primary foundations of the corporate governance structure in Indian
public firms is the Audit Committee. The audit committees of boards will be essential in guiding
corporations through the challenging business environment of today. One of the crucial actions
every Audit Committee should do is to broaden its scope. Another is to specify who is in charge
of monitoring the company's risk radar. A third is to take a step back and reevaluate its own
performance management policies and procedures may fall under the purview of the audit
committee.

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Q1)Audit Committee is one of the main pillars of the corporate governance mechanism in any

b)how complaints about the issuer's accounting methods are handled;

c)the audit committee's power to consult with consultants;

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