Role of Audit Committees in Public Limited Companies

Introduction
An Audit Committee is a key element of the corporate governance framework in a Public Limited Company. It acts as a vital oversight body, ensuring transparency, accountability, and integrity in financial reporting and internal control systems. Established under the Companies Act, 2013 and further regulated by the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 for listed companies, the Audit Committee plays a central role in safeguarding the interests of shareholders and maintaining investor confidence. This article explains the structure, functions, and significance of Audit Committees in Public Limited Companies.

Legal Framework and Composition
Section 177 of the Companies Act, 2013 mandates the constitution of an Audit Committee in every listed Public Limited Company and in certain other public companies that meet specific thresholds. The committee must consist of at least three directors, with the majority being independent directors. All members should be financially literate, and at least one member must have accounting or related financial expertise.

Oversight of Financial Reporting
One of the core functions of the Audit Committee is to monitor and review the company’s financial reporting process. It examines quarterly and annual financial statements before submission to the Board. The committee ensures that the financial disclosures are accurate, complete, and prepared in accordance with applicable accounting standards and regulations.

Review of Internal Controls
The Audit Committee evaluates the adequacy and effectiveness of the internal control systems implemented by the company. It reviews the framework for risk management, internal audit processes, and controls related to financial reporting, operational procedures, and compliance. Recommendations are made to improve controls and mitigate risks.

Interaction with Statutory and Internal Auditors
The committee plays a key role in overseeing both internal and statutory audit functions. It reviews audit plans, scope of work, audit reports, and management responses. The Audit Committee also assesses the performance of auditors and ensures independence and objectivity in their findings. It has the authority to discuss significant audit issues directly with the auditors.

Approval of Related Party Transactions
Audit Committees are responsible for reviewing and approving related party transactions to ensure that they are conducted in a fair and transparent manner. This oversight prevents conflicts of interest and protects the interests of minority shareholders. All related party transactions must be reported and disclosed in accordance with regulatory requirements.

Vigil Mechanism and Whistleblower Policy
The Audit Committee is tasked with establishing and monitoring a vigil mechanism or whistleblower policy for directors and employees to report unethical practices, fraud, or violation of company policies. It ensures confidentiality, non-retaliation, and fair handling of complaints, thereby promoting a culture of accountability and ethical behavior.

Recommendation on Auditor Appointment and Remuneration
The committee recommends the appointment, reappointment, removal, and remuneration of statutory auditors. It also approves the terms of audit engagement and evaluates auditor independence. This role helps maintain transparency and ensures that auditors function without undue influence from the management.

Compliance and Regulatory Oversight
The Audit Committee ensures that the company complies with applicable laws, rules, and regulations. It monitors compliance with listing agreements, stock exchange norms, tax laws, and corporate governance codes. Any non-compliance or irregularity identified is reported to the Board with corrective suggestions.

Conclusion
The Audit Committee plays a foundational role in the governance structure of a Public Limited Company. By independently overseeing financial reporting, internal controls, audit processes, and compliance frameworks, it strengthens investor trust and enhances corporate transparency. Its responsibilities ensure that the company remains accountable to its stakeholders, mitigates financial and operational risks, and adheres to ethical standards in all aspects of business conduct.

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