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Audit Committee and Corporate Governance-

Updated from M23 Attempt onwards
Topics Covered:

Sr.no Particulars
Part I- Basic points
1 The legal framework (including applicability of SEBI LODR, 2015 as amended from time to time )
2 Issues addressed in the LODR regulations regarding corporate governance
Part II- audit committee regulations as per SEBI LODR
1 Qualified and independent audit committee [regulation 18(1)]
2 Meeting of audit committee [regulation 18(2)]
3 Powers of audit committee [regulation 18(2)]
4 Role of audit committee [part c(a) of schedule ii]
5 Audit committee shall mandatorily review the following information as per part c(b) of schedule
Part III- Audit committee u/s 177 of companies act, 2013
1 Audit committee under section 177 of the companies act, 2013
2 Functions of the audit committee as per section 177
Part IV- Auditor’s role
1 General responsibilities
2 Verification regarding composition of board [regulation 17 and 17a]
3 Verification of transfer or transmission or transposition of securities [regulation 40]
4 Limited review of the audit of all the entities whose accounts are to be consolidated with the listed
entity
Part V- Disclosures about corporate governance under schedule v of lodr regulations
1 Remuneration of directors [part c of schedule v] of lodr
Approval of remuneration of directors [regulation 17(6)]
2 Code of conduct [regulations 17(5), 26(3), 46(2) and part d of schedule v]
3 Vigil mechanism [regulations 22, 46 and part c of schedule v]
4 Subsidiary of listed entity [regulations 16(c), 24 and 46 and part c of schedule v]
5 Disclosures - management discussion and analysis [schedule v]
6 Related party disclosure [regulations 23, 27, 46 and schedule v]
7 Disclosure of accounting treatment [schedule v]
8 Disclosures in relation to the sexual harassment of women at workplace (prevention, prohibition and
redressal) act, 2013 (schedule v).
Part VI- Various committees as mentioned under LODR regulations apart from audit committee
1 Nomination and remuneration committee [regulation 19 and part d of schedule ii]
2 Stakeholders relationship committee [regulation 20 and part d of schedule ii]
3 Risk management committee [regulation 21]
Part VII- Various disclosure requirements
1 Statement of deviation(s) or variation(s) [regulation 32 and part c of schedule ii]
2 Information to shareholders [regulation 36]
4 Disclosure and transparency [regulation 4]
5 Disclosure of events or information [regulation 30(1), (5) (8)]
Part VIII- Various reports and compliance certificate on audit committee and corporate governance
1 Compliance certificate [part b of schedule ii]
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2 Report on corporate governance [regulation 27 and schedule ii]

3 Auditors’ certificate
Part IX- Other points covered in this topic
1 Obligations with respect to employees including senior management, key managerial persons,
directors and promoters [regulations 17(2) to 17(4), 17a, 25(5), 25(6), 26(1),26 (2), 26(4) to 26(6)]
2 Meeting of board of directors- section 173 of companies act, 2013 vs SEBI LODR
3 Secretarial audit of listed entity and its material unlisted subsidiaries [regulation 24a]

Detailed Content:
Sr.no Particulars
Part I- Basic points
1 The legal framework
(including applicability of LODR regulations)
 Corporate governance is the system by which companies are directed and controlled by the management
in the best interest of the shareholders and others ensuring greater transparency and better and timely
financial reporting.
 This topic is broadly based upon discussion of the following
a) Audit Committee provisions as per Securities and Exchange Board of India (Listing Obligations and
Disclosure Requirements) Regulations, 2015 (“LODR Regulations”)
b) Audit Committee provisions as per Section 177 of Companies Act, 2013
c) Corporate Governance (requirements for ensuring transparency in an entity) disclosures as given
under LODR regulations.
 The LODR Regulations are divided into two parts –
a) the substantive provisions are incorporated in the main body and
b) the procedural requirements are incorporated in the form of schedules.
 Applicability of LODR regulations
shall apply to the listed entity who has listed any of the following designated securities on ‘recognised
stock exchange(s)’ (RSE).

a) specified securities listed on main board or SME Exchange or institutional trading platform or
Innovators Growth platform
b) non-convertible securities
c) Indian depository receipts;
d) securitised debt instruments;
e) security receipts
f) units issued by mutual funds
g) any other securities as may be specified by the Board
 RSE: means stock exchanged recognised by Central Government under Section 4 of SECURITIES
CONTRACTS (REGULATION) ACT, 1956
 SME exchange: An SME exchange is a dedicated exchange or a trading platform for Small and Medium
Enterprises. In India, an SME exchange functions within a recognized stock exchange or the main exchange
such as the BSE Limited and the National Stock Exchange of India.
 Specified Securities: ‘equity shares’ and ‘convertible securities’ as defined under SEBI (ICDR) Regulations,
2009
 Clarification: There are some provisions which become applicable based upon market capitalisation or
outstanding value of debt securities. It shall continue to apply to such entities even if they fall below such
thresholds.
2 Issues addressed in the LODR regulations regarding corporate governance
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BAD3RES Compliance
a) Board Responsibilities and key functions of the Board, it’s composition, compensation and disclosures
b) Audit Committee Composition, meetings, powers, role and responsibilities of the Audit Committee
which is an important pillar of corporate governance
c) Disclosures on important issues regarding related party transactions, accounting treatment, etc
d) Disclosures in management discussion and analysis
e) Disclosures to shareholders
f) Risk Management Procedures related to risk management;
g) Ethical codeCode of Conduct and vigil mechanism
h) Subsidiary CompanyManagement of subsidiary companies
i) Compliance Certificate by the CEO and CFO
j) Compliance Certificate from either the auditors or practising company secretaries regarding compliance of
conditions on corporate governance
PART II- AUDIT COMMITTEE REGULATIONS AS PER SEBI LODR
1 Qualified and independent audit committee [regulation 18(1)]
a) Refer chart 1 from Annexure 1 for basic composition of Audit Committee (given at the end)
b) Financial Literate: All members financially literate (ability to read and understand basic financial
statements)
c) Accounting Expertise: At least one member shall have accounting or related financial management
expertise (experience, qualification, executive with FS responsibilities)
d) Eligibility of Chairperson: Chairperson of the Audit Committee Independent Director
e) Attendance of Chairperson he shall be present at Annual General Meeting to answer shareholder
queries.
f) Secretary of the Committee The Company Secretary shall act as the secretary to the committee
g) Other persons attending meeting Audit Committee may invite following persons at the meeting:
a) finance director or the head of the finance function
b) head of internal audit
c) representative of the statutory auditor
d) any other such executives to be present at the meetings of the committee
2 Meeting of audit committee [regulation 18(2)]
a) Minimum meets Shall meet at-least 4 times in a year
b) Max. Gap between two meetings not more than 120 days shall lapse between two meetings.
c) Quorum (minimum attendance):
a) Either 2 members
or
b) 1/3rd of the members of the Audit Committee
whichever is greater
d) Compulsory presence of Independent Directors minimum of 2 independent directors must be present
3 Powers of audit committee [regulation 18(2)]
Code Word: Advise Informers to Investigate Outsiders
a) To obtain outside legal or other professional ADVICE
b) To seek INFORMATION from any employee
c) To INVESTIGATE any activity within its terms of reference
d) To secure attendance of OUTSIDERS with relevant expertise, if it considers necessary.
Note: powers mentioned above are only illustrative and not exhaustive.
Audit Check It is mandatory for the above-mentioned four powers to be given to the Audit Committee.
4 Role of audit committee [part c(a) of schedule ii]
Refer Annexure 2 at the end of notes
5 Audit committee shall mandatorily review the following information {Part c(b) of schedule
II}
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Code Word: Weak AIM Deviates

a) Statement of DEVIATIONS in using the funds raised(Regulation 32):
b) (A) APPOINTMENT, removal and terms of remuneration of the Chief Internal Auditor
c) (I) INTERNAL AUDIT REPORTS relating to internal control weaknesses
d) (M) MANAGEMENT DISCUSSION AND ANALYSIS of financial condition and results of operations
e) Management letters / letters of internal control WEAKNESSES under SA 265 issued by the statutory
auditors
Audit check:
-Ascertain from the minutes of meeting whether Audit Committee has reviewed this information,
-Whether Management Discussion and Analysis report forms part of the annual report to the share holders,
-Whether information reviewed by the Audit Committee is consistent with the reporting in the financial
statements
Part III- Audit committee u/s 177 of companies act, 2013
1 Audit committee under section 177 of the companies act, 2013
Refer Annexure 3 at the end of the notes.
2 Functions of the audit committee as per section 177 and other requirements
Refer Annexure 4 at the end of the notes.
Part IV- Auditor’s role
1 General responsibilities
a) communicate frequently and openly with the Audit Committee on key accounting or auditing issues.
b) addresses any questions or concerns voiced by the Audit Committee
c) in assisting and advising the Audit Committee on improving
a) corporate governance
b) oversight of financial reporting process
c) implementation of accounting policies
d) compliance with accounting standards
e) strengthening of the internal control systems related to FS
d) certifying compliance with the requirements of corporate governance (discussed at the end of the topic)
e) should document matters, which are important to support the certificate of factual findings.
f) consider obtaining management representations
2 Verification regarding composition of board [regulation 17 and 17a]- VERY IMPORTANT FOR
EXAMS- THE ICAI MCQ BOOK CONTAINS MANY MCQS ON THIS POINT.
a) optimum combination of executive and non-executive directors
b) with at least one woman director
c) not less than 50% of the Board of Directors comprising non-executive directors.
d) Board of directors of the top 1000 listed entities (on the basis of market capitalisation, as at the end of the
immediate previous financial year) shall have at least one independent woman director.
e) non-executive director who has attained the age of seventy five years cannot be appointed or continued
unless a special resolution is passed along with explanatory statement.
f) Number of Directorships (to be followed by Directors of listed entities):
a) General Rule: Shall not be a director in more than seven listed entities**
b) For Independent Directorship: shall not serve as an independent director in more than seven
listed entities**.
Exception: IF any person is serving as MD/WTD in any listed entity** allowed to act as
independent director in not more than three listed entities
**Meaning of Listed entity for this discussion whose equity shares are listed on a stock exchange
g) Minimum directors: board of directors of the top 2000 listed entities shall comprise of not less than six
directors.
h) General meeting approval points:
 The listed entity shall ensure that approval of shareholders for appointment of a person on the Board of
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Directors [or as a manager] is taken at the next general meeting or within a time period of three months
from the date of appointment, whichever is earlier.
 appointment/reappointment of a person, including as a managing director or a whole-time director or a
manager, who was earlier rejected by the shareholders at a general meeting:
a) shall be done only with the prior approval of the shareholders and
b) notice to the shareholders for such meeting should contain a detailed explanation and justification
by the Nomination and Remuneration Committee and the Board of directors for recommending such
a person for appointment or re-appointment.
i) Number of Independent Directors required in the Board:
Situation Number of Independent Directors
in the Board
i) where the Chairperson of the Board is a non -executive director at least one-third of the Board
(should not be a promoter himself or related to any promoter or should comprise of independent
person occupying management positions at the Board level or at one directors
level below the Board)
ii) does not have a regular non-executive Chairperson at least one-half of the Board of
iii) where the Chairperson of the Board is a non -executive director the listed entity shall consist of
and a promoter himself or related to any promoter or person independent directors
occupying management positions at the Board level or at one level
below the Board
iv) listed company having outstanding SR equity shares at least half of the board of
directors comprises of independent
directors
Note: one-half or one-third should be rounded off to the next integer.
Note: Eligibility to become an Independent Director:
 Read the definition of Independent Director given in Annexure 5 (at the end of these notes).
3 Verification of transfer or transmission or transposition of securities [regulation 40]
a) Board of Directors of a listed entity shall delegate the power of transfer of securities to
a) a committee or
b) the compliance officer or
c) the registrar to an issue and/or share transfer agents
b) BOD/Delegated authority shall attend to the formalities pertaining to transfer of securities at least once in
a fortnight.
c) auditor should ascertain from the minutes book of the Board meetings whether the above has been
followed.
d) verify whether any transfer request are pending for more than a fortnight and are not attended to in
terms of this Regulation.
4 Statutory auditor should conduct-Limited review of the audit of all the entities whose accounts
are to be consolidated with the listed entity (all listed entities whose equity shares and convertible
securities are listed on a recognised stock exchange)
Part V- Disclosures about corporate governance under schedule V of LODR regulations
1 Remuneration of directors [part c of schedule v] of LODR
Disclosure requirements regarding directors’ remuneration (in annual report) are stated below
For Non-Executive Directors
a) All pecuniary relationship or transactions of the non-executive directors vis-à-vis the listed entity
shall be disclosed Annual Report.
b) Criteria of making payments to non-executive directors Annual report
For all directors
a) All elements of remuneration package of individual director
b) Details of fixed component and performance linked incentives, along with the performance criteria
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c) Service contracts, notice period, severance fees.

d) Stock option details, if any – and whether issued at a discount as well as the period over which
accrued and over which exercisable.
Approval of remuneration of directors [regulation 17(6)]
a) Manner of Fixing: All fees/compensation, if any paid to non-executive directors, including
independent directors, shall be
a) recommended by the Board of Directors and
b) shall require approval of shareholders in general meeting
(Note The requirement of obtaining prior approval of shareholders in general meeting shall
not apply to payment of sitting fees to non-executive directors, if made within the limits
prescribed under the Companies Act, 2013 for payment of sitting fees without approval of the
Central Government)
b) Stock Options? The shareholders’ resolution shall specify
-the limits for the maximum number of stock options that can be granted to non-executive
directors (excluding Independent Directors)
c) Excessive Payment to single non-executive director? IF annual remuneration payable to a single
non-executive director exceeds fifty percent of the total annual remuneration payable to all non-
executive directors then approval of shareholders by special resolution shall be obtained every year.
d) Restriction on Independent Director: Independent director shall not be entitled to any stock
option.
e) Special Resolution threshold for promoters remuneration: The fees or compensation payable to
executive directors who are promoters or members of the promoter group, shall be subject to the
approval of the shareholders by special resolution in general meeting, if-
a) Individual Threshold: the annual remuneration payable to such executive director exceeds
(i) rupees 5 crore or
(ii) 2.5 percent of the net profits of the listed entity,
whichever is higher
OR
b) Overall Threshold: where there is more than one such director, the aggregate annual
remuneration to such directors exceeds 5 percent of the net profits of the listed entity (net
profits shall be calculated as per section 198 of the Companies Act, 2013).
Auditor’s role ascertain from minutes of meeting, shareholders’ meetings, relevant agenda
papers, notices, explanatory statements whether above provisions have been complied with. Check
the accuracy of the calculation. Examine Director’s Report. Refer to the AOA of the company. May use
the services of expert (SA 620) to determine value of ESOP.
2 Code of conduct [regulations 17(5), 26(3), 46(2) and part d of schedule v]
a) Requirement: The Board shall lay down a code of conduct for all Board members and senior management
of the listed entity
b) Declaration: All Board members and senior management personnel shall affirm compliance with the code
on an annual basis. The Annual Report of the company shall contain a declaration to this effect signed by the
CEO.
c) Website Display: The code of conduct shall be posted on the website of the company
d) Independent Director’s Role: The Code of Conduct shall suitably incorporate the duties of Independent
Directors as laid down in the Companies Act, 2013.
3 Vigil mechanism [regulations 22, 46 and part c of schedule v]
a) The listed entity shall establish a vigil mechanism/ whistle blower policy for directors and employees to
report genuine concerns.
b) This mechanism should also provide for adequate safeguards against victimization of director(s) /
employee(s) or any other person who avail the mechanism.
c) It should provide for direct access to the chairperson of the Audit Committee in appropriate or exceptional
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cases.
d) The details of establishment of such mechanism shall be disclosed by the company on its website and in
the Board’s report.
4 Subsidiary of listed entity [regulations 16(c), 24 and 46 and part c of schedule v]
a) As per Regulation 16(c), “material subsidiary” shall mean a subsidiary
whose income or net worth exceeds ten percent of
the consolidated income or net worth respectively, of the listed entity and its subsidiaries in the
immediately preceding accounting year.
b) Regulation 24(1)  at least one independent director on the board of directors of the listed entity shall
be a director on the board of directors of an unlisted material subsidiary, whether incorporated in India or
not.
(For Regulation 24(1) the term “material subsidiary” shall mean a subsidiary whose income or net worth
exceeds twenty percent of the consolidated income or net worth respectively, of the listed entity and its
subsidiaries in the immediately preceding accounting year]
c) Listed Entity to form a policy for determining material subsidiary: The policy for determining ‘material’
subsidiaries shall be disclosed on the company's website and a web link thereto shall be provided in the
Annual Report
d) Review of investments of unlisted subsidiary: Audit Committee of the listed entity shall also review
the financial statements, in particular, the investments made by the unlisted subsidiary irrespective
of it being a material subsidiary or not.
e) The minutes of the Board meetings of the unlisted subsidiary shall be placed at the Board meeting of the
listed entity along with a statement of all significant transactions and arrangements entered into by the
unlisted subsidiary
(Significant transaction?  any individual transaction or arrangement that exceeds or is likely to exceed 10%
of the total revenues or total expenses or total assets or total liabilities as per immediately preceding FY)
f) Divestment?  IF listed entity intends to cease control of the material subsidiary then it shall require a
special resolution in its General Meeting (EXCEPTION where such divestment is made under a scheme of
arrangement duly approved by a Court/Tribunal, or under a resolution plan duly approved under section 31 of
the Insolvency Code)
g) Sale of Significant assets of material subsidiary Selling, disposing and leasing of assets amounting to
more than
-twenty percent of the assets of the material subsidiary on an aggregate basis during a financial year
- shall require prior approval of shareholders by way of special resolution
(EXCEPTION where such divestment is made under a scheme of arrangement duly approved by a
Court/Tribunal, or under a resolution plan duly approved under section 31 of the Insolvency Code)
Note: Where a listed entity has a listed subsidiary which is itself a holding company, the above provisions
shall apply to the listed subsidiary insofar as its subsidiaries are concerned
5 Disclosures - management discussion and analysis [schedule v]
(part of the Annual Report)
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Note: The above information presented by the management is likely to include non-financial information,
which may be outside the auditor’s area of expertise. He is only required to review the compliance with
disclosure requirements and not verify the particular facts as disclosed by the management. (SA 720)
6 Related party disclosure [regulations 23, 27, 46 and schedule v]
a) The listed entity shall submit
- a quarterly compliance report on corporate governance
- in the format as specified by the Board (SEBI) from time to time
- to the recognised stock exchange(s)
- within twenty one days from end of each quarter.
b) Contents of such Report should contain Details of all material transactions with related parties shall be
disclosed therein.
c) Signed by? The report shall be signed either by the compliance officer or the chief executive officer of the
listed entity.
d) Disclosure required- The listed entity shall submit to the stock exchanges disclosures of related party
transactions in the format as specified by the Board from time to time, and publish the same on its website.
e) Approval:
i) All related party transactions and subsequent material modifications shall require prior approval of
the independent directors in audit committee of the listed entity.
ii) Audit committee may grant omnibus approval (Omnibus Approval means a consolidated/standing
approval given by the Committee in respect of transaction(s) which are repetitive in nature) for
related party transactions proposed to be entered into by the listed entity subject certain conditions
e) Materiality?
i) required to formulate a policy on materiality of related party transactions
ii) such policy shall be reviewed by the BOD at least once every three years and updated accordingly
iii) A related party transaction shall be considered material, if the transaction(s) to be entered
into individually or taken together with previous transactions during a financial year:
a) exceeds rupees one thousand crore
or
b) ten per cent of the annual consolidated turnover of the listed entity as per the last
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audited FS of the listed entity

whichever is lower.
f) Frequency and Timelines of RPT disclosures:
a) current frequency and timeline listed entity shall make such disclosures every six months within
fifteen days from the date of publication of its standalone and consolidated financial results
b) 1st April 23 onwards listed entity shall make such disclosures every six months on the date of
publication of its standalone and consolidated financial results with effect from April 1, 2023
c) Provided that a ‘high value debt listed entity’ shall submit such disclosures along with its
standalone financial results for the half year
(High-value debt-listed entities are those entities that have listed non-convertible debt securities and an
outstanding value of such securities are ₹500 crore and above)
g) Disclosures in annual report about related party transactions:
i) The listed entity which has listed its non-convertible securities] shall make disclosures in compliance
with the Accounting Standard on “Related Party Disclosures”.
ii) The disclosure requirements shall be as follows:
Sr.No In the accounts of Disclosures of amounts at the year end and the maximum amount
of loans/ advances/ Investments outstanding during the year.
1 Holding Company • Loans and advances in the nature of loans to subsidiaries by name
and amount.
• Loans and advances in the nature of loans to associates by name
and amount.
• Loans and advances in the nature of loans to firms/companies in
which directors are interested by name and amount.
2 Subsidiary Same disclosures as applicable to the parent company in the
accounts of subsidiary company.
3 Holding Company Investments by the loanee in the shares of parent company and
subsidiary company, when the company has made a loan or
advance in the nature of loan.
iii) For the purpose of above disclosures directors’ interest shall have the same meaning as given in
Section184 of Companies Act, 2013.
iv) The listed entity shall disclose the transactions with any person or entity belonging to the
promoter/ promoter group which hold(s) 10% or more shareholding in the listed entity in the
format prescribed in the relevant accounting standards.
h) The above disclosures shall not be applicable to listed banks.
7 Disclosure of accounting treatment [schedule v]
Where in the preparation of financial statements
a) a treatment different from that prescribed in an Accounting Standard has been followed
b) the fact shall be disclosed in the financial statements, together with the management’s explanation as to
why it believes such alternative treatment is more representative of the true and fair view
8 Disclosures in relation to the sexual harassment of women at workplace (prevention, prohibition
and redressal) act, 2013 (schedule v)  ANNUAL REPORT
a) number of complaints filed during the financial year
b) number of complaints disposed of during the financial year
c) number of complaints pending as on end of the financial year
Part VI- Various committees as mentioned under LODR regulations apart from audit committee
1 Nomination and remuneration committee- NRC [regulation 19 and part d of schedule ii]
The Board of Directors of every listed public company shall constitute the Nomination and Remuneration
Committee
a) Role of NRC:
a) Formulation of the criteria qualifications, positive attributes and independence of a director.
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For recommending independent directors- evaluate the balance of skills, knowledge and
experience on the Board and on the basis of such evaluation, prepare a description of the role
and capabilities required of an independent director
b) recommend to the Board of Directors a policy, relating to the remuneration of the directors, KMP
and other employees.
c) Formulation of criteria for evaluation of performance of independent directors and the Board of
Directors
d) Devising a policy on Board diversity
e) Identifying persons who are qualified to become directors and who may be appointed in senior
management
f) whether to extend or continue the term of appointment of the independent director,
g) recommend to the board, all remuneration, in whatever form, payable to senior management
h) For the purpose of identifying suitable candidates, the Committee may:
i) use the services of an external agencies, if required
ii) consider candidates from a wide range of backgrounds
iii) consider the time commitments of the candidates
b) Composition:
a) at least three directors, all of whom shall be non-executive directors
and
b) at least two-third shall be independent directors
c) Chairperson of the committee shall be an independent director.
Chairperson of the listed entity of the company (whether executive or nonexecutive) may be
appointed as a member of the NRC but shall not chair such committee.
c) Quorum:
a) either two members or
b) one third of the members of the committee, whichever is greater
including at least one independent director in attendance.
d) Minimum Meetings:
The NRC shall meet at least once in a year.
e) Attendance of CP at AGM:
The Chairperson of the NRC may be present at the Annual General Meeting, to answer the shareholders'
queries. (it would be up to the Chairperson to decide who shall answer the queries)
2 Stakeholders relationship committee [regulation 20 and part d of schedule ii]
a) Role to specifically look into various aspects of interest of shareholders, debenture holders and other
security holders (resolving their grievance, review measures taken for effective exercise of their voting rights,
review measures taken by the listed entity for reducing the unclaimed dividend)
b) Composition:
a) At least three directors, with at least one being an independent director, shall be members of the
Committee
b) In case of a listed entity having outstanding SR equity shares at least two thirds of the
Committee shall comprise of independent directors.
c) The chairperson of this Committee shall be a non-executive director (not necessarily an
independent director)
c) Minimum meetings:
The SRC shall meet atleast once in a year.
d) Attendance of Chairperson at the AGM:
shall be present at the annual general meetings to answer queries of the security holders.
3 Risk management committee [regulation 21]
a) Role Board of Directors shall define the role and responsibility of the Risk Management Committee and
may delegate monitoring and reviewing of the risk management plan to the committee and such other
functions as it may deem fit and such function shall specifically cover cyber security
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b) The provisions of this regulation shall be applicable to

i) top 1000 listed entities and
ii) high value debt listed entity
c) Composition:
a) minimum three members with majority of them being members of the board of directors,
including at least one independent director
b) For Listed entity having outstanding SR equity shares- at least two thirds- shall comprise
independent directors.
c) The Chairperson- shall be a member of the Board of Directors and senior executives of the listed
entity may be members of the committee
d) Minimum meeting- at-least twice in a year.
e) Quorum- either two members or one third of the members of the committee, whichever is higher,
including at least one member of the board of directors in attendance
f) Max Gap between two meetings- not more than 180 days shall elapse between any two consecutive
meetings
g) It shall have powers to seek information from any employee, obtain outside legal or other professional
advice and secure attendance of outsiders with relevant expertise, if it considers necessary.
h) Role of RMC:
i) To formulate a detailed risk management policy which shall include:
ii) To ensure that appropriate methodology, processes and systems are in place to monitor and
evaluate risks associated with the business of the Company
iii) To monitor and oversee implementation of the risk management policy, including evaluating the
adequacy of risk management systems
iv) To periodically review the risk management policy, at least once in two years, including by
considering the changing industry dynamics and evolving complexity
v) To keep the board of directors informed about the nature and content of its discussions,
recommendations and actions to be taken
vi) The appointment, removal and terms of remuneration of the Chief Risk Officer (if any) shall be
subject to review by the RMC.
Part VII- Various disclosure requirements
1 Statement of deviation(s) or variation(s) [regulation 32 and part c of schedule ii]
a) Requirement: The listed entity shall submit to the stock exchange the following statement(s) on a
quarterly basis for public issue, rights issue, preferential issue etc
a) Indicating deviations, if any, in the use of proceeds from the objects stated
b) Indicating category-wise variation) between projected utilisation of funds made by it in its offer
document and actual utilisation of funds.
b) Submission to be done till? The statement(s) shall be continued to be given till such time
a) the issue proceeds have been fully utilised or
b) the purpose for which these proceeds were raised has been achieved
c) Annual disclosure of Preferential allotments: Where an entity has raised funds through
a) preferential allotment or
b) qualified institutions placement
the listed entity shall disclose every year, the utilization of such funds during that year in its Annual Report
until such funds are fully utilized.
Note: The audit committee shall mandatorily review all of the above statements.
2 Information to shareholders [regulation 36]
The listed entity shall send the
a) soft copy of the full annual report to the shareholders who have registered their email address(es)
with entity or with any depository.
or
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b) hard copies of the salient features of all the documents (unless the full annual report has been
specifically requested) where e-mail address is not registered
as prescribed in section 136 of the Companies Act, 2013 not less than twenty-one days before the annual
general meeting

Note: In case of the appointment of a new director or re-appointment of a director the shareholders must
be provided with the following information:
a) Brief Resume
b) Nature of his expertise.
c) Disclosure of relationships between directors
d) Names of listed entities in which the person also holds the directorship and the membership of
Committees of the Board
e) Shareholding of non-executive directors.
f) In case of independent directors, the skills and capabilities required for the role and the manner in
which the proposed person meets such requirements.
4 Disclosure and transparency [regulation 4]
a) What? The listed entity shall ensure timely and accurate disclosure on all material matters including
a) the financial situation
b) performance
c) Ownership
d) Governance of the listed entity.
b) How? Manner of providing such disclosures:
a) Information shall be prepared and disclosed in accordance with the prescribed standards of
accounting, financial and non-financial disclosure
b) equal, timely and cost efficient access to relevant information by users.
c) Minutes of the meeting shall be maintained for recording dissenting (disagreements) opinions, if
any.
5 Disclosure of events or information [regulation 30(1), (5) (8)]
a) Material: Every listed entity shall make disclosures of any events or information which, in the opinion of
the board of directors of the listed company, is material.
b) Who will determine materiality? Board of directors of the listed entity shall authorize one or more KMP
for determining materiality.
c) contact details of such personnel shall be also disclosed to the stock exchange(s) and as well as on the listed
entity's website.
d) Website display: Such disclosures shall be hosted on the website of the listed entity for a minimum period
of five years.
Part VIII- Various reports and compliance certificate on audit committee and corporate governance
1 Compliance certificate [part b of schedule ii]
The Chief Executive Officer and the Chief Financial Officer shall certify to the Board that:
a) Review of FS: They have reviewed financial statements and the cash flow statement for the year (also need
to mention that to the best of their knowledge and belief they such FS and CFS are not materially misstated
and they present a true and fair view.
b) No irregularity: There no fraudulent, illegal or violative transactions (to the best of their knowledge and
belief)
c) Internal Control Implementation: They accept responsibility for establishing and maintaining internal
controls for financial reporting and that they have evaluated the effectiveness of such controls
d) Disclosure to auditor and audit committee: They have indicated to the auditors and the audit committee:
(i) Significant changes in internal control over financial reporting during the year
(ii) Significant changes in accounting policies during the year
(iii) Instances of significant fraud of which they have become aware and the involvement therein, if
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any, of the management or an employee

2 Report on corporate governance [regulation 27 and schedule ii]
- The listed entity shall submit
- a quarterly compliance report on corporate governance
- in the format as specified by the Board
- to the recognised stock exchange(s)
- within 21 days from the end of each quarter.
The report shall be signed either by the Compliance Officer or the Chief Executive Officer of the listed entity.
3 Auditors’ certificate (very important)
As per Schedule V of LODR
- a listed entity shall obtain a compliance certificate from
- either the auditors or practicing company secretaries
- regarding compliance of conditions of corporate governance and shall annex it to the Directors’ Report.
 Adverse or Qualified Statement:
Depending upon the facts and circumstances, some situations may require an adverse or qualified statement
or a disclosure without necessarily making it a subject matter of qualification in the Auditors’ Certificate, in
respect of compliance of requirements of corporate governance.
Examples of such situations (WHATVER WE HAVE STUDIED UNDER LODR IF IT IS VIOLATED THEN THERE
WILL BE NEGATIVE REMARKS….. SO WE CAN WRITE EVEN 15-20 EXAMPLES DEPENDING UPON THE
REQUIREMENT OF THE QUESTION AND MARKS IN THE EXAM)

Exclusions/Restrictions:
 Such verification and certification is neither an audit nor an expression of opinion on the financial
statements of the company.
 It is neither an assurance as to the future viability of the company, nor the efficiency or effectiveness
with which the management has conducted the affairs of the company.
Part IX- Other points covered in this topic
1 Obligations with respect to employees including senior management, key managerial persons,
directors and promoters [regulations 17(2) to 17(4), 17a, 25(5), 25(6), 26(1),26 (2), 26(4) to 26(6)]
a) Minimum meeting: The Board shall meet at least four times a year, with a maximum time gap of one
hundred and twenty days between any two meetings
b) Quorum for top 2000: The quorum for every meeting of the board of directors of the top 2,000 listed
entities shall be
a) one-third of its total strength or
b) three directors
whichever is higher.
Including at least one independent director.
c) Virtual attendance? participation of the directors by video conferencing or by other audio-visual means
shall also be counted for the quorum.
d) Ceiling limit on max number of committees: A director shall not be a member in more than ten
committees or act as Chairperson of more than five committees across all listed entities in which he is a
director.
(Note: For counting the committees all public limited companies, whether listed or not, shall be included
(i.e. all other companies to be excluded). Chairpersonship/membership of the Audit Committee and the
Stakeholders' Relationship Committee alone shall be considered.)
e) Disclosure of Shareholding by NEDs: Non-executive directors shall be required to disclose their
shareholding.
f) Liability of IDs: An independent director shall be held liable, only in respect of
-such acts of omission or commission by the listed entity
-which had occurred with his knowledge,
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-attributable through Board processes, and

-with his consent or where he had not acted diligently with respect of the provisions contained in the
LODR Regulations.
g) The independent directors of the listed entity shall hold at least one meeting in a financial year, without
the presence of non-independent directors and members of the management and all the independent
directors shall strive to be present at such meeting
h) Profit Sharing Arrangement for Securities dealing: No employee/officer shall enter into any agreement for
himself or on behalf of any other person
- with any shareholder
- any other third party
with regard to compensation or profit sharing in connection with dealings in the securities of such
listed entity unless prior approval obtained from BOD and ordinary resolution of shareholders.
i) Casual vacancy of ID: An independent director who resigns or is removed from the Board of Directors and
if it leads to number of independent directors falling below the minimum required, then the listed entity
shall replace it by a new independent director not later than the
-three months from the date of such vacancy
j) Note : A ‘high value debt listed entity’ shall undertake Directors and Officers insurance (D and O insurance)
for all its independent directors for such sum assured and for such risks as may be determined by its board of
directors
2 Meeting of board of directors- section 173 of companies act, 2013 REFER COMPANY LAW
PROVISIONS IN DETAIL.
3 Secretarial audit of listed entity and its material unlisted subsidiaries [regulation 24a]
Every listed entity and its material unlisted subsidiaries incorporated in India shall undertake
secretarial audit and shall annex with its annual report, a secretarial audit report, given by a company
secretary in practice.
Every listed entity shall submit a secretarial compliance report in such form as specified, to stock exchanges,
within sixty days from end of each financial year.

NOTE: RESIGNATION BY STATUTORY AUDITOR as per SEBI CIRCULAR 18th October 2019 is
discussed in a separate Video Lecture and it has been printed in the book delivered as a part of the
course.

Note: Please Solve ICAI Module Illustration Questions and Test Your Knowledge Questions.
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Annexure 1: Audit Committee Basic Composition Chart:

Audit Committee
Composition

Listed entity- not Listed entity- having

having outstanding SR outstanding SR Equity
Equity Shares Shares

Minimum Three Directors- At-

least 2/3rd of the members of Minimum three directors-
audit committee shall be All Independent Directors.
Independent Directors

Annexure 2: Role of Audit Committee:

A) Appointment of Auditor etc.,

i) Statutory Auditor’s Appointment Recommendation for appointment, remuneration and
terms of appointment of auditors of the listed entity
ii) Remuneration for other services Approval of payment to statutory auditors for any
other services
iii) Independence Review Reviewing and monitoring the auditor’s independence and
performance, and effectiveness of audit process
iv) Stat Audit Findings 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
v) Internal Audit Efficiency 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;
vi) Internal Audit Findings Discussion with internal auditors of any significant findings and
follow up there on
vii) Investigation by Internal Auditor Reviewing the findings of any internal investigations
by the internal auditors into matters where there is suspected fraud

B) Reviewing of Financials etc.,

i) Oversight of the listed entity’s financial reporting process

ii) Reviewing, with the management, the quarterly financial statements before submission to
the Board for approval
iii) Reviewing, with the management, the annual financial statements and auditor's report
thereon 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 (c) of sub-section 3 of section 134
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of the Companies Act, 2013;

(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) Modified opinion(s) in the draft audit report;

C) Specific Scrutiny of Special Matters:

i) Reviewing, with the management, the statement of uses/application of funds raised and
utilized through an issue (public issue, rights issue, preferential issue, etc.).
ii) Approval or any subsequent modification of transactions of the listed entity with related
parties;
iii) Scrutiny of inter-corporate loans and investments;
iv) Reviewing the utilization of loans and/ or advances from /investment by the holding
company in the subsidiary exceeding rupees 100 crore or 10% of the asset size of the
subsidiary, whichever is lower including existing loans / advances / investments.
v) Valuation of undertakings or assets of the listed entity, wherever it is necessary;
vi) Evaluation of internal financial controls and risk management systems;
vii) reasons for substantial defaults in the payment to the depositors, deben ture holders,
shareholders (in case of non-payment of declared dividends) and creditors;
viii) review the functioning of the Whistle Blower mechanism
ix) Approval of appointment of Chief Financial Officer after assessing the qualifications,
experience and background, etc. of the candidate
x) Consider and comment on rationale, cost-benefits and impact of schemes involving
merger, demerger, amalgamation etc., on the listed entity and its shareholders.
xi) Carrying out any other function as is mentioned in the terms of reference of the Audit
Committee.

Note: If the company has set up an Audit Committee as per section 177 of the Companies Act, 2013,
the company must ensure that the said Audit Committee has such additional functions / features as
are contained in the LODR Regulations
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Annexure 3: Audit Committee as per Section 177:

Sec 177 Audit Committee

Applicability Composition

Listed Public Unlisted Public Company

Company-
Mandatory (excluding- joint venture, wholly a) Minimum of Three Directors with Majority of
owned subsidiary and a dormant of them being Independent Directors.
company u/s 455.)
b) Majority of Members of Audit Committee
including its Chairperson shall be persons with
ability to read and understand the Financial
Statements.
a) Paid up Capital of 10 crore or More OR
b) Turnover of 100 crore or More OR
c) In Aggregate, outstanding loans, debentures and
deposits exceeding 50 crore
(as per Latest Audited Financial Statements)
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Annexure 4: Functions of Audit Committee as per Section 177 (4) (5) (6):

“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 (However, in case of Government Company, it is limited to the
recommendation for remuneration)
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
ix) call for the comments of the auditors about internal control systems, the scope of audit,
including the observations of the auditors
x) review of financial statement before their submission to the Board and may also discuss
any related issues with the internal and statutory auditors and the management of the
company
xi) authority to investigate into any matter in relation to the items specified in sub-section
(4) or referred to it by the Board and for this purpose shall have power to obtain
professional advice from external sources
Right to be heard:
Sec 177 (7): The auditors of a company and the key managerial personnel shall have a right to be
heard in the meetings of the Audit Committee when it considers the auditor’s report but shall not
have the right to vote
Disclosure in Board’s Report:
Sec 177(8): “The Board’s report under sub-section (3) of section 134 shall disclose the composition
of an Audit Committee and where the Board had not accepted any recommendation of the Audit
Committee, the same shall be disclosed in such report along with the reasons therefor.”
Vigil Mechanism:
Sec 177 (9): “Every listed company or such class or classes of companies, as may be prescribed, shall
establish a vigil mechanism for directors and employees to report genuine concerns in such manner
as may be prescribed.”
Sec 177 (10): “The vigil mechanism under sub-section (9) shall provide for adequate safeguards
against victimisation of persons who use such mechanism and make provision for direct access to
the chairperson of the Audit Committee in appropriate or exceptional cases.
Disclosure of Vigil Mechanism required on Company’s website and Board’s Report

(Compare Annex 1 vs Annex 3 and Annex 2 vs Annex 4 for better reading)

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Annexure 5- Independent Director definition:

Independent director" means a non-executive director, other than a nominee director of the listed
entity:
(i) who, in the opinion of the board of directors, is a person of integrity and possesses relevant
expertise and experience;

(ii) who is or was not a promoter of the listed entity or its holding, subsidiary or associate company
[or member of the promoter group of the listed entity];

(iii) who is not related to promoters or directors in the listed entity, its holding, subsidiary or
associate company;

(iv) who, apart from receiving director's remuneration, has or had no material pecuniary
relationship with the listed entity, its holding, subsidiary or associate company, or their promoters,
or directors, during the three immediately preceding financial years or during the current financial
year;

(v) none of whose relatives;

a) is holding securities of or interest in the listed entity, its holding, subsidiary or associate
company during the three immediately preceding financial years or during the current financial
year of face value in excess of fifty lakh rupees or two percent of the paid-up capital of the listed
entity, its holding, subsidiary or associate company, respectively, or such higher sum as may be
specified
b) is indebted to the listed entity, its holding, subsidiary or associate company or their
promoters or directors, in excess of such amount as may be specified during the three immediately
preceding financial years or during the current financial year;
c) has given a guarantee or provided any security in connection with the indebtedness of
any third person to the listed entity, its holding, subsidiary or associate company or their
promoters or directors, for such amount as may be specified during the three immediately
preceding financial years or during the current financial year
d) has any other pecuniary transaction or relationship with the listed entity, its holding,
subsidiary or associate company amounting to two percent or more of its gross turnover or total
income
Note: Provided that the pecuniary relationship or transaction with the listed entity, its holding,
subsidiary or associate company or their promoters, or directors in relation to points (A) to (D)
above shall not exceed
i) two percent of its gross turnover or total income
or
ii) or fifty lakh rupees,
whichever is lower.

vi) who, neither himself /herself, nor whose relative(s)

a) holds or has held the position of a key managerial personnel or is or has been an
employee of the listed entity or its holding, subsidiary or associate company or any company
belonging to the promoter group of the listed entity, in any of the three financial years
immediately
preceding the financial year in which he is proposed to be appointed
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Provided that: in case of a relative, who is an employee other than key managerial personnel, the
restriction under this clause shall not apply for his / her employment
b) is or has been an employee or proprietor or a partner, in any of the three financial years
immediately preceding the financial year in which he is proposed to be appointed, of
i) a firm of auditors or company secretaries in practice or cost auditors of the listed entity
or its holding, subsidiary or associate company or
ii) any legal or a consulting firm that has or had any transaction with the listed entity, its
holding, subsidiary or associate company amounting to ten per cent or more of the gross turnover
of such firm
c) holds together with his relatives two per cent or more of the total voting power of the
listed entity
d) is a chief executive or director, by whatever name called, of any nonprofit organisation
that receives twenty-five per cent or more of its receipts or corpus from the listed entity, any of its
promoters, directors or its holding, subsidiary or associate company or that holds two per cent or
more of the total voting power of the listed entity
e) is a material supplier, service provider or customer or a lessor or lessee of the listed
entity;

vii) who is not less than 21 years of age

viii) who is not a non-independent director of another company on the board of which any non-
independent director of the listed entity is an independent director.