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CS Professional · Environmental, Social and Governance (ESG) - Principles and Practice · Board Effectiveness and Building Better Boards

Arjun Pharma Ltd's Audit Committee has five members. The Board wants to appoint the committee Chairperson, a retired academic with no background in finance, while the other four members are financially literate. Under the proviso to section 177(2), what is the position?

The appointment is not permissible. The proviso to section 177(2) requires that the majority of Audit Committee members, including its Chairperson, be able to read and understand financial statements. The Chairperson is not exempt, and the Act does not demand that every member be a chartered accountant.

  1. APermissible, as only the majority of members needs financial literacy and the Chairperson is exempt
  2. BNot permissible, as every member must be a chartered accountant
  3. CNot permissible, as the majority of members including the Chairperson must be able to read and understand financial statementsCorrect
  4. DPermissible, as financial literacy is required only for the statutory auditor

Explanation

The proviso to section 177(2) says the majority of members, including the Chairperson, must have the ability to read and understand the financial statement. The Chairperson is expressly counted, so no exemption exists. The Act does not require professional accountancy qualifications.

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