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CMA Final · Cost and Management Audit · Operational Audit and Internal Audit under Companies Act, 2013

As per Section 177(2) of the Companies Act, 2013, what is the minimum composition of an Audit Committee?

An Audit Committee must have at least three directors, and independent directors must form a majority. Section 177(2) does not require all members to be independent. A majority of members, including the Chairperson, must also be able to read and understand financial statements.

  1. ATwo directors, with at least one independent director
  2. BThree directors, with independent directors forming a majorityCorrect
  3. CThree directors, with all of them independent
  4. DFive directors, with independent directors forming a majority

Explanation

Section 177(2) requires a minimum of three directors with independent directors forming a majority. It does not require all members to be independent, so the all-independent option is wrong. The proviso also requires most members, including the Chairperson, to be able to read and understand financial statements.

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