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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, which description of the composition of an Audit Committee is correct?

An Audit Committee must have at least three directors, and independent directors must form the majority. In addition, most members including the Chairperson must be able to read and understand financial statements, as Section 177(2) and its proviso provide.

  1. AMinimum two directors, with executive directors forming a majority
  2. BMinimum three directors, with independent directors forming a majorityCorrect
  3. CMinimum three directors, with nominee directors forming a majority
  4. DMinimum five directors, with at least one being the managing director

Explanation

Section 177(2) requires a minimum of three directors with independent directors forming a majority. The proviso adds that a majority of members, including the Chairperson, must be able to read and understand financial statements. The other options give wrong sizes or the wrong majority group.

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