Skip to content

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

Ishaan Ltd, a listed company, has a Board that did not accept a recommendation of its Audit Committee to change the statutory auditor. The Company Secretary is drafting the Board's report. Which treatment satisfies section 177(8)?

The Board's report must disclose the Audit Committee's composition and the unaccepted recommendation together with the reasons for not accepting it. Section 177(8) makes this disclosure mandatory, so neither silence nor disclosure without reasons satisfies the law, even though the Board is free to decline the recommendation.

  1. ANo disclosure is needed, as the Board is not bound by Audit Committee recommendations
  2. BDisclose the non-acceptance only to the Audit Committee chairperson
  3. CDisclose the composition of the Audit Committee, and disclose the unaccepted recommendation along with the reasons, in the Board's reportCorrect
  4. DDisclose the unaccepted recommendation without reasons, because reasons are confidential

Explanation

Section 177(8) requires the Board's report under section 134(3) to disclose the Audit Committee's composition and, where the Board has not accepted any recommendation, that fact along with the reasons. Omitting reasons or the disclosure itself fails the requirement. The Board may decline the recommendation, but must be transparent about it.

Did you get it right without looking?

One question tells you little. A timed set on Board Effectiveness and Building Better Boards shows your real accuracy, how long you take and where you lose marks.

Practise Board Effectiveness and Building Better BoardsFree diagnostic mock

More Board Effectiveness and Building Better Boards questions