Skip to content

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

Kaveri Pharma Ltd, a listed company, has an Audit Committee of four directors, three of them independent. Only one member, not the chairperson, can read and understand financial statements. The board says the independent majority is enough. Is the board correct under section 177 of the Companies Act, 2013?

The board is wrong. Apart from an independent majority, the proviso to section 177(2) requires that a majority of members, including the Chairperson, be able to read and understand financial statements. Here only one member qualifies and the chairperson does not, so the composition is non-compliant.

  1. AYes, because independent majority is the only requirement
  2. BNo, because a majority of members including the chairperson must be able to read and understand financial statementsCorrect
  3. CNo, because every member must be a chartered accountant
  4. DYes, because the ability requirement applies only to the chairperson

Explanation

The proviso to section 177(2) requires that a majority of members, including the Chairperson, be persons with ability to read and understand the financial statement. Only one of four members qualifies and the chairperson does not, so the proviso is breached despite the independent majority. The Act does not require chartered accountants.

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