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CMA Final · Cost and Management Audit · Internal Control and Internal Audit

Section 177 of the Companies Act, 2013 deals with the Audit Committee. Which statement about its composition is correct?

The Audit Committee must consist of a minimum of three directors, with independent directors forming a majority. In addition, most members including the Chairperson must be able to read and understand financial statements. Auditors and KMPs may be heard but cannot vote.

  1. AIt must have at least three directors, with independent directors forming a majorityCorrect
  2. BIt must have at least two directors, with the managing director as chairperson
  3. CIt must have at least three directors, with executive directors forming a majority
  4. DIt must have at least five members, of whom at least one is the statutory auditor

Explanation

Section 177(2) requires a minimum of three directors with independent directors in a majority. The proviso adds that a majority of members, including the Chairperson, must be able to read and understand financial statements. Auditors have only a right to be heard, not membership or vote.

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