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

Under a written charter, the audit committee of Ganga Foods Ltd, a listed public company, wants independent advice on the valuation of an undertaking it is reviewing, and asks for full access to company records. The managing director objects that only the full board may engage outside advisers. Which position is correct under the Companies Act, 2013?

The committee may obtain external professional advice and have full access to company records. The Act gives the audit committee authority to investigate matters within its terms of reference, such as valuation of undertakings, which supports independent and effective board oversight without needing shareholder approval.

  1. AThe managing director is correct, as committees cannot obtain external advice
  2. BThe committee may do so only after obtaining shareholders' approval by special resolution
  3. CThe committee may investigate matters within its remit, obtain professional advice from external sources and have full access to company recordsCorrect
  4. DThe committee may access records but cannot obtain external professional advice

Explanation

Section 177(6) gives the audit committee authority to investigate any matter relating to its listed items (which include valuation of undertakings or assets) or referred by the Board, with power to obtain external professional advice and full access to records. Options A and D deny the advice power; B invents a shareholder approval.

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