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

Under Rohan Steels Ltd's board report, the Board did not accept a recommendation made by its Audit Committee on the appointment terms of the auditor. The Company Secretary asks how this should be handled to keep the board accountable. What does section 177 require?

The Board must disclose in its report that it did not accept the Audit Committee's recommendation, together with the reasons. Section 177(8) requires this, which makes the board accountable to shareholders when it overrides a committee, supporting transparency and board effectiveness.

  1. ANothing needs to be disclosed, since the Board can overrule any committee
  2. BThe non-acceptance must be disclosed in the Board's report along with the reasonsCorrect
  3. CThe recommendation must be disclosed only to the auditors
  4. DThe Board must refer the matter to the Tribunal

Explanation

Section 177(8) requires the Board's report to disclose the Audit Committee's composition and, where the Board has not accepted any recommendation of the Committee, that fact along with the reasons. This makes the board answerable to shareholders for overriding a committee. Disclosure only to auditors or a Tribunal reference is not provided.

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