Financial Daily from THE HINDU group of publications
Thursday, Jun 05, 2003
Financial Daily from THE HINDU group of publications Thursday, Jun 05, 2003 |
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Auditing Corporate - Regulatory Bodies & Rulings Independent directors to head audit panels?
Richa Mishra
NEW DELHI, June 4 IN a move that may lead to an improvement in the functioning of audit committees set up by the boards of directors of public companies, the Department of Company Affairs (DCA) is likely to rule that an independent director alone can become the chairman of such committees. The structure and role of the audit committee has been a subject of intense debate in the country in the last few years, given the host of corporate failures that surfaced during this period in India and abroad. While mandating that it should have a minimum of three members, two-thirds of whom should be independent, the proposed rules are likely to stipulate that the Chairman and members of such committees would have to be elected annually by a majority vote of the members of the board, official sources said. Critics of the existing structure, adopted by many Indian corporates, have said that the Chairman or Chief Executive Officer (CEO) of a company is invariably the Chairman of such a committee and therefore, has an overarching influence on its functioning. Besides the independence element, the functioning of such committees is seen to be a "corporate ritual" without giving much credence to the spirit behind the law governing their constitution. As a first step, the Companies Amendment Bill 2003 in the current form stipulates that "every public company having paid-up capital of not less than Rs 5 crore shall constitute a committee of the board known as audit committee, which shall consist of not less than two independent directors and not more than such number of maximum independent directors as the Centre may prescribe". The structure stipulated in this Bill and the proposed Audit Committee rules are in variance with the Naresh Chandra Committee recommendations on corporate audit and governance and the Sarbanes Oxley Act of the US, which have held that the audit committee should consist only of independent directors.
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