Definition
Audit Committee
The audit committee is a board sub-committee that oversees financial reporting, internal controls, audits and related-party transactions.
Under SEBI LODR and the Companies Act, listed companies must have an audit committee with a majority of independent directors and an independent chair, all members financially literate. It reviews the financial statements, recommends the appointment of auditors, monitors internal controls and the whistleblower mechanism, and approves related-party transactions.
The audit committee is a cornerstone of governance, acting as a bridge between management, auditors and the board. Its scrutiny of related-party deals and the utilisation of IPO proceeds makes it central to investor protection.
Related terms
- Independent DirectorAn independent director is a board member with no material relationship with the company, brought in to provide objective oversight.
- Nomination and Remuneration CommitteeThe NRC is a board committee that decides on board appointments and the pay of directors and senior management.
- Related-Party TransactionsRelated-party transactions (RPTs) are deals between a company and parties connected to it, such as promoters, directors or group entities.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.