Question

As per the clause 49. audit committee should
consist of minimum of directors
​

Answer 1

Explanation:

Clause 49 of the Listing Agreement to the Indian stock exchange that came into effect from 31 December 2005. It has been formulated for the improvement of corporate governance in all listed companies.

In corporate hierarchy two types of managements are envisaged:

i) companies managed by Board of Directors; and

ii) those by a Managing Director, whole-time director or manager subject to the control and guidance of the Board of Directors i.e., he is liable to the Board of Directors and the function of the corporate.

As per Clause 49, for a company with an Executive Chairman, at least 50 per cent of the board should comprise independent directors. In the case of a company with a non-executive Chairman, at least one-third of the board should be independent directors.

It would be necessary for chief executives and chief financial officers to establish and maintain internal controls and implement remediation and risk mitigation towards deficiencies in internal controls, among others.

Clause VI (ii) of Clause 49 requires all companies to submit a quarterly compliance report to stock exchange in the prescribed form. The clause also requires that there be a separate section on corporate governance in the annual report with a detailed compliance report.

A company is also required to obtain a certificate either from auditors or practicing company secretaries regarding compliance of conditions as stipulated, and annex the same to the director's report.

The clause mandates composition of an audit committee; one of the directors is required to be "financially literate".

It is mandatory for all listed companies to comply with the clause by 31 December 2005.

Corporate Governance may be defined as “A set of systems, processes and principles which ensure that a company is governed in the best interest of all stakeholders.” It ensures Commitment to values and ethical conduct of business; Transparency in business transactions; Statutory and legal compliance; adequate disclosures and Effective decision-making to achieve corporate objectives. In other words, Corporate Governance is about promoting corporate fairness, transparency and accountability. Good Corporate Governance is simply Good Business.