Among all Board level committees, the Audit Committee (AC) is the oldest, and considered the most crucial. Its role goes far beyond reviewing financials. It is the custodian of matters relating to audit, internal control, related party transactions (RPTs), prohibition of insider trading and whistleblower mechanism. A well-functioning AC ensures that control mechanisms are in place and working, auditors are empowered, yet accountable, and the company’s financial disclosures and controls remain strong.

What makes an effective AC?

A well-functioning AC starts with the correct composition and independence. At least two-thirds of its members should be Independent Directors (IDs), with an ID Chairperson. Many well-governed companies go a step further, forming ACs entirely with IDs, ensuring objectivity and unfiltered oversight. The AC Chair’s expertise in finance, and the ability to ask tough questions is pivotal to its effectiveness.

Regular and meaningful meetings are equally essential. While law and regulations prescribe a minimum of four meetings annually, best practices followed by companies suggest that 5-6 meetings, including those dedicated to RPTs and internal audit reviews and controls, help the committee add value. Pre-AC meetings among the Chair of AC, CFO, and Auditors can further enhance preparedness and depth of discussion.

Excellence Enablers recently published its 6th Annual Corporate Governance Survey, focussing on top 100 companies of India. 

The survey revealed encouraging trends:

Composition and Independence: The survey found that 31 companies, over the previous 4 years, had ACs comprising only IDs, reflecting a strong commitment to independence in oversight.

Meeting Frequency: The survey noted that in FY 25, 13 companies had the statutory minimum meetings (4 meetings annually).  31 companies had 5-7 meetings annually. 56 companies had more than 7 meetings, with the highest being 30 meetings. The need for so many meetings is not clear. Often too many meetings are counterproductive.  

Attendance: Attendance of members is the starting point for contribution. In FY 25, 83.64 % of AC members recorded full attendance in AC meetings. This number has been happily increasing. 

Separation of Leadership: It is believed that if the Chair of the Board and AC are the same person, it can adversely impact free discussions in the committee. Seeing value in this belief, 98 companies had different persons leading the Board and the AC. 

Management Presence: Having a permanent invitee to meetings is akin to rights without responsibilities. In FY25, in 16 companies, the MD is a permanent invitee to the AC. This is a practice best avoided. If needed, the MD can be invited to meetings on a meeting-by-meeting basis. 

These findings reflect progress but also a reminder that compliance with numbers alone does not guarantee effectiveness. True strength lies in the quality of deliberations and independence of judgement.

Explore corporate governance practices being followed by NIFTY 100 companies in our 6th Edition of Corporate Governance Survey.

Click here to read the full survey : SURVEY ON CORPORATE GOVERNANCE – 6th EDITION