The Companies Act, 2063 (2006) provides for the formation of an Audit Committee under Section 164. A listed company having paid-up capital of NPR 30 million or more, or a company wholly or partially owned by the Government of Nepal, must establish an Audit Committee consisting of at least three members, chaired by a director who is not involved in the day-to-day operation or management of the company.
A close relative of the chief executive officer of the company cannot be a member of the Audit Committee. At least one member of the committee must either be an experienced person holding a professional accounting qualification or a person with at least a bachelor’s degree in accountancy, commerce, management, finance, or economics and experience in the accounting and financial sector.
The committee shall meet as required and may regulate its internal procedures. The company must provide adequate resources for the committee to perform its responsibilities. The Board of Directors is required to implement recommendations made by the Audit Committee concerning the company’s accounting and financial system.
Functions, Duties and Powers of the Audit Committee
- To review the company’s accounts and financial statements and ascertain the accuracy of the facts stated therein.
- To review the company’s internal financial control system and risk management system.
- To supervise and review internal audit activities of the company.
- To recommend potential auditors for the appointment of the company’s auditor and determine the auditor’s remuneration and terms of appointment, and submit them to the general meeting for approval.
- To monitor and review whether the company’s auditor has complied with the codes of conduct, standards, and directives prescribed by the authorized regulatory body under prevailing law.
- To formulate policies to be adopted by the company regarding the appointment and selection of auditors, based on the codes of conduct, standards, and directives issued by the competent authority.
- To formulate and implement the company’s accounting policies.
- Where a regulatory authority requires detailed disclosures in the company’s audit report, to ensure that the necessary requirements are fulfilled for preparing such disclosures.
- To perform other functions relating to accounting, financial management, and auditing as assigned by the Board of Directors.
Conclusion
The Audit Committee is an important mechanism for maintaining financial governance and effective internal control within a company. It reviews the accuracy of financial statements, risk management, and internal audit functions while also overseeing the selection and performance of auditors. Therefore, stakeholders should ensure that potential conflicts of interest are avoided when appointing members of the Audit Committee.