The audit committee is often where regulatory risk first becomes visible in financial terms. A tax demand may affect provisioning. A control weakness may affect reporting. A related-party issue may affect disclosure. The committee's task is not to replace management, but to ensure that serious risk is identified, tested and escalated to the board where necessary.
The ICSI reference material SEBI LODR Regulations, 2015 and Companies Act, 2013 is useful because it places listed-entity governance requirements and company-law committee expectations side by side. In practical terms, the audit committee sits at the intersection of accounts, internal controls, audit findings, related-party oversight and compliance concerns. That position makes it especially important in companies with tax disputes, regulatory notices, internal audit observations or repeated control exceptions.
A useful audit committee pack should not merely attach management certificates. It should show open regulatory matters, financial exposure, provisioning position, auditor comments, internal control gaps and management's remediation plan. If a GST or Customs demand is material, the committee should know the stage, amount, legal assessment and accounting treatment. If an internal control failed, the committee should know whether the failure was isolated or systemic.
The committee should also ask whether legal and finance teams are speaking to each other. Litigation teams may focus on defending the notice; finance teams may focus on provisioning; management may focus on business continuity. The audit committee has to see the combined picture. Otherwise, risk is sliced into polite compartments and nobody owns the whole problem.
Independent directors on the committee should ask for evidence behind comfort statements. Has the statutory auditor reviewed the matter? Has external counsel advised? Are reconciliations current? Have repeat audit points been closed? Are related-party approvals supported by proper documentation? The minutes should record the material questions. Governance is not improved by pretending difficult questions were never asked.
The committee should also track ageing. Old unresolved issues are not harmless simply because everyone has grown used to them. A pending tax demand, unclosed audit point or repeated control exception should carry a timeline and owner. If management needs more time, the reason should be recorded.
The audit committee should reserve deeper review for matters with financial statement impact, repeated management override, regulatory correspondence, whistleblower allegations or unresolved auditor comments. This helps the committee avoid two bad habits: reviewing everything superficially, or reviewing only what management chooses to highlight.
The committee should also connect each material risk to accounting treatment. If the company has received a tax demand, management should explain whether the matter is disclosed as a contingent liability, provided for, appealed, settled or still under evaluation. The committee need not decide the litigation, but it should understand why the financial reporting position follows from the legal assessment and available evidence.
A disciplined audit committee process gives the board a cleaner view of risk. It also helps management, because issues are prioritised before they become emergencies. Panic is a poor internal control. The committee should leave each meeting with clear owners, deadlines and escalation points for material unresolved issues. Where the same issue returns without movement, the committee should ask whether the delay is legal, operational or simply managerial drift.
For companies reviewing audit committee and risk oversight processes, AGS Consulting can help assess board packs, escalation thresholds and regulatory-risk reporting. To review the process, contact AGS Consulting for governance advisory support.
FAQs
What risks should the audit committee track?
It should track material financial reporting issues, internal control gaps, regulatory notices, tax exposures, related-party matters and unresolved audit observations.
Is the audit committee responsible for managing disputes?
No. Management handles disputes, but the committee should review material exposure, accounting treatment, controls and escalation to the board.
Should tax demands be reported to the audit committee?
Material tax demands should be reported with amount, stage, legal assessment, provisioning position and next procedural deadline.
Why is ageing of audit points important?
Ageing shows whether management is closing issues or merely carrying them forward. Repeated unresolved points may indicate a deeper control weakness.