PROJECT REPORT

ON

“AUDIT COMMITTEE & ITS FUNCTION & ITS SELECTION”

PROJECT REPORT SUBMITED TOWARDS PARTIAL FULFILLMENT OF

POST GRADUATE DIPLOMA IN MANAGEMENT

(Approved by AICTE, Govt. of India)

[Equivalent to MBA]

Academic session

2008-2010

SUBMITTED TO: SUBMITTED BY:

Dr.DASH Sangeeta jha(BM-09172)

Professor Shyamli Bajpai(BM-092)

IMS-Ghaziabad Sushmita Chatterjee(BM-09221)

CERTIFICATE

This is to certify that the project report entitled “AUDIT COMMITTEE & ITS FUNCTION &
ITS SELECTION” is a bonafide record of work done by Sangeeta Jha,Shyamli
Bajpai,Sushmita Chatterjee,Shalini Ambastha submitted in the partial fulfilment of the
requirement for the award of the Post Graduate Diploma In Business Management of
Institute of Management Studies, Ghaziabad. Their performance and general behavior during the
research project report was excellent and descent. According to my best knowledge, this work
has not been submitted to any other University for award of any other degree.

Dr.DASH

Professor

IMS-Ghaziabad
 CANDIDATE’S DECLARATION

We hereby certify that the work which is being presented in the report entitled “AUDIT
COMMITTEE & ITS FUNCTION & ITS SLECTION”,is submitted in the partial fulfilment
of the requirements for the award of the Post Graduate Diploma In Business Management and
submitted as the project for IMS Ghaziabad, is an authentic record of my own work.

The matter presented in this report has not been submitted by us for the award of any
other degree in any other Institute. It has not been published in any magazine, book or
newspaper yet.

SANGEETA JHA(BM-09)

SHYAMLI BAJPAI (BM-09)

SUSHMITA CHATTERJEE (BM-09221)

SHALINI AMBASTHA ()

SHIVI BINDRA(BM-09198)
 ACKNOWLEDGEMENT

If words are considered to be signs of gratitude then let these words convey the very same. Our
sincere gratitude and profoundest thanks to Dr.Dash,Professsor, Institute of Management
Studies, Ghaziabad for his valuable sustained guidance, suggestions and constant encouragement
without which it would not have been possible for me to complete this project in the best
possible way.

We would also like to thank all the people who helped us in making the project.We are highly
thankful for their help and co-operation during the project as they provided whatever information
we required from them and they supported us throughout the project. It gives us a great pleasure
to our deep sense of gratitude and reverence to each and every person who created a congenial
atmosphere for successful completion of this project.

However, we accept the sole responsibility for any possible errors of omission and would be
extremely grateful to the readers of this project report if they bring such mistakes to our notice.

Last but not the least; our heartfelt love for our parents, whose constant support and blessings
helped us throughout this project and the almighty God for giving us strength and blessings
during the entire project work.
Table of Contents:
INTRODUCTION:
AUDIT COMMITTEE –
The audit committee plays a vital role ensuring the independence of the audit process. Auditing
the operations of modern corporations is a complex process requiring understanding of the rules
and judgements made by the management in preparing the financial statements. For verification
of these financial statements, the auditor requires access to all necessary documents and atruthful
explanation of all procedures. It is unlikely that this can be expected from the inside management
whose very actions is the subject of the auditing process. Even if management is truthful, there is
a need to insulate the verification process from the influence of the inside management so that
outsiders perceive the audit process as independent as they cannot directly observe the managers
truthfulness. If auditors are hired by the management and they decide the scope of auditing
services and auditor’s compensation, the audit process is unlikely to be perceived as
independent.
Objective -
The primary objective of the Audit Committee is to assist the Corporation in the effective
conduct of its responsibilities for financial reporting, management of risk, and maintaining a
reliable system of internal controls. The audit committee has been formed to act both as a
conduit of information supplied by the management to the auditors, and at the same time to
insulate the auditor from the pulls and pressures of the management. The audit committee is
therefore required to be “independent” of the management and has the responsibility of deciding
the scope or work, including the fixation of audit fees and determination of the extent of non-
audit services. The basic idea is to make the auditor not to be dependent on inside management,
both in it terms of discharge of its functions as well as in terms of its survival.

The Audit Committee is a formally appointed committee of the Board and is responsible to the
Board.The Audit Committee does not have executive powers or authority to implement actions
in areas over which management has responsibility and does not have any delegated financial
responsibility .The Audit Committee does not have any management functions and is therefore
independent of management.

MEMBERS

The Audit Committee comprising a Board member, one officer, from the participating
municipalities, and up to two independent community representatives-
a) one of whom would chair the meetings.
b) The Chief Executive Officer will attend all meetings, except when the committee chooses to
meet in camera, but shall not be a member of the committee.
c) The independent members of the Audit Committee may receive an honorarium for attendance
at meetings of the committee. The level of any honorarium paid will be set periodically by the
Board.
e) The Corporation’s external auditors can not be appointed to the Audit committee. The external
auditor may attend all meetings of the Committee, and may also present to any meeting of the
Committee on request.
f) The chairperson of the committee will be an independent member.
g) All meetings are to be recorded.
h) A quorum shall be a majority of the current members.
I) Selection of the Council officer will also be done annually and will rotate

Audit Committees in Banks- Reserve Bank of India Instructions. As early as in April 1994,the
Reserve Bank of India (RBI) had stipulated that all Indian Commercial Banks shall set up Audit
Committees of the Board, to function as an effective tier to the Board of Directors of the Banks.
The constitution, role and functions of the Audit Committee have also been laid down by the RBI.

Composition of Audit Committees :

In the Public Sector Banks, the ACB shall consist of Members of the Board of Directors, who
will include:
a) Executive Directors on the Board.
b) Two official Directors (Nominees of Government and RBI) .
c) Two non official, non executive directors (at least one of them should be a Chartered
Accountant) Directors from staff should not be included in the ACB As per the RBI guidelines,
the meeting of the ACB should be chaired by any one of the Non-Executive The author is
member of the Institute. The views expressed herein are the personal views of the author and do
not necessarily represent the views of the Institute.Directors. Non-Official Directors should be
rotated every two years. If the bank has only one Non-Official Chartered Accountant Director, he
should not be rotated and should continue to be in the ACB. In the case of the private Banks,
apart from the above, the principle of predominance in the number of Non-Executive Directors
on the ACB, should also be observed. Regarding the periodicity of the ACB meetings, the ACB
should meet once in every quarter and minimum of 6 meetings should be held in a year. Three
members will constitute the quorum for ACB meetings.

Meetings
a) The Committee is to meet, as a minimum, three times per year. Special meetings of the
Committee may be convened as required. The external auditors have the right to request a
special meeting of the Committee where considered necessary.
b) A formal agenda for all meetings of the Audit Committee will be prepared and distributed,
together will all reports and other documentation to be considered at the meeting, to members of
the Committee, and any other person required to attend.
c) The agenda and accompanying material will be sent to the relevant parties at least three days
prior to the date of the meeting, except for special meetings called at short notice.
d) Preparation and distribution of the agenda and reports will be the responsibility of the CEO.
e) The Audit Committee shall after every meeting forward the minutes of that meeting to the
next ordinary board meeting, including a report explaining any specific recommendations and
key outcomes.
f) The Committee will report annually to the Board summarising the activities of the Committee
during the previous financial year.

SELECTION CRITERIA
SUMMARY
The purpose of this note is to provide guidance to Centers on the selection of external auditors
and, as such, supplements CGIAR Financial Guideline No. 3 (Auditing Guidelines Manual).
The note draws on recent examples of external auditor selection. The note recommends that
criteria and their weightings for external auditor selection should be established during the
selection planning phase. The note also recommends that a comprehensive Request for Proposal
document be used to elicit effective and
competitive proposals from prospective firms.

Criterion weightings should ensure that technical criteria are decisive, with price determining the
selection only when technical rankings are close. Consistent with CGIAR Financial Guideline
No. 6 on Procurement, the criteria should be included in the requests for proposal given to
prospective firms to encourage responsive bids and promote transparency in the selection
process. Technical criteria should
be assessed before price is considered

.INTRODUCTION
CGIAR Financial Guideline No. 3 on Audit (FG3) provides that the Center external auditor be
rotated every 5-7 years. Section 2.27 of FG3 provides that the Centers may wish to consider the
following criteria when selecting a new external auditor:
The personnel size and qualifications of the firm in the host country;
The firm’s clientele;
The firm’s proven and demonstrated experience in auditing international nonprofit organizations
in the host country; and
The firm’s audit methodology, approach, and use of information technology (IT) tools.

The purpose of this note is to provide guidance to Centers on the selection criteria to supplement
CGIAR FG 3. The note draws on recent examples of external auditor selection in a number of
Centers.

Generally, external audit firms proposing to bid for the Center’s external audit should be
evaluated onthe basis of
Written proposal submitted in response to a request for proposal
Presentation(s)
Any clarifications submitted by the firm concerning the above

Performance of bidders against the selection criteria should be assessed based on all three
sources. Criteria weightings should ensure that technical criteria are decisive, with price
determining selection only when technical rankings are close. Consistent with CGIAR Financial
Guideline No. 6 on procurement, the criteria should be included in the requests for proposal
given to prospective firms to encourage responsive bids & promote transparency in the selection
process. Technical criteria should be assessed before price is considered. Suggested selection
criteria consistent with the recommendations of FG3, items to consider when evaluating against
the criteria and criteria weightings, are set out below:
Overall capabilities of the firm (suggested weighting: 10%)

Affiliation with worldwide firm–nature of professional quality assurance and other interactions
to ensure that international auditing standards are maintained as they are evolving (including
impacts of the U.S. Sarb anes-Oxley Act and similar requirements in other countries).

Presence of offices in other countries where the Center has operations/offices, and the ease with
which those offices could be called on where necessary.

Experience in audit of not-for-profitorganizations/internationalorganizations/enterprises repo

according to international financial standards.

Number of partners and professional staff; partner-staff ratio, ability to substitute staff at similar
levels of qualifications and experience if necessary .
Firm specialties that may be advantageous to the audit of the Center (e.g., IT, enterprise risk
management)
Types of clients/sectors, number of large clients/client spread (not overly reliant on few clients)
Any legal actions or reputational issues relating to firm that may impact the provide services to
the Center
Feedback on performance from other clients .
professional team assigned (suggested weighting: 20%)
Organization of team (lead partner, review partner, number of manager -level staff, auditor-in-
charge (AiC) and junior staff; whether the team includes staff qualified to review IT systems).
The curriculum vitae of lead partner, review partner, manager(s), AiC – professional &
academic qualifications, years of external audit experience, recent professional development
activities, experience with audit of not-for-profit entities, experience with auditing against
international financial reporting standards, any experience with the Center or other CGIAR
centers?
Number of hours allocated in proposal by partners, managers and AiC

Proposed methodology (suggested weighting: 20%)

Risk assessment methodology–how would they se

Balance between reviews of controls and substantive testing
Reporting approach–interim reports, management reports, presentations to management and
Board

Number of hours allocated to the assignment, breakdown betw

Number of visits to the Center for the audit
Approach to reviewing the financial system
Proposed interaction with internal audit function

Understanding of the assignment (suggested weighting: 20%)

Familiarity or at least knowledge of types of financial reporting and control issues facing an
entity like the Center
Approach tailored to not-for-profit, international organization
Ability to audit against IFRS and according to international auditing standards, understanding
what this entails
Ability to identify important risks that would affect the audit and ability of the Center to report
against IFRS (via compliance with CGIAR Financial Guideline No. 2)

Costs (suggested weighting: 30% Upper and lower bounds to

acceptable fees may be set to avoid the result being skewed by
unrealistically low or high fee proposals)
Proposed fee.

Relationship to the number of hours (should be neither excessive nor low that the quality of the
audit or ability of the firm to deliver within the fee is doubted)

Estimated out-of-pocket expenses.