Eight hard-earned lessons

Eight hard-earned lessons

Chairing Audit Committees is not just about ticking boxes; it is about stewarding legitimacy itself
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Audit committees are almost always the first committee to be formed, the most closely regulated, and the one carrying the heaviest agenda in corporate boards. Chairing an audit committee is no ceremonial assignment; it requires judgment, foresight, and the ability to balance technical oversight with strategic acumen.

There are a few hard-earned lessons about what makes an effective audit chair. These are insights that can be replicated globally. Audit committees are under sharp scrutiny, and governance failures have emanated in India from weak oversight.

 First is a caution against living in the rearview mirror. Employees think the audit committee is always looking back. Good committees have their finger on the pulse of the future, probing past results and the assumptions behind the next quarter’s projections. In India, where economic volatility from GST revisions to shifting credit cycles can quickly derail forecasts, this forward-looking stance is critical.

The second lesson is to start meetings with clarity. Keep the CFO’s presentation as the opening act, ensuring any gaps are closed and unexplained items clarified. In Indian companies, where CFOs straddle a fine line between promoter expectations and investor demands, this early engagement empowers audit committees to go deeper rather than chase loose ends later.

The third lesson is deceptively simple: label the agenda. Is the item for discussion, for information, or for decision? If a decision, what precisely is being decided? Boards often receive bulky packets of material without clarity on expectations, leading to either rubber-stamping or endless debate. Clear labelling saves time and preserves the committee’s credibility as a decision-making body.

Fourth is about boundaries. Audit committees are magnets for spillover from risk, remuneration, or ESG committees. A clear charter and cross-memberships are needed to prevent duplication, more so in India. A Deloitte survey finds that over 60 per cent of directors considered their audit committee “overburdened,” dealing with cyber risks, whistleblower complaints, and tax disputes, better suited to other committees.

 Fifth is to order the agenda by importance. Moving critical items up ensures that internal audit reports, the very backbone of operational assurance, receive the attention they deserve. In India, internal audit functions are sometimes under the radar or underfunded, and this shift could elevate their role from box-ticking to value creation.

The sixth tip is about translation. Not every committee member is a financial expert. Work with the CFO and audit head to present issues in ways an “intelligent lay businessperson” can grasp. The independent directors of India Inc are mostly from non-finance backgrounds (academia, bureaucrats, politicians), and so this simplification is essential for informed decision-making.

The seventh tip is all about learning before leading. New directors should not be invited to chair the audit committee immediately. Instead, review minutes from the past two years and consult the outgoing chair. The independent directors change at frequent intervals across committees. So, many audit chairs end up learning on the job, which weakens continuity. A structured handover could ensure smoother transitions and stronger oversight.

India Inc should heed capital markets and global investors’ demands and build the credibility of audit committees

Finally, understand the value of active dialogue with external auditors. Ask what peers in the sector are doing, whether material is produced on time, and if internal auditors are doing their job. This is especially important for India Inc. Most infamous corporate scams in India have auditors goofing up or playing with the fraud promoters (Satyam, DHFL, IndusInd, etc). Investors now demand greater transparency and independence in the audit process. Perhaps auditors must be considered as partners in governance henceforth?

 SEBI has tightened audit committee mandates to include reviewing utilisation of IPO proceeds, related-party transactions (subsequently relaxed under pressure from lobbies), and whistleblower complaints. ESG disclosures and cyber risks are added headaches for the audit chair.  A Grand Thornton report says almost 70 per cent of Indian companies claim compliance overload as their top audit committee challenge currently.

 And yet, the role is not merely about compliance. At its best, the audit committee safeguards credibility, enhances transparency, and preserves the company’s social licence to operate. To chair it well is to act like a conductor, ensuring that auditors, CFOs, risk officers, and directors play in harmony.

India Inc should heed capital markets and global investors’ demands and build the credibility of audit committees. Done well, chairing the audit committee is not just about ticking boxes; it is about stewarding legitimacy itself.

Muneer is a Fortune-500 advisor, startup investor and co-founder of the non-profit Medici Institute for Innovation. Ralph is a global board advisor, coach and publisher. X: @MuneerMuh

Business India
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