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As the Indian startup ecosystem continues to thrive, the need for robust corporate governance practices has become increasingly crucial. Often driven by innovation and rapid growth, startups face unique challenges that require a solid foundation of transparency, accountability, and responsible decision-making. This is where the role of audit committees assumes paramount importance. Within the broader corporate governance framework, audit committees are crucial in ensuring the integrity and reliability of a startup’s financial reporting and internal controls. The Companies Act, 2013 and the SEBI (LODR) Regulations, 2015 have placed significant emphasis on the responsibilities of audit committees. While these regulations focus on the need for audit committees for listed and public companies, introducing such committees for startups that have successfully raised external capital of more than USD 100 million can immensely benefit the various stakeholders and the entity itself.
Audit committees can enhance governance in startups by focusing on the following aspects.
* Firstly, audit committees should provide financial reporting oversight. They are responsible for reviewing the startup’s financial statements, ensuring they present an accurate and fair view of the company’s financial position, and complying with accounting standards.
* Secondly, audit committees should oversee the effectiveness of the startup’s internal financial controls and risk management systems, helping to identify and mitigate potential risks and institute a robust controls framework.
* Thirdly, audit committees should play a key role in appointing, remuneration, and overseeing the startup’s internal and external auditors, ensuring their independence and effectiveness.
* Fourthly, audit committees should monitor the startup’s compliance with legal and regulatory requirements.
* Finally, audit committees should ensure that the startup has instituted a whistle-blower mechanism, which allows employees to report any concerns or irregularities without fear of retaliation.
As noted, the audit committees’ responsibilities can be very broad-based and onerous. Hence, finding the right balance of audit committee members with diverse skill sets is crucial, as committee members may need to wear multiple hats. Another way an audit committee can be impactful is by ensuring it has a clear charter on its scope of responsibilities and regular engagement between the audit committee and the board of directors towards assessing the timely dissemination of information to stakeholders. Furthermore, as the startup’s business model evolves, governance and audit practices must adapt through regular reviews and updates to policies and procedures to ensure continued effectiveness.
Beyond driving growth, founders are the architects of a healthy startup. They set the ethical tone, define critical metrics for success, determine revenue strategies, and maintain professional boundaries. By prioritising good governance, founders ensure long-term stability and investor trust.
As the Indian startup ecosystem continues to evolve, the importance of robust governance and the critical role of audit committees cannot be overstated. By embracing sound governance practices, startups can build investor confidence, foster harmonious relationships with stakeholders, and maintain fair market practices.
Through a balanced approach that combines entrepreneurial agility with responsible decision-making, startups can navigate the complexities of their business environment and lay the foundation for long-term success. By prioritising governance, startups can unlock their full potential and contribute to the continued growth and development of the Indian economy.
About the Authors: Sandip Khetan, Co-founder & Global Head of Accounting and Reporting Consulting, Uniqus Consultech & Mr. Sagar Lakhani, Partner, Accounting and Reporting Consulting, Uniqus Consultech
Disclaimer: The views expressed are solely of the authors and ETCFO.com does not necessarily subscribe to it. ETCFO.com shall not be responsible for any damage caused to any person/organisation directly or indirectly.
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