Borrowing for audit committee

This query is : Resolved

Jayalakshmi Ramasamy (Querist)
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04 April 2024 Dear Sir,

The criteria mentioned for audit committee applicability for private co. is Rs.50 crores as per companies act 2013 and rules thereunder.
My query is which items shall the borrowings be taken under the head borrowings, if short term borrowings, long term borrowings , trades payables, short term provisions, other current liabilities like advance received from clients, security deposit, statutory liabilities are included under borrowings.

Kindly advise .

Thank you in advance.

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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06 July 2024 Under the Companies Act 2013, the criteria for the applicability of an audit committee to a private company is based on various thresholds, including turnover, net worth, and borrowings. Specifically, for borrowings, if the company meets the criteria of having borrowings exceeding Rs. 50 crores, then it must constitute an audit committee as per the requirements.

Regarding which items should be included under the head "borrowings" for the purpose of determining this threshold, typically, the following items are considered:

1. **Short-term borrowings:** These are loans or financial obligations that are due within one year.

2. **Long-term borrowings:** These include loans or financial obligations that are due beyond one year.

3. **Trade payables:** Amounts owed to suppliers or vendors for goods or services purchased on credit.

4. **Short-term provisions:** These are provisions made for expenses or liabilities that are expected to be settled within one year.

5. **Other current liabilities:** This category may include:
- Advances received from clients: Payments received in advance for goods or services that are yet to be delivered.
- Security deposits: Amounts deposited as security for leases, contracts, or other obligations.
- Statutory liabilities: Payments due to government authorities, such as taxes and duties.

### Clarification on Inclusions:

- **Exclusion of Equity:** It's important to note that equity or share capital is typically not considered as part of borrowings for these purposes, as these represent ownership in the company rather than liabilities.

- **Disclosure in Financial Statements:** These items are usually disclosed in the financial statements under the relevant sections such as current liabilities, long-term liabilities, and provisions.

### Conclusion:

For determining whether a private company needs to constitute an audit committee based on borrowings exceeding Rs. 50 crores, the company should aggregate all these liabilities and obligations that fall under the definition of borrowings as outlined above. This helps in ensuring compliance with the Companies Act 2013 requirements regarding the formation of an audit committee based on financial thresholds.