The present study aims at examining the effectiveness of audit committees as a tool of corporate governance in the Indian corporate sector. It is based on analysis of 10 listed companies of India which include Steel Authority of India Limited, Tata Chemicals Limited, Whirlpool of India Limited, Larsen & Toubro Limited, Power Grid Limited, DLF Limited, etc. Through case survey approach, this study reveals that the concept of audit committee is not new in India but is gaining importance day by day. The functions of audit committee have gradually shifted from traditional areas of accounting. In the current scenario, the audit committees set up by Indian corporate houses perform diverse functions in the areas of financial reporting, financial analysis, audit planning, reviewing of external audit, internal control and evaluation, etc. The study also reveals that in all the companies under study there is independent representation of the audit committees which act as a channel of communication between external auditors and board of directors. The dynamic nature of the role of the audit committees makes corporate governance more effectual in the context of the Indian corporate.

The financial risk associated with investment often acts as a stumbling block for the potential investors to invest their hard earned money in capital market. In the past, various capital market scams have shaken the confidence of investors badly, leaving them in tears and tatters. To curb the malpractices adopted by the corporate sector, the government felt the necessity of regulating their actions. The incorporation of corporate governance practices is a major step in this direction. Corporate governance provides two benefits: reducing these malpractices followed by corporate houses and reducing investor's risk associated with their investment by ensuring transparency, accountability and enforceability on the part of the corporate houses. Moreover, sound corporate governance practices enable management to allocate resources more efficiently, which increases the possibility that investors will obtain a higher rate of return on their investment in a financially peaceful environment.

The system which aids the management to direct and control the company to the best interest of its shareholders and other stakeholders, ascertaining better financial reporting and more transparency is called corporate governance. It is a controlling activity of the company and is needed to create a culture of consciousness, transparency, openness and sincerity. Corporate governance entails a group of relationships connecting the management of the company and various other shareholders and stakeholders besides providing a framework for setting the objectives of the company, the ways for achieving them and determining performance monitoring. The corporate governance framework not only clearly defines how rights and responsibilities are distributed between the different stakeholders of the company including the board of directors, the management, the shareholders and others, but also specifies explicitly the procedures and rules for decision making on the affairs of the corporation. The goal is the closest possible alignment of the interests of corporations, individuals and society.

Corporate Governance Journal, Corporate Governance, Indian Corporate Sector, Financial Risks, Capital Markets, Decision Making Process, Securities and Exchange Board of India, SEBI, Risk Management, Corporate Governance Reforms, Financial Statements, Financial Reporting.