Governance element	Principle/s	Summary recommendation/s	Difference to King II
Chapter 3. Audit committees
	3.1. The board should ensure that the company has an effective and independent audit committee	While listed and state-owned companies are required by law to establish audit committees, all other companies should also establish this committee and define its composition, purpose and duties in the memorandum of incorporation. The terms of reference of the committee should be approved by the board. The audit committee should meet as often as is necessary, but at least twice a year, and meet with internal and external auditors at least once a year without management being present.	King II required ‘affected’ companies to establish audit committees. King II did not address the frequency of meetings nor discussions with internal audit without management being present.
	3.2. Audit committee members should be suitably skilled and experienced independent non-executive directors	The audit committee should consist of at least three members, all of whom should be independent non-executive directors. It should not be chaired by, nor have as a member, the chairman of the board. The committee as a whole should have sufficient qualifications and experience to fulfil its duties, with members keeping up-to-date with developments. An agreed process should be in place to allow the committee to consult with specialists. Should vacancies arise, these should be filled by the board.	King II did not address the minimum number of members required for the audit committee and required that only the majority of members should be independent non-executive directors. Audit committees at subsidiary level were not addressed in King II. King III specifies minimum areas over which audit committees should have sufficient expertise, while King II only required the majority of members to be financially literate.
	3.3. The audit committee should be chaired by an independent non-executive director	The board should elect the chairman of the audit committee. The chairman of the audit committee should participate in and agree the agenda of the committee and should be present at the AGM.	King II required the audit committee to elect the chairman of the audit committee.
	3.4. The audit committee should oversee integrated reporting	The audit committee should review the financial statements included in the integrated report and should have regard to all factors and risks that may impact on the integrity of the integrated report. It should also review the disclosure of sustainability issues in the integrated report to ensure that it does not conflict with the financial information. Where there are material sustainability issues, it should recommend to the board whether to engage an external assurance provider. The audit committee should consider the need for summarised information and engage external auditors to provide assurance on the summarised results.	King II did not discuss the audit committee’s responsibility for sustainability in the detail that King III does. King II did not address summarised sustainability information.
	3.5. The audit committee should ensure that a combined assurance model is applied to provide a coordinated approach to all assurance activities	The audit committee should monitor the relationship between the external assurance providers and the company and should ensure that combined assurance is given to address all the significant risks facing the company.	Combined assurance was not discussed in King II in the level of detail contained in King III.
	3.6. The audit committee should satisfy itself of the expertise, resources and experience of the company’s finance function	The review of the finance function should be performed annually and the results thereof disclosed in the integrated report.	King II did not require a review of the finance function.
	3.7. The audit committee should be responsible for overseeing of internal audit	The audit committee should be responsible for the performance management of the chief audit officer, approve the internal audit plan and ensure the internal audit function is subject to an independent quality review as and when the committee deems appropriate.	King III did not address an independent quality review of the internal audit function.
	3.8. The audit committee should be an integral component of the risk management process	Guided by its charter, which should set out its responsibilities regarding risk management, the audit committee should specifically have oversight of financial reporting risks and internal financial controls as well as fraud and IT risks as they relate to financial reporting.	Responsibilities defined in the new Companies Act have been incorporated into King III. King II did not specifically assign oversight of IT risk as it relates to financial reporting to the audit committee.
	3.9. The audit committee is responsible for recommending the appointment of the external auditor and overseeing the external audit process	The audit committee: 3.9.1. must nominate the external auditor for appointment 3.9.2. must approve the terms of engagement and remuneration for the external audit engagement 3.9.3. must monitor and report on the independence of the external auditor 3.9.4. must define a policy for non-audit services provided by the external auditor and must approve the contracts for non-audit services 3.9.5. should be informed of any Reportable Irregularities identified and reported by the external auditor 3.9.6. should review the quality and effectiveness of the external audit process.	King II did not address reportable irregularities.
	3.10. The audit committee should report to the board and shareholders on how it has discharged its duties	The audit committee should report internally to the board on its statutory duties and duties assigned to it by the board. The audit committee must report to the shareholders on its compliance with its statutory duties, the independence of the external auditor; its view on the financial statements and the accounting practices; and whether the internal financial controls are effective. It should also recommend the integrated report for approval by the board and provide details of its role, composition, number of meetings and activities.	King II did not contain reporting responsibilities to shareholders for the audit committee. King II did not assign responsibility for recommending sustainability reporting for approval by the board to the audit committee.