King III - Chapter 3: Audit committees
“An independent audit committee fulfils a vital role in corporate governance. The audit committee is vital to, among other things, ensure the integrity of integrated reporting and internal financial controls and identify and manage financial risks.”
In order to carry out their mandate to the full extent, audit committees should be suitably skilled and qualified to deal with their responsibilities of overseeing integrated reporting and co-ordinating the activities of the various assurance providers.
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The board and management of any company, regardless of size, should be fully committed to the goal of supporting and maintaining an effective audit committee:
- Responsibility of the audit committee has been extended beyond financial reporting to include sustainability reporting
- The constitution, size and sufficiency and appropriateness of the skills set of the audit committee may need to be reconsidered by the board
- An assessment of in-house skills and the qualifications/track record of external assurance providers should be performed
- Audit committees are to coordinate the utilisation of appropriate assurance providers in the assurance model to provide assurance on the identified risks
- Increased time and resource commitments are needed for audit committees, management and internal audit to adequately review internal financial controls.
The need for summarised information, the assessment of internal financial controls and effectiveness and the assessment of the integrated report will all be areas where the audit committee will be required to apply its mind in arriving at the most efficient and effective governance solution. This will be unique to every company and audit committees will need to ensure that they have the appropriate blend of skills and experience in order to discharge their responsibilities.
The audit committee takes primary responsibility for and has the ultimate decision-making ability regarding its statutory responsibilities in terms of the Companies Act. This may result in conflicts with the board should differences of opinion arise regarding these matters. The board should devise a mechanism for resolving such differences of opinion.
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- Does the audit committee have the appropriate blend of skills to discharge its responsibilities, specifically the skills required to oversee integrated reporting?
- Has a process been approved by the board to allow the audit committee to consult with specialists or consultants to assist the audit committee with the performance of its functions?
- Is there effective communication and coordination of the board’s oversight activities to ensure that the audit committee is informed of all significant actual or potential financial and nonfinancial risks?
- Does the internal audit function have appropriate skills and resources to deliver on expectations regarding the review of internal financial controls?
- Does a mechanism exist for resolving differences of opinion between the audit committee and the board regarding the audit committee’s statutory responsibilities should such differences arise?
A primary function of the audit committee will be to oversee the integrity of the organisation’s intergrated report and to assess its continuing ability to operate as a going concern, assumptions and conclusions relating to which should be formally recorded. It should also ensure that there is sufficient cooperation between the organisation’s various assurance providers, including the external auditor, the internal audit function, the risk officer and compliance officer. The internal audit function should annually review the organisation’s internal control system and should specifically report its findings on internal financial controls to the audit committee. It should place particular emphasis on internal financial control and the effect that information technology has on processes and internal controls. The audit committee should ensure that all pertinent risks are covered by audit activities and, specifically, should monitor the effectiveness of the internal audit function. PwC has specialists in all these areas and we offer specific expertise in:
- External audit
- Internal audit
- Risk management
- Internal financial control
- Embedded compliance
- Audit committee structures and charters.