The Audit Committee

Our previous blog discussed how board committees constitute an important element of the governance process, helping the board make calculated and effective decisions guided by advice from committees with specialised expertise areas.

 

Due to the countless number of responsibilities, work demands, and expectations placed on the board, it is vital to delegate power, duties, and responsibilities to various committees to make the most efficient use of time and skills. We previously briefly discussed the difference between standing and ad hoc committees and listed some examples. In today’s blog, we take a more in-depth look at standard standing committees, specifically the audit committee.

 

Audit committee

The King IV Report on Corporate Governance™ (King IV™) emphasises the vital role of an audit committee to ensure the integrity of financial statements and external reports. It focuses on integrated reporting (both financial and sustainability reporting), identifying and managing financial risk. It also concentrates on the effectiveness of the organisation’s functions and services of assurance arrangements and service providers.

 

An audit committee is a mandatory statutory requirement for some companies; however, it is encouraged for all organisations that issue audited financial statements to consider establishing an audit committee. A statutory audit committee should consist of independent non-executive board directors and be accountable for its performance, as it has the authority to make decisions regarding its duties. The committee members must meet the minimum qualification requirements and be suitably skilled and qualified, with the skills, literacy, and experience to effectively and efficiently execute all duties. The audit committee should oversee the management of finances and consider all risks that may affect the integrity of reports issued by the organisation. They also need to have annual meetings with internal and external auditors, without management being present, to discuss views and concerns based on their findings throughout the year. It is important to keep in mind that the board remains responsible for delegated responsibilities to committees.

 

The audit committee has both statutory and governance duties. The King III™ recommended principles and practices. King IV™ recommends an integrated approach to the establishment and the execution of the audit committee statutory and governance duties. Below are some of the duties of the audit committee.

 

  • Making submissions to the board regarding the company’s accounting policies, financial controls, records, and reporting.
  • Nominating an auditor that the audit committee regards as independent.
  • Determining the audit fee.
  • Ensuring that the appointment of the auditor complies with the Companies Act and other relevant legislation.
  • Determining the nature and extent of non-audit services.
  • Pre-approving any proposed agreement with the auditor for the provision of non-audit services.
  • Preparing a report to be included in the annual financial statements. This report should describe how the committee carried out its functions, state whether the auditor was independent, and comment on the company’s financial statements, accounting practices, and internal financial control measures.
  • Receiving and dealing with relevant complaints.
  • Any other function designated by the board.

 

The audit committee has certain statutory disclosure requirements regarding its role, responsibilities, composition, and key areas of focus. However, in addition to it, the following should also be disclosed as required by King IV™:

 

  • A statement as to whether the audit committee is convinced that the external auditor is independent of the organisation.
  • Matters that the audit committee has considered as significant with regard to the annual financial statements and how the committee addressed them.
  • The audit committee’s views on the quality of the external audit.
  • The audit committee’s views on the effectiveness of:
    • the Chief Audit Executive and the arrangements for the internal audit;
    • the internal financial controls and the extent of any significant

weaknesses that resulted in financial loss, error or fraud;

  • the effectiveness of the finance function and the CFO; and
  • the arrangements in place for combined assurance.

 

An audit committee’s appointment is crucial for enhanced accountability and transparency within an organisation, giving valuable perspectives on the financial reporting process, the audit process, the company’s system of internal controls, and compliance with laws and regulations. An audit committee is an essential component of corporate governance and it minimises the risk of financial loss and fraud.

 

At Okina Company Secretarial Services we can help you establish and effectively incorporate the necessary committees to help your business flourish. We can provide practical guidance and assist with processes, policies, and reporting. Contact us at info@website15.pixelreview.co.za

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