What about Audit Committees?

King III Chapter 3′s title is Audit Committees and consists of 10 Principles, the Report providing 90 points of clarity.

Firstly, King III positions the audit committee as being a vital component for successful corporate governance in all entities – whether listed, for-profit, public or not.

The committee is independent

The Companies Act 2008 has moved the audit committees of listed and state-owned entities from being a sub-committee of the board to a separate statutory committee that is appointed by the shareholders, although it still acts in partnership with the board.

The independence of the committee is emphasised in many ways.

The members:

• Must be elected by the shareholders at the AGM (re The Companies Act 2008)
• Must be independent, non-executive directors

The chairman:

• Cannot be the chairman of the board, but is elected by the board

Specialist consultants:

• May be asked to provide specific expertise but cannot vote

Meetings:

• Should take place at least once in a year without management being present

The committee must be effective:

At least 3 member positions must be filled at every meeting;

The members must be suitably skilled in not only specialist financial aspects, but also the financial aspects of IT, integrated reporting, risk management, corporate law, internal audit and other such disciplines; and

The members must be collectively up to date in specialist areas.

The committee responsibilities

include those to:

> Oversee the financial process, comment on the financial results and review the entity’s finance function

> Oversee integrated reporting (see chapter 9)

> Oversee the internal audit function (see chapter 7)

> Oversee the external audit process (recommending the external auditor to be appointed)

> Ensure that a combined assurance model is applied

> Ensure that it is part of the risk management process

> Ensure that the board and shareholders receive the required information from the committee

> Review the needs of users of financial information and determine interim results

> Consider the use of technology to improve audit coverage and efficiency

The Combined Assurance Model

This concept is introduced by King III.

The definition in The Report is that combined assurance is

Integrating and aligning assurance processes in a company to maximise risk and governance oversight and control efficiencies, and optimise overall assurance to the audit and risk committee, considering the company’s risk appetite.

In terms of this model, assurance should be done on three levels: management, internal assurance providers and external assurance providers.

In this model, internal audit makes an important contribution, but is not the sole provider of assurance; it’s not so much up to the CAE (Chief Audit Executive) but to the Audit Committee to decide whether, based on the information from these different providers, an overall opinion can be reached.

The combined assurance model concept also ensures that a coordinated approach is taken to assurance activities.

Implement GovN and know that you have done your statutory duty !

Want to know more?

NOTE: The comments in this page are to be read within the context of the candor legal notices which can be found at this web site. The Institute of Directors in Southern Africa’s ownership of the copyright in the publications “King Report on Governance for South Africa 2009” and “King Code of Governance for South Africa 2009” is hereby acknowledged.