King III - Audit Committee and Integrated report & Disclosure

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Audit committee

Although the Companies Act prescribes the composition and
functions of the audit committee for state owned and public
companies, King III proposes that all companies should appoint an audit committee. The audit committee should comprise at least three members and all members should be independent non-executive directors.

The committee as a whole should have sufficient qualifications and experience to fulfil its duties, and should be permitted to consult with specialists or consultants after following an agreed process. The terms of reference of the audit committee should be approved by the Board.

The functions of the audit committee in relation to the external auditor include:

the nomination of the external auditor for appointment and to verify the independence of the auditor
determining the audit fee and the scope of the appointment
ensuring that the appointment complies with the requirements of the Companies Act
determining the nature and extent of non-audit services
pre-approving any contract for non-audit services.

The Board may delegate certain aspects of risk management and sustainability to the audit committee. King III introduces the concept of integrated reporting (which combines financial and sustainability reporting) and allows for the Board to delegate the review of integrated reporting to the audit committee. In this regard, the audit committee should recommend to the Board the need to engage external assurance providers to provide assurance on the accuracy and completeness of material elements of integrated reporting.

King III adopts a wide approach to the audit committee’s responsibility for financial risk and reporting to include:

Financial risks and reporting
Review of internal financial controls
Fraud risks and IT risks as it relates to financial reporting.

King III further introduces the combined assurance model. In terms of this model, assurance should be done on three levels, i.e. management, internal assurance providers and external assurance providers. The audit committee should ensure that a combined assurance model is applied to provide a coordinated approach to all assurance activities.

Integrated reporting and disclosure

King III proposes integrated reporting to ensure that all stakeholders are able to assess the economic value of the company. This entails the integration of the company’s financial reporting with sustainability reporting and disclosure. The Board should ensure that the positive and negative impacts of the company’s operations, as well as plans to improve the positives and eradicate the negatives, are conveyed in the integrated report.

King III suggests that the Board may delegate oversight of the integrated report to an appropriate committee (either the audit committee or a sustainability committee). The audit committee should oversee the provision of independent assurance over sustainability issues and should assist the Board by reviewing the integrated reporting and disclosure to ensure that it does not contradict financial reporting.

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