Having an audit committee can become a mere box-ticking exercise if it’s not functioning properly, says the Institute of Directors of Southern Africa (IoDSA). This would be a waste, considering all the positive effects a well-functioning committee can have on an organisation.
However, by implementing a few simple plans, the audit committee can successfully navigate the increase in duties and responsibilities the King III and the new Companies Act demand.
“It has become crucial that in addition to having a charter, audit committees should have an annual meeting plan,” says IoDSA senior governance specialist Parmi Natesan.
“In this way, the company will be able to ensure that all the relevant issues are effectively addressed by the committee at the appropriate meetings.”
In addition, the plan can be used to maintain regular, ongoing contact with internal auditors, external auditors and management, as well as co-ordinating activities related to overall expectations.
According to Natesan, the annual plan should be compiled at the beginning of each financial year, ensuring that all the audit committee’s responsibilities for that year will be covered.
Each audit committee duty should be detailed, as well as the frequency (annually, quarterly, as necessary) and/or planned timing (quarter one, two, three or four).
“The meeting plan should be reviewed and agreed to by the board of directors which, after all, delegates duties to the audit committee, in addition to their statutory duties,” she says.
Many audit committees plan their activities using a calendar in which committee responsibilities are labeled down one side and expected meetings are labeled across the top. Core responsibilities from the audit committee charter are then allocated to various meetings.
The plan should be tailored to suit the unique characteristics of the entity concerned. However, the following duties should be covered as a minimum requirement:
* All applicable statutory duties.
* Financial management, including financial statements and the finance function.
* Integrated reporting, which includes sustainability reporting.
* External audit.
* Internal audit.
* Interaction with management.
* Combined assurance.
* Risk, with regards to financial reporting.
* Compliance, as it impacts on the financial aspects of the entity.
* Reporting requirements to the board and to the shareholders.
* Other audit committee administration matters, like review of charter and self-evaluation of committee and members.
“Instituting this simple plan is a highly effective way of keeping track of all of the audit committee’s duties and responsibilities,” concludes Natesan. “Draw it up now, and you’ll thank yourself all year long.”