The Public Finance Management Act 2012 (Section 73(5) provides that ”Every national government public entity shall establish an audit committee whose composition and functions shall be as prescribed by the regulations.”
Section 160 (1) (b) of the PFM Regulations (Legal Notice No. 34) provides that “Internal Auditors shall have a duty to give reasonable assurance through the Audit Committee on the state of risk management, control and governance within the organization.
Section 164(1)(e) of the PFM Regulations (Legal Notice No. 34) provides that, “the Internal Auditor General in leading the internal audit function within the National Treasury, is responsible for policy formulation and strategic direction within the National Government entities including; providing capacity building for both levels of Government including developing curriculum, training materials and undertake training for audit committees.”
The Internal Auditor General Department develops audit committee guidelines for both National & County Government entities for the purpose of providing guidance on “best practice” relating to Audit Committee operations.
Audit Committees form a key element in the governance process by providing an independent expert assessment of the activities of top management, the quality of the risk management, financial reporting, financial management and internal audit, to the board of directors or a supervisory board or executive management.
The existence of an independent Audit Committee is recognised internationally as an important feature of good corporate governance. An Audit Committee can benefit an entity by:
- Acting as a forum for dialogue between the accounting officer or statutory body, executive management and the internal and external auditors. The communication helps facilitate a better awareness of each party’s responsibilities and provides a more efficient and coordinated audit process.
- Promoting the integrity and quality of internal and external reports by providing a high level of assurance and check.
- Fostering and promoting a more effective and efficient audit process by providing an independent review of the internal audit annual work plan and reports.
- Providing a ‘no surprises’ environment in an entity, particularly with regard to the prompt identification of risks and threats to the entity.
- Providing a depth of knowledge that assists management discharge its responsibilities in the most effective and efficient manner.