Audit Committees in South Africa in Terms of the Companies Act 71 of 2008: Policy Rationale, Role and Contribution of Audit Committees towards Financial Reporting

Abstract

In recent times the world's business community has seen an overwhelming surge of serious corporate governance and financial reporting scandals in both the private and the public sectors. These governance collapses happened despite the fact that the majority of these companies have audit committees. This article critically examines the provisions of the Companies Act 71 of 2008 relating to the establishment and maintenance of audit committees in South African companies. The focus is particularly on the policy rationale, and the role and contribution of audit committees towards financial reporting in South Africa. The purpose is to demonstrate that audit committees play a key role in the production of dependable financial statements and reports for the benefit of the company's stakeholder community. This article highlights the relationship between the effectiveness of audit committees and good corporate governance, as well as accurate financial reporting. In other words, where there is a more effective audit committee, there is a high likelihood of accurate and dependable financial statements and other financial reports.