Principle 7.3. of the King III Code on Corporate Governance requires that Internal Audit should provide a written assessment on the effectiveness of the company’s system of internal controls and risk management. This will give substance to the endorsement by the directors of the effectiveness of internal controls in a company in the integrated report.

In applying principle 7.3, King III recommends the following:

  • Internal audit should form an integral part of the combined assurance model as internal assurance provider.
  • Internal controls should be established not only over financial matters, but also operational, compliance and sustainability issues.
  • Companies should maintain an effective governance, risk management and internal control framework.
  • Management should specify the elements of the control framework.
  • Internal audit should provide a written assessment of the system of internal controls and risk management to the board.
  • Internal audit should provide a written assessment of internal financial controls to the audit committee.

Companies Act, 2008, also requires that the audit committee must conclude and report annually to the stakeholders and the board on the effectiveness of the company’s internal financial controls. The audit committee should holistically consider all information brought to its attention from all sources, including the documented assessment of the internal financial controls by internal audit and external audit information, before concluding and reporting annually to the stakeholders and the board on the effectiveness of the company’s internal financial controls.

The audit committee should report any weaknesses in financial control, whether from a design, implementation or operation, that are considered material (individually or in combination with other weaknesses) and that resulted in actual material financial loss, fraud or material errors, to the board and the stakeholders as part of the integrated report.

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Written Assessment Of Internal Financial Controls