Section 40(3) provides that the board of directors of private companies that exceed the stipulated thresholds can state in their report under section 158 of the principal Act that they have not established an audit committee and setting out the reason for their actions. The Act does not demand that audit committees be established in all cases involving private companies where it is relevant to do so. It allows latitude in a case where a company decides that it is not in a position to, or prepared to, establish such a committee but instead to explain its decision in this regard.