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AUDIT AND RISK COMMITTEE
The audit and risk committee comprises four non-executive directors who act independently and have been appointed by the Board. The chairman of the committee is Mr S Young, an independent non-executive, and he attends the annual general meeting of the Company. Additional members of the audit and risk committee are Mr JM Gaomab, Professor VC Mehana and Mr TT Hove. The company secretary is the secretary of this committee. Attendance of the external auditors Grant Thornton Cape Inc., the consultant, executive directors, management and the internal auditors are by invitation.
This committee’s responsibilities include ensuring that internal controls are in place and that management continuously improves upon these controls. The committee is also responsible for reporting to the Board on the final Group financial results.
The main objectives of the committee include the following:
- To establish the credibility, objectivity and reliability of published financial reports and ensuring that the financial statements comply with IFRS. By doing this, the committee can provide an objective, independent forum for the resolution of significant accounting and reporting-related matters.
- To evaluate the independence and effectiveness of the external auditors.
- To monitor the ethical conduct of the Group, its executives and senior management.
- To assist the board of directors in fulfilling their responsibilities by ensuring that the system of internal controls, accounting practices, management information systems, financial reporting systems and auditing processes are functioning effectively.
- To perform duties that are attributed to it by the Companies Act, the JSE and King III.
- To facilitate effective communication between the Board, senior management and the external auditors.
- To promote the overall effectiveness of corporate governance.
- To oversee the effectiveness of the internal audit function.
The external auditors can communicate with the chairman of the audit and risk committee and all of its members throughout the year. The chairman of the committee is also available at the annual general meeting to answer questions about the committee’s activities.
REPORT OF THE AUDIT AND RISK COMMITTEE
The audit and risk committee has a formal audit and risk policy document, which has been adopted by the Board. The policy document deals with duties, membership and authority. The committee has formal rules governing the services provided by the external auditors in terms of systems and processes.
The main purpose of the audit and risk committee is to ensure the integrity of the financial statements and to oversee the effectiveness of the internal financial controls and the external and internal audit functions.
The audit and risk committee undertook a full review of the cost and scope of the audit function performed by the independent auditors of the Group. The committee recommended to the Board that the current auditors, Grant Thornton Cape Inc., be re-appointed as the Group’s auditors and the audit budget was approved based on the value proposition. There were no non-audit services delivered during the audit. In terms of the Companies Act, the committee confirms that the same individual/audit partner has not served as the designated auditors of the Company for more than five consecutive financial years.
The Group has internal controls and systems designed to provide assurance as to the reliability and integrity of the financial statements. The system of internal control is designed to manage rather than eliminate the risk of failure to achieve the Group’s business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss and to safeguard, verify and maintain accountability adequately for its assets.
The external and internal auditors had unrestricted access to the audit and risk committee and attended all the audit and risk committee meetings by invitation during the year ended 31 August 2016. Detailed reports were presented by both the internal and external auditors. The chairman of the audit and risk committee reported on the findings at the Board meetings.
For the period under review, the committee is satisfied that is has fulfilled all its statutory duties assigned by the Board.
In the conduct of its duties and in accordance with section 94 of the Companies Act, the committee reports as follows:
- Overseeing the development and implementation of the Group risk plan and strategy to ensure that the Group manages its risks in an optimal manner;
- Approved, reviewed and valuated the adequacy and efficiency of the risk policies, procedures and controls applied in the day-to-day management of the business;
- The scope, independence and objectivity of the external auditors were reviewed;
- The committee considered and determined the terms of engagement and fees of the external auditors;
- The audit firm, Grant Thornton Cape Inc., and audit partner are, in the committee’s opinion, independent of the Company, and have been proposed to the shareholders for approval to be the Group’s auditors for the 2017 financial year;
- The appointment of the external auditors complied with the Companies Act and with all other legislation relating to the appointment of external auditors;
- The committee reviewed and approved the fees proposed by the external auditors;
- The nature and extent of non-audit services provided by the external auditors were reviewed to ensure that the fees for such services do not become so significant as to call their independence into question;
- There were no non-audit services during the year under review;
- Obtaining assurance from the external auditors that adequate accounting records are being maintained;
- Evaluated the independence, effectiveness and performance of the internal auditors and compliance with its charter;
- Recommended to the Board the interim and preliminary announcements of results and reports to shareholders, the annual financial statements and integrated report;
- Considered concerns regarding accounting practices and internal audit matters; and
- The appropriateness of the expertise and experience of the financial management team was reviewed and reported to be adequate.
RISK MANAGEMENT PROCESS
A key component of the audit and risk committee was to review the top 10 risks (refer to the risk management report) that the AEEI Group face in order to respond to new and emerging risks and to ensure alignment with regulatory changes as well as best practice. In doing so they took into account stakeholder needs, corporate governance principles, risk trends, global trends and external dynamics. Regulatory risk emerged as a key focus and the Group is proactively managing and responding to key risks.
The audit and risk committee is responsible for reviewing the compliance with legal, regulatory, codes and other standards and continually monitors the implementation of the legal compliance processes. The audit and risk committee is satisfied that it has complied with all its legal, regulatory and other responsibilities during the year under review.
GROUP INTERNAL AUDIT
The Group internal auditors perform an independent assurance function. The Group internal auditors have unrestricted access to the Group chief executive officer, the Group financial director and the chairman of the audit and risk committee.
The primary objective of the Group internal control is to provide independent objective assurance and consulting activity on the adequacy and effectiveness of the Group’s systems of governance, risk management and internal control and reports functionally to the audit and risk committee. The audit and risk committee monitored the effectiveness of the internal audit function in terms of its scope, independence skills, execution of its plan and overall performance.
The Group internal auditors recommended the annual audit plan for approval to the audit and risk committee. The audit and risk committee approved the formal internal audit plan, which included risk-based audits and improvements to Company governance and business processes for 2016.
The system of internal control is designed to ensure that the significant risks are appropriately identified, managed and provide reasonable assurance that:
- operations are efficient and effective;
- Company assets and information are safeguarded; and
- applicable laws and regulations are complied with.
The Group’s internal auditors undertook the following during the year under review:
- Performed reviews on the Company’s governance processes and ethics;
- Performed an objective evaluation of the risk management and internal control framework;
- Systematically analysed and evaluated the business processes and associated controls;
- Monitored and challenged where appropriate, action taken by management with regard to adverse internal audit findings;
- Provided a source of information on fraud, corruption, unethical behaviour and irregularities; and
- Followed a risk-based approach
A formal report on the key findings of these audits was submitted to the audit and risk committee summarising the results of the internal audit activity and management’s progress in addressing the control measures. This enabled the audit and risk committee to ensure that action has been taken to address the areas of concern.
The chairman of the audit and risk committee reports to the Board on the activities of the committee at each Board meeting.
The audit and risk committee is responsible for the appointment, compensation and oversight of the external auditors, Grant Thornton Cape Inc. The scope, independence and objectivity of the external auditors were reviewed. The committee considered the annual audit plan and related scope of working, determined the terms of engagement and fees of the external auditors. The audit firm, Grant Thornton Cape Inc., and audit partner are, in the committee’s opinion, independent of the Company.
Grant Thornton Cape Inc. provided an audit opinion in accordance with the International Standards on Auditing, the International Financial Reporting Standards, Companies Act as well as the JSE Listings Requirements. Under company law, their responsibility is to the shareholders of the Company. In addition, they have professional responsibilities to report Reportable Irregularities, in terms of section 45(1) of the Auditing Profession Act, 2005 (No. 26 of 2005).
The audit was conducted in accordance with International Standards on Auditing (“ISA”) and their objective was to provide a comprehensive service to the Group.
They have a statutory responsibility to report to the shareholders whether in their opinion the financial statements fairly present the financial position, results of operations and cash flow information of the Group, in conformity with IFRS and in the manner required by the Companies Act.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
As the auditors of a public interest Company, the same individual has not served as audit partner of the engagement for more than five consecutive financial years. Grant Thornton Cape Inc. has been the Company’s auditors for the past three years with Imtiaaz Hashim serving as audit partner for the first year.
The external auditors liaised with the Group internal auditors and attended the audit and risk committee meetings by invitation.
As the auditors of the Company, they attend every annual general meeting where the annual financial statements of the Company for the financial year are to be presented in order to respond accordingly and to answer any questions relevant to the audit of the financial statements.
EXPERTISE AND EXPERIENCE OF THE CHIEF FINANCIAL OFFICER AND THE FINANCE FUNCTION
In terms of the JSE Listings Requirements, the audit and risk committee is satisfied that the chief financial officer has the appropriate experience and expertise to meet the responsibilities of the position.
The audit and risk committee has considered the expertise of the finance department and is satisfied that the finance department has the appropriate expertise and is adequately resourced.