Audit committee report
The Audit Committee (the committee) is pleased to present its report for the 12 months ended 30 September 2017.
This report is made in pursuant to the requirements of section 94(7)(f) of the Companies Act.
Composition and meetings
The committee comprises three independent non-executive directors who have been selected with the aim of providing the range of financial and commercial experience necessary to meet its responsibilities in a robust and independent manner.
Members of the committee and its Chairman are appointed by shareholders, on the recommendation of the Nomination Committee and the board. Shareholders will again be requested to approve the appointment of the committee for the 2018 financial year at the company’s AGM to be held on 7 February 2018. The Nomination Committee has nominated for re-election Mr CF Wells (Chairman), Ms M Mashologu and Mr HK Mehta as members of the committee. Members’ qualifications and experience are available here.
The committee meets formally three times a year. The Chief Executive Officer, Group Financial Director, internal audit manager and external auditor are required to attend committee meetings. Members of the group’s executive management team attend meetings as required, while the Chairman of the board attends meetings by invitation.
Terms of reference
The committee operates in accordance with a formal terms of reference and work plan, which was reviewed and amended in line with the King IVTM recommendations and approved by the board on 2 August 2017.
A copy of the committee’s terms of reference and work plan is available here.
Role and responsibilities
The committee oversees:
- the effectiveness of the company’s assurance functions and services;
- the integrity of the annual financial statements, including other external reports issued by the company from time to time;
- the management of financial and other risks that affect the integrity of external reports issued by the company from time to time; and
- the engagement of assurance services and functions, which enable an effective control environment, and support the integrity of information for internal decision-making and of the company’s external reports.
Details of the committee’s duties are contained in its terms of reference, which is available here.
In addition to the key activities detailed below, the committee, during the period under review, considered:
- the unaudited interim results report for the period ended 31 March 2017, including all summarised information;
- all other summarised information issued during the year to ensure that a balanced view was provided;
- the disclosure of sustainability issues in the online integrated report to ensure that it was reliable and did not conflict with the financial information;
- statutory and JSE Listings Requirements;
- accounting principles;
- the effectiveness of internal financial controls;
- the going concern of the company;
- banking facilities;
- King IVTM recommendations;
- legal matters concerning the group;
- whistle-blowing complaints;
- head leases held by the group;
- the group’s delegation of authority policy; and
- the external auditor’s audit report and key audit matters and concurred with the comments.
At its meeting held on 13 November 2017, the committee reviewed and recommended the online integrated report and annual financial statements to the board for approval and publication.
Self-evaluation of committee performance
The committee also undertook a self-evaluation of its performance and strongly believed that:
- it was appropriately constituted with a clearly defined terms of reference and appropriate reporting lines to the board;
- the frequency and duration of committee meetings were appropriate to enable members to discharge their mandate;
- it had a mix of the required skills to address a range of issues and risks pertaining to the committee;
- the members had a clear understanding of their responsibilities and authority;
- it provided clear and specific guidance to the board as mandated, and assisted the board in its overall responsibility to ensure the proper governance of the company;
- members were well prepared for meetings; and
- the Chairman of the committee was effective.
The committee has primary responsibility for overseeing the relationship with, and the performance of, the external auditor. This includes making recommendations on their reappointment and assessing their independence, as set out in section 94(8) of the Companies Act.
As a result of the proposed implementation of an audit firm rotation process, and taking into account that Deloitte & Touche has been the group’s external auditor for the last 50 years, the company initiated a change in auditor. In doing so, the committee conducted a formal tender for the proposed appointment of a new external audit firm for the 2018 financial year. The committee appointed a selection panel to undertake much of the detailed work and invited PricewaterhouseCoopers (PwC), Ernst and Young (EY), Binder Dijker Otte (BDO) and Nexia SAB&T to tender.
In the process, the tendering firms met with executive and senior finance management and submitted detailed written proposals before presenting to the selection panel. The selection panel and committee assessed the firms against key criteria and recommended to the board that PwC be appointed as auditor to the group for the financial year ending 30 September 2018.
The criteria used to reach this decision included:
- reputation, independence, quality and experience of the firm to the SPAR Group;
- their transformation status and processes;
- independence and quality of the audit team;
- capability to provide comprehensive and high-quality audit services;
- approach to ensuring a smooth transition process;
- commitment to sharing ideas and insights on best practice developments in accounting and reporting;
- approach to the tender process; and
- independence and quality of the team.
Accordingly, the committee recommends and has nominated, for appointment at the 2018 AGM, PwC as the external audit firm, and Ms Sharalene Randelhoff as the designated audit partner, responsible for performing the functions of auditor for the 2018 financial year. PwC is required to rotate the designated audit partner every five years and, accordingly, the current lead audit partner will be required to change in 2023.
In respect of the 2017 financial year, the committee was satisfied with the quality and effectiveness of Deloitte’s audit process and that Deloitte and the designated audit partner, Mr G Kruger, were accredited as such on the JSE list of auditors and their advisors.
The committee would like to thank Deloitte for their significant contribution as the group’s external auditor over the years, and look forward to working with PwC.
Non-audit services policy
External auditors may only be considered as a supplier of such services where there is no alternative supplier for these services, there is no other commercially viable alternative or the non-audit service is related to and would add value to the external audit.
The total amount of fees earned during the year by the external auditor in respect of non-audit services was R5.9 million (2016: R4.8 million).
The committee is responsible for ensuring that the company’s internal audit function is independent and has the necessary resources, standing and authority within the company to enable it to discharge its duties. Furthermore, the committee oversees co-operation between the internal and external auditors, and serves as a link between the board and these functions.
The internal audit function reports centrally and is responsible for reviewing and providing assurance on the adequacy of the internal control environment across all the company’s operations. The group internal audit manager, Mr S Naidoo, is responsible for reporting the findings of the internal audit work against the agreed internal audit plan to the committee on a regular basis and has direct access to the committee, primarily through its chairman. The committee is also responsible for the performance assessment of the group internal audit manager and the internal audit function.
During the 2017 financial year, the committee:
- satisfied itself that the group internal audit manager, Mr S Naidoo, is competent and possessed the appropriate expertise and experience to act in this capacity, and believes that the company’s internal audit function met its objectives and that adequate procedures were in place to ensure that the group complies with its legal, regulatory and other responsibilities; and
- reviewed and approved the internal audit plan and internal audit charter.
The committee oversaw a process by which internal audit performed a written assessment of the effectiveness of the company’s system of internal control and risk management, including internal financial controls. This written assessment by internal audit formed the basis for the committee’s recommendation to the board for the board to report thereon.
EVALUATION OF THE EXPERTISE AND EXPERIENCE OF THE GROUP FINANCIAL DIRECTOR AND FINANCE FUNCTION
The committee confirms that it is satisfied with Mr MW Godfrey, the Group Financial Director, who possesses the appropriate expertise and experience to act in this capacity.
The committee considered the appropriateness of the expertise and adequacy of resources of the finance function and was satisfied with the experience of the senior members of management responsible for the group function.
The board has allocated the oversight of risk governance, technology and information governance and compliance governance to the Risk Committee. Mr Wells, the chairman of this committee, is also the chairman of the Risk Committee and ensures that information relevant to the Risk Committee is transferred and shared regularly with this committee.
The committee fulfils an overview role regarding financial reporting risks, internal financial controls, taxation risks, compliance and regulatory risks, risk appetite and tolerance, fraud risk (as it relates to financial reporting) and information technology risk (as it related to financial reporting), and the committee is satisfied that these areas have been appropriately addressed.
The company is in the process of developing a combined assurance model which will formally map the level of assurance being provided by the different lines of defence to mitigate these risks. The committee plans to review the combined assurance framework and policy for the company in 2018, which would be completed during the 2018 financial year.
The committee met with the group internal auditor and external auditor without management present to facilitate an exchange of views and concerns that may not be appropriate for discussion in an open forum, with no concerns raised.
The committee is satisfied that it fulfilled its responsibilities in accordance with its terms of reference for the reporting period and is further satisfied that it has performed its statutory duties as set out in the Companies Act and has complied with its legal responsibilities.
Thanks go to the members of the committee, internal audit and external audit for their dedicated and constructive contributions to the functioning of the committee.
14 November 2017