REPORT OF THE BOARD AUDIT COMMITTEE

Report of the Board Audit Committee in terms of Regulations 27(1)(10)(b) and (c) of the Public Finance Management Act of 1999 (as amended) and requirements of King III Code of Governance.

BACKGROUND

The Board Audit Committee (BAC) assists the Board in fulfilling its oversight responsibilities, in particular with regard to the evaluation of the adequacy and efficiency of accounting policies, internal controls, risk management and financial reporting processes. In addition, the BAC assesses the effectiveness of the internal auditors and the independence and effectiveness of the external auditors.

RESPONSIBILITIES, COMPOSITION AND FUNCTIONS OF THE COMMITTEE

The Committee’s roles and responsibilities include its statutory duties as per the PFMA, the requirements of the King III Codes of Governance, the Companies Act and the responsibilities assigned to it by the Board.

The Committee therefore reports that it has adopted appropriate formal terms of reference as approved by the Board, and is satisfied that it has discharged its responsibilities as per the Companies Act, King III and the PFMA.

The Committee has carried out its functions through attendance at BAC meetings and discussions with Executive Management, Internal Audit and external advisers where appropriate.

The BAC meets at least four times per annum, with authority to convene additional meetings as circumstances require.

Invitees to the meetings of the Committee include the CEO, Chief Financial Officer (CFO), Chief Risk Officer and internal and external auditors, as well as the Head of Information Technology, and any other executives as may be required.

To execute its key functions and discharge its responsibilities as outlined in its Terms of Reference the Committee, during the period under review:

  • Assisted the Board in its evaluation of the adequacy and efficiency of the internal control systems, accounting practices, information systems, risk management and auditing processes applied within the Corporation in the day-to-day management of its business
  • Facilitated and promoted communication between the Board, management, the external auditors and Internal Audit Department on matters which are the responsibility of the Committee
  • Introduced measures that, in the opinion of the Committee, may enhance the credibility and objectivity of the annual financial statements and reports prepared with reference to the affairs of the Corporation (and the IDC Group)
  • Nominated and recommended for appointment as external auditors the firms of registered auditors KPMG, SNG and Ngubane & Co who, in the opinion of the Committee, are independent of the IDC
  • Determined the fees to be paid to the external auditors as well as the auditors’ terms of engagement
  • Ensured that the appointment of the external auditors complied with the Companies Act and any other legislation relating to the appointment of auditors.

INTERNAL CONTROL

The BAC monitored the effectiveness of the IDC’s internal controls and compliance with the Enterprise-wide Risk Management Framework (ERMF). The emphasis on risk governance is based on three lines of defence and the BAC uses the regular reports received from the three lines of defence (process owners/department heads; Risk & Compliance departments, management; and Internal Audit department) to evaluate the effectiveness of the internal controls (for more on the three lines of defence and risk assessment, refer to pages 65 and 67) of the Integrated Report.

The ERMF places weight on accountability, responsibility, independence, reporting, communication and transparency, both internally and with all the IDC’s key external stakeholders.

No findings have come to the attention of the Committee to indicate that any material breakdown in internal controls has occurred during the financial year under review. The Committee is of the opinion that the internal accounting controls are adequate to ensure that the financial records may be relied upon for preparing the consolidated annual financial statements, that accountability for assets and liabilities is maintained, and that this is based on sound accounting policies which are supported by reasonable and prudent judgements and estimates. The BAC is further of the opinion that the internal controls of the Corporation have been effective in all material aspects throughout the year under review. This opinion is based on the information and explanations given by management regarding various processes and initiatives aimed at improving the internal control environment and the integrity of information, discussions with Internal Audit, and with the independent external auditors, on the results of their audits.

To formulate its opinion, the Committee:

  • Monitored the identification and correction of weaknesses and breakdowns of systems and internal controls
  • Monitored the adequacy and reliability of management information and the efficiency of management information systems
  • Reviewed quarterly, interim and final financial results and statements and reporting for proper and complete disclosure of timely, reliable and
  • consistent information
  • Evaluated on an ongoing basis the appropriateness, adequacy and efficiency of accounting policies and procedures, compliance with generally accepted accounting practice and overall accounting standards as well as any changes thereto
  • Discussed and resolved any significant or unusual accounting issues
  • Reviewed reports supplied by management regarding the effectiveness and efficiency of the credit monitoring process, exposures and related impairments, and the adequacy of impairment provisions, to discharge its obligations satisfactorily
  • Reviewed and monitored all key financial performance indicators (KPIs) to ensure that they are appropriate and that decision-making capabilities are maintained at high levels
  • Reported to the Board on the effectiveness of the Corporation’s internal reporting controls.

EXTERNAL AUDITORS

The IDC’s external auditors are KPMG, SNG and Ngubane & Co. Ngubane & Co were introduced as a third firm of auditors as part of an effort to contribute to transformation by offering an emerging black-owned audit firm an opportunity to gain auditing experience in respect of a corporation of the size of the IDC.

The BAC has a well-established policy on auditors’ independence and audit effectiveness. The Committee has satisfied itself that the external auditors, KPMG, SNG and Ngubane & Co were independent of the Company as set out in sections 90(2)(c) and 94(8) of the Companies Act, which includes consideration of compliance with criteria relating to independence or conflicts of interest as prescribed by the Independent Regulatory Board for Auditors.

Requisite assurance was sought and provided by the external auditors that their claim to independence was supported and demonstrated by internal governance processes within their entities. The Committee, in consultation with Executive Management, agreed to the engagement letter, terms, audit plan and audit fees for the financial year ended 31 March 2017.

The Committee:

  • Approved the external auditors’ annual plan and related scope of work
  • Monitored the effectiveness of the external auditors in terms of their skills, independence, execution of the audit plan, reporting and overall performance
  • Considered whether the extent of reliance placed on internal audit by the external auditors was appropriate and whether there were any significant gaps between the internal and external audits
  • Approved the Non-audit Services Policy, which stipulates that the external auditors are precluded from engaging in non-audit related services.

FINANCIAL STATEMENTS

The Committee has reviewed the annual financial statements of the Corporation and the IDC Group and is satisfied that they comply in all material respects with IFRS and the requirements of the PFMA. During the period under review the Committee:

  • Reviewed and discussed the audited Financial Statements included in this Integrated Report with the external auditors, the Chief Executive and the Chief Financial Officer
  • Reviewed the external auditors’ report and management’s response to it
  • Reviewed any significant adjustments resulting from external audit queries and adjusted all audit differences
  • Reviewed areas of significant judgements and estimates in the annual financial statements
  • Received and considered reports from the internal auditors.

EXPERTISE AND EXPERIENCE OF THE FINANCE FUNCTION

The Committee has considered, and has satisfied itself of the overall appropriateness of the expertise and adequacy of resources of the IDC’s Finance function and the experience of the senior members of management responsible for the financial function.

DUTIES ASSIGNED BY THE BOARD

INTEGRATED AND SUSTAINABILITY REPORTING

The BAC fulfils an oversight role regarding the Company’s Integrated Report and the reporting process, and considers the level of assurance coverage obtained from management and internal and external assurance providers, in making its recommendation to the Board.

The Committee considered the Company’s information as disclosed in the Integrated Report and has assessed its consistency with operational and other information known to Committee members, and for consistency with the annual financial statements. The Committee discussed the information with management and has considered the conclusions of the external assurance provider.

The BAC is satisfied that the sustainability information is, in all material respects, reliable and consistent with the financial results. Nothing has come to the attention of the Committee to indicate any material deficiencies in this regard.

COMBINED ASSURANCE

The BAC is responsible for monitoring the combined assurance model detailing significant processes, line management monitoring, Internal Audit and external assurances. This model is used to assess the appropriateness of assurance over risks/controls provided to the Board. Engagement regarding the extent to which the various assurance providers rely on each other’s work take place continuously and the Committee is of the view that a better coordination between External and Internal Audit has been achieved.

During the year, a Combined Assurance Policy was approved by the BAC which includes a coordinated assurance effort with other assurance providers such as Risk Management and the Compliance function. This will assist in averting assurance gaps or duplication of efforts, and ensuring efficiency across various assurance services.

GOING CONCERN

After having reviewed a documented assessment by management of the going concern premise of the Corporation and the IDC Group, the Committee concurs that the adoption of the going concern assumption in the preparation of the consolidated financial statements is appropriate and sound.

GOVERNANCE OF RISK

The Board has assigned oversight of the Corporation’s risk management function to a separate Board Risk and Sustainability Committee (the BR&SC). The Chairperson of the BAC attends meetings of the BR&SC as an ex officio member to ensure that information relevant to these Committees is shared regularly.

The Committee fulfils an oversight role regarding financial reporting risks, internal financial controls, fraud risk and information technology risks as they relate to financial reporting. The BAC is satisfied that appropriate and effective risk management processes are in place.

INTERNAL AUDIT

The Internal Audit department has a functional reporting line to the committee chairperson and an operational reporting line to the CEO. The BAC, with respect to its evaluation of the adequacy and effectiveness of internal controls, receives reports from Internal Audit on a quarterly basis, assesses the effectiveness of the Internal Audit function, and reviews and approves the Internal Audit department’s Audit Plan.

The BAC is responsible for ensuring that the Corporation’s Internal Audit function is independent and has the necessary resources, standing and authority within the Corporation to enable it to discharge its duties. The Internal Audit function’s Annual Audit Plan was approved by the BAC. The Committee monitored and challenged, where appropriate, the action taken by management with regard to adverse Internal Audit findings.

The Committee has overseen a process by which Internal Audit has performed audits according to a risk-based audit plan where the effectiveness of the risk management and internal controls were evaluated (for more on risk assessment and management see pages 63 to 65) of the Integrated Report. These evaluations were the main input considered by the Board in reporting on the effectiveness of internal controls. The Committee is satisfied with the independence and effectiveness of the Internal Audit function.

CONCLUSION

Having considered, analysed, reviewed and debated information provided by management, Internal Audit and External Audit, the Committee confirmed that:

  • The internal controls of the Group were effective in all material aspects throughout the year under review
  • These controls ensured that the Group’s assets had been safeguarded
  • Proper accounting records had been maintained
  • Resources had been utilised efficiently
  • The skills, independence, audit plan, reporting and overall performance of the external auditors were acceptable.

Following its review of the annual financial statements for the year ended 31 March 2017, the BAC is of the opinion that they comply with the relevant provisions of the PFMA, as amended, and IFRS, and that they fairly present the results of the operations, cash flow and financial position of the Corporation.

The BAC has complied with all the King III principles, with the inclusion of integrated reporting, evidenced by the Corporation’s sixth issue of its Integrated Report 2017. The Committee is satisfied that it has complied in all material respects with its legal, regulatory and other responsibilities.

This Integrated Report was recommended by the BAC to the Board for approval.

On behalf of the Board Audit Committee