Audit and risk committee report
This is the report of the audit and risk committee (committee) of Bidcorp appointed for the financial year ended June 30 2017 in compliance with the Companies Act and in terms of the JSE Listings Requirements.
The committee has discharged its responsibilities as mandated by the board, its statutory duties in compliance with the Companies Act and the King IV principles applicable to audit and risk committees. The committee's charter, which can be found on the company's website, www.bidcorpgroup.com, is aligned with the above legislation, regulations and principles.
This committee was constituted by shareholders' special resolution passed on April 4 2016. Under the single chairmanship of Mrs H Wiseman for group and divisional audit and risk committees, the board is satisfied that this committee does make a strong contribution to the group.
The committee members for the financial year ended June 30 2017 have been appointed by shareholders' resolution passed at the annual general meeting held on November 21 2016; and is made up of a minimum of three (3) independent non-executive directors, and chaired by an independent non-executive. The Bidcorp audit and risk committee members include Mrs H Wiseman (chairman), Messrs PC Baloyi and NG Payne in line with the charter requirements.
The shareholders will be requested to approve the appointment of the chairman and members to the committee for the 2018 financial year at the annual general meeting scheduled for November 9 2017.
The committee consists solely of independent non-executive directors who are all financially literate. The board considers the membership of the committee adequate and the members are adequately experienced to perform the duties in line with the charter requirements. The committee and its chairman are assessed annually. A brief profile of each of the members can be viewed on the board of directors CVs included on the company's website.
The committee met on six occasions during the period under review, key members of management attend meetings of the committee by invitation. During the period, closed sessions were also held for committee members only, as well as with internal audit, external audit, risk, finance and management.
|H Wiseman (chairman)||^||^||^||^||^||^|
|^||Attended in person, by video-conference or tele-conference.|
The purpose of the committee is to:
- assist the board in discharging its duties relating to the safeguarding of assets, the operation of adequate systems, control and reporting processes, and the preparation of accurate reporting and financial statements in compliance with the applicable legal requirements and accounting standards;
- oversee the activities of, and to ensure coordination between, the activities of internal and external audit;
- provide a forum for discussing financial, enterprise-wide, market, regulatory, safety and other risks and control issues, and to monitor controls designed to minimise these risks;
- review the Bidcorp annual integrated report in conjunction with the social and ethics committee, including the consolidated and separate financial statements, as well as its interim report and any other public reports or announcements containing financial information;
- receive and deal with any complaints concerning the accounting practices, internal audit or the content and audit of its financial statements or related matters; and
- annually review the committee's work and charter to make recommendations to the board to ensure its effectiveness.
Duties carried out
The committee has successfully performed its duties during the financial year. In the fulfilment of these duties, the major areas of focus were revenue recognition, recoverability of trade receivables, carrying value of goodwill, intangibles and investments, risks associated with management override of controls, enterprise risk management oversight, assessment of the ability of the group to continue as a going concern, related-party transactions, the overall presentation of the financial information to shareholders, as well as other matters requiring significant judgement.
The committee conducted a review of the annual integrated report.
The committee confirms the following statutory and delegated duties were adequately addressed and sets out the results below.
- confirmed, based on management's review, that the consolidated and separate financial statements were prepared on the going concern basis;
- examined the consolidated and separate financial statements and other financial information made public, prior to their approval by the board;
- considered accounting treatments, significant or unusual transactions and accounting judgements;
- considered the appropriateness of accounting policies and any changes made thereto;
- considered any problems identified as well as any legal and tax matters that could materially affect the financial statements; and
- met separately with management, external audit and internal audit, and satisfied themselves that no material control weakness exists.
- nominated KPMG as auditors and Mr M Hassan as the independent auditor and designated audit partner respectively to the shareholders for appointment for the financial year ended June 30 2017, of the group and company, and ensured that the appointments comply with legal and regulatory requirements for the appointment of an auditor;
- approved the external audit engagement letter, the audit plan and the budgeted audit fees payable to the external auditors;
- determined the nature and extent of all non-audit services provided by the independent auditors and pre-approved all non-audit services undertaken;
- obtained assurances from the independent auditors that adequate accounting records were being maintained; and
- confirmed that no reportable irregularities had been identified or reported by the independent auditors under the Auditing Profession Act.
Independence of external auditors, KPMG
- reviewed representations made by KPMG to the committee;
- confirmed that the auditors did not, except as external auditors or in rendering permitted non-audit services, receive any remuneration or other benefit from the group;
- confirmed the auditors' independence was not impaired by any consultancy, advisory or other work undertaken;
- determined the auditors' independence was not prejudiced as a result of any previous appointment as auditors; and
- considered the criteria specified for independence by the Independent Regulatory Board for Auditors and international regulatory bodies and found no cause for concern or doubt of the independence of the external auditors, KPMG.
Internal control and internal audit
- reviewed the annual internal audit plans and evaluated the independence, effectiveness and performance of the internal audit function;
- considered the reports of the internal auditors on the group's systems of internal control including financial controls, business risk management and maintenance of effective internal control systems;
- received assurances that proper accounting records were maintained and that the systems safeguarded the group's assets against unauthorised use or disposal;
- reviewed issues raised by internal audit and the adequacy of corrective action taken by management in response thereto;
- assessed the adequacy of the performance of the internal audit function and found it satisfactory; and
- concluded the opinion recommended to the board at year-end that there were no material breakdowns in internal control.
- reviewed the group's policies and approach to risk management and found them to be sound;
- considered all material risks to which the group is exposed, ensuring that the requisite risk management culture, policies and systems are progressively implemented and functioning effectively;
- management is accountable to the board for implementing and monitoring the processes of risk management and integrating this into day-to-day activities; they confirm these processes through the completion of the quarterly Bidcorp management representation letter submitted to the audit and risk committee;
- performs ongoing monitoring of the enterprise-wide risk assessment process to ensure risks and opportunities are adequately identified, evaluated and managed at the appropriate level in each business, and that the individual and joint impact of risks identified on the group was considered;
- reviewed legal matters that could have a material impact on the group, as well as considering the adequacy and effectiveness of the group's procedures to ensure compliance with legal and regulatory responsibilities; and
- considered reports provided by management, internal assurance providers and the independent auditors regarding compliance with legal and regulatory requirements, and found Bidcorp's processes to be sound and effective.
- reviewed the plans and reports of the external and internal auditors and other assurance providers including management, and concluded that these were adequate to address all significant financial risks facing the business.
Chief financial officer (CFO)
- considered the appropriateness of the experience and expertise of the CFO and concluded that this was appropriate;
- considered the expertise, resources and experience of the finance function and concluded that these were appropriate; and
- therefore is satisfied that the appropriate reporting procedures are in place and operating.
Consolidated and separate financial statements
- reviewed the consolidated and separate annual financial statements of Bidcorp for the year ended June 30 2017, and the committee is of the view that, in all material respects, it complies with the relevant provisions of the Companies Act and IFRS and fairly presents the financial position at that date and the results of its operations and cash flows for the year then ended.
Comments on key audit matters, addressed by KPMG in its external auditor's report
In order to provide stakeholders with further insights into its activities and considerations around key audit matters as reported by the external auditors, the committee wishes to elaborate on these important aspects.
The committee's work is supported by four divisional audit and risk committees (divisional committees) which oversees the four reporting segments of the UK, Europe, Emerging Markets and Australasia and report to the committee on a quarterly basis. The divisional committees are chaired by Ms H Wiseman who also chairs the committee. Each country in which Bidcorp operates present at the quarterly divisional audit and risk committees, which are also attended by the external auditors.
The ability of the divisional committees to question and challenge the key areas of judgement at this level of granularity has enabled the committee to satisfy itself as to the recognition of revenue on the sale of goods (including the treatment of discounts and rebates), and the fair value assessment of trade receivables.
The carrying value of goodwill and investments are assessed by the committee at group level. The committee challenged the level of provisions made, and the methodologies and assumptions used to calculate the goodwill and investment impairment provisions held by the group. Sensitivity analysis on the key inputs such as discount rates and working capital movements were performed and considered in determining the appropriate level of impairment, in particular, Logistics UK. The committee was satisfied that the impairment provisions were appropriate.
Following the review by the committee for the year ended June 30 2017, the committee is of the view that, in all material respects, it has complied with the relevant requirements.
Having achieved its objectives for the financial year, the committee recommended the consolidated and separate financial statements for the year ended June 30 2017 for approval to the board.
Signed on behalf of the audit and risk committee by: