AUDIT COMMITTEE REPORT
The information below constitutes the report of the Audit Committee in respect of the financial year ended 30 June 2011.
Audit Committee Terms of Reference
The Audit Committee has adopted formal Terms of Reference as incorporated in the Board Charter which has been approved by the Board of Directors. The Terms of Reference is reviewed annually and was revised and approved by the Board on 3 March 2011. The Committee has conducted its affairs in compliance with these Terms of Reference and has discharged its responsibilities contained therein.
Audit Committee members and attendance at meetings
The Audit Committee is constituted as a statutory committee and has an independent role with accountability to both the Board and shareholders. In compliance with the recommendations of King III, the Audit Committee consists of three independent, non-executive directors selected by the Board on the recommendation of the Remuneration & Nomination Committee. The Board elects the Chairman of the Audit Committee.
The Chairman of the Board, Deputy Group Chief Executive, Group Finance Officer, Chief Audit Executive, Company Secretary and representatives of the internal and external auditors attend meetings by invitation. From time-to-time other executives of the Group attend meetings of the Audit Committee as requested. The Committee has unrestricted access to the external and internal auditors.
In accordance with the Terms of Reference, the Committee meets at least four times annually, but more often if necessary. During the current financial year, the Committee met five times. The minutes of these meetings are included in the quarterly Board papers. The Chairman of the Committee provides the Board with a verbal report of the Committee’s activities at each Board meeting. A table of attendance at Audit Committee meetings held during the year is set out here.
The Chairman of the Committee represents the Audit Committee at the annual general meeting each year.
The Company Secretary is also the Secretary of the Committee.
The Remuneration & Nomination Committee, through its nomination process, ensures that members are sufficiently qualified and experienced in matters such as financial and sustainability reporting, internal financial controls, external and internal audit processes, corporate law, risk management, financial sustainability issues, IT governance as it relates to integrated reporting and governance processes.
Roles and responsibilities
The Audit Committee has an independent role with accountability to both the Board and shareholders. The Committee does not assume the functions of management, which remain the responsibility of the executive directors, officers and other senior members of management.
The Committee is, inter alia, responsible for assisting the Board in discharging its duties in respect of the safeguarding of assets, accounting systems and practices, internal control processes and the preparation of accurate financial statements.
In the conduct of its duties, the Audit Committee has performed the following statutory duties:
- nominated and recommended the appointment of the external auditor of the Company and the Group who is a registered auditor and who, in the opinion of the Audit Committee, is independent of the Company and the Group;
- determined the fees to be paid to the auditor and the auditor’s terms of engagement;
- ensured that the appointment of the auditor complies with the Companies Act, and any other legislation relating to the appointment of the auditor;
- determined the nature and extent of any non-audit services that the auditor may provide to the Group;
- pre-approved any proposed agreement with the auditor for the provision of non-audit services to the Group;
- prepared a report which has been included in the Annual Financial Statements;
- received and dealt with any concerns or complaints relating to the accounting practices and internal audit of the Company and the Group, the content or auditing of the Company’s and the Group’s Annual Financial Statements, the internal financial controls of the Company and the Group or any related matter; and
- made submissions to the Board on any matter concerning the Company’s and the Group’s accounting policies, financial control, records and reporting.
The Committee has satisfied itself that the external auditor was independent of the Group, as set out in section 94 (8) of the Companies Act as amended, by the Companies Amendment Act, No 3 of 2011, 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 auditor that internal governance processes within the audit firm support and demonstrate its claim to independence.
The Committee, in consultation with executive management, agreed to the engagement letter, terms, audit plan and budgeted audit fees for the financial year ended 30 June 2011.
The external auditors are invited to and attend all Audit Committee meetings and are required to meet independently with the Audit Committee at least annually. Findings by the external auditors arising from their annual statutory audit are tabled and presented at an Audit Committee meeting following the audit. The Committee endorses action plans for management to mitigate noted concerns. The external auditor has expressed an unqualified opinion on the Annual Financial Statements for the year ended 30 June 2011.
There is a formal procedure that governs the process whereby the external auditor is considered for non-audit services. The Committee approved the terms of the service agreement for the provision of non-audit services by the external auditor, and approved the nature and extent of non-audit services that the external auditor provided in terms of the agreed pre-approval policy.
The Committee has nominated, for election at the annual general meeting, PricewaterhouseCoopers Inc. as the external audit firm and Eric Mackeown as the designated auditor responsible for performing the functions of auditor, for the 2012 financial year. The Audit Committee has satisfied itself that the audit firm and designated auditors are accredited as such on the JSE list of auditors and their advisers.
Internal financial controls
During the year, the Group undertook a formal review of the key internal financial controls in operation and documented this review in a formalised financial controls framework. The review was undertaken in all the significant businesses within the Group except for the recently acquired Sigma pharmaceutical business. Due to the timing of the acquisition of the Sigma pharmaceutical business and the transitional operating arrangements with Sigma in the post-acquisition period it proved impractical to cover this business. The key processes for this business will be reviewed and documented during the 2012 financial year once the transitional arrangements have ended and the new IT system has been implemented.
As a compensatory measure, the scope of the external audit in respect of the Sigma pharmaceutical business was extended to include a review of the key internal financial controls in addition to the normal external audit assurances.
Based on the results of the formal documented review of the design, implementation and effectiveness of the Company’s system of internal financial controls conducted by Group internal audit, supported by approved outsourced Internal Audit service providers during the 2011 year and, in addition, considering information and explanations given by management and discussions with the external auditor on the results of their audit, nothing has come to the attention of the Audit Committee that caused the Committee to believe that the Group’s system of internal financial controls is not effective and does not form a basis for the preparation of reliable Annual Financial Statements.
Expertise and experience of financial director and the finance function
The Audit Committee has considered and is satisfied with the expertise and experience of the Deputy Group Chief Executive who performs the duties of the financial director.
Furthermore, the Committee has considered, and has satisfied itself of, the appropriateness of the expertise and adequacy of resources of the finance function and experience of the senior members of management responsible for the finance function.
Annual Financial Statements
The Audit Committee assists the Board with all financial reporting and reviews the Annual Financial Statements as well as the preliminary results announcements and interim financial information.
The Audit Committee has reviewed the Annual Financial Statements of the Company and the Group and is satisfied that they comply with International Financial Reporting Standards (“IFRS”).
The Audit Committee reviewed a documented assessment by management of the going concern premise of the Group before concluding to the Board that the Group will be a going concern in the foreseeable future.
Duties assigned by the Board
The duties and responsibilities of the members of the Committee are set out in the Audit Committee Terms of Reference included in the Board Charter, which is approved by the Board.
The Audit Committee fulfils an oversight role regarding the Group’s Integrated Report and the reporting process, including the system of internal financial control. It is responsible for ensuring that the Group’s internal audit function is independent and has the necessary resources, standing and authority within the Group to enable it to discharge its duties. Furthermore, the Audit Committee oversees co-operation between the internal and external auditors.
During the year, the Committee met with the external auditors and with the Chief Audit Executive without management being present. No matters that required attention arose from these meetings.
The Committee ensures that a combined assurance model is applied to provide a co-ordinated approach to all assurance activities.
The Audit Committee is satisfied that it has complied with its legal, regulatory and other responsibilities.
The Board has assigned oversight of the Group’s risk management function to the Risk & Sustainability Committee. The Chairman of the Audit Committee attends the Risk & Sustainability Committee meetings as a member to ensure that information relevant to these two committees is transferred regularly. The Audit Committee fulfils an oversight role regarding financial reporting risks, internal financial controls, fraud risks as it relates to financial reporting and information technology risks.
Internal audit reviewed the risk management process within the Group. The overall satisfactory assessment is given in the context that the risk management process is currently being reviewed by management and ongoing improvements will be made over the next year as the process further develops and matures. Currently, risk management activities are performed actively and informally on a daily basis throughout all business units. These activities are not linked directly to the risk registers although the risk registers take account of these activities where material. The risk registers are used by executive management teams to provide a top-down risk assessment of their business units and as a formal reporting tool on a twice yearly basis rather than a management tool or an enterprise-wide resource tool. Internal audit has recommended various improvements which management has agreed to address and corrective measures are already being implemented.
The Audit Committee is responsible for overseeing of internal audit and has considered and approved the internal audit charter and the Internal Audit Department’s annual risk-based audit plan.
The internal audit function reports centrally with responsibility for reviewing and providing assurance on the adequacy of the internal control environment across all of the Group’s significant operations. The audit plan follows a three-year cycle and is revised regularly in accordance with the risk profiles as discussed and tabled at the Risk & Sustainability Committee meetings with any changes to the internal audit plan being approved by the Audit Committee.
Each internal audit conducted is followed up by a detailed report to operational and senior management, including recommendations on aspects requiring improvement. The Chief Audit Executive is responsible for reporting the findings of the internal audit work against the agreed internal audit plan to the Audit Committee at each Committee meeting. Copies of the detailed reports are also provided to the Audit Committee together with an overall summary of the audit result for each audit.
The Chief Audit Executive has direct access to the Audit Committee, primarily through its Chairman, and attends all the Risk & Sustainability Committee and Audit Committee meetings by invitation.
The Audit Committee is responsible for the appointment and removal of the Chief Audit Executive. The Committee is also responsible for the assessment of the performance of the Chief Audit Executive and the internal audit function. The Committee has considered and is satisfied with the effectiveness of the internal audit function.
An external assessment of the internal audit function is due to be performed during the 2012 financial year in line with the five-year external review as the previous external assessment was performed in May 2007. The previous assessment indicated positive results and compliance with the Institute of Internal Auditors standards.
The whistle-blowing arrangements are approved and monitored by the Audit Committee. The Chief Audit Executive receives and deals with any concerns or complaints, whether from within or outside the Group through an independent specialised tip-offs call centre and tables this information and the results of follow- ups at each Audit Committee meeting.
The Committee is satisfied that instances of whistle-blowing were appropriately dealt with.
The Audit Committee considered the Group’s sustainability information as disclosed in the Integrated Report and in the Sustainability Report and has assessed its consistency with operational and other information known to the Audit Committee members, and for consistency with the Annual Financial Statements. The Audit Committee has discussed the sustainability information with management and the Chairman of the Risk & Sustainability Committee.
The Committee is satisfied that the sustainability information is reliable and consistent with the financial results.
Recommendation of the Integrated Report for approval by the Board
The Audit Committee has, at its meeting held on 21 October 2011, reviewed and recommended the Integrated Report for approval by the Board of Directors.
Audit Committee Chairman
21 October 2011