The audit committee is a formal, statutory board sub-committee, appointed by the shareholders to assist the board in its corporate governance supervision responsibilities. The committee operates independently of management, is free of any organisational restraint or pressure and acts in accordance with its statutory duties and the delegated authority of the board, within formally approved terms of reference, reviewed and approved annually.
The review of the terms of reference to incorporate the recommendations of King IV was completed at the committee meeting held in February 2017.
Role of the committee
The audit committee ensures that accurate financial reporting and adequate systems, controls and financial risk-management policies, procedures and standards are in place. The committee is responsible to ensure appropriate corporate governance and compliance within the scope of its mandate, with a specific focus on the potential risks to the company, and for IT governance and the strategic alignment of IT with the performance and sustainability objectives of the company.
The committee is also, subject to board approval when applicable, authorised to investigate any activity within the scope of its terms of reference and to interact with the directors, management, employees and assurance providers and to obtain independent professional advice to ensure effective governance. The committee has decision-making authority regarding its statutory duties and is accountable to the board and the company’s shareholders.
In 2016, the committee approved the company’s tax policy and amplified its terms of reference to include corporate tax policy and payment oversight.
Composition and committee meetings
The committee composition adheres to the requirements of the Companies Act of South Africa, the JSE Listings Requirements and both King III and IV. The chairman of the board may not serve as the chairman or as a member of the committee. The committee comprises three independent non-executive directors, all of whom are financially literate. During the year under review, directors serving on the committee included Grant Gelink (re-appointed 27 May 2016 and appointed as chairperson 26 November 2014), Walter Geach (re-appointed 27 May 2016), Tantaswa Nyoka (appointed 27 November 2014, resigned 10 May 2016) and Raymond Ndlovu (appointed 27 May 2016). More details of these directors are given in the directorate and executive committee section.
The committee invites the chairman, the CEO, the group financial director, internal audit manager and representatives of the external auditors to attend its meetings as required.
Committee members meet at scheduled meetings twice a year and at unscheduled meetings when required to address urgent matters in its scope of responsibility. No unscheduled meetings were held in 2016.
Attendance of committee members at the meetings of the committee during the year is listed in the directorate and executive committee section of this integrated annual report.
In terms of its mandate, matters included in the audit committee’s annual work plan in 2016 included:
- evaluation of the independence, effectiveness and performance of the internal audit manager;
- reviewing and approving the internal audit charter, annual work plan and internal audit fees;
- assessing the suitability, expertise and experience of the group financial director and the expertise, experience and resources of the company’s finance function;
- reviewing the combined assurance model and the effectiveness of the process for identifying, assessing and reporting on significant internal financial-control and fraud risks as related to financial reporting;
- reviewing the group IT governance report and IT risks, and evaluation of audit assessments of IT-related controls performed by the internal and external auditors together with the appropriateness of actions taken by management to address key issues identified;
- nominating the independent external auditor and designated audit partner and the approval of their terms of engagement and fees for audit and non-audit services;
- reviewing the external auditors’ work plan, staffing, independence, effectiveness, audit findings, key audit risks and external audit report;
- reviewing the internal auditors’ limited assurance report;
- legislative and regulatory compliance within the scope of its mandate;
- reviewing the company’s tax policy and implementation;
- reviewing and recommending to the board publicly disclosed financial information, including the interim results for the six months ended 30 June 2016;
- reviewing the annual financial statements and results for the year ended 31 December 2016 and the 2016 integrated annual report in line with applicable legislative and regulatory compliance and recommendation thereof for approval by the board of directors;
- reviewing and confirming the going concern status;
- evaluating of the performance of the audit committee; and
- approving its annual work plan for 2017.
The functions of the committee are also performed for the subsidiaries within each division of Grindrod Limited as represented in the Segmental Analysis. The external auditor was nominated for each material subsidiary company for re-appointment.
The chairman of the committee met formally with the internal and external auditors during the year. During these meetings no matters of concern were raised.
Deloitte & Touche served as the company’s registered external auditors for the 2016 financial year. The terms of engagement, independence, expertise, audit quality, objectivity and the appropriateness of rotation of key partners in Deloitte & Touche as the external auditor were appraised by the audit committee, which includes an annual evaluation. The committee meets with the external auditors twice a year. The external auditors have unrestricted access to the chairman of the committee and have met formally twice during the year.
In assessing the auditor’s independence, the committee considered guidance contained in both King III and IV as well as the recent IRBA publications and the related commentary thereon. Deloitte & Touche have been auditors of the Grindrod group for thirteen years and have demonstrated an institutional knowledge, deep expertise and experience of the group in all the related countries in which the group operates. The committee is satisfied that in discharging its duties in terms of its mandate, together with the robust internal Deloitte independence processes, which include:
- periodic internal quality reviews as well as those conducted by IRBA,
- the rotation of the group audit partner and key component audit partners at least every five years, and
- independence audits on all partners,
that Deloitte & Touche’s independence is maintained and has not been impacted by tenure. The committee is satisfied that adequate steps have been taken by Deloitte & Touche and management to ensure that the transition to the incoming group audit partner will be effective and efficient.
The committee is satisfied that the auditors do not, except as external auditor or in rendering permitted non-audit services, receive any remuneration or other benefits from the company. External audit fees approved for the 2016 financial year to Deloitte & Touche amounted to R19 million; US$205 000; SGPD904 000 and P608 000. The approved audit fee accounts for 38 audit partners in 33 countries in order to perform the 200 + global statutory audits. The total non-audit services for the 2016 financial year performed by and paid to Deloitte & Touche amounted to R3 million, of which a substantial portion was in support of external audit discharging their responsibilities. In addition the committee has satisfied itself that the auditors’ independence was not prejudiced by any consultancy, advisory or other work undertaken or as a result of any previous appointment as auditor.
Significant areas of judgement
Many areas within the financial statements require judgement, which are set out in note 1 to the annual financial statements. The committee has considered the quantum of the assets and liabilities on the statement of financial position and other items that require significant judgement and the following are highlighted:
- valuation of goodwill;
- valuation of investments in joint ventures;
- valuation of ships and bunker barges; and
- classification and measurement of non-current assets held for sale.
Goodwill and other indeterminate useful life intangible assets are assessed annually for impairment. The key assumptions used are cash flow projections, growth rates and discount rates applied.
The committee was in agreement with the impairment of the goodwill and intangible assets and that the carrying value of the goodwill is fairly stated. Please refer to notes 1 and 3 to the annual financial statements for further detail.
Annual impairment tests are conducted to assess the recoverability of the carrying value of the various investments in joint ventures, using discounted cash flow models and include a number of key assumptions, such as revenue growth, operating margins, exchange rate fluctuations and the discount rates applied to the projected future cash flows. The committee considered the impairment test conducted, and is in agreement with the impairment of certain investments in joint ventures and that the carrying value of the investments in joint ventures is fairly stated.
Annual impairment tests are conducted to assess the valuation of ships and bunker barges using a value-in-use model as well as comparisons to traded market values. A number of key assumptions are considered, including charter-in and freight market rates, operating margins, residual value of the ships and discount rates applied to the projected future cash flows. The committee considered the impairment test conducted, and is in agreement with the impairment of ships and bunker barges and that the carrying value of ships and bunker barges is fully stated.
Once a sales plan relating to loss of control of a subsidiary has been committed to, all of the assets and liabilities of such subsidiary are classified as held-for-sale in terms of IFRS 5. As a result of the magnitude of the amount classified as held-for-sale and key judgements made in determining the classification of disposal groups held for sale as well as the measurement thereof, this is considered to be a key audit matter.
The committee agreed with the fair value less costs to sell and assessed any key adjustments to net book value of the disposal groups based on the requirements of IFRS 5 subsequent measurement. Please refer to note 18 to the annual financial statements.
Annual financial statements
Following the committee’s review of the annual financial statements for the year ended 31 December 2016, it is of the opinion that, in all material respects, they comply with the relevant provisions of the Companies Act and IFRS as issued by the IASB, and fairly present the results of operations, cash flows and the financial position of Grindrod. On this basis, the committee recommended that the board of directors approve the annual financial statements of Grindrod for the year ended 31 December 2016.
Integrated annual report
The committee reviewed this report, taking cognisance of material factors and risks that may impact the integrity thereof and recommended that the board of directors approve the integrated annual report of Grindrod for the year ended 31 December 2016.
On behalf of the audit committee
28 February 2017
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