The EOH Audit Committee ('the committee') has pleasure in submitting this report for the year ended 31 July 2019, which has been approved by the Board. This report has been prepared in compliance with section 94(7)(f) of the Companies Act 71 of 2008 ('the Companies Act') and in accordance with the mandate given by the Board.
The main role of the committee is to provide independent oversight of:
- the integrity of the Annual Financial Statements and other external reports issued by the Company;
- the effectiveness of the organisation's assurance services and functions, particularly focusing on combined assurance arrangements, the finance function, external assurance service providers and the internal audit function.
Terms of reference
The Board approved the new terms of reference for the committee during 2019, which are in line with the King IV Report on Corporate Governance for South Africa, 2016 ('King IV').
Six meetings of the committee were held
during the year under review. Attendance
at meetings is shown on Corporate Governance.
The Chairman of the Board, the Chief
Executive Officer, the Chief Financial
Officer, the Chief Risk Officer, the
Company Secretary and other members
of senior management as required,
attend committee meetings by invitation,
but have no voting rights. Similarly,
external and internal auditors attend
committee meetings by invitation, but
have no voting rights.
The Chairperson of the committee
reports to the Board at all Board
meetings on the activities and
recommendations of the committee.
The Chairperson of the committee
periodically meets separately with the
external auditor and the internal audit
executive without members of executive
management being present.
Independence of the external auditor
The committee has satisfied itself through enquiry that the external auditor is independent as defined by the Companies Act.
As only two directors were appointed to the committee by shareholders at the
Annual General Meeting (‘AGM’) held on 20 February 2019, the board subsequently
restructured the committee and appointed the following independent non-executive
directors as members of the committee to hold office:
Mr Mike Bosman (Chairperson of the committee)
Mr Andrew Mthembu
Mr Ismail Mamoojee
Ms Jesmane Boggenpoel
The Board is satisfied that the members of the committee have the necessary skills
and experience to enable the committee to fulfil its duties.
The appointment of committee members will be subject to approval by shareholders
at the next AGM to be held on Thursday, 5 December 2019. The biographies of the
directors who have made themselves available for election to the committee can be
viewed on EOH Board of Directors.
The committee has considered the nature and extent of any non-audit services. During the 2019 fiscal year, fees in respect of non-audit services amounted to R1,7 million.
The committee has met with the external auditors without management present, to discuss the results of their audit and the overall quality of the Company's financial reporting. The committee also discussed the expertise, resources and experience of the Company's finance function with the external auditors. No matters of concern were raised during those meetings.
The committee has agreed to the budgeted audit fee for the 2019 financial year. Auditors' remuneration is disclosed in note 27 to the consolidated Annual Financial Statements. The committee is of the view that this remuneration is appropriate.
As required in terms of the JSE Listings Requirements, the committee has considered the information received from the auditors to allow the committee to assess the suitability for appointment of the audit firm and the designated audit partner. The committee has satisfied itself that the external auditors and the designated registered audit partner are accredited on the JSE list of auditors and advisers. The committee further confirms that it has assessed the suitability for appointment of the external auditors and the designated audit partner.
The committee has satisfied itself on the qualification and experience of the external auditor and is satisfied with the quality and level of the work performed by them.
Pursuant to a decision by the EOH Board to voluntarily comply with mandatory audit firm rotation prior to the prescribed date of 1 April 2023, EOH has elected to terminate the external audit services provided by Mazars (Gauteng) Inc. ('Mazars') on conclusion of its external audit responsibilities for the financial year ended 31 July 2019. Mazars was appointed as external auditor to EOH during the 2011 financial year and the Board of directors of the Company thanks Mazars for its services to EOH during its tenure.
Following a formal tender process, the Audit Committee with the endorsement of the EOH Board recommends the appointment of PricewaterhouseCoopers Inc. as the Group's new external auditor, which appointment will be effective from the conclusion of the annual general meeting to be held on 5 December 2019. The Audit Committee further confirms that it has assessed PricewaterhouseCoopers Inc.'s suitability for appointment in accordance with paragraph 3.84(g)(iii) of the JSE Listings Requirements and nominates for appointment PricewaterhouseCoopers Inc. as the external auditor of EOH.
EOH set up an internal audit function during the second half of the financial year with the assistance of PwC Inc. The internal audit charter and internal audit plan were approved by the committee. All internal audit reports were reviewed and discussed at committee meetings and, where appropriate, recommendations were made to the Board.
While concerted effort has been made to create the internal control framework, policies and controls, this area needs continued focus and maturing.
EOH embarked on a combined assurance model ensuring that there are three lines of defence. Management comprises the first line who own and manage the risks. The establishment of the GRC function fulfils the second line of defence overseeing the activities of the first line and providing specialist input. The third line, comprises of internal audit and other assurance providers, who provide independent assurance. The combined assurance approach is in the process of being integrated with the risk management process to assess assurance activities across the various lines of defence.
While the committee is satisfied with the level of assurance provision for significant Group risks, the combined assurance approach will continue to be enhanced during the 2020 fiscal year.
In terms of coordinating assurance activities, the committee reviewed the plans and work outputs of the external and internal auditors.
Internally, management has performed an attestation process throughout the organisation to ensure the right level of controls are in place from a financial statement reporting perspective.
A number of internal control deficiencies have been identified. These are dealt with by management in the ordinary course of business. Management will continue to monitor and resolve, where appropriate, IT access controls and segregation of duties conflicts, as the Group strengthens its current financial systems. The Audit Committee is, however, satisfied that none of these deficiencies had a material effect for the purposes of the preparation and presentation of the financial statements for the fiscal year under review.
Current year key areas of focus
As part of the committee's responsibilities, the committee reviewed management position papers on changes in accounting standards related to the adoption of IFRS 9 and 15, as well as position papers on significant IFRS judgement areas and position papers on matters related to prior year adjustments.
Audit qualification of opening balances
During the 2019 fiscal year, the current EOH management team identified a number of transactions that have been processed incorrectly in both current and prior periods; the impact of these transactions spanned various accounting topics, including revenue recognition, asset capitalisation and subsequent recovery, and timing of recognition of liabilities and other provisions for impairment.
In assessing whether the identified adjustments should be processed as prior period errors or recognised in the current period, management considered whether the facts that gave rise to the adjustments existed in prior years, or whether those events only arose due to information that came to light in the current year. Management has only processed adjustments as prior period errors if the facts that gave rise to the adjustment were found to clearly have existed in prior years. It is important to clarify that items deemed to be prior period errors do not merely result from the new EOH management team applying different judgement to the prior management team, but rather from the application of accounting principles to prior year transactions using information that existed at that time.
Measurement of these prior period errors did in some cases require management to make estimates, as set out in paragraph 53 to IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors, the fact that significant estimates are frequently required when amending comparative information presented for prior periods does not prevent reliable adjustment or correction of the comparative information.
If there was any uncertainty about whether the events that gave rise to an adjustment existed in the prior period, management has processed the adjustment in the current year.
Management further consulted with an independent accounting firm who were supportive of management's view. As a result, the Audit Committee has accepted management's view and recommended to the Board the prior year adjustments, which has in turn approved the adjustments as part of the financial statements.
The committee reviewed the interim and annual Group Financial Statements, culminating in a recommendation to the Board to adopt them. The review of the results included ensuring compliance with International Financial Reporting Standards ('IFRS') and the acceptability of the Company's accounting policies. This includes the appropriate disclosures in the Annual Financial Statements in accordance with IFRS as issued by the International Accounting Standards Board, IFRS Interpretations Committee ('IFRIC') interpretations applicable to companies reporting under IFRS, SAICA Financial Reporting guides as issued by the Accounting Practices Committee, Financial Pronouncements as issued by the Financial Reporting Standards Council ('FRSC') and the requirements of the Companies Act and the JSE Listings Requirements.
In accordance with paragraph 3.84(g)(ii) of the JSE Listings Requirements, the committee confirms that the Company has established appropriate financial reporting procedures and that these procedures are operating effectively.
Expertise and experience of Group Chief Financial Officer and finance function
The committee reviewed the performance and expertise of Megan Pydigadu and confirmed her suitability to hold office as Group Financial Director in terms of the JSE Listings Requirements. The committee has also considered and has satisfied itself of the appropriateness of the expertise and experience of the finance function and adequacy of resources employed in this function.
An anonymous ethics line has been put in place which is managed by an independent party. All calls are reported in total anonymity.
Going concern status
The committee has considered the going concern status of the Company and the Group on the basis of review of the Annual Financial Statements and the information available to the committee and recommended such going concern status for adoption by the Board. The Board statement on the Going concern status of the Group and Company is contained in note 45 – Going concern.
Future areas of focus
The committee will continue to review
relevant submissions and reports issued
by assurance providers – both internal
The committee will continue to monitor
the organisation’s control environment
and will engage with relevant persons –
both internal and external – as required,
in order to effectively discharge its
The committee will continue to review
relevant reports and position papers
prepared by management relating to
accounting standard changes to ensure
that all material risks are addressed.
Discharge of responsibilities
The committee is satisfied that it has conducted its affairs, discharged its legal and other responsibilities as outlined in its charter, the Companies Act and King IV. The Board concurred with this assessment.
The committee has had due regard to the principles and recommended practices of King IV in carrying out its duties and is satisfied that it has discharged its responsibilities in accordance with its terms of reference.
Chairman, Audit Committee