for the year ended 31 July 2019
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 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’).
The committee has satisfied itself through enquiry that the external auditor is independent as defined by the Companies Act.
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 has embarked on a combined assurance model ensuring that there are three levels of defence. 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.
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.
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.
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.
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.
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.
The Audit Committee recommended the Annual Financial Statements for the year ended 31 July 2019 for approval to the Board. The Board has subsequently approved the Annual Financial Statements which will open the discussion at the forthcoming Annual General Meeting.
For the detailed Audit Committee report refer to Audit Committee Report.
Chairman, Audit Committee