Audit committee report
Report to shareholders on the activities of the audit committee for the year ended 31 March 2017
The audit committee is a committee of the board of directors and in addition to having specific statutory responsibilities to shareholders in terms of the Companies Act, it assists the board by advising and making submissions on financial reporting, oversight of the governance, risk management process and internal financial and non-financial controls, external and internal audit functions and statutory and regulatory compliance of the company.
Terms of reference
The audit committee has adopted formal terms of reference that were reviewed during the year and approved by the board of directors, and has executed its duties in the past financial year in line with these terms of reference.
The committee consists of four independent non-executive directors:
Ms Goldin and Ms Gobodo joined the audit committee respectively on 31 October 2016 and 8 February 2017 to serve with Mr Moyo and Mr Ross.
The CEO, CFO, chief audit executive, senior financial executives of the group and representatives from the external and internal auditors attend committee meetings. The internal and external auditors have unrestricted access to the audit committee.
The audit committee held five scheduled meetings during the year, with attendance shown below:
|3 June 2016||All present|
|7 November 2016||All present|
|7 March 2017||All present|
|29 May 2017||All present|
|6 June 2017||All present|
|*||A meeting was held on 12 July 2017 to approve the integrated report.|
In executing its statutory duties in the 2017 financial year, the audit committee:
- Nominated Ms Radebe, from the audit firm Deloitte & Touche (Deloitte), for appointment. In the opinion of the committee, Ms Radebe was independent of the company
- Determined Deloitte’s terms of engagement
- Believes that the appointment of Deloitte complies with the relevant provisions of the Companies Act, JSE Listings Requirements and King III
- Developed and implemented a policy setting out the extent of any non-audit services the external auditors may provide to the company
- Approved non-audit service contracts with Deloitte in accordance with its policy
- Received no complaints on the accounting practices and internal audit of the company, the content or auditing of its financial statements, internal financial controls, or other related matters
In executing its delegated duties and making its assessments (as reflected in its terms of reference), the audit committee obtained feedback from external and internal audit, and based on the processes and assurances obtained, believes the accounting practices are effective. Accordingly, the committee fulfilled all its obligations including:
The committee reviewed the consolidated and separate annual financial statements, summarised annual financial statements, preliminary announcements, and short-form announcements and accompanying reports to shareholders and other announcements on the company’s 2017 results to the public.
- Recommended to the board to engage an external assurance provider on material sustainability issues
- Reviewed the disclosure of sustainability issues in the integrated report to ensure it is reliable and does not conflict with the financial information
- Recommended the integrated report for approval by the board.
- Took responsibility for the performance assessment of Mr Semenya, chief audit executive (CAE). A formal performance assessment had been performed at the end of the financial year and nothing has come to the attention of the committee indicating that performance has declined
- Approved the internal audit plan and changes to the plan and satisfied itself that the audit plan makes provision for effectively addressing the critical risk areas of the business
- Reviewed internal audit’s compliance with its charter and considered whether the internal audit function has the necessary resources, budget and standing within PPC to enable it to discharge its functions
- Appointed Ms Putzier as the new CAE of the PPC group, at the 29 May 2017 meeting, following the decision by Mr Semenya to pursue another opportunity within the PPC group
The committee is an integral component of the risk management process and specifically reviewed:
- Financial risks
- Financial reporting risks
- Internal financial controls
- Fraud risks as they relate to financial reporting
- IT governance
- Evaluated and reported on the independence of the external auditor
- Reviewed the quality and effectiveness of the external audit process
- Based on our satisfaction with the results of activities outlined above, recommended to the board that Deloitte should be reappointed for 2018, with Mr Mashifane nominated as the registered auditor
- Determined the fees to be paid and the terms of engagement of the auditor
- Ensured the appointment of the auditor complies with the Companies Act and other relevant legislation
The committee has satisfied itself of the appropriateness of the expertise and experience of Ms Ramano, the financial director, and confirms this to shareholders.
- The committee has reviewed the expertise, resources and experience of the company’s finance function. It was noted that management was taking steps to alleviate the additional workload as a result of a number of projects and increased complexities
- In making these assessments, we have obtained feedback from both external and internal audit
- Based on the processes and assurances obtained, we believe the accounting practices are effective
Oversight of risk management
The committee engages with the risk and compliance committee to ensure adequate understanding of risk management processes.
Internal financial controls
- Reviewed the effectiveness of the company’s system of internal financial controls, including receiving assurance from management and internal audit
- Reviewed material issues raised by the internal and external audit process
- Based on the processes and assurances obtained, we believe material internal financial controls are effective
Key areas from the year-end audit report
The consolidated annual financial statements include balances, transactions and other items where the application of judgement is necessary. To the extent that significant judgement was applied, the areas of judgement are noted or the appropriate disclosure is reflected in the respective notes to the consolidated annual financial statements. Reference is also made to the external auditors’ report on page 142 of these consolidated annual financial statements.
In finalising the consolidated annual financial statements for the year ended March 2017, the audit committee considered the following balances to have been prepared with a significant amount of judgement:
Impairment assessment of the rest of
Africa cement non-financial assets
The group has recently expanded into the DRC and Rwanda and has been operating in Zimbabwe since the acquisition of the business in 2001, with a further investment made in a cement mill in Harare which was commissioned during this financial year. Due to the current economic and political environments and trading performances, impairment assessments were undertaken by management on all three key rest of Africa cement businesses.
The audit committee debated management’s assumptions in concluding that no impairment is required for investments into the DRC, Rwanda and Zimbabwe. It was also emphasised that, should the new or additional impairment indicators be noted at the group’s next reporting date of September 2017, that a further impairment assessment of the plants will be conducted once the plants have been in operation for a reasonable period of time.
Attention was also drawn to the constraints of remitting funds from Zimbabwe and that the full cash and cash equivalents in Zimbabwe have been disclosed as restricted.
VAT receivable incurred during
construction of the DRC plant
VAT was incurred during the construction of the plant in the DRC and at the end of March 2017, the amount receivable amounted R210 million (March 2016: R319 million) and has been reflected as a non-current receivable in the consolidated financial statements.
The audit committee reviewed management’s assessment to ensure that the VAT receivable is accurate and indeed recoverable. The committee noted management’s use of an external expert to confirm the validity of the amounts deemed to be receivable and the letter received from the DRC finance ministry indicating that the VAT needs to be paid to PPC Barnet DRC on condition that the money is utilised for local suppliers and local salaries.
The committee also confirmed the recognition of the VAT as non-current due to the uncertainty of timing of when the payment would be received.
Deferred taxation assets
The group had deferred taxation assets of R142 million (March 2016: R52 million), relating mainly to assessable taxation losses stemming from PPC Barnet DRC, PPC Ltd and CIMERWA.
The audit committee noted the papers presented by management supporting the future recoverability of the assessable taxation losses. The assumptions and forecasts used in preparing motivations of the validity of the deferred taxation assets were debated by the committee and concluded that management’s assumptions were appropriate. Sensitivities and potential risk were also interrogated, noting the limited headroom on the deferred taxation in Rwanda and the position that management will continue to assess the position on an ongoing basis.
During the year, management has developed and implemented the combined assurance model with the enhanced risk framework of the group. This model will be further developed for the group in the 2018 financial year.
The audit committee has complied with all applicable legal and regulatory responsibilities.
On behalf of the audit committee
Tim Ross (chairman)
12 July 2017