Audit Committee report

This report is presented by the Audit Committee (Committee), appointed by the Board of Directors and endorsed by shareholders in respect of the year ended 30 June 2018. The report is prepared in accordance with the requirements of the Companies Act and the recommendations of King IV and describes, how the Committee discharged its obligations in terms thereof, including the fulfilment of those duties assigned to the Committee by the Board during the reporting period.

COMMITTEE COMPOSITION AND MEETING ATTENDANCE

The Committee complies with King IV, which provides that all members should be independent non-executive directors all of whom are suitably skilled and experienced. The Committee’s composition, qualifications and meeting attendance during the year under review were as follows:

Members of executive management and representatives from internal audit and the external auditors are invited to attend all meetings:

ROLE AND FUNCTION OF THE COMMITTEE

The role and responsibilities of the Committee are governed by a formal charter which is annually reviewed and approved by the Board. A formal evaluation of the Committee is also carried out annually and the Board is satisfied that the Committee has fulfilled all its statutory duties, including those duties assigned to the Committee by the Board during the year under review, the relevant information in each case, detailed below.

EXECUTION OF FUNCTIONS DURING THE YEAR

INTERNAL AUDIT

The Committee has reviewed and approved the internal audit charter and the annual internal audit plan, including compliance therewith, and concluded that the planning, processes and application of internal audit, including the quality of their reporting on internal audit outcomes and related matters was inclusive and comprehensive. Having regard to the reports and assessments presented by internal audit, the Committee is satisfied that the internal financial controls are effective and that there were no material breakdowns in the Group’s systems and internal controls. The Committee is similarly satisfied that the Head of Internal Audit possesses the appropriate expertise and experience to meet the responsibilities of his position and that the internal audit department is effectual and adequately resourced with technically competent personnel.

EXTERNAL AUDIT

At the AGM for 2017, shareholders confirmed the re-appointment of Ernst and Young Inc. (EY), as independent external auditors until the 2018 AGM, the Committee and the Board approving and endorsing their terms of engagement and their fee structures. EY has been the external auditors since the Group’s listing in 2008. The designated registered audit partner presently responsible for and who undertook the Group’s audit is Mr Dave Cathrall, who has served in this role for three years, but will be rotated off the audit due to his retirement. The Committee was satisfied with the quality of the external audit process and the team assigned to the audit. No matters of concern were noted by the committee regarding the performance of the external auditors.

The Committee has nominated EY as the independent external auditors of the Company for the year to June 2019. The Committee is satisfied that EY and the individual auditor designated by EY as responsible for performing the functions of the auditor, Mr Warren Kinnear, are accredited as such on the JSE list of auditors and can be regarded as independent and are thereby able to conduct their audit functions without any conflict or influence. In arriving at the conclusion of independence, the Committee considered multiple factors, good governance and quality control processes currently applied to EY, including conducting the external auditor independence evaluation, the reviews conducted by IRBA on the designated auditor and the external audit firm, and the internal reviews conducted on the designated auditor. Furthermore, a rigorous partner rotation process is applied, which contributes to the independence assertion. The Committee remains cognisant of the developments in the Audit profession. The external auditors continue to have unrestricted access to the Audit Committee and its Chairperson.

The overall audit process includes a private open dialogue between the external auditor and the Committee. Matters typically discussed, include the external auditor’s assessment of their audit interactions with management, whether any limitations were placed by management on the scope and execution of the audit, including any special matters that need to be brought to the Committee’s attention. The Committee can report that its working relationship with the EY designated partner is professional and functional.

The Committee determined the fees to be paid to the external auditor and agreed to the terms of their engagement and audit plan in consultation with executive management. The audit fee for the year ended 30 June 2018 has been fully disclosed in note 6.1 of the annual financial statements. The Committee is also responsible for determining the nature and extent of non-audit services that the external auditors may provide and, in such circumstances, the Committee approves or in limited circumstances pre-approves proposals for such non-audit services.

The Committee assessed the quality and effectiveness of the external auditors by reviewing the audit plan, changes thereto as well as the robustness with which the they handle key accounting issues and audit judgements. The Committee received the detailed external audit report for the year ended 30 June 2018 and were satisfied with their conclusions that both the consolidated and separate annual financial statements were fairly presented in all material respects and no material issues were raised.

REPORTING

The Committee:

• Considered and concurred with the adoption of the going-concern premise in the preparation of the financial statements;
• Reviewed the appropriateness of the financial statements, other reports to shareholders and other financial announcements made public;
• Considered whether the annual financial statements fairly present the financial position of the Company and of the Group as at 30 June 2018 and the results of operations and cash flows for the financial year then ended;
• Considered the solvency and liquidity of the Company and considered and made recommendations to the Board on the dividend declarations;
• Considered accounting treatments, the appropriateness of accounting policies adopted and the effectiveness of the Group’s disclosure controls and procedures;
• Considered whether any concerns were identified regarding significant legal, tax and other matters that could have a material impact on the financial statements;
• Reviewed the external auditor’s audit report;
• Considered and noted the key audit matters as determined by the external auditors;
• Reviewed the representation letter, signed by management;
• Confirmed that it has considered the findings contained in the 2018 proactive monitoring report, when the annual financial statements for 30 June 2018 were drafted; and
• Reviewed the quality and integrity of the integrated report and the sustainability information before publication.

INTERNAL FINANCIAL AND ACCOUNTING CONTROLS

The Committee is responsible for reporting on the Group’s systems of internal, financial and accounting controls. The Committee has accordingly considered the reports from both internal and external audit on such matters and is satisfied that both reports confirm the adequacy and effectiveness of the Group’s systems of internal control and that there were no material breakdowns in the internal control during the financial year.

The Committee confirms that it did not receive any concerns or complaints relating to the accounting practices and the internal audit of the Company, the Content or auditing of the Company’s financial statements, the internal financial controls of the Company or any other related matter during the year under review.

EXPERTISE AND EXPERIENCE OF FINANCIAL DIRECTOR AND THE FINANCE FUNCTION

The Committee, after a formal review remains satisfied that the Chief Financial Officer is suitably experienced, diligent and has the qualifications and expertise to meet the responsibilities of her position. The Committee also concluded that the finance function is effectual and appropriately resourced with competent personnel.

TECHNOLOGY AND INFORMATION GOVERNANCE

The Committee and the Board recognise the advances and economic value of technology and that failure to maintain the Group’s accounting and administrative IT applications, is potentially disruptive and a significant operational risk. Accordingly, technology and information systems form an essential part of the Group’s strategic and business processes and is intentionally managed by an Information Technology Executive team.

A key focus during the current reporting period included enhancements to the IT application and cyber security environment, completion of Phase 1 of the Quality Assurance management system and the integration of Virtual Logistics Proprietary Limited. The Committee in also mindful of King IV’s emphasis on IT matters, with nominative reference to periodic assessments, independent assurances and cybersecurity.

COMBINED ASSURANCE

The Committee, in conjunction with the Board Risk and Sustainability Committee, have formulated a broad risk matrix for appropriate risk assessment and deduction. All risks are ranked and rated by category and importance. Internal Audit substantially coordinates this discipline in parallel with its internal audit function, the assessment and management of the more material risks being reported on where relevant and appropriate in each case. The aim is to provide management, the Committee and the Board with a clear understanding of all business risks, how each are managed, controlled and/or mitigated and the consequences and cogency of such actions. The Committee can confirm that it has satisfied itself that the combined assurance model is effective and sufficiently robust for the Board to be able to place reliance on it.

COMPLIANCE

The Committee is obliged to report any material breach of a relevant legal and/or regulatory requirement in the conduct of the Group enterprise. No evidence or indication of any such breach or material non-compliance has been brought to the attention of the Committee by either the internal or external auditors or any other party.

CONCLUSION

The Committee is satisfied that it has complied with all its legal, regulatory and other responsibilities for the year under review.

Following our review of the annual financial statements for the year ended 30 June 2018, we are of the opinion that, in all material respects, they comply with the relevant provisions of the Companies Act and International Financial Reporting Standards, and present fairly the results of operations, cash flows and the financial position of the Company and the Group. The Committee therefore recommended the consolidated and separate annual financial statements of Adcock Ingram Holdings Limited for approval to the Board of directors. At the forthcoming Annual General Meeting the annual financial statements will be presented to shareholders.

On behalf of the Committee

J John

Chairperson

28 August 2018