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.
At its meeting held in February 2017, the committee reviewed and approved the terms of reference as amended in accordance with the provisions of King IV.
Role of the committee
The audit committee ensures that accurate financial reporting through 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, 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.
Composition and committee meetings
The committee composition adheres to the requirements of the Companies Act, the JSE Listings Requirements and King IV. The chairman of the board may not serve as 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 24 May 2017 and appointed as chairperson 26 November 2014), Walter Geach (re-appointed 24 May 2017) and Raymond Ndlovu (re-appointed 24 May 2017). More details of these directors are given in the directorate and executive committee section.
The independence of the audit committee and performance of its members were evaluated by the nomination committee during 2017. Based on the recommendation of the committee, the board proposed the re-election of the members to the shareholders at the forthcoming annual general meeting.
The committee invites the executive chairman, the group financial director, group risk and 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 2017.
Attendance of committee members at the meetings of the committee during the year is listed in the directorate and executive committee of this integrated annual report.
Fees paid to the committee members are reflected in the report of the remuneration committee and the proposed fees for 2018 are detailed in special resolution 3.1 in the notice of the annual general meeting.
The group company secretary serves as secretary to the committee.
In terms of its mandate, matters considered by the audit committee based on its annual work plan for 2017 included:
- evaluation of the independence, effectiveness and performance of the internal audit function;
- 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 for approval by shareholders at the annual general meeting 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, audit findings and external audit report;
- reviewing the internal auditors’ limited assurance report;
- legislative and regulatory compliance within the scope of its mandate;
- reviewing implementation of the company’s tax policy;
- reviewing and recommending to the board publicly disclosed financial information, including the interim results for the six months ended 30 June 2017;
- reviewing the annual financial statements and results for the year ended 31 December 2017 and the 2017 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;
- noting the Report of the JSE on Reporting Back on Proactive Monitoring of Financial Statements in 2016, dated 13 February 2017;
- evaluating the performance of the audit committee; and
- approving its annual work plan for 2018.
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 2017 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 met formally on two occasions in 2017.
In assessing the auditor’s independence, the committee considered guidance contained in King IV as well as IRBA publications and the related commentary thereon. Deloitte & Touche have been auditors of the Grindrod group for fourteen 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 that Deloitte & Touche’s independence is maintained and has not been impacted by tenure. The Deloitte & Touche internal independence processes 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; independence audits on all partners; established safeguards and procedures; independence training and monitoring of non-audit services. The committee is satisfied that adequate steps have been taken by Deloitte & Touche and management and concluded that the transition to the incoming group audit partner was 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 2017 financial year to Deloitte & Touche amounted to R22.2 million (2016: R19.1 million); US$252 073 (2016: US$205 100); SGP$1.0 million (2016: SGP$904 000) and P819 000 (2016: P608 000).
The approved audit fee accounts for 34 audit partners in 31 countries in order to perform the 200+ global statutory audits. The total non-audit services for the 2017 financial year performed by and paid to Deloitte & Touche amounted to R3.6 million (2016: R3.0 million), of which 94 percent relates to permitted tax services. 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 the accounting policies of 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 key audit matters 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 and discontinued operations.
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 the accounting policies and note 4 of 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 no impairment was required 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 fairly stated.
Once a board decision relating to the sale or loss of control of a disposal group has been committed to, all of the assets and liabilities of such disposal group are classified as held-for-sale in terms of IFRS 5 and the classification of discontinued operations is assessed. The committee agreed with the fair value less costs to sell assessment of the disposal groups and assessed any key adjustments to net book value of the disposal groups based on the requirements of IFRS 5 subsequent measurement. In addition, the committee concurred with the classification of the discontinued operations. Please refer to note 17 of the annual financial statements.
Annual financial statements
Following the committee’s review of the annual financial statements for the year ended 31 December 2017, 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 2017.
Integrated annual report
The committee reviewed this report together with supplementary attachments, 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 2017.
On behalf of the audit committee
22 March 2018