AUDIT AND RISK COMMITTEE REPORT

FOR THE YEAR ENDED 30 JUNE 2018


Audit and Risk Committee Report in terms of section 94(7)(F) of the Companies Act No 71 of 2008

The AfroCentric Investment Corporation Limited Audit and Risk Committee (herein referred to as "the Committee") is constituted in terms of section 94(7)(f) of the Companies Act. The Committee has documented approved terms of reference under which it operates and executes its oversight responsibilities. This report is presented to shareholders in compliance with the requirements of the Companies Act 71 of 2008, as amended, The JSE Listings Requirements and the King IV Code of Governance.

Composition

The Committee consists of three suitably qualified Independent Non-executive Directors. The following Independent Non-executive Directors served on the Committee during the financial year under review:

  • Lindani Lorna Dhlamini
  • Hlokammoni Grathel Motau
  • Sello Ernest Mmakau
Meetings and duties

The Audit and Risk Committee held 5 meetings during the year under review. The Executive Directors, external auditors, internal auditors and senior management have a standing invitation to attend meetings of the Committee. At these meetings, the Committee received and considered reports from External Audit, Internal Audit, Group Finance and the Group Legal, Governance, Risk and Compliance departments.

At each Annual General Meeting, the Board of Directors shall present the shareholders with at least three suitable candidates from amongst the Independent Non-executive Directors, on recommendations by the Nominations Committee, for election as Committee members. The Board of Directors shall have the power at all times to appoint, remove and replace any member from the Committee.

Roles and responsibilities of the Committee

The Committee has the following specific responsibilities:

Integrated reporting

The Committee oversees integrated reporting, and in particular the committee must:

  • have regard to all factors and risks that may impact on the integrity of the integrated report;
  • ensure that appropriate financial reporting procedures exist and are working;
  • review the Annual Financial Statements, interim reports, preliminary or provisional result announcements, summarised integrated information, any other intended release of price-sensitive information and trading statements;
  • comment in the Annual Financial Statements on the financial statements, the accounting practices and the effectiveness of the internal financial controls of the Company;
  • consider the frequency for issuing interim results and whether the external auditors should perform assurance procedures on the interim results;
  • review the disclosure of sustainability issues in the integrated report to ensure that it is reliable and does not conflict with the financial information;
  • confirmation of responsibilities pursuant to paragraph 22.15(h) from the auditors;
  • recommend to the Board the engagement of an external assurance provider on material sustainability issues; and
  • recommend the integrated report for approval by the Board.
Combined assurance

The committee ensures that a combined assurance model is applied to provide a coordinated approach to all assurance activities, and in particular the committee should:

  • ensure that the combined assurance received is appropriate to address all the significant risks facing the Company via suitable mitigating controls;
  • provide an effective counterbalance to executive management, thereby upholding the independence of internal and external assurance providers, to enhance effectiveness; and
  • monitor the relationship between the external assurance providers and the Company.
Finance Director and Finance function

The Committee:

  • reviews the expertise, resources and experience of the Company's Finance function, and disclose the results of the review in the integrated report; and
  • considers and satisfies itself as to the suitability of the expertise and experience of the Chief Financial Officer every year and confirms this in the integrated report.
External Audit

The Committee is responsible for recommending the appointment of the external auditor and to oversee the external audit process and in this regard:

  • nominates the external auditor who in the opinion of the Committee is independent of the Company, for the appointment by the shareholders;
  • approves the terms of engagement and remuneration for external audit engagement;
  • monitors and reports on the independent of the external auditor in the Annual Final Statements;
  • ensures that the appointment of the auditor complies with the provision of the Companies act, paragraph 22.15 of the JSE's Listings Requirements and any other legislation relating to the appointment of the auditors;
  • defines a policy for non-audit services;
  • ensures that there is a process for the Committee to be informed of any issues identified and reported by the external auditor; and
  • reviews the quality and effectiveness of the external audit process.

PricewaterhouseCoopers Inc. was appointed as external auditors of the Company and the Group. The Committee has satisfied itself that the external auditors are independent of the Group, as set out in the Companies Act, which includes a consideration of conflicts of interests as prescribed by the Public Audit Act No 25 of 2004 ("PAA").

Internal Audit

The Committee is responsible for overseeing the Internal Audit function, and in particular the Committee;

  • is responsible for the appointment, performance assessment and/or dismissal of the chief audit executive;
  • annually reviews and approves the internal audit plan and charter;
  • annually reviews and confirms the independence of the Internal Audit function; and
  • ensures that the Internal Audit function is subject to an independent quality review, as and when the committee determines it appropriate.
Risk management

The Committee is an integral component of the risk management process and specifically the committee must oversee financial reporting risks; internal financial controls; fraud risks as it relates to financial reporting; and IT risks as it relates to financial reporting. The Committee performed all the functions necessary to fulfil its risk management role and including the following:

  • ensuring the establishment of an independent Risk function at a Group level;
  • overseeing the development and annual review of a policy and plan risk management to recommend for approval to the Board;
  • monitoring implementation of the policy and plan for risk management taking place by means of risk management systems and processes;
  • making recommendations to the Board concerning the levels of tolerance and appetite and monitoring that risks that are managed within the levels of tolerance and appetite as approved by the Board;
  • ensures that risk management assessments are performed on a continuous basis and at least once a year;
  • ensures that management considers and implements appropriate risk responses;
  • ensures that continuous risk monitoring by management takes place;
  • expresses the Committee's formal opinion to the Board on the effectiveness of the system and process of risk management; and
  • reviews reporting concerning risk management that is to be included in the integrated report for it being timely, comprehensive and relevant.
Financial reporting and financial control

The Committee has:

  • evaluated the adequacy and effectiveness of the accounting policies adopted by the Company in terms of IFRS, JSE Listings Requirements and other legal requirements;
  • considered the adequacy and clarity of disclosures in the financial statements;
  • reviewed the basis on which the Company has been determined a going concern and make a recommendation to the Board; and
  • reviewed the effectiveness of financial management and the quality of internal accounting control systems and reports produced by financial management;
  • reviewed the impact of new financial systems, tax and litigation matters on financial reporting.
Effectiveness of internal controls

After consideration of all of the findings reported by Internal Audit covering those areas included in their annual work plan, explanations given by management and discussions with the external auditor on the results of the audit, the Committee concluded that there had been no material breakdown in the Company's overall controls system and the internal financial controls form a reasonable basis for the preparation of reliable annual financial statements. The Committee is satisfied that the Group Annual Financial Statements are based on appropriate accounting policies, supported by reasonable and prudent judgement and estimates.

Group Annual Financial Statements

The Committee is satisfied that the Group Annual Financial Statements are based on appropriate accounting policies supported by reasonable and prudent judgements and estimates. The Committee is of the view that, in all material respects, it complies with the relevant provisions of the Companies Act, JSE Listings Requirements and IFRS and fairly presents the financial position and the results of its operations and cash flows for the year ended 30 June 2018. Having achieved its objective for the financial year, the Audit and Risk Committee recommended the audited Annual Financial Statements for the year ended 30 June 2018 for approval to the Board.

Independence of external auditors

The Committee appraised the independence, quality and effectiveness of the external audit function. Part of this process was to obtain confirmation from the external auditors that the firm, partner and staff responsible for the audit comply with all legal and professional requirements in regard to independence. The Committee also approved the fees paid to the external auditors. The committee pre-approved all audit and permissible non-audit services that PwC provides. Fees paid to the external auditor for the year were considered reasonable when compared to non-audit services and assessed that PwC was independent.

The Committee confirmed its satisfaction with the independence and level of service rendered by the external auditor, PwC, for the 2018 financial year.

Key audit matters

The Committee has considered the key audit matters, firstly goodwill impairment assessment and secondly capitalisation and impairment assessment on internally generated software, noted in the independent auditor's report and is satisfied that this has been adequately addressed by the external auditors

Responsibility statement

The Audit and Risk Committee acknowledges its responsibility on behalf of the Board of Directors to ensure the integrity of these Annual Financial Statements. The Committee has accordingly applied its mind to the report and believes that it appropriately and sufficiently addresses all material issues, and fairly presents the performance of AfroCentric and its subsidiaries and associates for the financial year. The Audit Committee recommends these Annual Financial Statements to the Board of Directors for approval.

Lindani L Dhlamini
Chairperson of the Audit & Risk Committee
12 September 2018