1. Purpose of the audit and risk committee charter
1.1The purpose of the Audit and Risk Charter (“the Charter”) is to set out the role, duties and responsibilities of the Audit and Risk Committee (“the Committee”) and its relationship to the Internal and External Audit functions and the Board of Sabvest Capital Limited (“the Board”).
1.2The Committee is constituted as a statutory committee of Sabvest Capital Limited (“the Company”) in respect of its statutory duties in terms of section 94 of the Companies Act, 2008, and a committee of the Board in respect of all other duties assigned to it by the Board.
1.3The Charter aims to ensure that the Committee is compliant with the recommendations of the King IV Report on Corporate Governance for South Africa.
1.4This Charter is made available to the Shareholders of the Company on the Company website and a summary of the Charter is disclosed in the annual report of the Company.
1.5This Charter will be reviewed annually by the Committee and the Board.
2. Purpose of the audit and risk committee
2.1The purpose of the Committee is to assist the Board in discharging its duties relating to:
2.1.1The safeguarding of assets;
2.1.2Risk evaluation and risk management;
2.1.3The operation of adequate financial and administration systems including internal control;
2.1.4Accurate reporting to shareholders and other stakeholders and provision of financial statements in compliance with all applicable legal requirements and accounting standards;
2.1.5Compliance with relevant laws, regulations and procedures.
2.2The Committee provides a forum for discussing business risk and control issues and for developing relevant recommendations for consideration by the Board.
2.3The Committee has oversight of the activities of the Company’s scope internal audit function, currently provided by KPMG and the external audit function, currently provided by Deloitte & Touche.
2.4The Committee shall act as a channel of communication between the Board and management and the internal and external auditor
2.5The Committee is an advisory committee and not an executive committee except in relation to:
2.5.1The nomination of the external independent auditor for each financial year appointed in terms of the requirements of the Companies Act in South Africa and any other regulatory and legislative requirements which the Company needs to comply with;
2.5.2The approval of non-audit services performed by the external auditor;
2.5.3The approval of the terms of engagement of, and fees to be paid to the external auditor; and
2.5.4The approval of the appointment of internal auditors if the function is outsourced, and of the Head of Internal Audit if an in-house internal audit function is established.
3. Membership and quorum
3.1In every financial year, the Company’s Shareholders, on recommendation of the Remuneration and Nominations Committee, shall appoint an Audit and Risk Committee for the following year. The members of the Committee shall be appointed from among the Directors from time to time and shall consist of at least three members, all of whom shall be independent non-executive directors in terms of the definition set out in the Companies Act, and any other regulatory requirement, with the requisite experience, knowledge and skills set to serve on the Committee.
3.2The Chairman of the Committee shall be appointed by the Board and shall have the requisite business, financial and leadership skills and be a good communicator.
3.3The Chairman of the Company may be a member of the Committee, but shall not chair the Committee.
3.4The members of the Committee shall be financially literate and keep up-to-date with the required skill set. At least one member shall have a financial qualification.
3.5The Board shall have the power at any time to remove any member from the Committee.
3.6The Board must fill any vacancy on the Committee within 40 business days.
3.7The quorum for decisions by the Committee shall be any two members of the Committee present throughout the meeting of the Committee.
3.8The company secretary shall be the secretary of the Committee
3.9The composition of the Committee and its Chairmanship will be subject to annual review by the Board.
4. Responsibilities and functions of the audit and risk committee
The responsibilities of the Committee shall be:
4.1To review the internal control structures including financial control, accounting systems and reporting.
4.2To review the Company’s statement on internal control systems prior to endorsement by the Board and in particular reviewing:
- The procedures for identifying business risks and controlling their impact on the Company;
- The Company’s policies for preventing and detecting fraud;
- The Company’s policies for ensuring that the Company complies with relevant regulatory and legal requirements;
- The operational effectiveness of the policies and procedures.
4.3To review the quality of reporting to shareholders (to the extent practicable) of corporations in which the Company is invested to satisfy itself of the validity thereof.
4.4Liaison with external auditors and internal auditors.
4.5Monitoring compliance of the Company with the laws and regulations of applicable statutes and of controlling bodies and all legal requirements.
4.6Monitoring compliance with the Company’s code of ethics and conduct and the ethical conduct of the Company, all Company companies, Company executives and senior officials and identification of any violations of ethical conduct.
The Committee shall:
4.7.1During each financial year for which it has been appointed, nominate for appointment as auditor of the Company a registered independent auditor for approval by shareholders. In considering whether a registered auditor is independent of the Company, the Committee shall consider the provisions of statutes and the standards of the auditing profession and seek additional assurance from the auditor that internal governance processes support and demonstrate their claim to independence. In the event that the annual general meeting appoints a different auditor to the one nominated by the Audit and Risk Committee, the appointment will not be valid unless the Audit and Risk Committee is satisfied that the proposed Auditor is independent of the Company.
4.7.2Be responsible for ensuring that the external auditor’s appointment complies with all applicable legislation;
4.7.3Consider whether the audit firm and, where appropriate, the individual auditor that will be responsible for performing the functions of auditor, are accredited as such on the JSE list of Auditors and their advisors as required by the JSE Limited Listings Requirements;
4.7.4Discuss and review with the external auditors before the audit commences, the auditors’ engagement letter, the terms, nature and scope of the audit function, procedure and engagement. The Committee should review the overall audit role to explore objectives, minimize duplication and discuss implications of new auditing standards;
4.7.5Evaluate the independence, cost-effectiveness and objectivity of the external auditors in relation to the Company itself and any of its subsidiaries and any other member of the Company’s Company and determine the nature and extent of allowed non-audit services rendered by such auditors as to whether this substantively impairs their independence. In assessing the independence of the external auditor, the Committee should determine that the external auditor does not receive any remuneration or other benefit from the Company, except in rendering approved audit and non audit services. The Committee shall also consider whether the external auditor’s independence may have been prejudiced as a result of any previous appointment as auditor. Further, the Committee should consider how the external auditor’s accounting firm is structured to ensure independence, the ownership of that firm, and whether the firm has formed alliances with entities which provide clients with the kind of services an accounting firm would not be allowed to provide;
4.7.6Report on the independence of the external auditor in the annual financial statements;
4.7.7Negotiate procedures, subject to agreement, beyond minimum statutory and professional duties and pre-approve the proposed contract with the auditor in respect of all non-audit services to be rendered. The Committee shall ensure, in relation to such non-audit services provided by the designated auditor that the auditor appointed shall not, for the duration of the appointment, perform any bookkeeping, accounting or internal audit services and, to the extent that these would be subject to its own auditing, tax advisory services for the Company. The Committee shall keep the nature and extent of non-audit services under review, seeking to balance the maintenance of objectivity with value for money;
4.7.8Ensure that there is a process for the Committee to be informed of any Reportable Irregularities (as identified in the Auditing Profession Act, 2005) identified and reported by the external auditor;
4.7.9Evaluate the performance, quality and effectiveness of the external auditors and the external audit process;
4.7.10Agree to the timing and nature of reports from the external auditors;
4.7.11Give directive to external auditors to address areas of concern, in addition to the auditors’ minimum statutory and professional duties and consider any problems identified in regard to the Company’s going concern status or matters of internal control;
4.7.12Consider and approve the appropriateness of accounting policies and their implementation, consider accounting treatments, significant unusual transactions, or accounting judgments, that could be contentious;
4.7.13Identify key matters arising in the external auditors’ current year’s management letter and satisfying itself that these are being properly followed up;
4.7.14Review the adequacy of corrective action in response to significant external audit findings.
4.7.15Consider whether any significant ventures, investments or operations are not subject to external audit;
4.7.16Obtain assurance from the external auditors that adequate accounting records are being maintained;
4.7.17Be advised on discussions between management and the external auditor and consider and discuss any differences of opinion between management and external auditors and deal with any issues of material or significant investigations and management responses;
4.7.18Review management’s letter of representation to the external auditors before finalization of the Annual Report;
4.7.19Determine the fees to be paid to the external auditor ensuring the external audit fee will sustain a proper audit and provide value for money;
4.7.20Ensure that the same individual or the lead audit partner of the accounting firm appointed as the designated auditor may not serve as the auditor or designated auditor or lead audit partner for more than five consecutive financial years and ensure that where an individual has served as the auditor or designated auditor for two or more consecutive financial years and then ceases to be the auditor or designated auditor, that the individual may not be appointed as auditor or designated auditor again until the expiry of two further years;
4.7.21When recommending the appointment of the external auditor, periodically consider alternative firms and obtain proposals to facilitate the Committee arriving at its recommendation;
4.7.22Consider any questions on the resignation or dismissal of the auditors;
4.7.23Ensure that the auditor is invited to attend any general meeting of the shareholders at which the financial statements are considered, to answer any question posed to the auditor at such meeting, relevant to the conduct of the audit.
The Committee has determined that the company is too small to require a separate internal audit function. Control assurance remains a matter of emphasis for the external auditors. Separate assurances to the Board, as required by King IV, are undertaken on a three-year cycle and are currently outsourced to KPMG.
The Committee shall oversee integrated reporting, and in particular the Committee must.
4.9.1Have regard to all factors and risks that may impact on the integrity of the integrated report, including factors which may predispose management to present a misleading picture, significant judgments and reporting decisions made, monitoring of enforcement actions by a regulatory body, any evidence which brings into question previously published information, forward-looking statements and similar documents.
4.9.2Review the quality of financial reporting and ensuring that such reporting presents a balanced and understandable assessment of the position performance and prospects of the Company;
4.9.3Review the annual financial statements, interim reports, preliminary or provisional result announcements, summarized integrated information, any other intended release of price-sensitive information and prospectuses, trading statements and similar documents;
4.9.4Comment in the annual financial statements on the financial statements, the accounting practices and the effectiveness of the internal financial controls;
4.9.5Review the disclosure of sustainability issues in the integrated report to ensure that it is reliable and does not conflict with the financial information;
4.9.6Recommend to the Board the engagement of an external assurance provider on material sustainability issues;
4.9.7Recommend the integrated report for approval by the Board;
4.9.8Consider the frequency for issuing interim results;
4.9.9Consider whether the external auditor should perform assurance procedures on the interim results;
4.9.10Review the content of the summarized information for whether it provides a balance view; and
4.9.11Engage the external auditors to provide assurance on the summarized financial information.
4.9.12The implementation of new systems;
4.9.13Tax and litigation matters involving uncertainty;
4.9.14Any changes in accounting policies and procedures;
4.9.15Significant adjustments resulting from the audit including problems and reservations arising from the audit and any matters the auditor may wish to discuss;
4.9.16The basis on which the Group has been determined to be a going concern;
4.9.19Compliance with Group accounting standards, local and international compliance with stock exchange and legal requirements;
4.9.20The appropriateness of major adjustments processed at the year-end;
4.9.21Compliance with the financial conditions of loan agreements;
4.9.22Special documents such as prospectuses, rights offers etc. as and when prepared; and
4.9.23The external auditors’ proposed audit certificate;
4.9.24Major judgmental areas in any financial information under its responsibilities;
4.9.25Significant transactions not directly related to the Company’s normal business as the Committee might deem appropriate;
4.9.26Controls over significant risks.
In addition, the Committee should also review:
4.10The Committee shall ensure that a report describing how the Committee carried out its functions during the financial year and stating whether it is satisfied that the external auditor was independent of the Company is included in the integrated report (normally part of the corporate governance section).
The Committee will ensure that a combined assurance model is applied to provide a co-ordinated approach to all assurance activities, and in particular the Committee should:
4.11.1Ensure that the combined assurance received is appropriate to address all the significant risks facing the company; and
4.11.2Monitor the relationship between the external assurance providers and the company.
The Committee is an integral component of the risk management process and specifically the Committee must oversee:
4.12.1Financial reporting risks;
4.12.2Internal financial controls;
4.12.3Fraud risks as it relates to financial reporting; and
4.12.4IT risks as it relates to financial reporting.
4.13Finance function and chief financial officer
The Committee reviews the expertise, resources and experience of the company’s finance function, and discloses the results of the review in the integrated report.
The Committee also considers and satisfied itself of the suitability of the expertise and experience of the Chief Financial Officer every year.
4.14The Committee shall review subsidiary financial reports and be responsible for subsidiary audit committee and financial matters. The Committee will perform the functions of an audit committee for each subsidiary company to the extent that may be required by the Companies Act in South Africa.
4.15The Committee shall receive and deal appropriately with any complaints relating to accounting practices, internal audit, content or auditing of financial statements or to any related matter.
4.16The Committee shall also review the suitability and performance of the Company Secretary on behalf of the Board, and in particular that the Company Secretary has performed the functions required by the Companies Act and King IV.
5. Meetings and proceedings
5.1Meetings of the Committee will be held as frequently as the Committee considers appropriate, but it will normally meet no fewer than three times a year. Meetings must be held prior to the Board’s approval of final results and annual report and before the Board’s approval of interim results.
5.2The Chairman of the Board, Chief Executive Officer and Chief Financial Officer of the Company, representatives of the Company’s financial management and representatives of the external and internal auditors should attend meetings as invitees and will have unrestricted access to the Chairman of the Committee or any other member of the Committee as required.
5.3Other Board members shall also have a right of attendance.
5.4Reasonable notice of meetings and the business to be conducted must be given to the members of the Committee and to all invitees.
5.5Meeting agendas shall be prepared and distributed in advance, together with sufficient background information to enable Committee members to appropriately prepare for the meetings.
5.6The Committee will meet with the external auditors not more than one month before the Board meets to approve the six monthly and twelve monthly results announcements and again if necessary prior to the approval of the annual financial statements (if done separately from the announcement) to consider matters which appear to the auditor or the Committee to be of importance.
5.7The Committee will meet with the internal and the external auditors at least annually without management or the other auditor present in order to discuss any issues relevant to the audit.
5.8The external auditors may request a meeting if they consider that one is necessary.
5.9The quorum for decisions of the Committee is specified above.
5.10No attendee shall have a vote at meetings of the Committee.
5.11The minutes of all meetings, or summaries thereof, shall be submitted to the Board at the Board meeting immediately following the Committee meeting and the agenda for each such Board meeting shall provide the opportunity for the Chairman of the Committee to report orally on any matters of importance as well as the Committee’s findings and recommended actions.
5.12At the request of the Chairman of the Committee, the secretary shall prepare an agenda for the next meeting which will incorporate the minutes of the previous meeting held.
5.13Unless varied by these terms of reference, meetings and proceedings of the Committee will be governed by the Company’s Memorandum of Incorporation regulating the meetings of any directors and committees.
6. Authority of the committee and resources available to it
6.1The Committee acts in accordance with its statutory duties and the delegated authority of the Board as recorded in these terms of reference. It has the power to investigate any activity within the scope of its terms of reference.
6.2The Committee is authorized to seek any information it requires from any employee, and all employees are directed to co-operate with any request made by the Committee and provide it with all information it requests.
6.3The Committee is authorized to require any employee of the Company to attend its meetings, in addition to the attendees specified above.
6.4The Committee, in the fulfillment of its duties, may call upon the chairmen of the other Board committees, any of the executive directors, company officers, company secretary or assurance providers to provide it with information subject to Board approved process.
6.5The Committee has authority to meet with the internal auditors and external auditors without management of the Company being present.
6.6The Committee must have reasonable access to the company’s records, facilities, employees and any other resources necessary to discharge its duties and responsibilities subject to following board approved process.
6.7The Committee has the right to seek independent advice and the power to investigate any matter within the ambit of its authority.
6.8Membership of the Audit and Risk Committee should be contained in the annual report.
7. Reporting procedure
7.1The secretary shall circulate the minutes of meetings of the Committee to all members of the Board.
7.2The Chairman of the Committee shall account to the Board for its activities and make recommendations to the Board concerning the adoption of the annual and interim financial statements and any other matters arising from the Committee’s responsibilities.
7.3The Chairman of the Committee shall attend the Annual General Meeting of the Company to answer questions concerning matters falling within the ambit of the Committee.
8. Fees and expenses
8.1Having regard to the functions performed by the members of the Committee, in addition to their functions as directors and in relation to the activities of the Committee and pursuant to the specific power conferred upon the Board by the Memorandum of Incorporation of the Company, members of the Committee shall be paid such additional special remuneration in respect of their appointment as shall be fixed by the Board and as approved by shareholders.
8.2The Chairman of the Committee shall receive a further fee, determined by the Board, in addition to his remuneration as a member.
8.3Such additional special remuneration in terms hereof shall be in addition to the fees payable to directors.
8.4The Company shall meet all expenses reasonably incurred by the Committee, including the fees of any consultant or specialist engaged by the Committee to assist in the performance of its duties.
9.1The Committee shall undertake annual self-assessments, which will include assessments by the external and internal auditors and the CFO.
9.2This Charter may be amended as required, subject to the approval of the Board.