Audit Committee Report
This report by the audit committee to the shareholders of Foschini Limited (Foschini) is in compliance with the requirements of the Companies Act of South Africa and as far as possible with the King Code of Governance for South Africa 2009 (King III). Whilst compliance with King III is mandatory for the 2011 year-end, the committee has attempted to ensure compliance where possible in respect of the 2010 year-end.
The committee is governed by a formal audit committee charter that has recently been updated to ensure compliance with the requirements of King III. This charter guides the committee in terms of its objectives, authority and responsibilities.
The audit committee recognises its important role as part of the risk management and corporate governance processes and procedures of the Foschini group.
ROLE OF THE COMMITTEE
The role of the audit committee is, inter alia:
General
- to ensure that the respective roles and functions of external audit and internal audit are sufficiently clarified and co-ordinated, and that the combined assurance received is appropriate to address all significant risks;
- to assist the board in carrying out its risk and IT responsibilities; and
- to receive and deal appropriately with any complaints.
External auditors
- to evaluate the independence, effectiveness and performance of the external auditors and obtain assurance from the auditors that adequate accounting records are being maintained and appropriate accounting principles are in place which have been consistently applied;
- the appointment of the external auditors on an annual basis;
- approval of audit fee and fees in respect of any non-audit services;
- to consider and respond to any questions from the main board and shareholders regarding the resignation or dismissal of the external auditor; and
- to ensure that the scope of the external audit has no limitations imposed by management and that there is no impairment on its independence.
Internal control and internal audit
- to review the effectiveness of the group’s systems of internal control, including internal financial control and risk management, and to ensure that effective internal control systems are maintained;
- to ensure that written representations on internal control are submitted to the board annually by all divisional managing directors and general managers (these being representations that provide assurance on the adequacy and effectiveness of the group’s systems of internal control);
- to monitor and supervise the effective functioning and performance of the internal auditors; and
- to ensure that the scope of the internal audit function has no limitations imposed by management and that there is no impairment on its independence.
Finance function
- to consider the appropriateness of the expertise and experience of the financial director; and
- to satisfy itself of the expertise, resources and experience of the finance function.
Financial results
- to consider any accounting treatments, significant unusual transactions or accounting judgements that could be contentious;
- to review the integrated report, as well as annual financial statements, interim reports, preliminary reports or other financial information prior to submission and approval by the board; and
- to provide as part of the integrated report, a report by the audit committee.
COMMITTEE COMPOSITION
The committee comprises four independent non-executive directors and the chairman of the committee is not the chairman of the board.
As at the date of this report, the following directors served on the committee:
- Mr S E Abrahams (chairman)
- Mr W V Cuba
- Ms N V Simamane (appointed 24 February 2010)
- Ms K N Dhlomo (appointed 24 February 2010)
Mr D M Polak stepped down from this committee during the year as he does not currently meet the independence requirements of King III.
Details of the qualifications of the directors appears in the directorate section of this annual report.
Details of fees paid to committee members appear in the Remuneration report.
The chief executive officer, the financial director, the head of Group Audit Services, the company secretary and the external audit partners and staff attend meetings at the regular invitation of the committee. In addition, other members of executive management are invited to attend various meetings on an ad-hoc invitational basis. The chairman of the group also attends meetings of the audit committee by invitation.
COMMITTEE FUNCTIONING
The committee typically meets three times a year with the main focus of each respective meeting being as follows:
- approval of interim results;
- consideration of control risks and risk management; and
- approval of annual results.
Independently of management, members of the committee meet separately with the head of internal audit and the external auditors respectively.
Meeting dates and topics are agreed well in advance each year. Each meeting is preceded by the distribution to each attendee of an audit committee pack comprising:
- detailed agenda;
- minutes of previous meeting;
- report by the external auditors; and
- written reports by management including:
- compliance;
- Group Audit Services;
- loss statistics; and
- fraud.
The chairman of this committee has a “white card invitation” to attend meetings of the risk committee.
The committee held three meetings during the 2010 financial year. The committee considered the draft interim and annual financial reports prepared by management and recommended their adoption to the board subject to certain amendments. The chairman provided a written report to the main board summarising the committee’s findings and recommendations.
During the 2010 financial year an evaluation of the committee’s performance was undertaken. The feedback received resulted in the following actions being taken:
- review of audit committee composition; and
- evaluation of external audit performance is to be formalised.
KING III CONSIDERATIONS
As a result of the pending implementation of the King III recommendations, the following actions have been taken:
- The audit committee charter has been updated.
- The head of Foschinidata has been requested to continue reporting to the committee on IT governance issues on an ongoing basis.
- Various changes have been requested in respect of the internal audit function, including:
- the internal audit plan being approved by this committee (previously approved by the risk committee); and
- the head of Group Audit Services providing a written assessment regarding internal controls on an annual basis
-
Various performance assessments
will be considered by this
committee, including:
- evaluating the performance of Group Audit Services; and
- evaluating the expertise and experience of the finance function
- The audit committee has accepted the responsibility of recommending the integrated report to the board (including reviewing the sustainability information).
SPECIFIC RESPONSIBILITIES
Internal control
Whilst the board is ultimately responsible for the system of internal control, this committee, together with the risk committee, the internal auditors and external auditors, assist the board in monitoring the effectiveness and adequacy of the control environment.
During the 2010 financial year, the committee was not made aware of any:
- material breaches of any laws or legislation; and
- material breach of internal controls or procedures.
Risk management
Whilst the board is ultimately responsible for the maintenance of an effective risk management process, the committee, together with the risk committee, assist the board in assessing the adequacy of the risk management process.
During the course of the 2010 financial year, the committee considered the risk management approach, as well as key control risks and believes that the approach is relevant and that all key control risks are being adequately addressed by management.
Further details on the risk management approach and process are included in the Risk report.
External auditors
The group’s external auditors are KPMG Inc and the designated partner is Mr H du Plessis.
KPMG is afforded unrestricted access to the group’s records and management and present any significant issues arising from the annual audit to the committee. In addition, Mr Du Plessis raises matters of concern directly with the chairman of the committee.
In respect of the committee’s responsibilities relating to the external auditors, the committee confirms that it has carried out its functions in terms of the Corporate Laws Amendment Act 24 of 2006 by:
- confirming the nomination of KPMG Inc as the group’s registered auditor and being satisfied that it is independent of the company;
- approving the terms of engagement and fees to be paid to KPMG Inc; and
- determining the nature and extent of any non-audit services which the external auditors provide to the company.
The committee gave due consideration to the independence of the external auditors and is satisfied that KPMG Inc is independent of the group and management and therefore able to express an independent opinion on the group’s annual financial statements.
Financial director
In accordance with the JSE Listings Requirements, the committee considers the appropriateness of the expertise and experience of the financial director of the company on an annual basis.
In respect of the above requirement, the committee believes that Mr Ronnie Stein, the group financial director, possesses the appropriate expertise and experience to meet his responsibilities in that position.
Finance function
The committee considered the expertise, resources and experience of the finance function and concluded that these were appropriate based on the nature, complexity and size of the group’s operations.
Approval
The committee recommended the approval of the annual financial statements to the board and confirmed that the sustainability information contained throughout the remainder of the annual report was in no way contradictory to that disclosed in the annual financial statements.
S E Abrahams
Chairman: Audit committee
21 June 2010
