Audit Committee report

FOR THE YEAR ENDED 30 SEPTEMBER 2020

The audit committee's primary role is to assist the board to discharge its corporate governance and oversight responsibilities by ensuring the integrity of the Group's financial and corporate reporting, overseeing the execution of the Groups combined assurance model, and ensuring that adequate systems of internal control are in place regarding financial risks and that these controls are operating effectively.

The audit committee conducted its work in accordance with the written terms of reference approved by the board (information on this is recorded in the corporate governance report) which is reviewed and updated when necessary. Terms of reference are set up to ensure that the committee performs its duties in terms of King IV, the Companies Act and the Listings Requirements of the JSE (the Listings Requirements) for the financial year ended 30 September 2020.

MEMBERSHIP

During the year under review the audit committee consisted of:

  • SS Ntsaluba (Chairperson)
  • HH Hickey
  • M Lynch-Bell
  • NP Nxasana
  • NP Dongwana (resigned 12 February 2020)

Six meetings were held in the year. Details of attendance are included in the integrated report available at www.barloworld.com.

The Group chief executive officer, Group Finance director, Group executive: human capital, internal auditors, External auditors and finance executives also attend meetings of the audit committee as invitees. The internal and external auditors both have unrestricted access to the audit committee and regularly have confidential meetings without members of executive management being present.

EXTERNAL AUDIT

THE AUDIT COMMITTEE

  • Recommended to shareholders that Ernst & Young (EY) 70% and SNG-Grant Thornton (SNG-GT) 30% be appointed as independent external auditors for the Company and its subsidiaries and the appointment of S Sithebe as the independent designated auditor for the Company for the financial year ending 30 September 2020 in compliance with the Companies Act and the Listings Requirements of the JSE Limited. This was the first year of audit for EY, SNG-GT and S Sithebe as the designated auditor.
  • Recommended that the reappointment of SNG-GT as independent external auditors of the Barloworld Logistics business for the financial year ending 30 September 2020.
  • Received confirmation from all external auditors, that EY and SNG-GT are independent of the Group
  • Have successfully concluded that the risk of familiarity between the external auditor and management is sufficiently mitigated.
  • Considered the quality controls processes of the external auditors and specifically audit quality reviews conducted over the designated auditor, including those performed by the Independent Regulatory Board for Auditors (IRBA) as part of their routine review process.
  • Approved the external audit engagement letter which includes scope and the cost of the audit.
  • Reviewed and approved the policy for non-audit services that can be provided by external auditors and the pre-approval authorisation process for the services that the external auditors may provide.
  • Considered to its satisfaction the independence, objectivity and effectiveness of the external auditors and ensured that the scope of their additional (non-audit) services provided were, individually and in aggregate, in compliance with the Group's policies in this regard.
  • Reviewed and approved the rotation policy of external auditors.
  • Concurred that the adoption of the going concern premise in the preparation of the Annual Financial Statements was appropriate.

ACCOUNTING PRACTICES AND KEY AUDIT MATTERS

The audit committee reviewed the accounting policies and the annual financial statements of the Company and of the Group for the year ended 30 September 2020, for compliance with the provisions of the Companies Act, IFRS and the JSE Listings Requirements, together with consideration of the findings from the JSE proactive monitoring of the 2019 financial statements and the preliminary findings of the JSE's thematic review of IFRS 15: Revenue from Contracts with Customers (IFRS 15) and IFRS 9: Financial Instruments (IFRS 9).

The audit committee has considered the following key audit matters during the financial year ended 30 September 2020:

  • Goodwill investments in JVs/associates and indefinite life intangible assets: Botswana, Zambia, Angola, Mozambique and Malawi (BZAMM), Bartrac, Avis Budget, Motor Trading, Avisfleet, BHBW, NMI Investment and Logistics

The audit committee spent time understanding the significant estimates and judgements applied in management's valuation and impairment assessments and challenged these where necessary. The audit committee assessed management's value-in-use calculations by considering, among others, the following:

  • The reasonableness of management's assumptions used in determining future cash flows;
  • The terminal value and discount rates applied in management's value-in-use calculations and the sensitivity of these assumptions to reasonably possible changes;
  • The adequacy of the disclosures made in note 11 and 12 to the financial statements; and
  • Considered the work and assurance of the external auditor.

On this basis, the audit committee reviewed the write-off of goodwill and indefinite life intangibles during the first half and the second half of the financial year. As at 30 September 2020 there was sufficient headroom to support the remaining goodwill carrying value and the disclosures presented in the financial statements are fairly presented in compliance with International Financial Reporting Standards (IFRS).

  • Presentation of Avis Fleet as held for sale and discontinued operations

In April 2020, management took a decision to reverse the plans that were in place, diluting the Group's interest in Avis Fleet to a 50% shareholding. In terms of International Financial Reporting Standards 5 (IFRS 5) Non-current assets held for sale and discontinued operations, the Group had reported the results of Avis Fleet business separately as a discontinued operation and assets and liabilities held for sale in 2019. The Entity has now been consolidated as a continuing operation and the 30 September 2019 numbers have been restated accordingly.

In assessing the management's proposed position, the audit committee considered the following:

  • The impact of the COVID-19 pandemic to the South African economy and the Global economy at large.
  • Availability of liquidity in the market and the cost of funding from the financial services sector.
  • The reasonableness of management's assertion that the dilution of Avis Fleet in 12 months was no longer priority based on the performance of the business.
  • Financial performance of Avis Fleet in 2020 which brough stability in the Automotive business due to the annuity nature of the business.
  • The adequacy of the disclosures made within note 22 to the financial statements and the classification of the Avis Fleet business as a continuing operation.
  • The work and assurance of the external auditors.

On this basis the audit committee was satisfied that the Avis Fleet business is correctly reclassified as continuing operations and that the disclosures presented in the financial statements are fairly presented and compliant with IFRS. This position will be reassessed at the appropriate time and in the context of the Group's strategy and optimal portfolio mix

KEY AREAS OF FOCUS

In addition to executing on its statutory duties and the considering key audit matters, the audit committee also addressed the following key areas of focus during the year ended 30 September 2020.

  • Combined assurance

The committee confirms, based on the processes and assurance obtained, that it:

  • has executed its duties in accordance with the terms of reference during the past financial year
  • believes that the accounting practices are effective;
  • believes that the significant internal financial controls are effective.
  • confirms that the external auditor has functioned in accordance with its terms of reference

  • New accounting standards

The audit committee considered all new standards applicable for the 2020 financial year, in particular IFRS 16: Leases and IFRIC 23: Uncertainty over income tax treatments as well as interpretations and amendments to standards in issue that are not yet adopted but are likely to affect the financial reporting in future years. The audit committee also reviewed the related disclosure thereof in the annual financial statements.

INTERNAL AUDIT

The audit committee

  • Approved the appointment of KPMG as an outsourced partner to Barloworld's internal audit function effective 1 October 2020. Reviewed the appropriateness of the internal audit charter and recommended the approval of the charter by the board.
  • Approved the one-year operational internal audit work plan and monitored adherence of internal audit to its annual plan;
  • Monitored and supervised the functioning and performance of internal audit, compliance with its charter, reviewed and approved the risk-based audit plans, resources and budgets. Reviewed the appropriateness of the Group's combined assurance model to ensure that the significant risks identified in the high-level risk assessments are adequately addressed.
  • Reviewed reports from both internal and external auditors concerning the effectiveness of the internal control environment, systems, processes, their concerns arising out of their audits and requested appropriate responses from management.
  • Reviewed the results of the financial control management self-assessments as contained in the Barloworld Internal Control Matrix (ICM) which is completed in respect of all business units and operations in the Group.
  • Reviewed and evaluated the nature and extent of the documented review of internal financial controls performed by internal audit and evaluated whether any weaknesses identified in such financial controls were considered sufficiently material to be reported to the board and the stakeholders.
  • Reviewed the report prepared by internal audit regarding the risk management process in the Group and the level of embeddedness of such processes within each operating division.
  • Reviewed the performance and confirmed the suitability and expertise of KPMG during the process of onboarding.

INTERNAL CONTROL

Based on the results of the formal documented review of the Group's system of internal controls and risk management conducted by internal audit function during the 2020 financial year and having given due consideration to the results of assurance activities of various assurance providers including considering information and explanations given by management and discussions with the external auditor on the results of the audit, nothing has come to the attention of the audit committee that caused it to believe that the Group's system of internal controls and risk management are not effective and that the internal financial controls do not form a sound basis for the preparation of reliable financial statements.

COMBINED ASSURANCE

The audit committee has reviewed the Company's combined assurance model and has satisfied itself with its completeness. While the risk and sustainability committee of board has the primary responsibility to assist the Board with discharging its duties in relation to the risk management, the audit committee takes a keen interest in risk management in line with its responsibility for internal controls as they relate to financial matters.

The audit committee has satisfied itself that the Company has sufficient coverage obtained from management, external and internal assurance providers to manage financial risks and the control environment.

EXPERTISE AND EXPERIENCE OF THE GROUP FINANCE DIRECTOR AND THE FINANCE FUNCTION

The audit committee

  • Reviewed the performance and confirmed the suitability and expertise of the Group Finance Director, N Lila (DG Wilson was the Group Finance Director until his retirement from the board on 12 February 2019, after which he was in the role of Acting Chief Financial Officer of the Group until February 2020).
  • Considered the appropriateness of the expertise, diversity and adequacy of resources of the Group's financial function and the effectiveness of the senior members of management responsible for the financial function.
  • The reality of COVID-19 pandemic impact and the remote working.

  • FINANCIAL STATEMENTS

The audit committee

  • Considered accounting treatments, significant or unusual transactions and accounting judgements.
  • Considered the appropriateness of accounting policies and any changes made.
  • Met separately with management, external audit and internal audit and the Chairman attended the risk and sustainability committee meetings.
  • Made appropriate recommendations to the board of directors regarding the corrective actions to be taken as a consequence of audit findings.
  • Reviewed the process in place for the reporting of concerns and complaints relating to accounting practices, internal audit, content of auditing of the Group's financial statements, internal controls of the Group and any related matters. The audit committee can confirm that there were no such concerns or complaints during the year under review.
  • Reviewed and recommended for adoption by the board such financial information that is publicly disclosed which for the year included:
    • The interim results for the six months ended 31 March 2020.
    • The audited annual results for the year ended 30 September 2020.
  • Reviewed the working capital packs prepared by management to support the board's going concern statement at reporting dates as well as the solvency and liquidity tests required in terms of the Companies Act.
  • The audit committee has considered the circumstances that resulted in the prior year errors and believe that the additional control measures put in place to prevent future errors are appropriate.


FINANCIAL STATEMENTS AND INTEGRATED REPORTING

The audit committee considered the Barloworld Limited consolidated and Company financial statements and the summarised financial statements, (together the financial statements) for the year ended 30 September 2020. The audit committee, in conjunction with other board sub-committees has also considered the non-financial information as disclosed in the integrated report and assessed its consistency with operational and other information known to audit committee members. The audit committee has also considered the external assurance provider's report and is satisfied that the information is reliable and consistent with the financial results. The financial statements have been prepared using appropriate accounting policies, which conform to International Financial Reporting Standards.

At their meeting held on 26 November 2020, the audit committee recommended the financial statements for the year ended 30 September 2020 for approval to the board.

 

SS Ntsaluba
Audit committee chairman

For and on behalf of the Barloworld Limited
Audit committee

30 November 2020