Online Annual Report 2009

 

 

 

 

Further reading

More information on the Committee can be found here.
CORPORATE GOVERNANCE

 

 

 

 

 

 

Audit Committee responsibilities:

  • Overseeing the effectiveness of the Groupís internal control systems.
  • Reviewing the scope and effectiveness of the external and internal audit functions.
  • Ensuring that adequate accounting records have been maintained.
  • Ensuring the appropriate accounting policies have been adopted and consistently applied.
  • Reviewing and reporting on compliance with the King II Report.
  • Testing that the Groupís going-concern assertion remains appropriate.
  • Overseeing the quality and integrity of the annual financial statements.

 

 

 

 

Further reading

The detailed Audit Committee report can be found here.
CORPORATE GOVERNANCE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fees to external auditors (Rm)

Audit services 17.1 85.5%
Non-audit services 2.9 14.5%
Total 20.0 100%

 

 

 

 

 

 

 

Internal Audit:

  • Massmart Internal Audit is an objective body providing assurance concerning the Groupís activities.
  • Internal Audit has the unequivocal support of the Board and Audit Committee
  • To ensure independence, Internal Audit reports functionally to the Audit Committee and, only from an administrative perspective, to the Chief Financial Officer.
  •  The Internal Audit team formally reports any material findings to the Divisional Boards and the Audit Committee on a quarterly basis.
  • Internal Audit applies a risk-based approach aligning its methodology to the internal and, where applicable, external risks facing Massmart.
  • There is significant Internal Audit involvement in Information Technology (IT) throughout the Group to ensure satisfactory IT governance and assurance.

Audit Committee

During the financial year, the Audit Committee comprised Messrs Nigel Matthews (Chairman), Chris Seabrooke, Peter Maw and Ms Phumzile Langeni, all of whom are independent non-executive directors and who each have the requisite financial and commercial skills and experience to contribute the committee's deliberations.

The Chief Executive Officer, the Chief Financial Officer, senior financial executives of the Group and representatives from the external and internal auditors attend meetings by invitation.

The internal and external auditors have unfettered access to the Audit Committee and its members, and both present formal reports to the Committee and attend meetings by invitation.

In addition, the Chairman of the Committee meets quarterly with the Chief Audit Executive, and at the start of every Committee meeting the external auditors are given a private audience with the Committee.

The Corporate Laws Amendment Act, 2007, imposes further duties and responsibilities upon the Audit Committee, including:

  • Nominating the proposed external auditor to the shareholders at the annual general meeting.
  • Determining the fees to be paid in respect of the external audit and the terms under which the audit is provided.
  • Preapproving any contract with the external auditor to provide a non-audit service and determining the nature and extent of such non-audit services.
  • Dealing with complaints relating to the financial statements, accounting practices, audit of the financial statements, internal audit or any other related matter.
  • Reporting on the Committee’s activities in this annual report.

In specific response to the requirements of the Corporate Laws Amendment Act and also in terms of its charter, the Committee can report as follows:

  • The Committee has reviewed the scope, as well as the independence and objectivity, of the external auditors. The audit firm Deloitte & Touche and audit partner Mr Andrť Dennis have been proposed to the shareholders at the annual general meeting to be the Groupís auditor for the 2010 financial year.
  • Total budgeted audit fees for the Group for the 2010 financial year have been confirmed to be at least R17 million and the scope of the proposed audit work agreed.
  • The nature and extent of non-audit services provided by the external auditors is reviewed annually to ensure that fees for such services do not become so significant as to call into question their independence of Massmart. The nature and extent of any future non-audit services have been defined and preapproved, and the total fee associated with those non-audit services may not exceed 50% of the total audit fee. If it appears that this guideline will be exceeded on a consistent basis, non-audit services will be outsourced to alternative auditors.
  • The Massmart website (www.massmart.co.za) has a link enabling the general public to lodge complaints with the Committee, and, as at the date of this report, no complaints had been received.
  • The Committee also performs the requirements of the Act relative to the Group's South African subsidiaries.

Annually the Committee considers whether it is meeting its duties and responsibilities as set out in the Committee charter and in meeting the requirements of the Corporate Laws Amendment Act.

The Audit Committee receives reports on Group companies’ financial performance, internal controls, adherence to accounting policies and areas of significant risk, amongst others. The Committee also receives written reports by both the external and internal auditors, which are accompanied by discussion with Committee members. After considering these reports, the Committee formally reports to the Board, twice each year, regarding the overall control framework and effectiveness of controls. The Group’s interim reports are always subject to independent review by the external auditors.

The Committee’s report in accordance with section 270A(1)(f) of the Companies Act, No. 61 of 1973, as amended, can be found in the Directors’ Report.

Suitability of the Chief Financial Officer

As required by the JSE, the Board has considered the qualifications and performance of the Chief Financial Officer, Guy Hayward, and is unanimously satisfied of the continuing suitability for the position. His biographical details can be found here.

External Audit

During the financial year, Deloitte & Touche were the external auditors for all Group companies with the exception of:

  • Greenwoods Chartered Accountants who audit De La Rey 1001 Building Materials (Pty) Ltd and Thabiletrade 22 (Pty) Ltd;
  • Ernst & Young who audit the Zimbabwean entities of Mercantile Investment Company (1971) (Pvt) Ltd and the Dealsave Trust; and
  • Nexia Levitt Kirson who audit Brett Four (Proprietary) Limited, trading as Cambridge Food

During the year, Deloitte & Touche provided certain non-audit services, including tax reviews and advice, and reviews of information technology systems and applications. Total fees incurred during the 2009 financial year to Deloitte & Touche were R20.0 million, of which R2.9 million related to non-audit services.

Internal Audit

The Audit Committee considers Massmart Internal Audit to be an independent, objective body providing assurance to the Group’s activities. Internal Audit comprises a dedicated team of 34 staff that, although managed from Massmart Corporate, is deployed Group-wide. The team is comprised of appropriately qualified and experienced personnel, including internal audit professionals and managers with retail experience, to ensure the delivery of a relevant and high-quality service. The Internal Audit team has 65 degrees and over 300 years of work experience of which 16% is in retail, 58% is in audit and 26% in IT and accounting. Pleasingly, 80% of the audit staff and 80% of audit management are African, Coloured or Indian.

The responsibilities of Internal Audit are defined and governed by a charter approved by the Audit Committee and Board. Massmart Internal Audit Services has the unequivocal support of the Board and Audit Committee and has access to any part of or person in Massmart. All employees are expected to positively cooperate with Massmart Internal Audit Services.

Massmart Internal Audit reviews the significant business, strategic and control risks across Massmart in order that an assessment is provided to the Audit Committee on the level of assurance that can be placed on governance, control and risk management across the Group.

To ensure independence, Massmart Internal Audit reports functionally to the Massmart Audit Committee and, only from an administrative perspective, to the Chief Financial Officer. The Audit Committee approves the annual internal audit plan and the internal audit budgets. The Chief Audit Executive (CAE), whose appointment or dismissal is subject to ratification by the Audit Committee, has unrestricted access to anyone in the organisation and has frequent and independent discussions and updates with the Audit Committee Chairman and Massmart Executive Directors. The CAE holds a senior executive position in the organisation and has an influential impact across the business strategically and operationally. The Board provides Massmart Internal Audit with the ability to attend any strategic session, Committee or Board meeting and to have unrestricted access to all information across the Group to assist with its determination of the types and levels of risk that exist across Massmart.

The Internal Audit team formally reports any material findings and matters of significance to the Divisional Boards and the Audit Committee on a quarterly basis. The reports highlight whether actual or potential risks to business are being appropriately managed and controlled. Progress in addressing previous unsatisfactory audit findings is monitored until Internal Audit reports the proper resolution of the problem area.

Massmart Internal Audit applies a risk-based approach that aligns its audit methodology to the internal and, where applicable, external risks facing Massmart. Every function and role across the Massmart Group is subject to internal audit review. The annual internal audit plan is determined through a continuous assessment and understanding of risks facing the Group. Where necessary, and infrequently, some audit tasks are outsourced to consultants with appropriate skills, for example, certain forensic work or highly specialised IT reviews.

There is significant Internal Audit involvement in Information Technology (IT) throughout the Group in order to ensure satisfactory IT governance and assurance. All new major IT systems in the Group require specific Massmart Internal Audit sign-off prior to implementation. The Internal Audit role is twofold: to assess the process and controls around large IT projects at significant phases of these projects; and to assess the control environment within existing IT systems and the Group’s general computer control environment.

Massmart Internal Audit and External Audit’s scope and efforts and those of other assurance providers are properly coordinated in order to provide efficient and effective assurance to the Audit Committee.

An independent quality assurance review by PricewaterhouseCoopers on Massmart Internal Audit was completed in 2007 and will be done again in 2010. This assessed Massmart Internal Audit against the International Standards for the professional practice of Internal Auditing as promulgated by the Institute of Internal Auditors. Massmart Internal Audit was found to “generally conform”, which is the highest compliance rating of the Institute of Internal Audit Standards.

This review included a qualitative benchmarking process that compared Massmart Internal Audit to an international database. The benchmarking process noted Massmart Internal Audit’s maturity as ‘strong practice’. The benchmark review concluded that “Massmart Internal Audit enjoys incomparable status with regard to the authority and sponsorship granted to it by the Audit Committee and management and the independence displayed in the execution of Internal Audit activities, as best practice was exceeded by some distance.”