Exxaro Resource limited Report Selector 2018

Report Selector

Exxaro Resources Limited Integrated report 2018

Audit committee report

Dear shareholders, I am pleased to present the audit committee report for the year ended 31 December 2018.


The committee is constituted as a statutory committee of the company in terms of section 94 of the Companies Act 71 of 2008, as amended (the Act), and a committee of the board in terms of all other duties assigned to it by the board.

Its terms of reference were reviewed following publication of the King IV Report on Corporate Governance for South Africa, 2016 (King IV) and a new set of terms of reference adopted at the end of 2017. In line with King IV, the committee plays an essential role in providing independent oversight on the effectiveness of assurance functions and services, as well as the integrity of the annual financial statements.

The committee reviewed its terms of reference again in 2018 in light of recent corporate failures, nationally and internationally, to ensure increased oversight on the reporting of its major subsidiaries.

The role of the committee is to fulfil the statutory duties as set out in section 94(7) of the Act and to assist the board in providing independent oversight of the following:

  • Quality and integrity of the company's financial statements and related public announcements
  • Integrity and content of the integrated reporting process
  • Qualification and independence of the external auditor
  • Scope and effectiveness of the external audit function
  • Scope and effectiveness of the combined/integrated assurance process
  • Effectiveness of the company's internal controls and internal audit function
  • Integrity and efficacy of the risk management process, specifically internal controls and financial reporting risks, through assurance on system controls and policies in place.

In terms of the Act, the committee has an independent role with accountability to both the board and Exxaro's shareholders. It does not assume the functions of management, which remain the responsibility of executive directors, prescribed officers and other members of senior management, nor does it assume accountability for functions performed by other committees of the board.


The committee at all times consisted of three independent non-executive directors in the review period. The chairman of the board is not a member of the audit committee, but a permanent invitee to all meetings. The chief executive officer, finance director, chief audit executive, as well as the independent external auditor and internal auditor, are also permanent invitees to meetings. In addition, Mr LI Mophatlane was a permanent invitee and consultant to the committee from June 2018.

Annually, two sessions (aligned with approval of interim and annual financial results) are held with both the independent external auditors and internal auditors, respectively, where management is not present, to facilitate an exchange of views and concerns to further strengthen the independent oversight by the committee.


Four quarterly meetings were held in 2018. Attendance of 100% throughout the year illustrates high levels of engagement by our committee members.

Designations and attendance since appointment (and for duration of membership) are shown below:

Name Designation Attendance since appointment  
Mr V Nkonyeni Independent non-executive director and chairman 100%  
Mr EJ Myburgh Independent non-executive director 100%  
Mr MJ Moffett Independent non-executive director 100%  
Dr CJ Fauconnier ** Former independent non-executive director 100%  
Mr J van Rooyen * Former independent non-executive director and chairman 100%  
** Dr CJ Fauconnier retired as a director of the company and chairman of this committee on 24 May 2018
* Mr J van Rooyen was appointed chairman of the board and retired as a member of this committee


External auditors

The group's independent external auditors are PricewaterhouseCoopers Incorporated (PwC). Fees paid to the auditors are disclosed in note 7.1.3 to the group and company annual financial statements for the year ended 31 December 2018. Exxaro has an approved policy to regulate the use of non-audit services by the independent external auditors. This differentiates between permitted and prohibited non-audit services and specifies a monetary threshold against which approvals are considered. In the review period, PwC was paid R32 million (2017: R36 million), which included R26 million (2017: R26 million) for statutory audit and related activities as well as R6 million (2017: R10 million) for
non-audit services, mainly for tax advisory services, agreed upon procedures for a REM Channel Survey and an investment circular for the proposed disposal of the remaining Tronox Limited investment. The committee is satisfied with the level and extent of non-audit services rendered during the year by PwC and that these did not affect its independence.

The committee annually assesses the independence of PwC and repeated this assessment at its meeting on 8 March 2019. PwC was required to confirm that:

  • It is not precluded from reappointment due to any impediment in section 90(2)(b) of the Act
  • In compliance with section 91(5) of the Act, compared to membership of the firm on reappointment in 2018, more than one-half of the members remain in 2019
  • It remains independent, as required by section 94(7)(a) of the Act and JSE Listings Requirements.

Based on this assessment, the committee again nominated PwC as independent external auditors for 2019. Shareholders will therefore be requested to re-elect PwC in this capacity for the 2019 financial year at the annual general meeting (AGM) on 23 May 2019.

The committee noted the rotation and change in PwC audit partner from Mr JFM Kotze to Mr TD Shango, following Mr Shango's suitability assessment as required by this committee in terms of paragraph 3.84(g) (iii) and section 22.15(h) of the JSE Listings Requirements.

Internal auditors

The company's internal audit function is outsourced to EY and its responsibilities are detailed in an internal audit charter approved by the committee and reviewed annually. Its main function remains to express an opinion on the effectiveness of risk management and the internal control environment in the group. The committee is satisfied with the overall performance of the internal audit function provided by EY.

Annual financial statements

The committee reviewed the company and group annual financial statements 2018 and accounting practices in detail and is satisfied that the information in these statements and application of accounting policies and practices are reasonable.

Statement on effectiveness of internal financial controls

During the year, the committee, with input and reports from the independent external auditor and internal auditor, reviewed Exxaro's system of internal financial controls, as underpinned by the enterprise risk management framework. Informed by these reviews, the committee confirmed there were no material areas of concern that would render internal financial controls ineffective.

Finance director and finance function

The committee has reviewed an internal assessment of the expertise and experience of Mr PA Koppeschaar, the finance director, and is satisfied he has the appropriate skills to meet his responsibilities. The evaluation also considered the appropriateness of the expertise and adequacy of resources of the finance function.

Combined assurance

In terms of King IV, assurance has been broadened to cover all sources – including external assurance, internal audit, management oversight and regulatory inspections. In addition, the combined assurance model has been expanded to incorporate and optimise all assurance services and functions so that, taken as a whole, these enable an effective control environment and support the integrity of information used for internal decision making by management, the governing body and its committees, and of the organisation's external reports.

The combined assurance forum has been constituted to coordinate assurance activities in the group in compliance with the enhanced requirements of King IV, as a minimum. The forum will implement and embed the combined assurance framework principles as approved by the audit committee. Permanent invitees to the forum are representatives from the independent external auditor, internal auditor, other major assurance providers as well as members of the audit committee and sustainability, risk and compliance committee of the board.

The committee is satisfied with arrangements in place for ensuring an effective combined assurance model in the group.

2018 overview

Other key issues that received attention during the year:

  • Reviewed and discussed the audited annual financial statements and related disclosures with the finance director, general manager: risk, compliance and assurance, internal audit and the independent external auditor, and recommended the annual financial statements to the board for approval
  • The impact of external factors on financial KPIs (key performance indicators) in the strategic performance dashboard and adjustment of best realistic measures to reflect this reality
  • Attendance of independent non-executive directors at the combined assurance forum
  • The impact of adopting IFRS 9 and IFRS 15
  • Recommendation of revised dividend policy to the board for approval

Key performance indicators

2018 KPI Score
(out of 5)
Provide robust independent scrutiny of the company values of assets in the balance sheet, going-concern assumption and other judgement areas
Continue scrutinising risk assessment and ensure alignment on all assurance activities (combined assurance)  4 
Maintain oversight of inventory, receivables and basis of determining valuation
Ensure the effectiveness of internal audit and IT is handled seamlessly and professionally, addressing challenges and needs comprehensively
Monitor developments in mandatory firm rotation in South Africa and implications for Exxaro, as well as tenure of current external auditors
Provide support to and challenge management in its endeavours to refinance Exxaro's debt periodically on acceptable terms
2019 KPI
Review audit committee KPIs (including new rand/tonne KPI) quarterly and understand management plans for out-of-appetite KPIs, periodically review management plans
Oversee splitting of audit and risk functions to enhance corporate governance in Exxaro
Review the macro assumptions to be used for budgets
Review IT strategy and ensure alignment with the Exxaro strategy
Approve levels of materiality to be used for internal and external audit (including audit protocols and classification of findings)
Ensure alignment of combined assurance plan, internal audit and external audit plan
Ensure there is a link between internal audit findings and the Exxaro risk profile
Track closing of level 1 internal audit findings and understand root causes attached to level 1 internal audit findings and repeat internal audit findings
Sign-off on the integrity of the integrated report

The committee, in carrying out its duties, has due regard to the principles and recommended practices of King IV. It is satisfied it has considered and discharged its responsibilities in accordance with its terms of reference.

On behalf of the committee

Mr V Nkonyeni



24 April 2019