AUDIT COMMITTEE REPORT
The legal responsibilities of the Nedbank Group Audit Committee (the committee) are set out in the Companies Act, 71 of 2008 (as amended), and the Banks Act, 94 of 1990 (as amended). These responsibilities, and compliance with appropriate governance and international best practice, are incorporated in the committees charter, which is reviewed annually and approved by the board.
COMPOSITION OF THE COMMITTEE
All independent non-executive directors, with the exception of the Chairman of the board, are eligible to serve on the committee. The Group Directors Affairs Committee recommends to the board any appointments to or removals from the board, which in turn is responsible for the composition of the committee. The committee has three or more members, all of whom are financially literate, with three members forming a quorum. Access to training is provided on an ongoing basis to assist members in discharging their duties.
The committee comprised the following members during the year and to the date of this report, except where noted otherwise:
- MI Wyman (Chairman)(appointed Chairman 6 May 2011)
- CJW Ball (retired 6 May 2011)
- TCP Chikane
- NP Mnxasana
- Prof B de L Figaji (appointed 18 February 2011)
- WE Lucas-Bull (appointed 24 February 2012)
The Chief Executive, Chief Financial Officer, Chief Operating Officer, Chief Risk Officer, Chief Internal Auditor, Chief Governance and Compliance Officer and representatives of the external auditors are invited to attend the committee meetings. The external auditors attend all committee meetings and separate meetings are held to afford them the opportunity to meet with the committee without the presence of management or internal auditors. The internal auditors attend all committee meetings and are similarly afforded the opportunity of separate meetings with the committee.
Internal audit is an independent assurance function, forming part of the third-line of defence as set out in the Enterprisewide Risk Management Framework (ERMF) on the integrated report. The Chief Internal Auditor has a functional reporting line to the committee chairperson and an operational reporting line to the Chief Executive Officer. Further details on the internal audit function are contained in the Enterprise Governance and Compliance Report.
The groups external auditors are Deloitte & Touche and KPMG Inc. Fees paid to the auditors are disclosed in note 15 to the annual financial statements. Further details are contained in the Enterprise Governance and Compliance Report.
KEY FUNCTIONS AND RESPONSIBILITIES OF THE COMMITTEE
The key functions and responsibilities of the committee as outlined in the charter are to:
- assist the board of directors in its evaluation of the adequacy and efficiency of the internal control systems, accounting practices, information systems and auditing processes applied within the group in the day-to-day management of its business;
- facilitate and promote communication on issues that are the responsibility of the committee between the board, management, the external auditors and the Chief Internal Auditor;
- introduce such measures that in the committees opinion may serve to enhance the credibility and objectivity of financial statements and reports prepared with reference to the affairs of the group;
- nominate for appointment as external auditors of the company registered auditors who, in the opinion of the committee, are independent of the group;
- determine the fees to be paid to the external auditors and the auditors terms of engagement;
- ensure that the appointment of the external auditors complies with the Companies Act and any other legislation relating to the appointment of auditors;
- determine the nature and extent of any non-audit services to the group;
- receive and deal appropriately with any complaints (whether from within or outside the group) relating either to the accounting practices and internal audit of the group or to the contents or auditing of its financial statements, or any other related matters thereto; and
- perform such further functions as may be prescribed.
The committee reports that it has adopted appropriate formal terms of reference to discharge its responsibilities, has regulated its affairs in compliance with its charter and has discharged all of its responsibilities as contained therein.
EFFECTIVENESS OF INTERNAL CONTROL
The committee monitors the groups internal controls for effectiveness and adherence to the ERMF for pragmatic and consistent application, as these form the foundation of successful risk management.
The emphasis on risk governance is based on a three lines of defence concept, which is the backbone of the groups ERMF. The ERMF places weight on accountability, responsibility, independence, reporting, communication and transparency, both internally and with all the groups key external stakeholders.
The functions of the three lines of defence, as well as the principal responsibilities that extend across the group, are set out in the Risk and Capital Management Report.
Specific responsibilities of the committee include the following:
- Monitoring managements success at creating and maintaining an effective internal control environment throughout the group and at demonstrating and stimulating the necessary respect for this control environment.
- Monitoring the identification and correction of weaknesses and breakdowns of systems and internal controls.
FINANCIAL CONTROL, ACCOUNTING AND REPORTING
- Monitoring the adequacy and reliability of management information and the efficiency of management information systems.
- Delegating to the Group Information Technology Committee the monitoring of the adequacy and efficiency of the groups information systems and receiving reports thereon.
- Satisfying itself of the expertise, resources and experience of the finance function.
- Reviewing quarterly, interim and final financial results and statements and reporting for proper and complete disclosure of timely, reliable and consistent information.
- Evaluating on an ongoing basis the appropriateness, adequacy and efficiency of accounting policies and procedures, compliance with International Financial Reporting Standards and overall accounting standards as well as any changes thereto.
- Discussing and resolving any significant or unusual accounting issues.
- Reviewing and monitoring capital expenditure throughout the group for adequate control, monitoring and reporting.
- Reviewing reports from the Group Credit Committee regarding the effectiveness and efficiency of the credit-monitoring process, exposures and related impairments and adequacy of impairment provisions to discharge its board and Banks Act obligations satisfactorily.
- Reviewing and monitoring the effectiveness and efficiency and the management and reporting of tax-related matters.
- Monitoring the management and effectiveness of the accounting and taxation risks as set out in the group’s ERMF.
- Reviewing and monitoring all key performance indicators to ensure the appropriate high-level decisionmaking capabilities are maintained at industry levels.
- Reporting annually to the board on the effectiveness of the groups internal financial reporting controls.
- Ensuring direct reporting by the Chief Internal Auditor to the Chairman of the committee.
- Reviewing and approving the annual internal audit plan.
- Monitoring the effectiveness of the internal audit function in terms of its scope, execution of its plan, coverage, independence, skills, staffing, overall performance and position within the organisation.
- Monitoring and challenging, where appropriate, action taken by management with regard to adverse internal audit findings.
- Forming a view on the adequacy and effectiveness of the control environment.
- Monitoring the groups compliance with the Basel II Accord.
- Recommending to the board the selection of the external auditors and approving their audit fees.
- Approving the external auditors annual plan and related scope of work.
- Monitoring the effectiveness of the external auditors in terms of their skills, independence, execution of audit plan, reporting and overall performance.
- Approving non-audit services to be rendered by the external auditors and monitoring potential conflicts of interest.
- Considering whether the extent of reliance placed on internal audit by the external auditors is appropriate and whether there are any significant gaps between the internal and external audits.
- Obtaining assurance from the external auditors that their independence has not been impaired.
- Reviewing the adequacy of the regulatory reporting processes, including the quality of the Banks Act reporting and the adequacy of systems and people to perform these functions.
- Considering the findings of any audited regulatory reports as relates to the key responsibility of the committee and the monitoring of management actions to resolve any issues identified.
- Performing such other functions as are prescribed in the regulations relating to the Banks Act.
Having considered, analysed, reviewed and debated information provided by management, internal audit and external audit, the committee confirmed that:
- the internal controls of the group have been effective in all material aspects throughout the year under review;
- these controls have ensured that the groups assets have been safeguarded;
- proper accounting records have been maintained;
- resources have been utilised efficiently; and
- the skills, independence, audit plan, reporting and overall performance of the external auditors are acceptable and it recommends their reappointment in 2012.
COMPANIES ACT REQUIREMENTS
In terms of the Companies Act, 71 of 2008 (as amended), the committee is responsible, as set out above, for all subsidiary companies without their own audit committees, which responsibilities include:
- reviewing the formalised process used for performing functions on behalf of subsidiaries; and
- ratifying annually the list of subsidiaries for which responsibility is assumed.
APPROPRIATENESS OF THE EXPERTISE AND EXPERIENCE OF THE CHIEF FINANCIAL OFFICER
In terms of the JSE Listing Requirements the Audit Committee had, at its meeting held on 20 January 2012, satisfied itself as to the appropriateness of the expertise and experience of the Chief Financial Officer.
The committee has overseen the integrated reporting process, reviewed the report and has recommended the approval thereof to the board. The board has subsequently approved the integrated report.
ANNUAL FINANCIAL STATEMENTS
The committee has:
- reviewed and discussed the audited annual financial statements included in the integrated report with the external auditors, the Chief Executive and the Chief Financial Officer;
- reviewed the external auditors management letter and managements response thereto;
- reviewed significant adjustments resulting from external audit queries and accepted any unadjusted audit differences; and
- received and considered reports from the internal auditors.
The committee concurs with and accepts the external auditors report on the annual financial statements and has recommended the approval thereof to the board. The board has subsequently approved the financial statements, which will be open for discussion at the forthcoming annual general meeting.
Group Audit Committee Chairman
28 February 2012