The report by the Audit and Risk Committee (the Committee) in respect of the 2022 financial year is set out in full in the annual financial statements in report of the audit and risk committee and an abridged version is set out below.
The Committee is pleased to present its report for the financial year ended 31 December 2022. The Committee confirms that it has adopted formal terms of reference as its Audit and Risk Committee Charter (the Charter), and that it has discharged all of its responsibilities for the current financial year, in compliance with the Charter. The report has been prepared based on the requirements of the Companies Act, No. 71 of 2008, as amended (Companies Act), King IV Report on Corporate Governance for South Africa, 2016 (King IV Code/King IV), the JSE Limited Listings Requirements (Listings Requirements) and other applicable regulatory requirements. The report provides an overview of the work performed by the Committee during the year under review.
The overall objectives of the Committee are to: ensure that appropriate financial reporting procedures exist and are operating, which should include consideration of all entities included in the consolidated and separate Group IFRS financial statements, to ensure that it has access to all the financial information of Merafe to allow Merafe to effectively prepare and report on the financial position of the Group and Company; assess the adequacy of the internal financial controls and the accounting systems, including the Company's authority framework; oversee a process by which internal audit performs assessment of the effectiveness of the Company's system of internal control and risk management, including internal financial controls; review the summarised financial statements, interim financial statements and annual financial statements and recommend these to the Merafe Board for approval; assess and evaluate the Group and Company's combined assurance and provide independent oversight to assess its effectiveness; nominate the external auditor who in the opinion of the Committee is considered independent for appointment; determine and approve external audit fees; set the Company's and its subsidiaries' (the Group's) policy on non-audit services provided by the external auditor and ensure that the appointment complies with legislation; ensure that the appointment of the external auditor is presented and included as a resolution at the forthcoming annual general meeting of Merafe shareholders pursuant to section 61(8) of the Companies Act; monitor compliance with legal requirements and debt covenants; recommend budgets and plans to the Board; consider and recommend to the Board any dividend; conduct periodic reviews and assessments of the business risks the Group faces by considering Merafe's and the Venture's risk reports; receive and deal with any concerns from within, outside the Company or on its own initiative in relation to accounting practices; internal audit of the Company or any related matter and ensure that all issues are addressed; make submissions to the Board on any matter concerning the Company's accounting policies, financial control, records and reporting. This includes a review of key matters requiring judgement such as impairment; review the Company's related party transactions; receive and deal with any concern or complaints from the whistleblowing line, whether from within or outside the Company; perform duties that are attributed to it by the Act, the JSE and King IV Code; and consider the JSE's proactive monitoring reports. The objectives of the Committee were adequately met during the year under review.
The Committee consists of three independent non-executive directors, all of whom have the necessary qualifications and experience to execute their responsibilities, with two members forming a quorum. Details of the members, the appointments and attendances is set out in report of the audit and risk committee of the annual financial statements and set out in our approach to governance of this report. The Committee is satisfied that the members thereof have the required knowledge and experience as set out in section 94(5) of the Companies Act and Regulation 42 of the Companies Regulation, 2011. Further details of the permanent invitees to the meeting, and the Merafe nomination and evaluation process, are set out in report of the audit and risk committee of the annual financial statements. At least once a year, a session is held with the independent external auditor where management is not present as a way to strengthen the independent oversight role of the Committee. The session facilitates an exchange of views and concerns about the scope of the audit.
The Committee performs the duties laid upon it by section 94(7) of the Companies Act by holding meetings with the key role players on a regular basis and by the unrestricted access granted to the external auditor.
The Committee held four meetings during the year and the quorum was met at all the meetings; refer to the composition of the Committee for meeting attendance.
The CEO and FD have outlined the controls over financial reporting and presented these to the Committee. The Committee believes that Merafe's internal controls can be relied upon as a reasonable basis for the preparation of the annual financial statements.
The Committee has considered the key audit matter set out in the independent auditor's report and is satisfied that it is correctly presented. The key audit matter assessed relates to impairment of the Group's net assets in accordance with the requirements of IAS 36: Impairments of Assets. The Committee reviewed the approach to the impairment assessment as well as the assumptions and sensitivities underlying the model. The Committee is satisfied with the conclusion reached.
The Committee reviewed Merafe's Risk Policy and Framework with a view to enhancing its risk appetite statements.
The Committee considered the nature of the operations, risks and internal control environment at the Merafe head office and continued to rely on the internal audit function at the Venture which provides reports to the Merafe head office on a quarterly basis. The Committee has satisfied itself with the internal audit function at the Venture through the review of their scope of work, quarterly review of their reports and evaluation of their findings and are satisfied that there were no material areas of concern that would render the function ineffective.
The Committee retained the appointment of an independent internal auditor from an external firm to focus on assignments specific to the Merafe head office. The audit scope for 2022, which was risk-based, was considered and agreed. The Committee has also satisfied itself with the scope of work relating to and the findings and remediations arising from the internal audit assignments specific to Merafe head office which were carried out.
The Committee reviewed the 2023 budgets and 2024/5 plans which were recommended to the Board.
The Committee reviewed the independence, effectiveness and overall performance of the internal audit function. The Committee is of the opinion that nothing has come to the attention of the Committee that caused it to believe that the Group's system of internal controls and risk management is not effective and that the internal financial controls do not form a sound basis for the preparation of reliable financial statements.
The Committee also reviewed all legal and regulatory matters that could have a significant impact on the Group and is satisfied with the compliance thereof.
The Committee reviewed the summarised financial statements, interim financial statements and annual financial statements and recommend these to the Board for approval.
The Committee is satisfied that it has discharged its duties as set out in its terms of reference for the year under review.
The Committee, having considered all relevant matters, satisfied itself through enquiry that auditor independence, objectivity and effectiveness were maintained in 2022. The Committee has satisfied itself that the external auditor and lead partner are not included in the JSE's list of disqualified auditors and has considered the external auditor's suitability assessment in terms of paragraph 3.84(g)(iii) and section 22.15(h) of the Listings Requirements. The Committee, in consultation with executive management, agreed to the terms of the engagement. The audit fee for the external audit has been considered and approved taking into consideration such factors as the timing of the audit, the extent of the work required and the scope. In line with a documented policy on the nature and extent of non-audit services that the external auditor can provide to the Company, the Committee pre-approves all audit and permitted non-audit services by the external auditor. This is to further ensure that the independence of the external auditor is maintained. For the year, these services comprised tax and transfer pricing reviews. Deloitte & Touche have served as the Company's external auditor since 4 May 2017. The performance of the external auditor is reviewed by the Committee annually. The Committee also considered and is satisfied with the quality of the audit for the year under review.
The Committee is committed to quality financial reporting. Accordingly, the Committee regularly reviews and considers the JSE proactive monitoring reports to ensure that, where applicable, the recommendations are implemented in the preparation of the annual financial statements.
The review of the Integrated Annual Report together with the consolidated and separate financial statements is also the responsibility of the Committee. The Committee has evaluated the consolidated and separate financial statements of the Company for the year ended 31 December 2022 and based on the information provided to the Committee, considers that they comply, in all material respects, with the requirements of the various statutes and regulations governing disclosure and reporting.
The Committee reviewed the performance, expertise and experience of the Financial Director, Ditabe Chocho, and continues to be satisfied of his suitability to hold office as the Financial Director in terms of the Listings Requirements. The Committee also considered the appropriateness of the expertise, continued improvement and adequacy of the finance function. The Committee is satisfied that there were no material areas of concern that would render the internal financial controls ineffective.
Having taken all of the above assessments into account, the Committee recommended the approval of the consolidated and separate financial statements as well as the Integrated Annual Report for the year ended 31 December 2022 by the Board.
Matsotso Vuso CA(SA); CD(SA); RA
Chairperson — Audit and Risk Committee
17 March 2023