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Report of the audit committee

The audit committee has pleasure in submitting this report, which has been approved by the board and has been prepared in accordance with section 94(7)f of the Companies Act No 71 of 2008 (the Act) and incorporating the recommendations of the King Code of Corporate Governance (King III).

MEMBERS OF THE AUDIT COMMITTEE AND ATTENDANCE AT MEETINGS

The audit committee consists of the non-executive directors listed below and meets at least four times per annum in accordance with its charter. All members act independently as described in the Act. The members of the committee in respect of the year ended 30 June 2014 comprised Mr MJ Leeming (Chairperson), Mrs T Dingaan, Ms P Langeni, Mr RJA Sparks and Mr Y Waja (the committee), all of whom are independent non-executive directors of the company. Mrs T Dingaan was appointed in February 2014.

The same members are being recommended by the board for appointment for the financial year ending 30 June 2015, and their appointments are being submitted to shareholders for approval at the AGM on 4 November 2014. The abridged curriculum vitae of the members are included on pages 16 to 18 of the Integrated Annual Report.

During the year under review, four meetings were held and attendance of those meetings is set out in the table below.

Member Number of
meetings attended
MJ Leeming (Chairperson) (Member since 2002) 4/4
T Dingaan (Appointed during 2014) 2/2
P Langeni (Member since 2005) 4/4
RJA Sparks (Member since 2006) 3/4
Y Waja (Member since 2008) 4/4

The internal and external auditors, in their capacities as auditors to the group, attend and report at all meetings of the audit committee. The group risk management function is also represented by the head of risk. Executive directors and relevant senior managers attended meetings by invitation. In addition, the deputy chairperson of the group board and the chairperson of the Insurance audit committee attend all meetings.

ROLE OF THE AUDIT COMMITTEE

The audit committee has adopted a formal charter, approved by the board, setting out its duties and responsibilities as prescribed in the Act and incorporating additional duties delegated to it by the board.

The committee:

> Assists the board in overseeing the quality and integrity of the group’s integrated reporting process, including the financial statements and sustainability reporting, and announcements in respect of the financial results
> Ensures that an effective control environment in the group is maintained
> Provides the chief financial officer, external auditors and the head of internal audit with unrestricted access to the committee and its chairperson as is required in relation to any matter falling within the ambit of the committee
> Meets with the external auditors, senior managers and executive directors as the committee may elect
> Meets confidentially with the internal and external auditors without other executive board members or the company’s chief financial director being present
> Reviews and recommends to the board the interim financial results and annual financial statements
> Oversees the activities of, and ensures coordination between, the activities of the internal and external auditors
> Fulfils the duties that are assigned to it by the Act and as governed by other legislative requirements, including the statutory audit committee functions required for subsidiary companies
> Receives and deals with any complaints concerning accounting practices, internal audit or the content and audit of its financial statements
or related matters
> Conducts annual reviews of the committee’s work and terms of reference
> Assesses the performance and effectiveness of the committee and its members on a regular basis

EXECUTION OF FUNCTIONS DURING THE YEAR

The committee is satisfied that, for the 2014 financial year, it has performed all the functions required to be performed by an audit committee as set out in the Act and the committee’s terms of reference.

The audit committee discharged its functions in terms of the charter and ascribed to it in terms of the Act during the year under review as follows:

Financial statements

The committee among other matters:

> Confirmed the going concern as the basis of preparation of the interim and annual financial statements
> Reviewed compliance with the financial conditions of loan covenants and determined that the capital of the company was adequate
> Examined and reviewed the interim and annual financial statements, as well as all financial information disclosed prior to the submission to the board for their approval and then for disclosure to stakeholders
> Ensured that the annual financial statements fairly present the financial position of the company and of the group as at the end of the financial year and the results of operations and cash flows for the financial year and considered the basis on which the company and the group was determined to be a going concern
> Considered accounting treatments, significant unusual transactions and accounting judgements
> Considered the appropriateness of the accounting policies adopted and changes thereto
> Reviewed the external auditor’s audit report
> Reviewed the representation letter relating to the annual financial statements which was signed by management
> Considered any problems identified and reviewed any significant legal and tax matters that could have a material impact on the financial statements

External audit

The Committee among other matters:

> Nominated Deloitte & Touche and Mr AF Mackie as the external auditor and designated auditor respectively to shareholders for appointment for the financial year ending 30 June 2014, and ensured that the appointment complied with all applicable legal and regulatory requirements for the appointment of an auditor
> Approved the external audit engagement letter, the plan and the budgeted audit fees payable to the external auditor
> Reviewed the audit effectiveness and evaluated the external auditor’s internal quality control procedures
> Obtained an annual confirmation from the auditor that its independence was not impaired
> Obtained assurances from the external auditor that adequate accounting records were being maintained by the company and its subsidiaries
> Maintained a policy setting out the categories of non-audit services that the external auditor may and may not provide, split between permitted, permissible and prohibited services
> Approved non-audit services with Deloitte & Touche in accordance with its policy
> Considered whether any reportable irregularities were identified and reported by the external auditor in terms of the Auditing Profession Act No 26 of 2005, and determined that there were none
> Nominated the external auditor and the independent auditor for each subsidiary company for re-appointment

The Committee is satisfied that Deloitte & Touche is independent of the group after taking the following factors into account:

> Representations made by Deloitte & Touche to the committee
> The auditor does not, except as external auditor or in rendering permitted non-audit services, receive any remuneration or other benefits from the company
> The auditor’s independence was not impaired by any consultancy, advisory or other work undertaken by the auditor
> The auditor’s independence was not prejudiced as a result of any previous appointment as auditor
> The criteria specified for independence by the Independent Regulatory Board for Auditors and international regulatory bodies

Internal audit

The audit committee:

> Reviewed and approved the internal audit charter and annual audit plan and evaluated the independence, effectiveness and performance
of the internal audit department and compliance with its charter
> Considered the reports of the internal auditor and external auditor on the group’s systems of internal control, including financial controls, business risk management and maintenance of effective internal control systems
> Received assurance that proper and adequate accounting records were maintained and that the systems safeguarded the assets against unauthorised use or disposal thereof
> Reviewed significant issues raised by the internal audit processes and the adequacy of corrective action in response to significant internal audit findings

Based on the above, the committee formed the opinion that there had been no material breakdowns in internal control, including financial controls, business risk management and the maintenance of effective material control systems.

The head of internal audit reports functionally to the chair of the committee and administratively to the chief financial officer.

The committee reviewed the plans and work outputs of the external and internal auditors and concluded that these were adequate to address all significant financial risks facing the business.

Risk management and Information Technology (IT) governance

The committee:

> Reviewed the group’s policies on risk assessment and risk management, including fraud and IT risks as they pertain to financial reporting and the going concern assessment, and found them to be sound
> Considered the relevant findings and recommendations of the risk committee

Legal and regulatory requirements

To the extent that these may have an impact on the annual financial statements, the committee

> Reviewed legal matters that could have a material impact on the group
> Reviewed the adequacy and effectiveness of the group’s procedures, including its risk management framework, to ensure compliance with legal and regulatory responsibilities
> Monitored complaints received via the group’s whistle-blowing service
> Considered reports provided by management, internal audit and the external auditor regarding compliance with legal and regulatory requirements

Expertise and experience of chief financial officer and the finance function

As required by 3.84(h) of the JSE Limited Listings Requirements, the audit committee has satisfied itself that the chief financial officer, Mr OS Arbee, has the appropriate expertise and experience.

In addition, the committee satisfied itself that the composition, experience and skills set of the finance function met the group’s requirements.

Subsidiary companies

The functions of the committee are also performed for each subsidiary company of Imperial Holdings Limited that has not appointed an audit committee, on the basis that the committee delegates the performance of such functions to sub-committees referred to as finance and risk review committees. Divisional finance and risk review committees have been constituted and these committees report significant issues to the group audit committee. Each divisional finance and risk review committee is chaired by an independent chairperson with no operational role in the group’s divisions.

INTEGRATED REPORT

Following the review by the committee of the consolidated annual financial statements of Imperial Holdings Limited for the year ended 30 June 2014, the committee is of the view that in all material respects they comply with the relevant provisions of the Act, International Financial Reporting Standards and JSE Listing Requirements and fairly present the consolidated and separate financial positions at that date and the results of operations and cash flows for the year then ended. The committee has also satisfied itself of the integrity of the Integrated Annual Report and the sustainability information reported therein.

Having achieved its objectives, the committee has recommended the annual financial statements and the Integrated Annual Report for the year ended 30 June 2014 for approval to the board. The board has subsequently approved the reports, which will be open for discussion at the forthcoming annual general meeting.

MJ Leeming
Chairperson

26 August 2014