Home / Risk and governance / Corporate governance / Annexure to corporate governance section

Annexure to corporate governance section

Audit committees’ report to shareholders

Introduction

This report to the board and shareholders, on how the audit committees have discharged their duties, has been prepared in accordance with good governance principles.

Background

In terms of Investec’s DLC structure, the board has mandated authority to the Investec plc audit committee and the Investec Limited audit committee to be the audit committees for those respective companies and their subsidiaries with each having their own regulatory requirements to meet. A DLC audit committee – which is a combined audit committee of Investec plc and Investec Limited – has responsibility to the board for matters common to both Investec plc and Investec Limited, and, in particular, the combined group financial statements and results.

The board recognises the important role of the audit committees as part of the risk management and corporate governance processes and procedures of the Investec group.

The audit committees comply with all legal and regulatory requirements as necessary under both UK and South African legislation and listings’ rules, and apply the corporate governance principles for audit committees as required by both the UK Corporate Governance Code and King III. External auditors from both the UK and South Africa are represented and ensure that all accounting principles and standards, as required, are complied with when preparing the combined group financial statements.

The board has approved terms of reference for the audit committees which can be found on the Investec website. All responsibilities are covered in the audit committees’ terms of reference.

The composition and membership, attendance at meetings and a summary of the role and responsibilities of the audit committees is summarised in the board committees section of this report.

The board recognises the important role of the audit committees as part of the risk management and corporate governance processes and procedures of the Investec group. In this regard the audit committees have oversight of:

•	Financial reporting risks
•	Internal financial risks
•	Fraud and IT risks as they relate to financial reporting.

Summary of conclusions reached by the audit committees for the year ended 31 March 2011

Following a review and meeting the requirements of each of the terms of reference, the individual and combined audit committees are satisfied that:

•	The finance functions of both Investec plc and its subsidiaries and Investec Limited and its subsidiaries are adequately skilled, resourced and experienced
•	The group finance director, GR Burger, has the appropriate expertise and experience to meet the responsibilities of the position
•	The group’s internal financial controls are effective and no material weaknesses in financial control have been identified
•	The external auditors of both Investec plc and Investec Limited are, and remain, independent.

In fulfilling their duties, the audit committees have:

•	Reviewed and discussed the audited annual financial statements with the external auditors, the chief executive officer and the finance director
•	Reviewed the adjustments resulting from external audit queries and accepted the unadjusted audit differences as they were not material
•	Reviewed the quality of the financial reporting and disclosures
•	Received and considered reports from the internal auditors
•	Reviewed and overseen the integrated reporting process
•	Considered and approved the annual internal audit plan.

The audit committees recommended the adoption of the integrated report to the board.

In this regard the audit committees:

•	Considered all facts and risks that may impact on the integrity of the integrated report
•	Reviewed and commented on the financial statements included in the integrated report
•	Reviewed the disclosure of sustainability issues in the integrated report to ensure they are reliable and do not conflict with the financial information
•	Reviewed the need to engage an external assurance provider on material sustainability issues, but recommended to the board that it was not necessary to engage an external assurance provider as Internal Audit was specifically tasked to provide a rigorous overview of the sustainability issues
•	Engaged the external auditors to provide assurance on the integrated report.

The board subsequently approved the integrated report, including the financial statements, which will be open for approval at the forthcoming annual general meeting.

The following flow chart depicts the Investec group audit committees’ structure and ambit of activities:

Audit committee’s structure

For each audit committee and audit sub-committee meeting a comprehensive meeting pack is prepared with written reports received from the finance, internal audit, operational risk, compliance and IT functions. Representatives from these functions attend the meetings by invitation and present on the significant matters included in their reports.

Reports on the risk and control environment of all business units and principal operating subsidiaries are made to one of the audit subcommittees, with matters of major issues being escalated to the audit committees. At audit sub-committees, senior managers of the business units meet with the risk and control functions and provide input on the risk and control environment of the business units.

The audit and compliance implementation forums monitor and report on the implementation of recommendations and other matters that the relevant audit committee or audit sub-committee consider important and facilitate the timely understanding and escalation of, and response to, risk and control matters that require a response from management. At each audit committee meeting, the group chief executive officer, group managing director and group finance director provide an in-depth assessment of their current risk related concerns and the procedures introduced by management to control or mitigate these risks.

The audit committees have approved the Internal Audit charter and annual audit plan. The heads of Internal Audit for both Investec plc and Investec Limited have free access to the chairman of the audit committees or any member of the audit committees and they attend all audit committee meetings by invitation.

Key risks addressed during the year under review

During the year under review, the following key risks were debated at all audit committee meetings:

•	The process and procedures undertaken by senior management to review the impairment provisions and valuation techniques adopted in arriving at the carrying values of financial instruments, investments, etc
•	The adequacy and appropriateness of liquidity throughout the group’s operations
•	The implementation of measures taken to further enhance group IT governance
•	Adherence to key regulatory issues facing the group via strict compliance and the result of ongoing compliance monitoring procedures. Specific emphasis was placed on processes to implement the new Companies Act in South Africa
•	Assessing the internal control weaknesses identified by the assurance providers and ensuring appropriate steps taken within prescribed and specified time limits to mitigate and remedy such weaknesses.