The board has established an audit and risk committee which comprises three non-executive directors, all with the required degree of independence. The members are experienced businessmen and all are financially literate. The committee's primary objective is to provide the board with additional assurance regarding the efficacy and reliability of the financial information relied on by the directors, as well as to provide oversight in respect of risk management, in order to assist directors in the discharge of their duties. The committee provides assurance to the board that adequate and appropriate financial and operating controls are in place; that significant business, financial and other risks have been identified and are being suitably managed; and that satisfactory standards of governance, reporting and compliance are in operation. Within this context, the board remains responsible for the group's systems of internal financial and operational control. The executive directors are charged with the responsibility of determining the adequacy, extent and operation of these systems.
The audit committee meets at least twice a year. Executives and managers responsible for finance, a representative of the sponsor (Java Capital) and the external auditors (PKF), attend meetings as invitees.
Responsibilities of the committee include:
- Monitoring proposed changes in accounting policies
- Advising the board on the accounting implications of transactions
- Reviewing audit related functions and recommending the re-appointment of the external auditors for approval by shareholders at the Annual General Meeting
- Assessing adherence to controls and systems within the company and, where necessary, recommending and monitoring improvements during the year
- Providing oversight in respect of risk management process throughout the group
- Monitoring and appraising internal operating structures and systems to ensure that these are maintained and continue to contribute to the ongoing success of the company.
- The committee has fulfilled its duties during the year in accordance with its written terms of reference
The audit committee set in place principles related to engagement for non-audit services of the external auditors or any other practising firm of auditors, which principals include:
- The essence of the work to be performed may not be of a nature that any reasonable and informed observer would construe as being detrimental to good corporate governance or in conflict with that normally undertaken by the accountancy profession
- The nature of the work being performed will not affect the independence of the appointed external auditors in undertaking the normal audit assignments
- The work being done may not conflict with any requirement of IFRS or principles of good corporate governance
- Consideration to the operational structure, internal standards and processes that were adopted by the audit firm in order to ensure that audit independence is maintained in the event that such audit firm is engaged to perform accounting or other services to its client base. Specifically:
- The company may not appoint a firm of auditors to improve systems or processes where such firm of auditors will later be required to express a view as to the functionality or effectiveness of such systems or processes
- The total fee earned by an audit firm for non-audit services in any financial year of the company, expressed as a percentage of the total fee for audit services, may not exceed 35% without the approval of the board
- A firm of auditors will not be engaged to perform any management functions (e.g. acting as curator) without the express prior approval of the board. A firm of auditors may be engaged to perform operational functions, including that of bookkeeping, when such firm of auditors are not the appointed external auditors of the company and work is being performed under management supervision
Information relating to the use of non-audit services from the appointed external auditors of the company is disclosed in the notes to the annual financial statements. Separate disclosure of the amounts paid to the appointed external auditors for non-audit services, as opposed to audit services, are made in the annual financial statements.
Risk management and internal controls
The objective of risk management is to identify, assess, manage and monitor the risks to which the business is exposed.
The most significant risks faced by Ellies are:
- Impact of various macro-economic conditions
- Competitors within the industry
- Foreign currency risk
Furthermore, the level of borrowings and the exposure to interest rate movement is carefully monitored and covered.
Where relevant and with assistance from expert risk consultants, risks are assessed and appropriate insurance cover purchased for all material risks above pre-determined self-insured limits. Levels of cover are re-assessed annually in light of claims experience and events affecting the group, internally and externally.
To enable the directors to meet these responsibilities, management have implemented systems of internal control, comprising policies, procedures, systems and information to assist in:
- Safeguarding assets and reducing the risk of loss, error, fraud and other irregularities
- Ensuring the accuracy and completeness of accounting records and reporting
- The timely preparation of reliable financial statements and information in compliance with relevant legislation and generally accepted accounting policies and practices