The Audit Committee has formal terms of reference which are updated on an annual basis, or as and when required. The Board is satisfied that the Audit Committee has complied with these terms, and with its legal and regulatory responsibilities as set out in the Companies Act, 71 of 2008 (as amended) (Companies Act), King IV Report on Corporate Governance for South Africa, 2016 (King IV) and the JSE Listings Requirements (JSE LR).
The primary role of the Audit Committee is to ensure the integrity of Telkom SA SOC Ltd (Telkom or Company) and the Telkom Group’s financial reporting and audit processes and that a sound risk management and internal control system is maintained. In pursuing these objectives, the Audit Committee oversees relations with the External Auditors and reviews the effectiveness of the Internal Audit function.
The Audit Committee consisted of six independent Non-executive Directors from 1 April 2023 to 6 September 2023 and five independent Non-executive directors from 7 September 2023 to 31 March 2024. Keith Rayner is the Chairperson of the Audit Committee.
The Board believes that the Audit Committee collectively possesses the knowledge and experience to supervise Telkom’s financial management, Internal and External Auditors, the quality of Telkom’s financial controls, the preparation and evaluation of Telkom’s audited company and consolidated financial statements, and Telkom’s periodic financial reporting.
The attendance of Audit Committee members at its meetings during the financial year was as follows:
| Member | Attendance | |
| KA Rayner (Chairperson) | 5/5 | |
| N Ford-Hoon* | 3/4 | |
| KP Lebina | 5/5 | |
| PCS Luthuli | 5/5 | |
| H Singh | 5/5 | |
| LL von Zeuner | 5/5 |
| * | Apology. |
| * | Resigned 6 September 2023. |
The Telkom Group has established and maintains internal controls and procedures, which are reviewed on a regular basis by Internal Audit which then reports to the Risk and Audit Committees. These reporting responsibilities include management of the risk of business failures and to provide reasonable assurance against such failures. However, this is not a guarantee that such risks are eliminated.
It is the duty of the Audit Committee, inter alia, to monitor and review and where applicable, approve:
The Committee has reviewed and is satisfied that the annual financial statements, including accounting policies, are appropriate and comply with the IFRS® Accounting Standards of the International Accounting Standards Board (IASB) and in compliance with the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee, the Financial Pronouncements as issued by the Financial Reporting Standards Council, the JSE LR and the requirements of the Companies Act.
Significant matters that were addressed by Management and by the Audit Committee on a review basis are as follows:
| IFRS 16 valuation | The review and consideration of the IFRS 16 valuation because of the high number of leases. The major lease categories that gave rise to a right-of-use (ROU) asset and related liability primarily relate to the masts and towers infrastructure lease agreements, co-location agreements, property leases, and vehicle fleet leases. As at 31 March 2024, the ROU asset and liability were reflected at R5 594 million consisting of R5 773 million continued operations and R179 million discontinued operations (31 March 2023: R5 360 million) and R6 641 million consisting of R6 461 million continued operations and R180 million discontinued operations), respectively, with related depreciation and interest of R1 475 million consisting of R1 463 million continued operations and R12 million discontinued operations (31 March 2023: R1 274 million) and R602 million consisting of R586 million continued operations and R16 million discontinued operations (31 March 2023: R488 million) for the 12-month period under review. | |
| Dividend consideration |
Telkom’s goal is to return cash to shareholders after sufficiently funding capex and strengthening the balance sheet. Management has considered the Group’s business plans and is confident that Telkom will be in a position to pay dividends in the near term, with FY2025 targeted as the first year-end to consider paying a dividend. A revised dividend policy has been drafted and approved by the Board. The proposed new policy will be based on available free cash flow while prioritising a strong balance sheet and future capex requirements. The dividend payout is 40% of free cash flow and will be declared and paid on an annual basis, with a resulting dividend yield comparable with local telecommunications companies. |
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| Actuarial assumptions | The review and approval of the actuarial assumptions for recommendation to the Board for both the interim periodend and financial year-end for financial computation and compilation purposes. | |
| Impairment testing | The review of the impairment testing of Telkom Group cash generating units (CGUs), resulted in no impairment for BCX and Swiftnet, Telkom Consumer CGU, and Openserve CGU. | |
| Expected credit loss provisions | The review of the impairment of trade and other receivables, finance lease receivables and contract assets, and intercompany receivables in accordance with IFRS 9. | |
| Key audit matters | The review and consideration of the key audit matters detailed in the External Auditor's report on the annual financial
statements, namely:
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| Group Chief Executive Officer and Group Chief Financial Officer Responsibility Statement | The review and consideration of the Group Chief Executive Officer and Group Chief Financial Officer Responsibility Statement as required in terms of paragraph 3.84(k) of the JSE LR. | |
| Remediation of Internal Control Deficiencies | The review and consideration of timeously implemented remedial actions by management regarding internal control deficiencies identified by Internal Audit. | |
| Compliance with King IV and JSE Regulatory Disclosures | The review and consideration of the King IV disclosures, practices, and principles and the JSE corporate governance disclosures in accordance with the JSE LR and the JSE Disclosure Policy. |
The Audit Committee discharged all responsibilities and functions delegated to it in terms of the Audit Committee terms of reference, the Companies Act, King IV, and the JSE LR.
During the year, the Audit Committee:
In respect of the auditors:
In respect of financial reporting:
In respect of Internal Audit:
In respect of the Audit Committee:
In respect of information technology governance:
The Audit Committee has the primary responsibility for overseeing the relationship with, and performance of, the External Auditors. This includes making the recommendation on the appointment, reappointment, and removal of the External Auditors, assessing their independence on an ongoing basis, and for reviewing and approving the audit fee.
The Audit Committee, after taking account of the audit approach, materiality, and audit risks, reviewed and agreed both the interim period review plan and financial year-end audit plan, and agreed on both the interim and financial year-end audit fees. The Audit Committee received updates during the year on the audit process, including how the External Auditors had challenged the Telkom Group’s assumptions on the significant matters noted in this report.
The Board delegated the responsibility to review the Company’s current appointed Auditors for reappointment to the Audit Committee. The Audit Committee makes a recommendation to the Board and the Board then makes a recommendation to the shareholders in the notice of annual general meeting (AGM). The Audit Committee recommended the reappointment of the firm and individual partner to the Board and the Board has recommended the same to the shareholders in the AGM notice.
The Group transitioned to a single external audit firm, PricewaterhouseCoopers Inc. (PwC), for the period under review, following the expiry of the term of the joint audit with SizweNtsalubaGobodo (SNG) Grant Thornton.
The Audit Committee is also responsible for determining that the External Auditors have the necessary independence. A key factor that may impair any such independence is a lack of control over non-audit services provided by the External Auditors.
Telkom addresses this issue by ensuring prior approval by the GCFO and Chairperson of the Audit Committee of all non-audit services. Fees paid for non-audit services to the External Auditors amounted to R681 000 for the financial year ended 31 March 2024 (31 March 2023: R1 525 640). Non-audit fees as a percentage of audit fees for the year ended 31 March 2024 is approximately 1%. Fees accrued for audit work performed for the financial year ended 31 March 2024 by the External Auditors amounted to R81.75 million (31 March 2023: R113.3 million).
The Audit Committee Chairperson met with the External Auditors prior to each Audit Committee meeting to discuss and review the content of the External Auditors' report to the Audit Committee.
The Audit Committee has reviewed and assessed the independence of the External Auditors, and has confirmed that the criteria for independence, as set out in the rules of the IRBA and other relevant legislation, have been followed. The Audit Committee is satisfied that the External Auditors are independent of the Telkom Group.
The Internal Audit function adopts a co-source operating model to supplement its Internal Audit activities and execute its mandate. During the financial year, the co-source agreement with SekelaXabiso CA Incorporated (SkX Protiviti) and KPMG Services (Pty) Ltd (KPMG) continued. The co-sourced service providers form part of Telkom’s Internal Audit function and report directly to the CAE.
The internal control systems of the Company and Group are monitored by Internal Audit, which reports findings and recommendations to the Audit Committee and to senior management. The Audit Committee determines the purpose, authority, and responsibility of the Internal Audit function in the Internal Audit charter.
The Internal Audit function is headed by the CAE, who may be appointed or dismissed by the Audit Committee. The Audit Committee is satisfied that the incumbent CAE has the requisite skills and experience and that he is supported by a sufficient staff complement with appropriate skills and training.
Telkom’s Internal Audit operates in accordance with the International Standards for the Professional Practice of Internal Auditing as prescribed by the Institute of Internal Auditors. Internal Audit activities carried out during the year were identified and planned through a combination of the Telkom risk management framework and the risk-based methodologies adopted by Internal Audit. The Audit Committee approves the annual Internal Audit assurance plan presented by Internal Audit and monitors progress against the plan.
Internal Audit reports deficiencies to the Audit Committee every quarter together with recommended remedial actions, which are then followed up. Internal Audit provided the Audit Committee with a written report, which assessed as adequate the internal controls over financial reporting, IT governance, and the risk management process during the financial year.
The Chairperson of the Audit Committee met with the CAE prior to each Audit Committee meeting to discuss and review the content of the Internal Audit report to the Audit Committee.
Internal Audit and the External Auditors have unrestricted access to the Audit Committee, the Audit Committee Chairperson, the Risk Committee Chairperson, and the Chairperson of the Board, thereby ensuring the maintenance of independence.
Reviews of the Telkom Group’s risk management, enterprise risk management programmes, business continuity, and forensic services are performed by the Telkom Group’s Risk Committee. The Audit Committee Chairperson is a member of the Risk Committee and ensures any identified financial risks are referred to the Audit Committee for consideration. The top principal risks, being those that will prevent the Telkom Group from achieving its strategic objectives in the short and medium term, are reported to and considered by the Risk Committee and the Board. All principal risks are currently managed within the risk appetite statements. The key focus areas, risk appetite, and further details of the Telkom Group’s principal risks are reported in the risk management report included in the Telkom Group’s integrated report.
The Internal Audit department has conducted a review on the effectiveness of the risk management function in accordance with the approved risk management framework. The results of the review indicated that the risk management process was satisfactory as at 31 March 2024.
The Telkom Group assessed risks based on principal risks as indicated above. The current combined assurance model in place is representative of how the risks are currently being managed between the five lines of assurance. Management and Internal Audit have implemented a coordinated structure for planning, executing, and reporting on Internal Audit, compliance, and risk activities. The Audit Committee is satisfied that the Group has optimised the assurance obtained from the five lines of assurance in accordance with the approved combined assurance model and that the model is effective in achieving the objectives of coordinating assurance and reporting to provide management and the Board with a clear view on what the Telkom Group risks are; what the effective risk mitigations are; and the resultant acceptable level of residual risks.
Based on information from, and discussions with, management and the External Auditors, the Audit Committee is of the opinion that the financial records may be relied upon as the basis for the preparation of the annual financial statements.
The Audit Committee has considered and discussed the annual financial statements with both management and External Auditors. During this process, the Audit Committee:
A key requirement of our annual financial statements is for the annual financial statements to be fairly presented, balanced, understandable and provide the information necessary for stakeholders to assess the Telkom Group’s position, performance, business model, and strategy. The Audit Committee and the Board are satisfied that the annual financial statements meets this requirement.
The Audit Committee considers that the annual financial statements comply in all material respects with the statutory requirements of the various laws and regulations governing disclosure and reporting of the annual financial statements and that the annual financial statements comply in all material respects with IFRS, as issued by the IASB, the SAICA Financial Reporting Guides issued by the Accounting Practices Committee and Financial Reporting Pronouncements issued by the Financial Reporting Standards Council, as well as the requirements of the Companies Act and the JSE LR. The Audit Committee has recommended to the Board that the annual financial statements be adopted and approved by the Board.
Keith Rayner CA(SA)
Chairperson: Audit Committee
17 June 2024