The Audit Committee consists of the Non-Executive Directors Ms S. Bianchi, Ms E. Headon, Mr S. McTiernan and Mr G. Smith. During 2013, the Committee determined that Ms S. Bianchi and Mr S. McTiernan are the Committee’s financial experts. As outlined in the Directors’ biographical details, members bring considerable financial and accounting experience to the work of the Committee. Mr S. McTiernan was appointed Chair of the Audit Committee in May 2013.
Audit Committee Report
Composition of the Audit Committee+-
Summary of role of the Audit Committee +-
The main responsibilities of the Committee include:
- monitoring the integrity of the financial statements of the Group and any formal announcements relating to the Group’s financial performance and reviewing significant financial reporting judgements contained in them;
- reviewing the Group’s internal financial controls;
- reviewing the Group’s internal control and risk management systems;
- making recommendations for the Board to put to the shareholders for their approval in general meeting regarding the appointment, remuneration and terms of engagement of the external auditor;
- reviewing and monitoring the external auditors’ independence and objectivity and the effectiveness of the audit process, taking into consideration relevant professional and regulatory requirements;
- developing and implementing policy on the engagement of external auditors to supply non-audit services, taking into account relevant ethics guidance regarding the provision of non-audit services by an external audit firm; and
- reporting to the Board, identifying any matters in respect of which it considers that action or improvement is needed, and making recommendations as to the steps to be taken.
The meetings of the Audit Committee in 2013 are set out here and generally coincide with the release of the Group’s preliminary results, AGM and half yearly results.
Significant issues related to the financial statements +-
The Committee reviewed the 2013 preliminary results issued by the Company in March 2014 and the 2013 Annual Report in March 2014. The significant issues identified were:
- Cash flow forecasts and going concern. The Committee considered the Group’s cash flow forecast and the assumptions it was based on. It reviewed the relevant disclosures in the financial statements regarding going concern including the post-balance sheet event being the deed of amendment entered into with Project Lenders in February 2014 which among other things restructures the payment profile of deferred subordinated debt from 1 August 2015. Based on this review, the Committee was satisfied that it was appropriate to continue to adopt the going concern basis of accounting in preparing the annual financial statements.
- Realisation of assets. As the Mine is still in the early stage of its production life cycle and expansion, there is a level of uncertainty regarding the realisation of the Mine assets over the future life of the Mine. The Committee reviewed the disclosures in the financial statements regarding the realisation of property, plant and equipment and, taking account of the cash flow forecast noted above, were satisfied that at the statement of financial position date the recoverable amount of property, plant and equipment exceeds its carrying amount and, based on such cash flow forecast, that the carrying amounts are recoverable. The auditors noted that they would include an Emphasis of Matter paragraph in their audit report drawing the reader’s attention to this issue.
As part of the review of the 2013 Annual Report, the Committee received a report from the external auditors on their audit of the financial statements. This report includes the auditor’s review of the areas of audit risk and focus in relation to the financial statements.
The Committee reviewed the 2013 Half Yearly Financial Report issued by the Company in August 2013. The significant issues identified were:
- Cash flow forecasts and going concern. The Committee considered the Group’s forecast and the assumptions on which it was based. It reviewed the relevant disclosures in the financial statements regarding going concern including the post-balance sheet event being the amendment of the Project Loans, the key terms being: the postponement of the date on which deferred subordinated debt is required to be brought current from 1 August 2014 to 1 August 2015; the deferment of the 1 August 2013 principal instalment of senior debt of US$13 million to 1 August 2014; and an extension in time and quantum of the ability of the Project to fund expansion-related capital expenditures from Project operating cash flows. Based on this review the Committee was satisfied that it was appropriate to continue to adopt the going concern basis of accounting in preparing the financial statements. The auditors noted that they would include an Emphasis of Matter paragraph in their review report drawing the reader’s attention to this issue.
As part of this review the Committee received a report from the external auditors on their review of the Half Yearly Financial Report. This report includes the auditor’s key areas of review.
The Company’s external auditors are Deloitte & Touche. They have been the external auditors for over twenty five years and during this time there has been no tender. The engagement partner, Mary Fulton, will rotate from this engagement in 2014. KPMG provide the external audit and taxation services to the subsidiary undertakings Kenmare Moma Mining (Mauritius) Limited and Kenmare Moma Processing (Mauritius) Limited and their respective branches.
The Committee closely monitors the level of audit and non-audit services that the audit firms provide to the Group. The Committee has adopted a policy on the provision of non-audit services by the external auditors that the engagement will not compromise their audit objectivity and independence, that they have the understanding of the Group necessary to provide the service and that they are considered to be the most appropriate to carry out the work. All non-audit services provided by audit firms must be approved by the Committee.
The Committee agreed the fees and audit plan to be paid to the external auditors for their audit of the 2013 Annual Report and accounts and their review of the 2013 Half Yearly Financial Report. The Committee reviewed the safeguards designed to avoid the possibility that the auditors’ objectivity and independence could be compromised. The Committee is satisfied that the appropriate policy is in place in respect of services provided by external auditors. Non-audit services were provided by the Company’s external auditors in 2013 in relation to taxation advisory services and corporate finance, compliance and assurance services in connection with financing activities. The Committee reviewed these engagements to ensure that the provision of this non-audit service did not compromise the audit objectivity and that independence was safeguarded.
The Company Secretary, the external audit lead partner, and from time to time the Finance Director, attend meetings at the invitation of the Committee. During these meetings, the Committee and the external auditor discuss, without management present, matters relating to its remit and any issues arising from the audit. The external auditors have unrestricted access to the Chairman of the Audit Committee.
A detailed risk assessment exercise was undertaken by the Group during the year to identify and document critical risks to the business, including key operational risks and related controls. The Chief Operating Officer, Jacob Deysel, led a number of risk review workshops at the Mine where operational risks to the business were identified and rated, and entered on the Group’s risk register. A number of additional workshops were held in the head office in Dublin to consider corporate and business risks which were also entered on the Group’s risk register. The critical/high risks identified as a result of this process were reviewed by the Audit Committee. These risks are included in the Principal Risks and Uncertainties facing the Group as set out on this page. The risk register and risk management policy will be reviewed and updated at least six-monthly. As part of the internal audit function, controls identified in the risk register will be tested to ensure they are operating effectively.
The Company’s whistle-blowing policy was developed during the year and approved by the Audit Committee. It has been translated into Portuguese and will be circulated in English and Portuguese to all employees. In December 2013, an external company was engaged to provide a confidential 24/7 whistle-blowing service allowing all company employees to contact them and report any wrongdoing in the workplace. The Company is currently in the process of rolling out a communication campaign throughout the Group to advise staff of the service before it goes live. This is being done in conjunction with the union via email communication to employees, the Mine newsletter and a poster campaign. The service does not replace the internal processes within an organisation, but seeks to provide a final alternative for those employees who for any reason do not wish to use the internal processes. The Internal Auditor will be the primary point of contact for the external company when reporting calls are logged.
The Audit Committee Chairman can receive in confidence complaints in writing on accounting, risk issues, internal controls, auditing issues and related matters for reporting to the Audit Committee.
During the year the Audit Committee reviewed a summary of the key insurance policies covering Property Damage and Business Interruption, Marine Hull and Machinery, Marine War, Marine Protection and Indemnity, Marine Cargo, Charterers Liability, Port and Terminal Operators, Mobile Equipment, General Liability, Aviation, Personal Accident, and Directors and Officers Liability. The Group’s insurance does not cover every potential risk associated with its operations. Adequate cover at reasonable rates is not always obtainable. In addition, the Group’s insurance may not fully cover its liability or the consequences of business interruption due to risks such as weather events, equipment failure or labour dispute. Taking into account the above factors, the Audit Committee was satisfied there is adequate cover in place to mitigate the Group’s exposure to insurable risks.
During the year the Committee considered the need for a dedicated in-house internal audit function. Taking into account the development of the Group, the Committee decided to establish an internal audit work programme, and that an in-house Internal Auditor be appointed to carry out the work programme and report directly to the Audit Committee. In November and December, an internal audit of the controls in place at the Mine was conducted. The period under review was 1 January 2013 to 31 October 2013. The key findings from this review were reported to the Audit Committee in December 2013.
The Board of Directors has responsibility for the Group’s system of internal control. This involves an on-going process for identifying, evaluating and managing the significant risks faced by the Group and reviewing the effectiveness of the resultant system of internal control that has been in place throughout the year and up to the date of approval of the Annual Report and Accounts. The Board has delegated to management the planning and implementation of the system of internal control throughout the Group. The system of internal control is designed to provide reasonable, but not absolute, assurance against material misstatement or loss and accords with the guidance in Internal Control: Guidance for Directors on the Combined Code (Turnbull October 2005). The key elements of the system include:
- The Board, in conjunction with management, identifies the major risks faced by the Group and determines the appropriate course of action to manage these risks;
- Risk assessment and evaluation is an integral part of the management process throughout the Group. Risks are identified, evaluated and appropriate risk management strategies implemented;
- The Board maintains control and direction over appropriate strategic, financial, organisational and compliance issues, and has put in place an organisational structure with defined lines of responsibility and authority; and
- Capital expenditures are controlled centrally and, if in excess of predefined levels, are subject to approval by the Board.
The Board conducted a review of the effectiveness of the Group’s risk management and internal controls systems, including financial, operational and compliance controls, as part of which it obtained a report from the Internal Auditor. In the course of this review the Board did not identify nor was it advised of any failings or weaknesses which it determined to be significant.
The Directors are responsible for preparing the Annual Report and the financial statements. The Directors have delegated to management the planning and implementation of the system of internal control over financial reporting. Internal control over financial reporting is a process designed by management to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of the Group’s published financial statements for external reporting purposes in accordance with IFRS. The Group’s internal control over financial reporting includes policies and procedures that pertain to the maintenance of records, in reasonable detail, accurately and fairly reflect transactions, provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS, and that receipts and expenditures are being made only in accordance with authorisation of management.
The Audit Committee monitors the integrity of the financial statements of the Group and any formal announcement relating to the Group’s financial performance, reviewing significant financial reporting judgements contained in them. The Audit Committee reviewed the 2013 Annual Report and the 2013 Half Yearly Financial Report and as part of these reviews the Committee received a report from the external auditors for the audit of the 2013 Annual Report and their review of the 2013 Half Yearly Financial Report. The Board reviews and approves the financial statements of the Company and the consolidated financial statements of the Group.