Audit committee report

Role

We are pleased to present our Report for the financial year ended 31 December 2014.

The Board is ultimately responsible for the Group’s system of internal controls and risk management and it discharges its duties in this area by:

• determining the nature and extent of the significant risks it is willing to accept in achieving the Group’s strategic objectives (the Board’s risk appetite); and
• ensuring that management implement effective systems of internal controls, risk identification, assessment and mitigation.

The Directors have delegated that responsibility to the audit committee to assist the Board with regard to the roles and responsibilities as set out in 1.3 below of this Report.

Following a detailed review of our risk management structures and resources in and changes introduced to the Group’s risk management framework, the Board agreed to delegate the risk management responsibilities to a separate sub-committee comprising Independent Non-Executive Directors in an attempt to strengthen the risk management process.

1.1 Terms of reference and internal audit charter

The audit committee has adopted a formal terms of reference and internal audit charter approved by the Board of Directors. The committee has conducted its affairs in compliance with this term of reference and has discharged its responsibilities contained therein. The term of reference is available on request.

1.2 Members and attendance at meetings

The committee consists of five NEDs of whom 3 are Independent Directors and they meet at least six times per annum as per the terms of reference.

The Chief Executive, Chief Finance Officer and the Head of internal audit and external auditor attend meetings by invitation.

During the year under review, five meetings were held and the meeting scheduled for November 2014 was cancelled due to unavoidable circumstances.

The composition of the audit committee as at 31 December 2014 is as follows:

Mr. Kalinga Indatissa - Chairman

Mr. Chan Chee Beng

Mr. Jayantha Dharmadasa

Ms. Pushpa Wellappili

Ms. Lai Choon Foong (appointed w.e.f. 9 May 2014)

Subsequent to the changes in the Directorate the audit committee was re-constituted as follows:

Mr. Chan Chee Beng - Chairman

Ms. Lai Choon Foong

Ms. G. D. Chandra Ekanayake

Ms. Nilanthi Pieris

Biographical details of the members are set out under Board of Directors section.

As required by the Listing Rules, Mr. Chan Chee Beng is a fellow member of the Institute of Chartered Accountants of England and Wales while Ms. Lai is a Chartered Accountant of the Malaysian Institute of Accountants and a Certified Practicing Accountant of CPA Australia. The Board considers that the members have an excellent mix of skills and expertise in commercial, financial and audit matters arising from the senior positions they hold or previously held in other organisations.

The Company Secretary is secretary to the Audit Committee.

1.3 Roles and responsibilities

The role and responsibilities of the audit committee are set out in full in the written terms of reference, which are available on the Company’s website - www.slt.lk.

The activities undertaken by the audit committee in respect of its principal responsibilities during the year ended 31December 2014 are summarised below:

1.3 a Financial statements

Monitor the integrity of the Group’s interim and annual financial statements and review significant financial reporting judgments contained in them prior to their publication. This included a review of the accounting policies and practices, major judgemental areas and compliance with stock exchange, legal and regulatory requirements.

The audit committee discussed these matters with the external auditor as part of the review of the findings from the audit of the Group financial statements. The committee also discussed with the external auditors their review of the interim financial statements.

1.3 b External auditor

Makes recommendation to the Board on the reappointment of external auditors of the Company, KPMG a registered auditor which, in the opinion of the committee is independent, determines the fees to be paid to the external auditor and their terms of engagement; ensures that the appointment of the external auditor complies with the Companies Act and any other legislation relating to the appointment of auditors, determines the nature and extent of those non-audit services that the external auditor may provide to the Company (and the Group).

1.3 c Review the operation and effectiveness of the Group Internal Audit function

The audit committee approves the annual audit plan for the Group internal audit function. The internal audit submits periodic internal audit reports carried out in line with the approved annual audit plan. The internal audit reports highlight the gaps in the systems and procedures in place and recommend improvements to the existing systems and procedures where necessary after negotiating with the management. Internal audit follows up the implementation of recommendations and reports progress to the management and the audit committee.

Ensures that it is adequately resourced and has appropriate standing within the Group. In the event of the required resources with the required expertise are not available within the internal audit division, committee approves to engage with external parties to carry on such audits.

The Head of internal audit has direct access to the Chairman of the audit committee and the audit committee meets with the Head of Internal Audit on a regular basis without the presence of management.

The audit committee receives regular reports from internal audit, which include summaries of the key findings of each audit in the period.

1.3 d Review the Company’s internal control and risk management

The internal audit assists the committee to assess the effectiveness of the Group’s operational and financial controls and procedures which include authorisation limits for expenditure, sales contracts and capital expenditure, signing authorities, IT application controls, organisation structure, Group policies, segregation of duties and reviews by management. The gaps identified thereon will be reported to the Board with recommendation for improvement.

1.4 Meetings

The audit committee met five times during the year. It also convenes additional meetings as and when necessary.

The activities carried out at the meetings held during the year under review are as follows:

Date of meeting	Main activities carried out
20 February 2014	Deliberated on the finalisation of the Annual Audit Plan. New approach adopted to rank and prioritise the Company processes taking into account risks associated with them. KPMG, External auditors presented the final audited accounts and deliberated on the key findings during their audit. 4th quarter results were reviewed and recommended for approval of the Board. Assessed the performance of the external auditors and their independence, objectivity and professional skepticism. Considered the reappointment of KPMG as the auditors for the financial year 2014. Review of internal audit reports presented by the internal auditors.
9 May 2014	Deliberated on the adequacy of internal control process of SLT VisionCom, a fully-owned subsidiary of SLT. As per the TOR of the audit committee, SLT internal audit should assist the Board evaluating the adequacy and effectiveness of controls, discipline, systems and procedures in place within subsidiary companies except Mobitel, which has its own internal audit committee. Considered and made recommendations to the Board on the periodic internal audit reports submitted by the internal auditors particularly on audits on the processes and internal controls of operations of main stores and some of the existing human resource functions. Reviewed and recommended first quarter results for approval of the Board.
27 June 2014	Discussion on the status of the management responses for the observations raised in the 2013 management letter. Deliberated on the requirement of outsourcing some of the key internal audit functions due to the complexity of the subject matters and lack of expertise within the organisation. Discussion on the status of the Internal Audit Manual. Considered the internal audit reports. Reviewed the status of the audits assigned to PWC and KPMG. On the recommendation of the audit committee, the Board has approved to assign vendor balance reconciliation and cashiering and billing systems to KPMG and PWC respectively. PWC was consulted particularly to assess on the vulnerability test and penetration test in order to set up new security architecture.
15 August 2014	Reviewed the second interim financial reports and recommended for approval of the Board. Reviewed the status of the implementation of the recommendations made based on the internal audits and the new audit reports and work-in-progress.
26 September 2014	Reviewed the internal audit reports and ensured that controls were introduced on operations of main stores, debtors and treasury operation management etc. in addition to the ongoing matters.

Other issues

Details of the fees paid to the external auditor during 2014 is disclosed in Note 7 to the financial statements.

On behalf of the

Audit committee

Chan Chee Beng
Chairman of the audit committee

27 February 2015

Colombo