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Quarterly update regarding disclaimer of audit opinion
DENEL SOC LIMITED
Registration number: 1992/001337/30
JSE Alpha Code: BIDEN
(“Denel” or the “Group”)
QUARTERLY UPDATE REGARDING DISCLAIMER OF AUDIT OPINION
Noteholders are referred to previous announcements released on SENS, with the latest quarterly
update released on 28 February 2020 (“February Update”), giving status updates on progress made
in relation to the disclaimer of opinion contained in the audit reports for the financial years ended 31
March 2018 and 31 March 2019 (the “Disclaimer”).
The main issues that led to the Disclaimer, as set out in the February Update, are currently being
addressed and resolved. The external auditors on finalisation of the 2019/20 financial yearend audit
will report on the result thereof. As stated in the February Update, Denel has put in place the Audit
Fix Plan to focus on key issues of the 2018/2019 audit, with a further focus area being People,
Processes and Systems across the Denel group.
1. External Audit
1.1 Following the President’s announcement of a nation-wide lockdown from Friday, 26 March
2020, Denel adhered to the lockdown emergency protocols. As a result, all operations within
Denel came to a complete stop as most employees were unable to work from home. This has
caused delays in finalising the financial results for the year ended 31 March 2020.
1.2 The regulations promulgated by Treasury in terms of section 76 of the Public Finance
Management Act (PFMA) refers. On matters relating to compulsory reporting periods, the
following measures must be noted:
• Section 55 deals with Public Entities and states under section 55(1)(c) that the accounting
authority for a public entity must submit those financial statements within two months after
the end of the financial year—(i) to the auditors of the public entity for auditing? and (ii) if
it is a business enterprise or other public entity under the ownership control of the national
or a provincial government, to the relevant treasury whilst section 55(1)(d) states that the
accounting authority must submit within five months of the end of a financial year to the
relevant treasury.
1.3 The deadlines for financial reporting was extended by 30 days from the financial year-end
deadline, and since the further extension of the lockdown, the period for compliance has been
extended for a total of two months after the deadline referred to in para. 1.2 above.
1.4 Given the explanations above, and according to the Government Notice National Treasury No.
437, Denel is planning to submit unaudited annual financial statements by 31 July 2020 to its
external auditors, being the Auditor General South Africa (“AGSA”) for audit.
1.5 The AGSA, in accordance with their requirements will commence their audit testing for the
2020 audit cycle on 09 July 2020 subsequent to the easing of the lockdown regulations.
2. Audit Fix Plan
The new accounting standards (“Standards”) have been implemented in a uniform manner
throughout the Group and Denel is currently rolling out and updating all financial records to
ensure adherence to the Standards. The only additional standard that Denel Group had to
prepare a Group Position Paper for and update for roll out to the rest of the Group was IFRS9
(Financial Instruments); this is now completed.
The outcome of this implementation will be reported on by management and audited by the
Auditor General South Africa (“AGSA”) during the 2019/2020 audit cycle.
3. Internal control and internal control deficiencies
3.1 Ernst and Young has reviewed the external audit remediation plans and issued a report
detailing areas of improvement. The deficiencies are being integrated and implemented
as part the Audit Fix Plan.
3.2 The AGSA commenced with supply chain management compliance testing for irregular,
fruitless and wasteful expenditure. The results will be reported as part of the 2019/20
audit cycle.
4. Going Concern
Denel has implemented a liquidity review process resulting in the development of a robust tool
to monitor cash projections and expected cash inflows and outflows. This has enabled the
proactive monitoring of the liquidity status and management thereof.
As a result of liquidity constraints and impact of Covid 19 lockdown, Denel was unable to pay
full salaries and related costs for May 2020 to its employees and service providers. Whilst
management has subsequently managed to make some payments i.e. medical aid and partial
salary payments, the risk remains relating to the payment of salaries and related costs for June
until August 2020. Management is pursuing various options to mitigate the risks that may
impact the business and will keep its stakeholders informed.
5. Ongoing
Denel will continue to resolve the matters raised in the Disclaimer and continue to provide
quarterly updates in this regard.
24 June 2020
Debt Sponsor: Nedbank Corporate and Investment Banking
Date: 24-06-2020 04:48:00
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