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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 2 December 2019 (“December 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 fully set out in the December Update, are currently
being addressed and resolved. As stated in the December 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. Set out below is an update on progress made in
relation to the Disclaimer.
1. Audit Fix Plan
The Group has signed off and updated Group position papers relating to:
• IFRS 15 (Construction Contracts);
• IFRS 16 (Leases);
• IAS 16 (Property, Plant and Equipment); and
• IAS 21 (Foreign Exchange Rates).
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 outcome of the success of this implementation will be reported on by management and
audited by the Auditor General South Africa (“AGSA”) during the 2019/2020 audit cycle. The
AGSA in accordance with their requirements have commenced their audit testing for the
2020 audit cycle on 7 February 2020.
2. People, Processes and Systems
A specialist in financial disclosures has been tasked with ensuring that there is correct and
complete disclosure in accordance with the Standards. This is improving consistency and
alignment across the Group.
3. Internal control and internal control deficiencies
3.1 Ernst and Young have commenced with their Internal Audit Plan. The first progress
report is expected to be submitted to management and the Audit Committee in March
2020.
3.2 A new Group Supply Chain Manager has been appointed and since joining Denel has
commenced with a review of the material issues relating to internal controls.
4. External Audit
In preparation for the 2020 year-end audit, the AGSA performed a status of records review. A
robust process is in place to ensure that the submission of all documents requested by the
AGSA occurs within the agreed upon timeframes. We agreed to these timeframes in the form
of a Stakeholder Engagement Protocol. Record management is a large determinant of the
success of the audit.
5. Going Concern
The “Shareholder Compact” was submitted to the Minister of the Department of Public
Enterprises and approved in November 2019. The Denel Board and Management are
working with all the stakeholders to ensure that adequate steps are taken to improve liquidity
management. This is monitored daily.
6. Ongoing
Denel will continue to resolve the matters raised in the Disclaimer and provide quarterly
updates in this regard.
28 February 2020
Debt Sponsor: Nedbank Corporate and Investment Banking
Date: 28-02-2020 02:16:00
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