e r 2 - Umgeni Water

Chapter| Materialityy and signsnificanceframeworkChapter 17.Materialityandd siggnificanceframeworkThe framework is applied under two main categories,being quantitative andqualitative aspects.17. 1Quantitativee aspects:MaterialitylevelUmgeniWaterr Management assesses thee levelof a materialityy asbeingg ½ % off UmgeniWater’sgrosss revenue.It is recognisedthat different levelsof f materiality canbe set for different classess of transactions.UmgeniWater has, howwever, taken the approachof settinga moreconservativematerialitylevel thatwilll be usedfor alll classes off transactions.17.1.1.Factorss considered:•Natureof Umgeni WateWer’ss business:• Revenueforr UmgeniWaterr primarilyy comprises sales of water, feess for managementofwaterworksandd wastewaterworks.•Statutory requirementss applicable to Umgeni Water:• Umgeni Wateris listedass a PFMA Scheedule 3B publpic entity.• The Board of o UmgeniWateris requiredd too execute its mandate inn termss of thee PFMA.• Umgeni Wateraccordingly elects to t give g preference too a lowerlevel of matemerialityduee to itbeingg so closelyy governed by variousactss and the t publicaccountability responsibilityit hasto stakeholders.•The control and inherent riskss associated withh UmgeniWater:• In assessingg thecontrol riskof Umgeni Water,managementconcludedd thatlevelofmateriality beinbng ½ % of gross revenue is appropriate andprudent.This assessmentt is basedonn the fact thattt a sound control environment is beingmaintained. In thisregardcognisancewas given too amongstothermatters:• Proper andappropriate governance structures areestablished which includeaBoardd ofDirectors(AccountingAuthority)), CE and Executive Management.• A Riskk Management Commmitteee with specificc risk manamagement responsibilities;• Ann auditcommittee thattt closely monmnitors the controll environmentoff UmgeniWater;• The function ofinternal audit iss outsourcedd too professional independentinternal auditors; and• A three yearr Internal Audit Coverage Plan, basedd onn annual risk assessments17.1.2Umgeni Wateer General Approachh to Qualitativee AspectssMaterialityy is notconfined to t the sizeof theentityandd the elements of itsfinancialstatements.•Umgenii Water recognises thatt misstatementss that are large either individually or in theaggregatemay affectt a “reasonable”” user’’s judgement. Further,misstatementss mayalso be material onqualitativegrounds. TheTese qualitativee groundsincludeamongstt other::• New ventures thatUmgeni Water mayy enterinto.• Unusualtransactionsentered intoo that arenott off a repetitivenature andare disclosablepurelyy due to t the naturethereof due to knowledgee thereof affecting the decision makimng ofthe user of the financial statements.• Transactions enteredintoo that could result in reputationalriskk to Umgeni Water.• Any fraudulentor dishonestbehaviourr of an officeror staff off Umgeni Watter.• Any suspected corruption, irregularities or fraud.• Any nfringement of Umgenii Water’s agreedperformancelevels.Pagee 132Umgeni WateWer Five-Year Business Plann | 201121/2012to 2015/2016