RAND WATER ANNUAL REPORT 2023

Consolidated Annual Financial Statements for the year ended 30 June 2023

Independent Auditor’s Report

How the matter was addressed in the audit

Key audit matter

Valuation, verification and completeness of pipelines

1. My procedures were executed with the assistance of team members with specialised skills (civil engineer and infrastructure specialist) and included the following: • The verification procedures performed had different components such as pipelines and assets under construction reported for the financial year. Specific audit procedures were performed by the audit team using different methods to provide appropriate and sufficient audit evidence of these different components of assets. • Selected samples of pipeline assets were physically verified to and from the pipeline asset register by the auditor and auditor’s expert. The audit team applied industry-acceptable techniques used to physically verify infrastructure located underground to confirm the existence and the auditor confirmed completeness of the pipelines disclosed in the consolidated and separate financial statements. • I scrutinised the various considerations and assumptions made by management when assessing the useful lives and impairment indicators of the pipelines. The audit, which was conducted with the assistance of an auditor’s expert, included specific details for pipelines and their geographical locations. The assumptions applied with the documentation submitted by management were interrogated to determine whether I could rely on the assumptions that were made and whether they adequately supported the conclusions that were drawn by management. • I verified the existence and completeness of pipelines as recorded in the consolidated and separate financial statements. I also determined whether the useful lives and impairment indicators of pipelines based on their condition, the assumptions and criteria applied by management through various other operational and management processes, the assessment of the useful lives and indicators of impairment are reasonable and in line with industry standards.

The carrying value of property, plant and equipment of R29,5 billion, as disclosed in note 4 to the consolidated and separate financial statements, includes pipelines and assets under construction with a carrying value of R11,5 billion and R12,4 billion, respectively. The pipelines are primarily located underground and as they are not easily accessible, physically verifying them to and from the details contained in the fixed asset register that supports the consolidated and separate financial statements poses significant challenges. Details such as the type, thickness and material components of the pipelines require verification. Determining the carrying value of the pipeline assets involves a high degree of estimation by management. Significant assumptions and judgements are applied in determining the useful lives and impairment of the pipeline assets, as these assets are not only highly specialised in nature, but their condition is also dependent on a number of other factors such as soil conditions prevalent in the areas where the pipes are located. To this end, Rand Water uses various methods to assess the operational conditions of infrastructure located underground to determine whether any impairment indicators exist. Management has developed a comprehensive methodology for assessing impairment and useful lives for pipelines. When assessing useful lives of these assets, management applies assumptions used in this comprehensive methodology. Accordingly, the impairment tests, determination of useful lives and testing to confirm that all pipeline assets that should be recorded have been recorded and that recorded assets actually exist are considered a key audit matter. This can also be attributed to the amount of significant audit work required to obtain audit assurance on the amounts disclosed in the consolidated and separate financial statements.

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