RAND WATER ANNUAL REPORT 2023

Consolidated Annual Financial Statements for the year ended 30 June 2023 Summary of Principal Accounting Policies and Significant Judgements 1.1 Basis of preparation (Continued) • The Group’s solvency and liquidity has been assessed by the Board, and the Board is satisfied that they meet the going concern assertion. This is evidenced by the improvement in accumulated reserves of 12% compared to the previous year and the improvement in gearing ratio to 12%, well within the set corporate parameters of between 10% and 36%. The interest cover and cash interest cover are also significantly above the target of 3,0 times. On a quarterly basis, the Board has assessed the cash flow forecasts which indicate that the Group will be able to meet its obligations when they fall due; and • The Group has achieved a return on average assets of 6.2% against a prior return of 7.4% mainly as a result of increases realised in expected credit losses and revenue not recognised as a result of non‑payment of accounts local authorities and worsened further because of the growth of 9% in total assets primarily as a result of an increase in investment and term deposits. The Group utilises the accrual basis of accounting method by recording revenue when it is earned and expenses when they are incurred. The following summary of principal accounting policies and methods of computation were applied by the Group in the preparation of the annual financial statements for the financial year ended 30 June 2023. 1.2 Statement of compliance The annual financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and the Financial Reporting Pronouncement as issued by the Financial Reporting Standards Council and are consistent with those applied in the previous consolidated annual financial statements. The Group’s annual financial statements for the financial year ended 30 June 2023 comply with the Water Services Act, No. 108 of 1997 (WSA), the Public Finance Management Act, No. 1 of 1999 (PFMA), and where applicable, the South African Companies Act, No. 71 of 2008 and JSE Debt Listing Requirements. The Group complies to Treasury Regulations, Practice Notes, relevant interpretations, circulars, Instruction notes and Treasury guidelines as issued by the National Treasury. The annual financial statements are presented in Rand thousands; all values are rounded to the nearest thousand Rand, except where otherwise indicated.

1.3 Standards and Interpretations in issue but not yet effective

IFRS 7 Financial Instruments:

In accordance with paragraph 117 of IAS 1 Presentation of Financial Statements, an entity discloses material Information about the measurement basis (or bases) for financial instruments used in preparing the financial statements which is expected to be material accounting policy information. The amendment has been reviewed and the impact on Rand Water and its subsidiaries is assessed as medium, as the Group needs to continuously review and ensure that material accounting policy that influence decision making is correctly and appropriately included.

IFRS 17 and IFRS 9 amendments

Paragraph C28E(a) of IFRS 17 Insurance Contracts requires an entity that applies the classification overlay, as described in paragraphs C28B–C28D of IFRS 17, to disclose qualitative information that enables users of financial statements to understand:

i. The extent to which the classification overlay has been applied (for example, whether it has been applied to all financial assets derecognised in the comparative period); and

ii. Whether and to what extent the impairment requirements in Section 5.5 of IFRS 9 have been applied.

The amendment has been reviewed and has no impact on Rand Water and its subsidiaries as the Group does not have insurance contracts as defined.

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