Rand Water | Integrated Annual Report 2025

INTEGRATED ANNUAL REPO

Consolidated Annual Financial Statements for the year ended 30 June 2025

Key audit matter

How the matter was addressed in the audit

Valuation, verification and completeness of pipelines The carrying value of property, plant and equipment of R32,6 billion, as disclosed in note 4 of the consolidated and separate financial statements, includes pipelines with a carrying value of R11,8 billion and included in R13,8 billion of assets under construction, some are assets relating to pipelines. The pipelines are primarily located underground and, as they are not easily accessible, physically verifying the type, thickness and material components of the pipelines from the details contained in the fixed asset register that supports the consolidated and separate financial statements poses significant challenges. 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.

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 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 of the pipelines disclosed in the consolidated and separate financial statements. • I evaluated 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 of pipelines as recorded in the consolidated and separate financial statements. I also determined 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.

Emphasis of matter

15. I draw attention to the matter below. My opinion is not modified in respect of this matter.

Expected credit loss of trade and other receivables

16. As disclosed in note 8 to the financial statements, the group and entity recognised an expected credit loss of trade and other receivables amounting to R2,1 billion (2024: R1,9 billion) because of potential irrecoverable receivables from trade and other receivables. This amount is attributable to non-performing municipalities i.e. municipalities that are under financial distress and are unable to pay Rand Water for the services rendered.

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Rand Water | Integrated Annual Report 2025