Independent Auditor's Report
to the Shareholders of Alexander Forbes Group Holdings Limited

Report on the audit of the consolidated and separate financial statements

Our opinion

In our opinion, the consolidated and separate financial statements present fairly, in all material respects, the consolidated and separate financial position of Alexander Forbes Group Holdings Limited and its subsidiaries (the Group) as at 31 March 2017, and its consolidated and separate financial performance and consolidated and separate cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS) and the requirements of the Companies Act of South Africa.

What we have audited
Alexander Forbes Group Holdings Limited’s consolidated and separate financial statements are comprised of:

• the consolidated and separate statements of financial position as at 31 March 2017;
• the consolidated and separate income statements and statements of comprehensive income for the year then ended;
• the consolidated and separate statements of changes in equity for the year then ended;
• the consolidated and separate statements of cash flows for the year then ended; and
• the notes to the financial statements, which include a summary of significant accounting policies.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated and separate financial statements section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence
We are independent of the Group in accordance with the Independent Regulatory Board for Auditors Code of Professional Conduct for Registered Auditors (IRBA Code) and other independence requirements applicable to performing audits of financial statements in South Africa. We have fulfilled our other ethical responsibilities in accordance with the IRBA Code and in accordance with other ethical requirements applicable to performing audits in South Africa. The IRBA Code is consistent with the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (Parts A and B).

Our audit approach

Overview

As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the consolidated and separate financial statements. In particular, we considered where the directors made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters, consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.

Materiality
The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements.

Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall group materiality for the consolidated financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and in aggregate on the financial statements as a whole.

Overall Group materiality	R53 million.
How we determined it	5% of consolidated continuing and discontinued profit before tax adjusted to remove the profit on sale of the group’s UK based consulting business, Lane Clark & Peacock (LCP).
Rationale for the materiality benchmark applied	We chose consolidated continuing and discontinued profit before tax, adjusted to remove the profit on sale of the LCP business, as the materiality benchmark because, in our view, it is the benchmark against which the Group is most commonly measured by IFRS users and is the most reflective benchmark of the operations for the majority of the year. We chose 5% which is consistent with quantitative materiality thresholds used for profit-oriented companies in this sector.
	We removed the profit on sale of the LCP business because of the once-off nature of this transaction.

How we tailored our group audit scope
We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the consolidated financial statements as a whole, taking into account the structure of the Group, the accounting processes and controls, and the industry in which the Group operates.

We conducted an audit of the most significant operations. For the work performed by local auditors within PwC South Africa or from other PwC network audit firms operating under our instructions, we determined the level of involvement we needed to have in the audit work at those locations to be satisfied that sufficient audit evidence had been obtained for the purposes of our opinion. For the work performed by foreign auditors not part of the PwC network operating under our instructions, we issued group instructions and performed cross reviews on their audit working papers on an ongoing basis and during our visit to the other auditors in London. We kept regular communication with audit teams throughout the year and appropriately directed their audits.

Further audit procedures were performed by the Group engagement team, including substantive review procedures over the remaining balances and the consolidation process. The work carried out in the operations, together with these additional procedures performed at the Group level, provided us with sufficient evidence to express an opinion on the Group as a whole.

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated and separate financial statements of the current period. These matters were addressed in the context of our audit of the consolidated and separate financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

The following key audit matters relate to the consolidated financial statements. We have determined that there are no key audit matters in respect of the separate financial statements to communicate in our report.

Key audit matters relevant to the consolidated financial statements	How our audit addressed the key audit matters
Goodwill impairment assessment The Group’s goodwill amounting to R3.4 billion as at 31 March 2017 (2016: R4 billion) arose upon its reorganisation in 2007. We considered the goodwill impairment assessment to be a matter of most significance to our audit due to the magnitude of the goodwill balance and because the directors’ assessment of the value in use (value in use is used to describe the present value of future cash flows derived from the use of an asset) of the Group’s cash generating units (CGUs) involves significant judgement and critical assumptions about the future results of the business and in determining the discount rates applied to the future cash flow forecasts. For the year ended 31 March 2017, management performed an impairment assessment over the goodwill balance by calculating the value in use for each CGU using a discounted cash flow method. These models used free cash flows for each CGU for five years, with a terminal growth rate applied after the fifth year. Refer to the Group’s accounting policies and note 15 for the disclosure and measurement of goodwill which includes the disclosures made by the directors on the critical assumptions, significant estimates and judgements used in concluding on the assessment of the impairment of goodwill.	We tested assumptions and methodologies used in the goodwill impairment assessment performed by the Group, in particular those relating to the discount rate and growth rates: We used our valuations expertise to evaluate these assumptions with reference to valuations of similar entities. We compared the key assumptions to externally derived data where possible, including market expectations of investment return, projected economic growth and interest rates. We applied sensitivities in evaluating the directors’ assessment of the planned growth rate in cash flows. We compared growth rate assumptions with historical results, economic outlook and industry forecasts. Furthermore, the discount rate used by management was compared with market data and industry research. Based on the results of our procedures, we accepted management’s assumptions as falling within reasonable ranges. In testing the valuation model: The calculations used in the model were reperformed to test accuracy and the key inputs were agreed to underlying data. We evaluated management’s cash flow forecasts by performing a comparison of the historical budgets against actual results. Our component audit teams compared the cash flow projections per CGU to the budget. The component audit teams challenged management on the reasonability of these cash flow projections by comparing expected cash flow, terminal values and growth assumptions to historical results, management approved forecasts and independent sources. We then stress tested the assumptions used by analysing the impact on results of using other growth rates and discount rates. We found that headroom remained between the stress-tested value in use calculations and the carrying values of the CGUs.
Provision for errors and omissions claims The Group is exposed to various actual and potential claims, lawsuits and other proceedings relating to alleged errors and omissions committed in the ordinary course of its business activities. This results in actual, probable and possible liabilities as accounted for under IAS 37 – Provisions, Contingent Liabilities and Contingent Assets. This was determined to be a key audit matter due to the level of judgement used by management in determining both the likelihood of negative outcomes of the associated claims, as well as the potential magnitude of each outcome. Furthermore, the Group is assessing a claim which could potentially be material, but which cannot be reasonably quantified at the date of approving the financial statements. The Group has insurance related to any claims of this nature and if this claim does materialise it is the intention of Group management to seek reimbursement from the insurance underwriters of any outflows of cash. The errors and omissions claims policy, the significant estimates and the process of determining the provision amounts and the critical assumptions and judgements applied are disclosed in the Group accounting policies and in note 29.	We considered the accounting for the provision for errors and omissions claims in terms of the Group’s accounting policies and IFRS by independently evaluating the conclusions made by management on the likelihood and potential magnitude of a sample of claims. We assessed and tested the controls over the identification, evaluation, provisioning and reporting of various actual and potential claims, lawsuits and other proceedings relating to alleged errors and omissions. We also tested the controls around the reporting of incidents and quarterly declarations made by divisional management to the board of directors. We assessed the risk ratings assigned by management by inspection of the evidence relating to the assigned risk rating for a sample of claims. We circulated legal confirmation letters and instructions to component audit teams to further identify claims not reported by management. We compared a sample of claims paid, to the provisions raised in previous periods and assessed whether management’s provisioning process predicted the outcome within a reasonable range. We inspected the insurance policies in place to consider the insurance policy values and key agreement terms. We obtained a confirmation letter from the lead insurer subscribing to the primary layer of the most significant potential claim to assess the existence of a reimbursement asset in the event that the insurance policy is triggered.
Introduction of an empowerment partner During the current financial year, African Rainbow Capital (“ARC”) was introduced as an empowerment shareholder into the African operations of the Group through an issue of shares by a subsidiary of the Group, Alexander Forbes Limited. This was determined to be a key audit matter due to the significance of the transaction to the Group, because of the accounting complexities of transactions of this nature and because of the level of judgement used by management in the valuation and accounting classification of the Share-based Payment expense component. Refer to note 5.1 of the annual financial statements for disclosures made by the directors regarding the Share-based Payment expense component of this transaction and also refer to the disclosures included as the critical assumptions and judgements applied when preparing the financial statements.	We made use of our accounting technical expertise to: Assess whether the transaction falls within the scope of IFRS 2 – Share-based Payment; Assess whether the Share-based Payment results in an expense or intangible asset in terms of the requirements of financial reporting guide 2 issued by the South African Institute of Chartered Accountants (SAICA); and Assess the grant date and vesting date of the transaction in terms of the requirements of IFRS 2 – Share-based Payment. We also made use of our valuations expertise in the performance of our work as follows: We inspected the valuation methodology adopted and considered the appropriateness of the assumptions applied in the valuation model to obtain evidence in respect of the Share-based Payment expense; and We tested the inputs into the model by inspection of evidence used by management and we tested the data underlying the model. Based on the results of our work performed, we accepted the accounting treatment of this transaction. We also accepted that the IFRS 2 – Share-based Payment expense as falling within a reasonable range of our independent reperformance.

Other information

The directors are responsible for the other information. The other information comprises the Directors’ Report, the Audit Committee’s Report and the Company Secretary’s Certificate as required by the Companies Act of South Africa and the Shareholding Information, which we obtained prior to the date of this audit report, and the other information included in the Integrated Annual Report 2017, which is expected to be made available to us after that date. Other information does not include the consolidated and separate financial statements and our auditor’s report thereon.

Our opinion on the consolidated and separate financial statements does not cover the other information and we do not and will not express an audit opinion or any form of assurance conclusion thereon.

In connection with our audit of the consolidated and separate financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated and separate financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the directors for the consolidated and separate financial statements

The directors are responsible for the preparation and fair presentation of the consolidated and separate financial statements in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa, and for such internal control as the directors determine is necessary to enable the preparation of consolidated and separate financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated and separate financial statements, the directors are responsible for assessing the Group and the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group and/or the Company or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the consolidated and separate financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated and separate financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated and separate financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated and separate financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s and the Company’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.
• Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s and the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated and separate financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group and/or Company to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the consolidated and separate financial statements, including the disclosures, and whether the consolidated and separate financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the consolidated and separate financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on other legal and regulatory requirements

In terms of the IRBA Rule published in Government Gazette Number 39475 dated 4 December 2015, we report that based on available statutory records, PricewaterhouseCoopers Inc. has been the auditor of Alexander Forbes Group Holdings Limited for 43 years.

PricewaterhouseCoopers Inc.
Director: Ranesh Premlall Hariparsad
Registered Auditor

Johannesburg
9 June 2017