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John Lewis Partnership plc Annual Report and Accounts 2014


INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF JOHN LEWIS PARTNERSHIP PLC CONTINUED


Post-retirement benefit liability


Area of focus We focussed on this area because of the impact of the defined benefit pension plan liability in the context of the overall balance sheet and the result of the Partnership. Valuation of the liability balance requires significant levels of judgement and technical expertise in choosing appropriate assumptions to measure the liabilities. Changes in key assumptions (including pension increase, salaries increase, inflation, discount rates, and mortality) can have a material impact on the calculation of the liabilities. Refer to note 22 to the financial statements.


How the scope of our audit addressed the area of focus We considered and challenged the reasonableness of actuarial assumptions and the overall pension liability calculations by comparing the key assumptions to benchmark ranges, performing sensitivity analysis and confirming whether methods had been consistently applied. We compared the membership census data used in the actuarial models to the payroll data held by the Partnership.


Impairment of property, plant and equipment and finite-lived intangible assets


Area of focus For each cash generating unit (“CGU”), the directors assess on an annual basis whether there are any impairment triggers that would indicate that the asset is overvalued.


We focussed on this area because of the materiality of these assets and because of the judgement required in determining whether there are any impairment triggers. In addition, where triggers have been identified for certain CGUs, calculating the value in use of those CGUs involves subjective judgements by the Directors about growth rates and operating margins.


How the scope of our audit addressed the area of focus We have assessed the Directors’ process for identifying impairment triggers, as well as carrying out our own assessment of internal and external factors that may indicate an impairment.


Where impairment triggers were identified, we assessed the directors’ future cash flow forecasts, including comparing them to the latest approved budgets, which we tested against historical results. We challenged the Directors’ key assumptions, including the long term strategic growth rate, and performed sensitivity analysis around the key drivers being the discount rate and long term growth rates of the cash flow forecasts to ascertain the extent of change in those assumptions that either individually or collectively would be required for the relevant asset to be impaired. We then considered the likelihood of such movement in those key assumptions arising based on our knowledge of the Partnership and of the retail industry amongst other factors.


Provisions


Area of focus The financial statements contain several provisions, principally long leave, unredeemed gift vouchers, service guarantee costs, restructuring and inventory obsolescence.


We focussed on this area due to the number and magnitude of potential exposures across the Partnership, and the inherent complexity and judgement in determining the appropriate valuation of the provision for each exposure.


How the scope of our audit addressed the area of focus We tested the Directors’ policies for calculating these provisions, challenged the appropriateness of management’s judgements and assumptions, and considered the nature and suitability of any historic data used in support of the judgements and assumptions made, in estimating the provisions.


We have also considered the completeness of provisions, by assessing whether management has taken all known exposures into account, and the related disclosures.


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