John Lewis Partnership plc Annual Report and Accounts 2014


125


Exceptional item for holiday pay


Area of focus Following a review of the Partnership’s pay policy, it became clear to the Directors that certain Partners had not received the correct amount of holiday pay under the Working Time Regulations legislation. As a result, a charge of £47.3m has been recorded, which includes payments to Partners, associated expenses and an increase in the pension obligation.


We focussed on this area because of the complexity of the legislation and the judgements involved in determining both the amounts to be charged and the appropriate disclosure in the Annual Report and Accounts. Refer to note 3 of the financial statements.


Risk of fraud in revenue recognition


Area of focus Auditing standards require that we consider the risk of fraud arising in revenue recognition. Whilst revenue recognition and measurement is not complex for the Partnership, revenue targets form part of the Partnership’s key performance measures which could create an incentive to record revenue incorrectly.


We focussed on this area given the magnitude of revenue transactions that occur, and the presence of manual adjustments to revenue for potential future returns and goods in transit over the year end. These adjustments involve subjective judgements by the directors in determining their accuracy.


How the scope of our audit addressed the area of focus We tested the reconciliations between the revenue systems used by the Partnership and the cash received. We also tested the directors’ calculations for the manual adjustments for future returns and for the amount of goods in transit over the year end. In doing so we challenged the appropriateness of assumptions used and considered the suitability of historical data on which the calculations are based.


How the scope of our audit addressed the area of focus We understood the legal advice received by the Directors and we assessed the appropriateness of the conclusions reached by the Directors.


We tested the basis for determining the amounts paid to Partners and compared this to the legal advice received by the Directors.


We also challenged the completeness of the provision for further expenses based on this advice.


We assessed the appropriateness of the calculations for the increase in the pension obligation and for the associated expenses.


We considered the appropriateness of the disclosures made by the Directors.


Risk of management override of internal controls


Area of focus Auditing standards require that we consider this.


How the scope of our audit addressed the area of focus We tested key reconciliations and manual journal entries. We considered whether there was evidence of bias by the Directors in the significant accounting estimates and judgements relevant to the financial statements. We also assessed the overall control environment of the Partnership, including the arrangements for staff to “whistle-blow” inappropriate actions, and interviewed senior management and the Partnership’s internal audit function.


THE JOHN LEWIS PARTNERSHIP


OUR PERFORMANCE


GOVERNANCE


FINANCIAL STATEMENTS


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