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Annual Report and Accounts 2015


John Lewis Partnership plc


171


The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort, are identified as ‘areas of focus’ in the table below. We have also set out how we tailored our audit to address these specific areas in order to provide an opinion on the financial statements as a whole, and any comments we make on the results of our procedures should be read in this context. This is not a complete list of all risks identified by our audit.


Area of focus Supplier income


As described in the accounting policies section on page 128 and the Audit and Risk Committee report on page 105, the Partnership receives income from suppliers based on two principal streams: Volume rebates and marketing rebates.


Supplier income is recorded against cost of sales in the income statement and the conditions to determine the recognition of such income can vary, such as suppliers offering rebates for specific promotions or rebates recognised based on selling product volumes over certain thresholds throughout the year. The majority of rebates are settled during the year by being netted against payments made to suppliers.


The terms of such arrangements can also vary between suppliers and sometimes involve a degree of judgement, for example forecasting expected future sales volumes in order to determine whether volume based rebates revenue recognition criteria will be met. Furthermore, the process for maintaining records and calculating rebate income requires significant manual input. The complexities and judgement involved in these calculations and the scope for human error means there is an increased risk of incorrect income recognition or income recognition that is not in compliance with supplier agreements and of incorrect amounts of revenue being accrued at the period end.


We agreed the rebate income recognised by the Partnership, covering all types of rebates, to the agreements from a range of different suppliers. In particular we verified whether the rebate income had been calculated correctly and recognised in the correct period, based on the supplier agreements. No material exceptions were noted in this testing.


We also performed a detailed analysis of the rebate income in the year, analysing income by supplier year on year and comparing movements to trends in revenue and gross margin. We did not identify any unusual trends in the rebate income recognised in the year.


For a sample of rebates, we also confirmed the amount and timing directly with the supplier. This testing did not identify any material exceptions.


We tested management’s process for ensuring the completeness and accuracy of the year end accrued income balance for supplier rebates of £6.5m (see note 13). This process involved testing rebates raised and cancelled after the year end. We did not note any material amounts that were not recorded in the correct period.


How our audit addressed the area of focus


Introduction


Partnership difference


Principles


Strategy


Performance


Governance


Financial statements


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