Annual Report and Accounts 2016


John Lewis Partnership plc


83


In this section


Overview of external financial reporting External audit activities


Risk management and internal audit activities


The Partnership’s approach to internal audit External Quality Assessment (EQA)


Whistleblowing


Relevant qualifications of Audit and Risk Committee members


Independent external members of the Committee Induction and training Committee evaluation


Overview of external


financial reporting The Partnership prepares consolidated financial statements in accordance with International Financial Reporting Standards as adopted by the European Union, which form part of the Annual Report and Accounts. An interim review is prepared at the end of the first six months of the year.


The Partnership has an internal control and risk management framework in place under which the Partnership operates, and which supports the preparation of consolidated financial statements. This includes policies and procedures designed to ensure that adequate accounting records are maintained and transactions accurately recorded.


The Committee is responsible for the appointment, scope and fees of the external auditor. During the year, the Committee conducted an audit tender process, which will lead to KPMG being appointed for the 2016/17 financial year, see pages 84 and 85.


Annual Report and Accounts


The Committee reviewed the draft Annual Report and Accounts and recommended their approval to the Partnership Board.


As part of its review, the Committee assessed whether the Annual Report and Accounts provided a fair, balanced and understandable assessment of the Partnership’s position and performance, business model and strategy, as stipulated by the UK Corporate Governance Code (‘the Code’).


The Committee has considered whether the Annual Report and Accounts is fair,


balanced and understandable. More information opposite.


Our seven significant financial reporting issues, and our response


As part of the Annual Report and Accounts, the Committee considered the following seven significant financial reporting issues. Below is a summary of those issues and our responses.


1. Impairment Notes 3.1 and 3.2


Issue The Partnership has significant non-current assets, both tangible and intangible. Judgement is exercised in reviewing their carrying value to ensure that they are not impaired. Initial trigger tests, such as whether performance was in line with expectations, provided indicators of some areas of potential impairment, giving rise to questions as to the appropriate carrying value of our property, plant and equipment. Management prepared a value in use model to assess the carrying value of these assets.


2. Employee benefits Note 6.1


Issue The Partnership operates a defined benefit pension scheme, open to all Partners, subject to length of service. The pension scheme liability is calculated using an actuarial model with a number of key assumptions, notably the discount rate and inflation rate. Significant judgement is exercised in determining these actuarial assumptions, and the overall pension scheme liability is very sensitive to small movements in the discount rate and inflation rate.


Note 2.3


Response The Committee reviewed the papers prepared by management, including the advice obtained by management from independent actuarial specialists on the appropriateness of the assumptions used. As part of this, the Committee considered these assumptions as compared with previous years and those used by our peers. The Committee satisfied itself as to the acceptability of the key assumptions, particularly the discount rate and inflation, and reviewed the sensitivities.


3. Exceptional items for property disposal


Issue The Partnership recorded a gain of £129.3m on the disposal of a property. Management judged that it was appropriate to record this gain as an exceptional item in the Consolidated Income Statement.


Response The presentation of the balance as exceptional was discussed in the context of the Partnership’s policy to present separately items that are material and/or non-recurring. The Committee concluded that the gain did meet the criteria of exceptional items and that it was appropriately calculated and disclosed.


Response The Committee reviewed and challenged the methodology applied to test impairment and the results of the trigger tests. The Committee considered the sensitivity of the proposed impairment charge to movements in key assumptions such as performance, and reviewed the way the methodology had been applied in the two trading Divisions. The Committee considered how key assumptions compared externally with peer companies and satisfied itself that the assumptions used were reasonable and that the resulting impairment charge was reasonable.


In a nutshell


The Audit and Risk Committee focusses on financial reporting and the control environment.


It’s Your Voice


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