84 John Lewis Partnership plc Annual Report and Accounts 2016 Audit and Risk Committee report (continued)


4. Depreciation and useful economic lives Note 3.2


Issue The Partnership has significant non-current tangible assets in the form of freehold land and buildings. There were two important judgements to be made: determining the useful economic life of an asset, and its residual value, which is its estimated value at the end of its useful economic life. Management has reviewed these annually and concluded that they remain appropriate for the business.


5. Supplier income Note 4.2


Issue The Partnership receives supplier income mainly in the form of volume and marketing rebates. Judgement is exercised in estimating the value of rebates, ensuring they are appropriately calculated and the level of disclosure. Care has been taken to ensure that rebates are recognised in the accounting period to which they relate.


Response The Committee considered the process used to calculate the accrual, the level of disclosure and judgements made with respect to items estimated on the balance sheet. The Committee decided to maintain the same level of disclosure in relation to supplier income as last year, including quantifying the estimated supplier income accrued at year-end, even though these balances were modest. No issues were identified during the year.


6. Liability for unredeemed gift vouchers and gift cards Note 4.3


Issue The Partnership issues gift vouchers and gift cards and records a liability on the balance sheet for unredeemed vouchers. Judgement is exercised in estimating the value of this liability, based on redemption patterns.


Response The Committee reviewed the papers prepared by management detailing the methodology, actual experience and key assumptions used in calculating the liability for unredeemed gift vouchers and gift cards. These showed that there was no significant change in the overall trend of redemption patterns for gift vouchers, although lower volumes were issued and redeemed due to the increasing use of gift cards. The Committee considered that the estimates were reasonable.


7. Provisions in relation to long leave, service guarantee costs, customer refunds, insurance claims Note 4.4


Issue The Partnership has significant provisions in relation to its long leave scheme, which provides six months’ paid leave after 25 years of service. It also has to make provisions for expected future customer refunds, service guarantees and insurance claims. Judgement is exercised in making the assumptions that form the basis of the provision calculations.


Summary


In respect of the seven significant financial reporting issues described above, the Committee concluded that the judgements were reasonable and the presentation and disclosures in the financial statements were appropriate.


The Committee considers that the Annual Report and Accounts presents the items listed above on a fair, balanced and understandable basis. The Committee also discussed these matters with the external auditor.


Response The Committee reviewed the methodology and key assumptions used in determining significant provisions. The Committee considered past use of each provision, as well as the sensitivity of the assumptions, when reviewing the appropriateness of the provision.


Response The Committee considered the appropriateness of the approach, and reviewed some alternative approaches that could be adopted. The Committee satisfied itself that the approaches taken were reasonable.


Viability and going concern


The Committee also considered what statements the Partnership should make giving assurance as to its going concern and its viability. These disclosures are on page 99.


External audit activities PricewaterhouseCoopers LLP were the Partnership’s auditors for 2015/16. They provided the Committee with relevant reports, reviews, information and advice throughout the year, as set out in their engagement letter.


Evaluation and appointment of auditors


The Committee is responsible for making recommendations to the Partnership Board as to the appointment, reappointment or changes in the external auditors. During the year, the Committee conducted a high-level evaluation of the auditors’ performance. The outcome of the evaluation was reviewed by the Committee, which concluded that the effectiveness of the external auditors and the audit process were satisfactory.


Members of the Committee and senior finance executives within the Partnership were provided with an opportunity, through an evaluation questionnaire, to comment on the effectiveness of the external auditors and the audit process.


Audit firm tendering


It is the Committee’s policy to ensure that there is audit partner rotation every five years to safeguard the external auditor’s objectivity and independence. In 2012/13, the Committee adopted a policy in line with the Code, relating to tendering the external audit contract at least every ten years.


The year ended 30 January 2016 was the fifth year of the current audit engagement partner’s appointment and the Partnership had not undertaken an audit tender in the preceding 20 years. The Partnership determined that it was appropriate to conduct an audit tender during 2015/16 for the 2016/17 financial year.


The Chair of the Committee led a sub- committee including one other member of the Committee, and supported by five members of management. A request for proposals was issued to five audit firms, including two ‘mid-tier’ audit firms. The key assessment criteria were included within the request for proposal.


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