Carphone Warehouse 2016 Annual Report Download - page 54

Dixons Carphone plc Annual Report and Accounts 2015/16
Corporate Governance
Audit Committee Report
52
•Group risk register management and risk appetite;
•internal control effectiveness and control maturity;
•the viability statement and its alignment with the
business strategy and long-term plan;
•financial integration and succession planning;
•FCA and regulatory compliance;
•data protection and information security; and
•whether the Annual Report and Accounts, taken as a
whole, are fair, balanced and understandable and provide
sufficient information necessary for shareholders and other
users of the accounts to assess the Group’s position and
performance, business model and strategy.
To assist with discharging these responsibilities, the
Committee considers documents prepared by management
and internal audit and reports received from the external
auditor on the outcomes of their annual audit and interim
review procedures.
The Committee received reports and recommendations from management and the external auditor setting out the significant
accounting issues and judgements applicable to the following key areas. These were discussed and challenged, where
appropriate, by the Committee. Following debate, the Committee concurred with management’s conclusions:
Matters of significance and
areas of judgement How the issue was addressed by the Committee
Revenue recognition Revenue recognition is considered to be a critical accounting policy and the judgements are set out in
note 1s) of the Annual Report and Accounts 2015/16. Key components of judgement are largely in
relation to the recognition of network commission receivable.
The Committee reviewed management’s assessment of these policies with reference to contractual
terms, the Group’s historical experience of customer behaviour and information received from MNOs.
Particular attention was paid to the consistency of application of the underlying assumptions used and
the sensitivity to the carrying value of ongoing network receivables recognised to changes in key
assumptions as presented in note 26 in the Group financial statements. The carrying value of ongoing
network commission receivables at the balance sheet date was £904 million.
Provisions The Committee has considered the underlying judgements and estimates taken by management in the
recognition and valuation of property rationalisation provisions as disclosed in note 20 in the Group
financial statements.
In addition the Committee has continued to review the judgements taken in relation to discontinued
operations of the Group, being the Phone House operations in Germany, France, the Netherlands and
Portugal. The Committee assessed the likelihood of remaining risks materialising and considered the
appropriateness of associated provisions.
Supplier funding
A
number of arrangements exist relating to supplier funding across the Group, including promotional
support and volume rebates. The Committee has continued to challenge and debate with management its
approach to supplier funding, and its recognition and accounting treatment. In addition the Committee
continues to monitor the effectiveness of the controls in place to mitigate the risk of material misstatement
of supplier funding recognition; no major issues were noted. Further information in relation to supplier
funding can be found in note 1s) in the Group financial statements.
Inventory provisioning Inventory is a significant balance for the Group, as set out in note 1s) in the Group financial statements
and contains managerial judgement for such items as obsolescence and shrinkage. As part of the
general Committee procedures managerial judgement was assessed and no major issues noted.
Impairment testing of goodwill and
intangible assets
The Group has significant goodwill of £3,054 million and acquisition intangibles of £348 million, following
the Merger and the CPW Europe Acquisition. The Committee considered the judgements made and the
methodology used in assessing the supportability of the year end balances and assessment for any
potential impairment. A sensitivity analysis was then reviewed regarding the impact of a reasonably
possible change in the key assumptions. These assumptions are set out in note 9 in the Group
financial statements.
Taxation The Group operates across multiple tax jurisdictions. The complex nature of tax legislation in certain
j
urisdictions can necessitate the use of judgement. In addition, management also uses assumptions and
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udgements to assess the likelihood of utilisation of available tax losses.
The Committee reviewed the judgements and assumptions concerning any significant provisions,
including progress made on matters being discussed with tax authorities and where applicable advice
provided by external advisors. The total provisions recognised at the balance sheet date amounted to
£54 million.
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