Holiday Inn 2013 Annual Report Download - page 69

Non-audit services
EY provide non-audit services to the Group which are governed,
tosafeguard their objectivity and independence by IHG’s Audit
and Non-Audit Services Pre-Approval Policy. The Policy is
re-approved by the Audit Committee annually in December.
For the 2013 financial year the policy was updated and approved
at the Audit Committee meeting on 12 December 2012. The policy
requires that pre-approval is obtained from the Audit Committee
for all services before any work can be commenced, in line with
US Securities and Exchange Commission requirements. Under
this policy, the Committee is prohibited from delegating non-audit
services approval to management. Compliance with the policy is
actively managed and, as such, an analysis of audit and non-audit
services are reviewed by the Committee at each meeting.
The Committee is aware of, and sensitive to, investor body
guidelines on non-audit fees. During 2013, 12% of services
provided to the Group were non-audit services; these included
areas such as advisory work and corporate tax compliance.
For fees paid to EY for non-audit work during 2013 see page 123.
Internal control and risk management
The Committee monitors internal controls and risk management,
on behalf of the Board, through quarterly reports from both the
Head of GIA and from EY. Additionally, the Committee receives
frequent risk management reports on relevant issues and
developments from the Head of Risk Management and other
management. The Committee Chairman updates the Board on
the quality and effectiveness of internal controls across the Group
through regular Board presentations. Fraud and whistleblowing
reports are collated from information provided by the Group's
independent external provider, who facilitates the Group’s helpline
phone number for employees with whistleblowing and fraud
concerns, and fraud data from Global Risk Management and
are presented to the Committee biannually. The Committee
would be advised immediately of a significant matter, to ensure
a proportionate and independent investigation was performed.
Internal audit
The Committee is responsible for reviewing and monitoring the
activities of the GIA department and does this by way of an annual
review. The results of the review are analysed and discussed at
the Committee's meeting in May.
Effectiveness of the Committee
Committee effectiveness is dependent on its overall efficiency
as well as the efficacy of EY and GIA. The effectiveness of the
Committee, EY and GIA is monitored and assessed annually
through evaluation questionnaires.
Further details of the evaluation process can be found on page 65.
Key priorities for the Committee in 2014
During 2014, I will ensure a smooth transition to Ian Dyson
and the Committee intends to remain focused on the key areas
of responsibility delegated to it by the Board, ensuring that
standards of good governance are maintained across all areas
of the business, with a particular focus on the integrity of the
internal financial controls and risk management systems.
David Kappler, Chairman of the Audit Committee
17 February 2014
Significant matters in the 2013 Financial Statements
In respect of significant matters relating to the 2013 Financial
Statements the Committee:
• discussed with management the processes followed to estimate
the liability for the Group’s loyalty programme and asked for
clarification on the actuarial review undertaken by the third-party
actuary and the key elements of the calculation of the estimated
cost of point redemption. This is also an area of audit focus and
the Committee considered with EY their reporting on this liability;
• reviewed with management the assumptions and calculations
supporting the major exceptional items in the year. In particular,
the key elements of the charge arising on the UK Defined
Benefit Pension Plan buy-in were discussed and the actuarial
bases considered. With regard to this item, the Committee also
considered EY’s views on the disclosures and approach adopted;
• reviewed the detailed report from management supporting the
conclusion that no impairment charges were required against
the carrying value of hotel assets, goodwill or other intangible
assets. In particular, the key judgements underlying hotel
valuations were discussed and the short and longer-term
growth assumptions underlying certain intangible valuations
were challenged. EY’s views on the valuations performed by
management were also considered; and
• discussed the key judgements surrounding deferred tax
recognition with the Head of Group Tax and the Chief Financial
Officer. In particular, the assumptions regarding the recognition
of future profits across the Group were discussed and clarified
with management. This is also an area where the Committee
received and discussed detailed reporting from EY.
A separate sub-committee meeting was held in February 2014 with
management and EY to consider the Annual Report and Form 20-F
2013. The report was reviewed as a whole, to consider whether it
provided a fair, balanced and understandable view of the Group
with the necessary information for shareholders to assess the
Group’s performance, business model and strategy. Audit
Committee members provided comments on the draft report
which were then incorporated into the final version.
External Auditor
EY have been the Group’s Auditor since it listed in 2003 (10 years).
While an audit tender has not been carried out since EY’s initial
appointment, the Committee considers the appointment of its Auditor
annually, and in May 2013 made a recommendation to the Board that
a full review of the audit provision should be carried out in 2015
subject to UK and EU legislation. To ensure EY’s independence is
safeguarded, lead audit partners rotate every five years. The current
lead audit partner has been in place for three years. An evaluation of
EY takes place annually where questionnaires on EY’s services are
completed by over 30 senior IHG finance employees.
The Committee reviews the independence and effectiveness
of EY on an ongoing basis and receives reports from them
on their independence annually. As well as Company policies
and procedures, which aim to safeguard EY’s independence
and effectiveness, EY also have their own protective policies
and systems in place, which are explained in a Transparency
Report issued by EY on an annual basis.
For the year ended 31 December 2013, the Committee was
satisfied with the independence, objectivity and effectiveness
of the relationship with EY as the external Auditor.
Governance 67
OVERVIEW STRATEGIC REPORT GOVERNANCE
GROUP FINANCIAL STATEMENTS
PARENT COMPANY FINANCIAL STATEMENTS ADDITIONAL INFORMATION