Holiday Inn 2014 Annual Report Download - page 69

intangible assets. It challenged the key assumptions, including
short and long-term growth rates, discount rates and
underlying performance assumptions. The Committee also
considered EY’s views on the work performed and concluded
that the position taken was supportable.
• Litigation: given the judgement required in assessing the
approach to be taken to material litigation, the Committee
considered at each meeting an update report on major litigation
matters and any provisioning for these matters. The factors
taken into account by the Committee are set out on page 113.
• Deferred tax recognition: as noted on page 113, the recognition
of deferred tax assets requires judgement and estimates
primarily around the availability of future taxable profits.
The Committee considered and approved the approach taken
to the recognition of such profits, noting in particular EY’s
reporting to the Committee in this area – deferred tax balances
are analysed in note 7.
• Exceptional items: given the importance of showing a true
underlying performance and being consistent in the definition
of this year-on-year, the Committee challenged the
appropriateness of the items disclosed as exceptional, in
particular, the calculation of the profit on disposal of 80 per cent
of our interest in InterContinental New York Barclay – focusing
on the accounting for the remaining interest. The Committee
also discussed the disclosures in note 5.
• Technology projects: as well as considering the process
controls and overall governance of these projects, and based
on discussions with management and EY’s audit findings and
control observations on those matters, the Committee also
assessed the appropriateness of the capitalisation of costs
on the main projects and the need for any impairment on
capitalised software assets.
Annual Report – Fair, balanced and understandable
At the request of the Board, a separate sub-committee meeting
was held in February 2015 to consider whether the Annual Report
and Form 20-F 2014 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
that were then incorporated into the draft provided to the Audit
Committee and Board for final comment and approval.
Effectiveness of the Committee
Effectiveness of the Committee 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 and interviews.
Our priorities for 2015
During 2015, the Committee will specifically focus on: (i) the
integrity of the internal financial controls and risk management
systems; (ii) monitoring and continually assessing IHG’s
information security arrangements; and (iii) overseeing the
implementation of technology projects and the Global Finance
function’s talent and succession plans.
Ian Dyson, Audit Committee Chairman
16 February 2015
safeguard EY’s independence and effectiveness, EY has its own
protective policies and systems in place, which are explained in
a Transparency Report issued by EY on an annual basis.
Following an in-depth review for the year ended 31 December
2014, the Committee was satisfied with the independence,
objectivity and effectiveness of the relationship with EY as the
external auditor, and with the external audit process as a whole.
Audit tender
During 2014, the Committee considered the requirements for audit
tender in line with changes to legislation from the EU and the
Competition and Markets Authority. Having reviewed legislative
timescales and the effectiveness of the audit, we have concluded
that no tender will be undertaken during 2015 but we will continue
to monitor this.
Non-audit services
EY provide non-audit services to the Group, which are governed,
so as 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 and,
for the 2014 financial year, the policy was updated and approved
at the December 2013 Audit Committee meeting.
• 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 SEC requirements. The Committee is prohibited
from delegating non-audit services approval to management.
• Compliance with the policy is actively managed and an analysis
of audit and non-audit services is reviewed by the Committee
at each meeting.
The Committee is aware of, and sensitive to, investor body
guidelines on non-audit fees. During 2014, 29 per cent 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 2014, see page 120.
Significant matters in the 2014 Financial Statements
The Committee discussed with management the key judgements
applied in the Financial Statements, the exceptional items arising
in the year and the impact of any accounting developments or
legislative changes. The main items discussed were:
• Accounting for the System Fund: the Committee reviewed
the accounting approach adopted for the System Fund with
management and EY, and concluded that the approach and
the disclosures, including the key judgements noted on
page 112, were appropriate.
• The IHG Rewards Club points liability: given the materiality of
the IHG Rewards Club points liability, the Committee considered
the approach to the valuation of the liability, including the
results of the actuarial assessment of ‘breakage’ (see page 113)
as at December 2014 and the expected cost of redemption of
each point. Management was questioned on the consistency
and robustness of the approach and the results of EY’s audit
procedures were also considered before reaching the
conclusion on the adequacy of the liability recorded.
• Impairment testing: the Committee reviewed a detailed
management report supporting the conclusion that there were
no impairment issues on hotel assets, goodwill or other
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