Holiday Inn 2015 Annual Report Download - page 65

place, which are explained in a Transparency Report issued by EY on
an annual basis. To ensure EY’s independence is safeguarded, lead
audit partners rotate every five years. This is the fifth year that the
current audit partner has been in place and a new audit partner is
being appointed for 2016 onwards.
The Committee continually reviews, and is 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.
Non-audit services
EY provides 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 2015 financial year, the policy was updated and approved
at the December 2014 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 2015, 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 2015, see page 106.
Annual Report – fair, balanced and understandable
A separate sub-committee meeting was held in February 2016 to
consider whether the Annual Report and Form 20-F 2015 provided
a fair, balanced and understandable view of the Group with the
necessary information for shareholders to assess the Group’s position
and performance, business model and strategy. Audit Committee
members provided comments on the content and considered: (i) the
process for preparing and verifying the Annual Report, which included
review by members of the Executive Committee and input from senior
colleagues in Operations, Strategy, HR, Finance, Risk and Legal; and
(ii) a report from the Chair of the Disclosure Committee, which also
reviews the processes for preparing and verifying the Annual Report.
The Committee also considered management’s analysis of how the
content benchmarked against the ‘fair, balanced and understandable’
communication principles.
Effectiveness of the Committee
The effectiveness of the Committee is monitored and assessed
annually through evaluation questionnaires and interviews and,
in 2015, we continued to conclude that it is operating effectively.
Our priorities for 2016
During 2016, the Committee will continue to focus on the integrity
of the internal financial controls and risk management systems,
IHG’s information security arrangements and, in particular, the
implementation of technology projects.
Ian Dyson
Audit Committee Chairman
22 February 2016
Significant matters in the 2015 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:
Issue What we did
Accounting for
the System Fund
The Committee reviewed a paper from management outlining the accounting approach adopted for the System Fund
and also the Company response to comment letters from the SEC on this topic. The Committee concluded that the
judgement in respect of the accounting treatment for the System Fund and related disclosures were appropriate.
IHG Rewards Club
points liability
The Committee reviewed the approach to the valuation of the liability and, in particular, the impact of the introduction
of the new points expiry policy in the year. Management was questioned on the consistency of the valuation approach
adopted, the results of the actuarial review and the increased judgement due to the expiration policy. The results of
EY’s audit procedures were also taken into account in reaching the conclusion that the liability is appropriately stated.
Impairment
testing
The Committee reviewed a management report outlining the approach taken on impairment testing and, in particular,
the key assumptions and sensitivities supporting the conclusions on the various asset categories. The impairments
recorded in the year on two hotels in The Americas region and against an associate investment in AMEA (see notes 12
and 14) were discussed in detail. The Committee agreed with the conclusions reached on impairment.
Litigation At each meeting, the Committee considered a report detailing all material litigation matters and discussed and agreed
any provisioning requirements for these matters based on the factors set out on page 99.
Exceptional items The Committee considered the consistency of the treatment and nature of items classified as exceptional over the
last five years and discussed the items disclosed as exceptional and reviewed the calculations of the profits on
disposal of the two significant assets sold in the year (see note 11) considering, in particular, the valuation of the
associated management contracts. The Committee also discussed the disclosures in note 5 and concluded that
the disclosures and the treatment of the items shown as exceptional were appropriate.
Acquisition of
Kimpton Hotels
& Restaurants
The Committee considered the work done to establish the fair value of the assets acquired. The Committee questioned
the assumptions underlying the significant assets recognised and noted in this regard the report from a third-party
valuation expert on the intangible assets. EY’s views on the fair values reported were also noted and the Committee
concluded that the fair values recognised were appropriate.
Capitalisation of
software projects
In forming a conclusion on the appropriateness of software capitalisation, the Committee considered the following:
GIA reporting on the project and programme management on GRS; a review of software assets from an impairment
perspective; the conclusion from the SOX control testing in this area; and conclusions from EY’s audit procedures. The
Committee concluded that capitalisation is adequately controlled and that the controls on impairment are appropriate.
STRATEGIC REPORT GOVERNANCE GROUP FINANCIAL STATEMENTS ADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS
63IHG Annual Report and Form 20-F 2015