Marks and Spencer 2016 Annual Report Download - page 81

79
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
OUR BUSINESSOUR PERFORMANCEFINANCIAL STATEMENTS GOVERNANCE
OUR ASSESSMENT OF RISKS OF MATERIAL MISSTATEMENT
THE KEY RISKS WE IDENTIFIED ARE:
1 Presentation of non-GAAP measures
2 Impairment of property, plant and
equipment, and intangible assets
3 Inventory valuation and provisions
4 Revenue recognition –
customer returns
5 Supplier rebates
6 Retirement benefi ts
The assessed risks of material
misstatement are those that had the
greatest e ect on our audit strategy,
the allocation of resources in the audit
and directing the e orts of the
engagement team.
In our previous year’s report, our audit
report included:
> Impairment of store assets; however
in the current year audit our risk of
impairment includes all property, plant
and equipment (PP&E) and intangible
assets as a result of the factors
impacting performance in certain
parts of the Group; and
> Franchise revenues and receivables
within our revenue recognition risk,
which we have not included in our
current year report based on our
knowledge of the franchise agreement
terms and an assessment of the risk of
franchise partners defaulting on debt.
The description of risks below should be
read in conjunction with the signifi cant
issues considered by the Audit Committee
discussed on pages 44 and 45.
These matters were addressed in the
context of our audit of the fi nancial
statements as a whole, and in forming our
opinion thereon, and we do not provide
a separate opinion on these matters.
1 PRESENTATION OF
NON-GAAP MEASURES
RISK DESCRIPTION
The presentation of income and costs
within non-GAAP measures (to derive
‘underlying profi t before tax’) under IFRS
is judgemental, with IFRS only requiring
the separate presentation of material
items. Judgement is exercised by
management in determining the
classifi cation of items as non-underlying.
In the Group’s reported results, signifi cant
adjustments have been made to statutory
profi t before tax of £489 million to derive
underlying profi t before tax of £690
million. Explanations of each adjustment
are set out in notes 1 and 5 to the
fi nancial statements, and summarised
in the graphic on the right.
0
200
4
00
6
00
8
00
Underlying
profit
before tax
Net
restructuring
costs
Net gain
on
acquisition
IAS39
fair value
loss
Loss
on
property
disposals
UK
impairments
UK
store
review
M&S
Bank
InternationalStatutory
profit
before tax
£489m
£102m £50m £27m £24m £10m £2m £(5)m £(9)m £690m
£m
In calculating the reported non-GAAP measures, there are two risks which may result
in the underlying profi t measure being misstated and therefore not being reliable to
users of the fi nancial statements:
> Items may be included in the non-
underlying adjustments which are
underlying or recurring items, distorting
the reported underlying earnings; and
> Items may be omitted from the
non-underlying adjustments which
are material and one-o in nature.
HOW THE SCOPE OF OUR AUDIT RESPONDED TO THE RISK
We evaluated the appropriateness of the
inclusion of items, both individually and
in aggregate, within non-underlying profi ts,
including assessing the consistency of
items included year on year and ensuring
adherence to IFRS requirements and
latest Financial Reporting Council (“FRC”)
guidance. We also agreed these items
to supporting evidence.
We assessed all items, either highlighted
by management or identifi ed through
the course of our audit, which were
regarded as one-o but included within
underlying earnings to ensure that these
are not material either individually or in
aggregate. For all adjustments recorded in
calculating underlying profi ts, we
discussed the appropriateness of the item
with the Audit Committee and any
disclosure considerations.
Key observations We are satisfi ed that the
items excluded from underlying earnings
and the related disclosure of these items
in the fi nancial statements is appropriate.