Tesco 2014 Annual Report Download - page 37

Activities during the year
During the year the Committee received update reports from a
number of businesses, including Tesco Bank, and also from the
Disclosure Committee and Compliance Committee. It also received
updates from Internal Audit on its work, including findings from its
internal audit programme. The Committee considered a variety of
matters including the Group Finance Risk Register; fraud, bribery
and corruption; business continuity management; the Grocery
Supply Chain Compliance Code; whistleblowing arrangements;
and non-audit fees.
In relation to the financial statements the Committee: reviewed
and recommended approval of the half-yearly results and annual
financial statements; conducted impairment reviews; reviewed and
recommended dividend levels; reviewed corporate governance
disclosures and monitored the statutory audit. The Committee also
advised the Board on whether the financial statements, taken as a
whole, were fair, balanced and understandable and provide the
necessary information to assess the Company’s performance,
business model and strategy.
The Committee assessed the effectiveness of the external audit
process by means of a detailed questionnaire completed by key
stakeholders, including the Board, the Executive Committee,
Significant financial statement reporting issues
Issue How the issue was addressed by the Committee
Going concern basis
for the financial
statements
The Committee reviewed management’s assessment of going concern with consideration of forecast cash flows, including sensitivity to trading and
expenditure plans and potential mitigating actions. The Committee also considered the availability of financing facilities and the capital and liquidity
plans of Tesco Bank. Based on this the Committee confirmed that the application of the going concern basis for the preparation of the financial
statements continued to be appropriate.
Fixed asset
impairment
The Committee assessed management’s impairment testing of property assets, considering the appropriateness of key assumptions and
methodologies for both value in use models and fair value measurements. This included review of cashflows, growth rates and discount rates
and the use of independent third party valuers. The Group has recognised a £(734)m charge for the impairment of European stores in the year.
China disposal group
valuation
The China disposal group is measured at the lower of cost and fair value less costs to sell. The Committee considered the methodology and
assumptions used in the valuation including review of cashflows, growth rates and discount rates used, valuation multiples for similar transactions
and companies and the appropriate level of synergies to include in the valuation. As part of this procedure, the Committee met with the independent
expert valuers engaged by management to assist in the valuation process. A £(540)m write-down to fair value less costs to sell was recognised at year
end. See Note 7 to the financial statements.
Goodwill impairment The Committee reviewed management’s process for testing goodwill for potential impairment. This review included consideration of key
assumptions, principally cash flow forecasts, long-term growth rates and discount rates. The Committee concurred with management's judgement
that no impairment was required. See Note 10 to the financial statements, ‘Goodwill and other intangible assets’ for more details.
Tesco Bank
judgemental matters
The Committee reviewed management’s judgements made in relation to Tesco Bank’s provisions for customer redress, loan impairment provisions
and insurance reserves. The Committee received detailed reports from management regarding these judgements and interfaced directly with the
Bank’s own audit committee and board to develop a detailed understanding of the matters. During the year, an additional £(63)m of provisions for
customer redress were recognised. See Note 24 of the financial statements.
Income statement
non-GAAP measure
presentation
The Committee considered the presentation of the Group financial statements and, in particular, the appropriateness of the presentation of one-off
items in the calculation of underlying profit in light of the latest FRC guidance on the matter. It reviewed the nature of items identified and whether
treatment was even-handed, consistent across years and appropriately presented movements on items which have an effect over a number of years.
The total restructuring and other one-off charge for the year was £(801)m.
The Committee notes that commercial income was an area of focus for the external auditors based on their assessment of gross risks.
It is the Committee’s view that whilst commercial income is a significant income for the Group and involves an element of judgement,
management operates an appropriate control environment which minimises risks in this area. As a result, the Committee does not
consider that this is a significant issue for disclosure in its report.
members of senior management and Internal Audit.
The questionnaire assessed external audit in the following
areas: qualification; expertise and resources; operational
effectiveness; independence and leadership. The results are
rated against an ideal standard and compared to prior years
to assess the consistency of performance.
The effectiveness of the Internal Audit function was assessed
by means of a detailed questionnaire which was also completed
by key stakeholders. The assessment covered the Internal Audit
function’s understanding of its role and responsibility, its charter,
the quality of its communications, its performance and the skills
and expertise of the team.
The Committee carried out a review of its effectiveness during
the year via the Committee Chairman conducting interviews with
key stakeholders and the use of a questionnaire. The Committee
concluded that it continues to be effective and has sufficient
resources to carry out its duties.
The Committee considered a number of significant issues in the
year taking into account in all instances the views of the Company’s
external auditors. The issues and how they were addressed by the
Committee are detailed below:
34 Tesco PLC Annual Report and Financial Statements 2014
Corporate governance report continued