Tesco 2015 Annual Report Download - page 41

In line with AS1312 of the International Standards of the Institute of Internal Auditors, the effectiveness of the Internal Audit function was
externally assessed by Ernst & Young between July and September 2014. The recommendations that were made were accepted and are
in the process of being implemented.
Internal control
The Board conducted a review of the effectiveness of the Company’s risk management and internal controls during the year. To support
the Board in their annual assessment, a report is prepared by Internal Audit which describes the arrangements that the Board has put in
place for internal control and risk management systems and summarises the key issues or non-compliances arising from those processes.
The Control Environment has not been fully effective in the year. This has manifested itself primarily in the events around commercial income
and the resultant impact on the financial statements.
The business has invested significant time and resource to understand, evaluate and remediate the control weaknesses. Clear control
improvement plans are in place.
External audit
The Company’s external auditor PricewaterhouseCoopers LLP (‘PwC’) contribute a further independent perspective on certain aspects
of the Company’s financial control systems arising from its work, and report both to the Board and the Audit Committee.
As previously mentioned, the Company put its external audit out for tender this year. In line with best practice the Company intends to put
the external audit out to tender every 10 years in the future. Given the audit was put out to tender and the current auditor did not participate
in this process, it was decided that there was limited value in conducting an effectiveness review of the external auditor this year.
The Company has a non-audit service policy for work carried out by PwC. This is split into three categories as explained below:
• Pre-approved work for external auditors – this is predominantly the audit of subsidiary undertakings’ statutory accounts
and is audit-related in nature;
• Work for which Committee approval is specifically required – this includes transaction work and corporate tax services,
and certain advisory services;
• Work from which the external auditor is prohibited.
To safeguard auditor objectivity and independence the Committee oversees the process for the approval of all non-audit services provided
by PwC. Prior to approval, consideration is given to whether it is in the interests of the Company that the services are purchased from PwC,
rather than another supplier. Where PwC were chosen, this was as a result of their detailed knowledge of the structure of our business,
combined with an understanding of our industry, which together made them the best supplier to carry out the work cost effectively.
This year the Committee approved PwC to complete £0.8 million of audit-related services. These services principally related to extended half
year review procedures arising from the commercial income issue in the UK.
Where any significant non-audit related work is necessary (fee value £300k), the pre-approval of the Committee is specifically required.
In total £3.3 million (2014: £4.7 million) was spent on non-audit fees (being 38% of the total spent with our external auditors) and details
of the significant items are shown in the table below:
Business area Work undertaken Safeguards implemented to preserve independence Amount
UK Working capital support
and forecasting review
Advisory service provided by a team separate to audit
Decision-making accountability remained with management
£1.3m
UK/International Continuation of prior year consultancy work
(vendor assistance and tax) in respect of the
divestment of the China business to CRE
Advisory service provided by a team separate to audit
Decision-making accountability remained with management
£0.6m
UK/International Advisory and compliance services
around taxation
Management was sufficiently involved in the preparation of final tax returns
to retain responsibility for filing correctly
£0.6m
UK Forensic accounting support in respect
of the half year commercial income issues
on behalf of Freshfields LLP
Advisory service provided by a team separate to audit
PwC neither prepared financials nor took management decisions
£0.25m
UK Head Office cost analysis Advisory service provided by a team separate to audit
PwC neither prepared financials nor took management decisions
£0.1m
The fees paid to the auditors in the year are disclosed in Note 3 on page 100 of the Annual Report and Financial Statements 2015.
39Tesco PLC Annual Report and Financial Statements 2015
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