Vodafone 2014 Annual Report Download - page 63

Main activities of the Committee during the year
I have set out below a summary of the major activities of the Committee
in the year categorised between; nancial reporting and the related
statutory audit; risk management; and the assessment of internal
controls. In addition, the Committee conducted a tender for the
statutory audit through the process summarised on page 63.
Financial reporting and the related statutory audit
The Committee’s primary responsibility in relation to the
Group’s nancial reporting is to review with both management and
the external auditor the appropriateness of the half-year and annual
nancial statements concentrating on, amongst other matters:
a the quality and acceptability of accounting policies and practices;
a the clarity of the disclosures and compliance with nancial
reporting standards and relevant nancial and governance
reporting requirements;
a any correspondence from regulators in relation to our
nancial reporting;
a material areas in which signicant judgements have been applied
or there has been discussion with the external auditor; and
a whether the annual report, taken as a whole, is fair, balanced
and understandable and provides the information necessary for
shareholders to assess the Company’s performance, business
model and strategy. As part of the Committee’s assessment of the
annual report, it draws on the work of the Group’s disclosure
committee and also has discussions with senior management.
The Committee’s overall assessment forms the basis of the advice
given to the Board to assist them in making the statement required
by the UK Corporate Governance Code.
The Committee is committed to the continuous improvement in the
effectiveness and clarity of the Group’s corporate reporting and has
encouraged management to support and adopt initiatives by regulatory
bodies which would enhance our reporting.
External audit
At the start of the audit cycle for the new nancial year we received
from Deloitte LLP a detailed audit plan identifying their audit scope,
planning materiality and their assessment of key risks, which were
discussed and agreed with the Committee. Planning materiality was
lower this year, primarily driven by the disposal of our interest in Verizon
Wireless. The audit risk identication process is considered a key factor
in the overall effectiveness of the external audit process. For the 2014
nancial year, the key risks identied were a combination of those
identied in the 2013 nancial year, being those in relation to goodwill
impairment, provisioning for current tax liabilities and deferred tax asset
recognition, and revenue recognition as these areas continue to require
inherent management judgement, and three new specic risks
identied in relation to (i) the accounting for the disposal of our interest
in Verizon Wireless and the related acquisition of the remaining 23%
interest in Vodafone Italy, (ii) the accounting for our acquisition of Kabel
Deutschland and (iii) provisioning for legal and regulatory claims.
The latter risk factor was added specically in response to the reduction
in audit materiality.
At each meeting of the Committee, these risks are reviewed and
both management’s primary areas of judgement and the external
auditor’s key areas of audit focus, are challenged. As a Committee,
we support the professional scepticism, particularly in the areas of key
judgement and accounting disclosure, displayed by Deloitte LLP.
We hold private meetings with the external auditor at each Committee
meeting to provide additional opportunity for open dialogue and
feedback from the Committee and the auditor without management
being present. Matters typically discussed include the external
auditor’s assessment of business risks and management activity
thereon, the transparency and openness of interactions with
management, conrmation that there has been no restriction in scope
placed on them by management, independence of their audit and
how they have exercised professional scepticism. I also meet with the
external lead audit partner outside the formal Committee process
throughout the year.
External audit process effectiveness
We use an audit quality framework to assess the effectiveness
of the external audit process. This involves detailed questioning
of management at an operating company and Group level and
also the members of the Committee. We also considered the rm-
wide audit quality inspection report issued by the FRC in May 2013
and Deloitte’s response to the ndings. The observations from this
assessment for the 2014 nancial year were presented and discussed
at the May 2014 meeting. Management concluded that there had
been appropriate focus and challenge on the primary areas of audit
risk and assessed the quality of the audit process to be satisfactory.
The Committee concurred with this view. The Committee has identied
the 2015 nancial year as a potential period of increased risk given the
transition of the statutory auditor and will focus closely on this matter
throughout the year.
Risk management
The Group’s risk assessment process and the way in which signicant
business risks are managed is a key area of focus for the Committee.
Our work here was driven primarily by the Group’s assessment of its
principal risks and uncertainties, as set out on pages 196 to 200.
We receive reports from the Group Audit Director on the Group’s risk
evaluation process and review changes to signicant risks identied
at both operating entity and Group levels.
In addition, the Committee also conducts a rolling programme
of in-depth reviews into specic nancial, operational and regulatory
areas of the business. During the 2014 nancial year, in-depth reviews
were undertaken in the areas of:
a corporate treasury management;
a legal intercept and related data management;
a competition law and anti-bribery law compliance;
a the management of risk within the supply chain;
a information security;
a risk management within the IT platform standardisation programme
in Vodafone UK; and
a the control environment in Vodafone Ghana.
In addition, the Committee received an update on Group legal
compliance matters.
These reviews are critical to the role of the Committee, as they allow
us to meet key business leaders responsible for these areas and provide
independent challenge to their activities.
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