Carphone Warehouse 2015 Annual Report Download - page 51

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Dixons Carphone plc Annual Report and Accounts 2014/15
Corporate Governance
49
• compliance with financial reporting and governance
standards;
• areas where significant levels of judgement have been
applied or items which have been discussed with the
external auditor;
• updated accounting and corporate governance regulations;
and
• whether the Annual Report and Accounts, taken as a whole,
is fair, balanced and understandable and provides sufficient
information necessary for shareholders and other users of
the accounts to assess the Group’s performance, business
model and strategy. To assist with discharging these
responsibilities, the Committee considers documents
prepared by management and reports received from the
external auditor on the outcomes of their annual and half
year audit procedures.
The Committee received reports and recommendations from management and the external auditor setting out the significant
accounting issues and judgements applicable to the following key areas. These were discussed and challenged, where
appropriate, by the Committee. Following debate, the Committee concurred with management’s conclusions:
Matters of significance and
areas of judgement How the issue was addressed by the Committee
Revenue recognition Revenue recognition is considered to be a critical accounting policy and the judgements are set out in
note 1 u) of the Group financial statements. Key components of judgement are in relation to the
recognition of network commission receivable and also in relation to customer support agreements.
The Committee reviewed management’s assessment of these policies with reference to contractual
terms, the Group’s historical experience of customer behaviour and information received from third
parties as well as historical claims data in respect of customer support agreements.
A
ccounting for the Merger The Committee discussed, challenged and assessed the assumptions made in relation to valuing the
assets and liabilities acquired as part of the Merger which concluded in net liabilities acquired of
£647 million. In addition, the Committee reviewed the consideration for the Merger transaction and the
allocation of goodwill between the different Cash Generated Units acquired.
This valuation exercise included external as well as internal valuations which incorporated management
j
udgement. The Committee reviewed and, where relevant, challenged the methodologies used in
calculating the fair values which have been recognised as set out in note 23 to the Group financial
statements.
Disposal accounting The Committee reviewed the judgements taken in the calculation of gains and losses made in respect of
the disposal transactions of Virgin Mobile France as well as the operations in Germany, the Netherlands
and Portugal. The Committee also assessed the appropriateness of their treatment as assets held for
sale then further as discontinued operations as concluded by management, as set out in note 24 to the
Group financial statements.
Supplier funding
A
number of arrangements exist relating to supplier funding across the Group, including promotional
support and volume rebates. This topic received increased focus by management which culminated in
a presentation to the Committee from the Group Director of Internal Audit. Additional testing in this area
was also carried out by the external auditor. The Committee challenged and debated with management
its approach to supplier funding and its recognition and accounting treatment and no major issues were
noted. Further information in relation to supplier funding can be found in note 1 u) to the Group financial
statements.
Inventory provisioning Inventory is a significant balance for the Group, as set out in note 12 to the Group financial statements
and contains managerial judgement for such items as obsolescence and shrinkage. As part of the
general committee procedures managerial judgement was assessed and no major issues noted.
Impairment testing of goodwill and
intangible assets
Significant goodwill and acquisition intangibles were recognised as part of the accounting for the Merger
which comprised goodwill of £2,629 million and acquisition intangibles of £373 million. The Committee
considered the judgements which had been made in relation to the values held in the balance sheet, in
addition to the methodology used in assessing the supportability of the year end goodwill balance and
assessing for any potential impairment. A sensitivity analysis was then reviewed regarding the impact
of a reasonably possible change in the key assumptions. These assumptions are set out in note 9 to the
Group financial statements.