Marks and Spencer 2015 Annual Report Download - page 49

OUR PERFORMANCE
FINANCIAL STATEMENTS GOVERNANCE OUR BUSINESS
47
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015
TENURE OF THE AUDITORS
At the AGM last year shareholders
approved the appointment of Deloitte
as the Company’s new Statutory Auditor.
The proposed change in auditor was
communicated to shareholders in
December 2013. This extended lead time
provided a smooth handover process from
PwC, the previous Statutory Auditor, and
allowed Deloitte to shadow PwC through
areas of the 2014 year end process,
giving them a good understanding of
the business.
In the early part of the year, Deloitte
underwent a thorough induction process
to enhance their understanding of the
business. This included:
> Meetings with management and
executives across the business including
a large number of individuals outside of
the fi nance function (trading managers,
buyers, property team, HR and others).
> A number of site visits across the UK
and International operations; including
16 UK distribution centres, 27 UK stores
(including audit partner attendance
at a stock count), operations in nine
overseas countries (China, Hong Kong,
India, Turkey, Greece, Czech, France,
Netherlands and Ireland).
In addition, Deloitte have participated in
workshops on material and judgemental
areas prior to their fi rst half year review.
The Company and Deloitte adopted a
collaborative approach throughout
the year, encouraging ongoing, open
communication on current matters as
and when they arose.
NON-AUDIT FEES
A robust auditor engagement policy
is in place and adhered to. It is
reviewed annually and disclosed on
marksandspencer.com/thecompany.
In the interest of transparency, last year
we highlighted that business forecasting
and planning indicated that fees for non-
audit work with Deloitte were likely to be
impacted by additional items, much of
which were a direct result of the transition
between audit fi rms.
Deloitte had provided several non-audit
services to the business prior to their
appointment and, although many of these
were complete by March 2014, some were
expected to run over into the 2014/15
fi nancial year whilst they were tendered
to another fi rm. Where non-audit work is
performed by Deloitte, both the Company
and Deloitte ensure robust processes to
prevent auditor independence from being
compromised.
> The non-audit fees to audit fees ratio
for the year was 0.49:1. Of this £0.5m
related to services now transitioned
to other companies (overseas payroll,
accountancy and tax compliance
services and two other small one-o
projects).
> All non-audit work performed by Deloitte
was put to the Audit Committee for
consideration and approval, regardless
of size.
The Committee believes the independence
and objectivity of the external auditor
and the e ectiveness of the audit process
are safeguarded and remain strong, and
recommends the reappointment of
Deloitte LLP for the 2015/16 fi nancial year.
The assessment of the e ectiveness of our
external auditor is based on a framework
divided into ten structured components
setting out the key areas of the audit process
for the Audit Committee to consider, as well
as the role that management has contributed
to an e ective process.
The framework provides the Audit
Committee with a mechanism to encourage
management to improve standards in a
number of key areas. These include ensuring
that information is presented with a culture
of ‘right fi rst time’, that the quality of
management papers is high, that robust
internal systems and controls are maintained,
that the audit process is respected and
valued by the management team, and that
proposed audit adjustments are examined
seriously. The Committee believes that this
framework provides a robust process for
monitoring auditor e ectiveness now, and
can be measured against the fi ndings of
future external auditor e ectiveness surveys.
For 2014/15 we tailored the approach to
the assessment process enabling senior
management to answer the detailed
questions on the Company-wide audit
process, and provide the Audit Committee
with su cient detail to establish an informed
view on the overall e ciency, integrity and
e ectiveness of the external audit.
Questionnaires were tailored to the
following target groups:
1. Chief Finance O cer and Director of
Group Financial Control A full questionnaire,
covering all areas of the audit process, was
completed based on the individual’s close
knowledge of the audit process, their
interaction with the audit partner and
taking consideration of the questionnaire
completed by the Heads of Finance for Food,
GM and International.
2. Heads of Finance: Food, GM and
International Shorter questionnaire, focusing
on the audit team, planning, challenge and
interaction with the business.
3. Audit Committee A high level set of
questions with specifi c focus on the audit
partner, planning, execution, value,
communication and challenge. The
Committee had access to copies of the
completed fi nance questionnaires (sections 1
and 2 above) to assist their considerations.
WHAT WAS THE OUTCOME?
As this is Deloitte’s fi rst year with M&S, the
Committee was only able to assess their
work up until the end of the fi nancial period
and not the year end audit itself. However,
the period assessed included the interim
reporting cycle, providing Committee
members with early insight into the level of
challenge and scrutiny Deloitte provide.
Feedback highlighted:
> A good understanding of the business and
its values;
> A team that were robustly challenging,
whilst supportive on technical matters; and
> A joined up approach towards the
signifi cant issues for discussion.
EFFECTIVENESS OF THE EXTERNAL AUDITOR
EXTERNAL AUDITORS
Last year’s feedback identifi ed:
The Committee Chairman was felt to have
greater visibility of the overall audit process
as a result of his one-to-one meetings with
the audit partner.
The survey itself contained a level of detail
regarding processes that the Committee
may not have or need visibility of.
How has this been addressed?
Time has been made available prior to
each Committee meeting for the Chairman
to update Committee members, where
necessary, on his discussions.
The content of the survey has been
reviewed and updated. An overview of
the new process is provided above.