Marks and Spencer 2015 Annual Report Download - page 89

GOVERNANCEFINANCIAL STATEMENTS OUR PERFORMANCE OUR BUSINESS
87
ANNUAL REPORT AND FINANCIAL STATEMENTS 2015
Risk description
As described in the Accounting Policies in
note 1 and in notes 11 and 12 to the fi nancial
statements, the Group has a defi ned benefi t
pension plan for its UK employees, which
was closed to new entrants with e ect from
1 April 2002, and a funded defi ned benefi t
pension scheme in the Republic of Ireland,
where no new benefi ts have accrued since
31 October 2013.
At 28 March 2015, the Group recorded a net
retirement benefi t asset of £449.0m, being
the net of scheme assets of £8,596.5m and
scheme liabilities of £8,147.5m. The Group’s
net retirement benefi t asset has shown
signifi cant volatility, as the valuation is
sensitive to changes in key assumptions
such as the discount rate and infl ation
estimates. The setting of assumptions
is complex and an area of signifi cant
judgement.
How the scope of our audit responded to the risk
We evaluated the directors’ assessment of
the assumptions made in the valuation of the
scheme assets and liabilities, and evaluated
the information contained within the
actuarial valuation reports for each scheme.
We tested the membership census data used
in the valuation of the schemes and, with
support from our own actuarial specialists,
we considered the valuation process applied
by the Group’s actuaries, the scope of the
valuation performed and the key
assumptions applied, and evaluated their
expertise. We benchmarked and performed a
sensitivity analysis on the key variables in the
valuation model, including:
> Salary increases.
> Infl ation rates.
> Mortality rates.
> Discount rates.
We obtained asset confi rmations or carried
out other audit procedures to test the
completeness and accuracy of the
scheme assets.
Findings From the work performed above
we are satisfi ed that all assumptions applied
in respect of the valuation of the scheme
assets and liabilities are appropriate.
OUR ASSESSMENT OF RISKS OF MATERIAL MISSTATEMENT CONTINUED
IN THE PREVIOUS YEAR’S AUDIT REPORT, THE FOLLOWING RISKS WERE ALSO INCLUDED:
Impairment of goodwill and brands; and Management override of controls. These have not been included as key risks in
the current year.
Our application of materiality
We determined materiality for the
Group to be £32.0m.
We reported all audit di erences
in e xces s of £1.0m .
We defi ne materiality as the magnitude of
misstatement in the fi nancial statements
that makes it probable that the economic
decisions of a reasonably knowledgeable
person would be changed or infl uenced.
We use materiality both in planning the
scope of our audit work and in evaluating
the results of our work.
We determined materiality for the Group
to be £32.0m, which is approximately
5% of pre-tax profi t and 1% of equity.
The materiality used by the predecessor
auditor in 2014 was £31.0m, which
represented 5% of pre-tax profi t adjusted
for non-GAAP performance measures.
We agreed with the Audit Committee that
we would report to the Committee all audit
di erences in excess of £1.0m (2014: the
predecessor auditor reported on all
di erences identifi ed above £1.5m) as well
as di erences below that threshold that,
in our view, warranted reporting on
qualitative grounds. We also report
to the Audit Committee on disclosure
matters that we identifi ed when assessing
the overall presentation of the fi nancial
statements.
GOVERNANCE OUR BUSINESS
RETIREMENT
BENEFITS
6
Group materiality
PBT
£32m
5%
Materiality
£600m
Group materiality
£32m
Component
materiality range
£21m to £2m
Audit Committee
reporting threshold
£1m