Marks and Spencer 2016 Annual Report Download - page 47

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ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
FINANCIAL STATEMENTS OUR BUSINESSOUR PERFORMANCEGOVERNANCE
of impairments, valuation methodology, the
basis for key assumptions (discount rate and
long-term growth rate) and the key drivers of
the cash fl ow forecasts. The Committee has
challenged management and is satisfi ed that
these are appropriate. The Committee has
also understood the sensitivity analysis used
by management in their review of goodwill
and brand impairment. In addition, the
business plans detailing management’s
expectations of future performance of the
businesses are considered by the Board.
The Committee is satisfi ed that appropriate
impairment of tangible and intangible assets
has been recognised. See notes 5, 14 and 15
on pages 97, 98, 108 & 109
INVENTORY VALUATION AND
PROVISIONING
Inventory provisions include stock in transit,
obsolete stock, net realisable value below cost
and stock loss provisions. The Committee has
examined management papers outlining the
judgements made regarding provisioning for
inventory balances and is satisfi ed that a
su ciently robust process was followed to
confi rm quantities of inventory and that net
realisable value of inventory exceeds its cost
at year end.
PRESENTATION OF THE FINANCIAL
STATEMENTS
The Committee gave consideration to the
presentation of the fi nancial statements and
in particular the presentation of the non-
underlying measures in accordance with the
Group accounting policy. This policy states that
adjustments are only made to reported profi t
before tax where income and charges are one-
o in nature, signifi cant, and distort the Group’s
underlying performance. The Committee
received detailed reports from management
outlining the judgements applied in relation to
the disclosure of non-underlying items. In the
current year, management has included profi t
on property disposal and impairments of
properties where commitment to close has
been demonstrated, restructuring costs,
signifi cant and one-o impairment charges
and provisions, fair value movement of
fi nancial instruments and the reduction in M&S
Bank income for the impact of the fi nancial
product mis-selling provision within this
category. This was an area of focus for the
Committee in the current year due to the
number and value of these items (£200.8m
charge). In addition, the current year is a
53-week statutory reporting period so
consideration had been given to the balance
of 52-week and 53-week metrics reported
throughout the Annual Report. 52-week
measures have been quoted to ensure
meaningful comparison with last year’s
52-week period. Following detailed review
and active discussion with management the
Committee has concluded that the
presentation of non-underlying items and 52
and 53-week metrics throughout the Annual
Report and Financial Statements is appropriate.
See note 5 on p97
RETIREMENT BENEFITS
The Committee has reviewed the actuarial
assumptions such as discount rate, infl ation
rate, expected return of scheme assets and
mortality which determine the pension cost
and the UK defi ned benefi t scheme valuation,
and has concluded that they are appropriate.
The assumptions have been disclosed in the
fi nancial statements. See note 11 on p102-105
REVENUE RECOGNITION IN RELATION TO
REFUNDS, GIFT CARDS AND LOYALTY
SCHEMES
Revenue accruals for sales returns and
deferred income in relation to loyalty scheme
redemptions and gift card and credit voucher
redemptions are estimated based on historical
returns and redemptions. The Committee has
considered the basis of these accruals, along
with analysis of historical returns and
redemption rates and has agreed with the
judgements reached by management.
SUPPLIER INCOME
This continues to be monitored closely by
management and robust controls are in place
to ensure appropriate recognition in the
correct period. The Committee are satisfi ed
with management’s conclusion that there is
no risk of material misstatement. Enhanced
disclosure has been made again in the current
year through publication of the accounting
policy and disclosing the e ects of supplier
income on certain balance sheet accounts.
amended to incorporate this feedback prior
to being tabled at the Audit Committee
meeting for fi nal comment and approval.
The Committee was provided with a list of the
key messages included in the Annual Report,
highlighting which were positive and which
were refl ective of the challenges from the
year. A supporting document was also
provided specifi cally addressing the following
listed points, highlighting where these could
be evidenced within the report.
When forming its opinion, the Committee
refl ected on the information it had received
and its discussions throughout the year.
In particular, the Committee considered:
IS THE REPORT FAIR?
> Is the whole story presented and has any
sensitive material been omitted that should
have been included?
> Is the reporting on the business segments
in the narrative reporting consistent with
those used for the fi nancial reporting in the
fi nancial statements?
> Are the key messages in the narrative
refl ected in the fi nancial reporting?
> Are the KPIs disclosed at an appropriate
level based on the fi nancial reporting?
IS THE REPORT BALANCED?
> Is there a good level of consistency
between the narrative reporting in the
front and the fi nancial reporting in the back
of the report, and does the messaging
refl ected in each remain consistent when
read independently of each other?
> Is the Annual Report properly a document
for shareholders?
> Are the statutory and adjusted measures
explained clearly with appropriate
prominence?
> Are the key judgements referred to in
the narrative reporting and the signifi cant
issues reported in this Audit Committee
Report consistent with the disclosures of
key estimation uncertainties and critical
judgements set out in the fi nancial
statements?
> How do these compare with the risks that
Deloitte plan to include in their report?
IS THE REPORT UNDERSTANDABLE?
> Is there a clear and understandable
framework to the report?
> Are the important messages highlighted
appropriately throughout the document?
> Is the layout clear with good linkage
throughout in a manner that refl ects the
whole story?
CONCLUSION
Following its review, the Committee was
of the opinion that the 2016 Annual Report
and Accounts is representative of the
year and presents a fair, balanced and
understandable overview, providing the
necessary information for shareholders to
assess the Group’s position, performance,
business model and strategy.