Tesco 2015 Annual Report Download - page 39

Activities during the year
Much of the Committee’s time this year has been spent dealing with the commercial
income issue, details of which are set out under ‘Commercial income issue’ elsewhere
in the Governance Report.
Areas of particular concern for the Committee in relation to the commercial income issue
have been:
(a) to understand how the overstatement identified has accumulated over time, how it has
affected prior year’s results, and to consider whether the impact on past year’s results
was such as to require them to be restated;
(b) to ensure that all financial aspects of the Group’s relationship with its suppliers, both
in the UK and in our international operations, have been the subject of rigorous internal
and external audit focus;
(c) to satisfy itself, in discussions with the CEO and CFO and the internal and external auditors
and advisors, that the remedial steps proposed to the Group’s financial systems and internal
controls and the interim measures to be applied until these new steps are fully implemented
are sufficient to avoid any repetition of the issues that have emerged in relation to
commercial income. This included comprehensive internal audit reviews
of commercial income controls across all Group territories; and
(d) to consider the appropriate treatment in our accounts for potential fines and litigation risk
arising as a result of these matters.
As well as the exceptional matters referred to above, during the year the Committee received
update reports from the Tesco Bank Audit Committee, PricewaterhouseCoopers LLP, the
Disclosure Committee and the Group Compliance Committee. It also received updates from
Internal Audit on its work, including findings from its internal audit programme and a
comprehensive Group-wide review of stock controls carried out after the discovery of the
commercial income issue. The Committee considered a variety of matters including Group and
Business Unit Risk Registers; fraud, bribery and corruption; business continuity management; the
Group’s compliance with the Groceries Supply Code of Practice and reports from the Group
Compliance Committee.
In relation to the financial statements, the Committee: reviewed and recommended approval
of the half-yearly results and annual financial statements; considered impairment reviews;
considered going concern status; reviewed and recommended the interim dividend level;
reviewed corporate governance disclosures; and monitored the statutory audit. The Committee
also advised the Board on whether the financial statements, taken as a whole, were fair, balanced
and understandable and provide the necessary information to assess the Company’s performance,
business model and strategy. The Committee concluded that the disclosures, and the processes
and controls underlying their production, were appropriate and recommended to the Board that
the Annual Report and Financial Statements are fair, balanced and understandable.
On the recommendation of the Audit Committee, the Board decided to put the Company’s
external audit out for tender this year. After 32 years we and PricewaterhouseCoopers LLP
mutually agreed that they would not take part in the tender. They will therefore step down
as the Company’s Auditor at the conclusion of the 2015 AGM. A resolution to appoint the
Company’s new Auditor will be proposed at the Company’s AGM in June, and this is set out
within the separate Notice of Annual General Meeting.
Audit Committee responsibilities
The Committee’s terms of reference can be found
at www.tescoplc.com. Ken Hanna, Mark Armour,
Richard Cousins and Byron Grote all have recent
and relevant financial experience.
The key responsibilities of the Committee are to:
• Consider the appointment of the external
auditors, their reports to the Committee and
their independence, including an assessment
of their appropriateness to conduct any
non-audit work
• Review the financial statements and
announcements relating to the financial
performance of the Company
• Review the internal audit programme and ensure
that the Internal Audit function is adequately
resourced and has appropriate standing within
the Company
• Discuss with the external auditors the nature
and scope of the audit
• Review, and challenge where necessary,
the actions and judgements of management,
in relation to the interim and annual financial
statements before submission to the Board
• Review formally the effectiveness of the external
and internal audit processes
• Consider management’s response to any major
external or internal audit recommendations
• Review the Company’s plans for business continuity
• Review the Company’s plans for the prevention
and detection of fraud, bribery and corruption
• Report to the Board on how it has discharged
its responsibilities
Audit Committee attendance
Members Number
of possible
meetings
attended
Actual
meetings
attended
Ken Hanna (Chairman) 8 8
Mark Armour 8 8
Patrick Cescau
Resigned
7 April 2015
8 7
Gareth Bullock
Resigned
5 March 2015
8 7
Olivia Garfield
Appointed
1 April 2014
Resigned
28 February 2015
7 7
Richard Cousins
Appointed
1November 2014
2 2
Byron Grote
Appointed
1 May 2015
– –
Ken Hanna
Audit Committee Chairman
Audit Committee Report
The Audit Committee has an integral role in providing confidence in the integrity of the
Company’s processes and procedures in relation to internal control, risk management
and financial reporting.
The Committee supports the Board in assessing whether the Annual Report and Financial
Statements are fair, balanced and understandable and provide sufficient information to
allow an assessment of the Company.
A major part of the Committee’s work this year has been dominated by the discovery
that commercial income had been overstated in both prospective and historic financial
information published by the Company. Further details are set out elsewhere in the
Governance Report, and below.
Since the year end, Olivia Garfield, Gareth Bullock and Patrick Cescau have retired from
the Board and the Audit Committee. It was announced on 5 March 2015, that Byron
Grote will join the Board on 1 May 2015 and will also join the Audit Committee.
Ken Hanna
Audit Committee Chairman
37Tesco PLC Annual Report and Financial Statements 2015
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