The Audit and Risk Committee has an important role in ensuring the integrity of the Group's financial reporting and reviewing the effectiveness of the Group's internal control systems and risk management.
Bill Spencer Chairman of Audit and Risk Committee
I am pleased to present to you my second report as Chairman of the Audit and Risk Committee since joining the Board in June 2016. The Committee has continued to follow a detailed programme of work. We have been provided with good quality material to allow proper consideration to be given to the Committee's responsibilities.
The Audit and Risk Committee (the Committee) has an important role in ensuring the integrity of the Group's financial reporting and reviewing the effectiveness of the Group's internal control systems and risk management.
The report which follows sets out details on the workings of the Committee, the work done during the year and the key issues considered in the preparation of the financial statements and the related information, judgements and assurance received.
The key accounting issue considered during the year continued to be determining appropriate depreciation rates for our vehicles. This is an area where significant judgement is required and the Committee is satisfied with the rigour applied to this issue. The Committee accepted management's recommendation to change depreciation rates prospectively from 1 May 2018 as a result of their assessment of expected future residual values in the used vehicle market and impact of the fleet optimisation plan. The impact of this change on the financial statements is outlined in the Financial Review.
In addition to thorough review and challenge of the significant issues affecting the financial statements, the Committee has continued to focus on improving the risk management within the Group. The Board's risk appetite and approach towards risk is outlined in the Managing Risk report. The Committee has approved a new internal audit methodology in the year which improves upon existing processes. Further, we have reviewed and recommended that the Board approve the Group's published tax strategy (available on our website) and believe this demonstrates the Group's commitment to tax transparency and its stated desire to pay the right amount of tax. Based on our ongoing review of the work of Group Internal Audit, we have concluded that this key function has the necessary resources allocated and continues to operate effectively.
I hope you find this report useful and I would welcome any comments.
Chairman of Audit and Risk Committee
25 June 2018
The role of the Audit and Risk Committee is set out in the Introduction to governance.
The members of the Committee, who are all non-executive Directors of the Company, are:
|Date of appointment|
|B Spencer (Chairman)||1 June 2016|
|J Caseberry||10 December 2012|
|C Miles||27 November 2015|
The Code requires that at least one member of the Committee should have recent and relevant financial experience: currently, the Chairman of the Committee fulfils this requirement. All members of the Committee are expected to be financially literate. Relevant information on the skills and experience of our Board members is outlined in the Board of Directors.
The Committee is required to meet at least three times a year. Details of attendance at meetings held in the year ended 30 April 2018 are given in the Corporate governance.
Due to the cyclical nature of its agenda, which is linked to events in the Group's financial calendar, the Committee will generally meet four times a year. The other Directors, together with the Group Head of Internal Audit and the external auditor, are normally invited to attend all meetings.
Since May 2017, the Committee has:
- Reviewed the financial statements for the years ended 30 April 2018 and 2017 and the half yearly report issued in December 2017. As part of this review process, the Committee received reports from PwC. For the full year results this included making a recommendation to the Board as to whether the Annual Report and Accounts were fair, balanced and understandable;
- Reviewed and agreed the scope of the audit work to be undertaken by PwC and agreed their fees;
- Reviewed the effectiveness of the Group's system of internal controls;
- Received regular reports from the Group Head of Internal Audit and approved an updated internal audit methodology.
- Reviewed the progress made by management in implementing the control improvements recommended by Group Internal Audit;
- Reviewed the effectiveness of external audit;
- Reviewed a management paper with regards to the Viability Statement and recommended that the Board approve the reference period of three years;
- Reviewed and confirmed endorsement of the Group's non-audit fee policy and noted that the level of non-audit work undertaken by PwC in the year was within the policy;
- Reviewed a management paper on intercompany loan agreements;
- Reviewed the Group's whistleblowing procedures;
- Reviewed the Group's depreciation policy and depreciation rates adopted within this policy;
- Reviewed the Group's corporate taxation arrangements;
- Reviewed and approved a management paper on the accounting treatment for the implementation of the new UK ERP system;
- Reviewed the Group's accounting policy for exceptional items;
- Reviewed a Group Internal Audit management paper on FCA compliance with respect to the provision of consumer credit on vehicle sales;
- Reviewed the updated external report on cyber security and the extent to which recommendations made in the previous year had been implemented;
- Reviewed the Group's response to the General Data Protection Regulations;
- Reviewed the Group's Code of Business Conduct, including the requirements of the Bribery Act 2010, and the effective monitoring of the giving and receiving of gifts and hospitality; and
- Reviewed its own effectiveness and terms of reference.
As part of the Committee's role to oversee the Group's approach to risk management, the Committee has monitored the Group's risk management processes and business continuity procedures.
The Committee monitored and reviewed the activities of the Group Internal Audit function including agreeing the scope of work to be performed with reference to the principal risks facing the Group. A new internal audit methodology was adopted in the year, which significantly improved the Committee's oversight of risk management. The Committee commissioned an in depth review into organisational attitudes to compliance across the Group in order to further enhance the effectiveness of risk management.
Significant issues considered in relation to the financial statements
During the year the Committee considered, discussed with the external auditor and concluded on what the significant issues were in relation to the financial statements and how these would be addressed:
- Determining appropriate depreciation rates for vehicles available for hire – as Board members, the Committee reviews adjustments to depreciation monthly. In addition, the Committee reviewed formal papers prepared by management at each reporting date which included a qualitative assessment of the current and forecast trends in the used vehicle market, benchmarking of the Group's depreciation policy, and recommendations for changes in depreciation rate accounting estimates. After due challenge and debate the Committee were content with the assumptions and judgements made and accepted management's recommendation to reduce depreciation rates by 0.5% in the UK, 3% in Spain and 3% in Ireland effective from 1 May 2018;
- The recoverability of aged trade receivables – the Committee reviewed management's judgements on the recoverability of trade receivables and concluded that they were appropriate. The Committee regularly receives KPI reports from management and ensured that sufficient resource is allocated to the mitigation of bad debt risk across the Group;
- Provisions for uncertain tax positions – the Committee reviewed formal papers prepared by management at each reporting date which outlined the Group's tax positions. The Committee challenged areas where significant judgement influenced the level of provision held in the balance sheet and was satisfied with the judgements made; and
- Financial statements – the Committee considered the presentation of the Annual Report and Accounts, including analysis between underlying and statutory disclosures. We were satisfied with management's presentation.
The Committee reviews and makes recommendations regarding the appointment of the external auditor. In making this recommendation, the Committee considers auditor effectiveness and independence, partner rotation and any other factors which may impact upon the external auditor's reappointment. PwC was first appointed in September 2015 and the Committee supports a proposed resolution at the AGM in September 2018 to re appoint them for a further year.
The Committee believes that non-audit work may only be undertaken by the external auditor in limited circumstances. Non-audit services provided by our external auditor are subject to a cumulative cap. All non-audit services are subject to the Committee's prior approval.
Non-audit fees for services provided by PwC for the year amounted to £34,000 (9% of the audit fee). Further details are included in Note 5 to the Financial Statements.
The Committee reviewed the effectiveness and independence of the external auditor, considering input from management, responses to questions from the Committee and the audit findings reported to the Committee. The Committee also conducted one to one meetings with the audit partner without management being present. Based on this information, the Committee concluded that the audit process was operating effectively. Consequently, the Committee has recommended to the Board the reappointment of PwC at the AGM.
In fulfilling its duty to monitor the effectiveness of the Internal Audit function, the Committee has:
- Reviewed the adequacy of the resources of the Internal Audit department for the UK, Spain and Ireland;
- Ensured that the Group Head of Internal Audit has direct access to the Chairman of the Board and to all members of the Committee;
- Conducted a one-to-one meeting with the Group Head of Internal Audit without management present; and
- Approved the Group Internal Audit programme and reviewed quarterly reports by the Head of Group Internal Audit.
The Chairman of the Committee will be available at the AGM to answer any questions about the work of the Committee.
Chairman of Audit and Risk Committee
25 June 2018