This report meets the requirements of the Code issued by the UK Financial Services Authority.
I am pleased to present my first report to shareholders and set out below details of the committee's responsibilities and activities:
Role and responsibilities
The audit committee assists the board in discharging its responsibilities with regard to financial reporting, external and internal audit and internal controls.
The principal functions of the audit committee are to:
- Monitor the integrity of the Group's financial statements, the half year report and any formal announcements relating to the Group's financial performance, reviewing significant financial reporting judgements contained therein, together with compliance with accounting standards and other legal and regulatory requirements;
- Review the Group's internal financial controls and internal control and risk management systems, by considering reports on the effectiveness of internal controls and risk management systems from the Chief Financial Officer and the Chief Operating Officer and reports from both the internal and external auditors;
- Review the effectiveness of the Group's internal audit function and ensure that it is adequately resourced;
- Recommend to the board the appointment, reappointment and removal of the external auditors and to approve the remuneration and terms of their engagement;
- Review and monitor the external auditors' independence and objectivity, and the effectiveness of the external audit process;
- Review the Group's controls and systems to ensure compliance with the provisions of the Bribery Act 2010;
- Review the Group's whistleblowing policy; and
- Review the engagement of the external auditors to ensure that the provision of non-audit services by the external audit firm does not impair its independence or objectivity.
Minnow PowellAudit Committee Chairman
Minnow Powell is the chairman of the audit committee, following the resignation by Steven Glew on 4 February 2013. The other audit committee members are Ken McCall and Euan Sutherland. Indira Thambiah was a member of the audit committee until she resigned on 11 February 2013. All of the audit committee members are non-executive directors and the board considers them all to be independent. The chairman has relevant and recent financial experience. The biographies of each of the committee members can be found in the Board of Directors. The audit committee meets at least four times per year and further as necessary to fulfil its function effectively. By invitation of the chairman, the Chief Operating Officer, Chief Financial Officer, and Head of Internal Audit (outsourced with KPMG LLP), other senior managers and the external auditors also attend audit committee meetings. The role of audit committee secretary is fulfilled by the Company Secretary.
At least once a year, the committee meets separately with the external auditors and the Head of Internal Audit without management present.
The terms of reference of the audit committee were reviewed during the year and approved by the board and are available at www.supergroup.co.uk.
The audit committee has met six times during the year and reports of these meetings were provided to the subsequent board meetings. The principal matters under consideration during the year are set out as follows:
Risk management and internal control
The audit committee has reviewed and discussed with management the Group's process, evaluation and assessment of its internal controls and management of risk (including financial, operational, technical and compliance risks), focusing on managing effectively major risks to the Group. There is a Risk Register in place and during the year the risk management process was refreshed with further work to be completed in 2014.
Following the market update on 20 April 2012 a full and comprehensive review of the internal controls was undertaken under the direction of the Chief Operating Officer and Chief Financial Officer, with the result that plans were developed to:
- Improve the depth and quality of senior management
Over the last twelve months we have bolstered the capability of the management team with the addition of the following key individuals:
- Director of HR;
- Director of IT;
- Managing Director International and Wholesale (post year end);
- Head of UK and Ireland Retail;
- Head of Women's Design;
- Head of Logistics;
- Group General Counsel (post year end);
- Group Financial Controller (post year end);
- Design Studio Manager; and
- Brand Protection Manager.
- Upgrade financial and operational systems
A thorough review of the capability of the Group's existing systems has been undertaken, and the board has approved a programme of significant investment over the next two years, to include core IT systems replacement including a new finance system, and a new major distribution facility.
- Reorganise and improve the skills within finance
The separate Wholesale and Retail finance teams have been combined into one Group function that is better placed to serve the business and strengthen financial reporting and internal controls. A number of new roles have been created to focus on specific and growing areas of the business and a number of new appointments have brought additional expertise and experience to the team, in particular the recently recruited Group Financial Controller.
Accordingly, the Group's risk management and internal controls have continued to develop during the year. These are used by the executive directors as a tool to assist with decision making. A key aspect of focus for the committee was monitoring progress with the proposed implementation of a new Transformation System/MMS/POS to ensure that a full and thorough risk assessment was in place so as to minimise adequately any disruption to the business.
There are inherent limitations in any system of internal control and, accordingly, even the most effective system can provide reasonable, not absolute, assurance.
The audit committee reviewed and approved the Interim Statement and Preliminary Announcement together with the Annual Report and Financial Statements, the appropriateness and acceptability of accounting policies and practices, and compliance with financial reporting standards and requirements. Key judgements which the committee considered were:
- Goodwill impairment;
- Deferred taxation; and
- Provisions including those relating to inventory, returns, trade receivables and property.
The committee also took account of the views of the external auditors.
In respect of goodwill and deferred taxation, the committee considered the short-term forecasts and long-term growth rates as well as, in respect of goodwill, the weighted average cost of capital.
For each provision, the committee considered the judgements made by management and assessed the available evidence, including historic trends.
The committee also reviewed the cash flow forecasts and concluded that it was appropriate to prepare the financial statements on a going concern basis.
Fraud and whistleblowing
The audit committee has reviewed and discussed with management the Group's processes and policies for whistleblowing and for fraud and security. A whistleblowing policy is in place and the audit committee is satisfied that employees have the opportunity to raise concerns in confidence about possible fraudulent activity and any other concerns that arise within the organisation. The audit committee is satisfied that arrangements are in place for proportionate and independent investigation of such matters, including appropriate follow-up action.
The audit committee reviewed progress with the implementation of controls and procedures surrounding anti-bribery monitoring to ensure compliance with the Bribery Act 2010.
The work of internal audit has focused on the areas of risk to SuperGroup Plc, as determined by management's and the board's risk identification and assessment processes. The output from this process is summarised in an audit plan which is approved by the audit committee, and updated on a regular basis. During the year, an audit universe was developed and an internal audit plan prepared and approved for financial year 2014 and the following two years in outline.
Internal Audit reports to the chairman of the audit committee. In addition to attending three of the audit committee meetings, a representative from Internal Audit has attended the executive leadership team meetings and has reported regularly on internal audit reviews to executive management during the year.
The key objectives are to provide independent and objective assurance on risks and controls to the board and senior management and to assist the board with meeting its corporate governance and regulatory responsibilities. The role of internal audit and the scope of its work continue to evolve to take account of changes within the Group and emerging best practice.
The audit committee reviewed the audit strategy and the outcome and findings of the annual external audit. In addition, the audit committee approved the scope and fees for the external audit.
The audit committee will review formally the effectiveness of the external audit at the conclusion of the 2013 audit to determine the appropriate timescale for an audit tender.
Independence and objectivity
Auditor independence is maintained by monitoring the nature and value of non-audit services carried out, and by ensuring that employees of the external auditors who have worked on the audit in the past two years are not appointed to senior financial positions within the company. The rotation of the lead partner is every five years. The audit committee assessed the independence of the external auditors and concluded that PricewaterhouseCoopers LLP were independent, and have been since their appointment in March 2010.
The audit committee is responsible for recommending the appointment, reappointment and removal of external auditors. PricewaterhouseCoopers LLP have advised that in accordance with the rules relating to partner rotation, the current audit partner is not due to rotate until after the conclusion of the 2017 audit.
The audit committee has recommended the reappointment of PricewaterhouseCoopers LLP for the next financial year.
The general policy in respect of non-audit work by the external auditors is that they should not be requested to carry out non-audit services on any material activity of the Group where they may, in the future, be required to give an audit opinion or they act as management, in accordance with the Audit Practices Board's Ethical Standards for Auditors.
All non-audit services provided during the year are set out within note 9 on Auditors' Remuneration.
The committee has reviewed and agreed the non-audit services as set out above provided by the external auditors, together with the associated fees, and is satisfied that these did not prejudice the external auditors' independence or objectivity.
Audit Committee Chairman
10 July 2013