Audit Committee Report
Dear Shareholder
I am pleased to present my first report as Chairman of the Audit
Committee and would like to thank Phil Bentley for his excellent
stewardship of the Committee and his kind support during our
handover period.
Composition of the Audit Committee
I chair the Audit Committee. I am a career Finance Director
and have significant recent and relevant financial experience
including as chair of the Audit Committee at Faurecia SA and
Eutelsat Communications. Anita Frew and Carl-Peter Forster
were members of the Audit Committee throughout the year.
Birgit Nørgaard joined on 1 March 2014. Phil Bentley was
a member and Chairman of the Committee until 31 December
2014, at which time he retired. I joined the Committee on 1
October 2014 and became its Chairman on 1 January 2015.
All of the Committee members are regarded by the Board as
independent non-executive directors.
The Committee generally asks the Chairman, the Chief
Executive, the Finance Director, the Group Financial Controller
and the Group Assurance Director to attend its meetings but
holds at least part of several meetings each year alone with
the external auditor and with the Group Assurance Director.
The Committee has the powers to call on any employees to
come before it. The Secretary to the Committee is also the
Director of Legal and Compliance.
Main areas of activity in 2014
The Audit Committee met four times in 2014. Significant
accounting issues reflected in the 2014 financial statements
include accounting for several businesses disposed of in 2014,
exceptional restructuring costs, impairment of goodwill and
intangible assets arising from acquisitions, revenue recognition,
provisioning for taxation, pensions accounting and inventory
valuation. The matters of judgement involved in these issues
are described in more overleaf.
The Committee remit calls upon it to advise the Board in
relation to the fair, balanced and understandable requirements
in respect of the Annual Report. We continued to improve
the Annual Report and, in particular, to ensure a clearer link
from our strategy through to KPIs and Principal Risks and
Uncertainties. Other work undertaken in connection with this
included a benchmarking review of how IMI addressed the
new requirements and associated best practice guidance,
the advance submission of draft Annual Report content to the
Committee in December 2014, followed by a draft submission
three weeks before becoming final to allow ample time for
comments and improvements.
Financial controls continued to be a key focus area for the
Committee and during the year management made further
significant progress in strengthening controls and addressing
action points raised by the external auditor and internal assurance
processes. A new internal control declaration process was
introduced, which requires six monthly sign-off on core areas
of financial control and compliance by the managers of each
business unit. The Committee was pleased to see the new
Executive management continuing to drive the improvements
in controls across the business. Ernst & Young agreed with
management’s assessment that the level of control effectiveness
across the Group remains high at 95% and has improved
compared to 2013. Separately, Ernst & Young reported that a
further five businesses achieved 100% effectiveness for a sample
of controls tested. Furthermore, Group Assurance validated
management’s assessment as part of their financial control audits.
A new Chief Risk Officer, reporting to the Chief Executive, joined
IMI in February 2015 and will assume functional responsibility for
internal audit.
Oversight of financial reporting
The Committee acts in an oversight role in respect of the Annual
Report and announcements with financial content that are
prepared by executive management. The Committee received
reports on the annual and interim financial statements from the
external auditor who attended its meetings. The Committee’s
work included reviewing the financial statements, accounting
policies, significant issues of judgement and, as described
below under the section headed ‘Internal Audit’, looking at
the effectiveness of internal financial controls and assurances.
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IMI plc
