CAPÍTULO III.- DISPOSICIONES PROCEDIMENTALES Artículo 15 Normativa aplicable
“DISPOSICIONES ADICIONALES
control of the Group, the integrity of published
financial information, and effective audit.
To ensure the Company receives the best audit service, we ran a competitive tender for the external audit during the year. The Audit Committee reviewed three high quality proposals, deciding ultimately to recommend the re-appointment of PwC. This was approved by shareholders at the 2014 AGM.
During 2014 we have continued to focus on accounting judgements, particularly in relation to intangible assets, the presentation of exceptional items and the accounting for acquisitions and disposals. We have also worked on the identification and management of risks for the Group, the internal control environment and the work of the internal and external auditors in giving assurance over it. Further details about these activities can be found in the report below.
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RISK MANAGEMENT
Xchanging maintains risk registers covering each significant operation, business sector, and the Group. We review the risk assessment four times per year, which helps to ensure a consistent approach and focus on the right risks. The Board reviews the Group risk register annually, with the last review occurring on 10 December 2014.
In managing risk we analyse the nature and extent of risks and consider their likelihood and impact, both on an inherent and a residual basis, after taking account of mitigating controls. This allows us to determine how we should manage each risk in order to achieve our strategic objectives. Risk registers are maintained in a hierarchy across the business and include risks which are strategic, commercial, operational and financial in nature.
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Strategic risks reflect the potential for a significant strategic action, or a failure to react to developing trends in the market, to have a financial impact on the economic value of our business.•
Commercial risks reflect the potential to enter into a critical contract or commercial arrangement which may have an adverse impact on the business.•
Operational risks reflect the potential for the failure of a critical process or procedure to have an adverse impact on the business.•
Financial risks include interest, foreign exchange, tax rate changes, pension valuations and liquidity. Failure to manage these risks could negatively impact the economic value of our business. As part of the quarterly business review process, management discuss the key risks along with the mitigating action plans. Following sign off by the Executive Board, the output of this review is presented to the Audit Committee.The Group’s key risk management procedures have been in place throughout 2014 and up to the date of approval of this Annual Report. OVERVIEW OF RISK MANAGEMENT PROCESS
Internal control
The Group’s key internal control procedures include the following:
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Review of the Group’s strategy and the performance of principal subsidiaries and EPs, through a comprehensive system of reporting based on variances to annual budgets, key performance indicators and regular forecasting.Areas of significant judgement Judgements and assumptions considered Carrying value of intangible
assets including goodwill
Goodwill of £209.4 million is a significant asset in the balance sheet and the impairment testing includes subjective judgements about the future results of the businesses. The goodwill balance has increased by £38.4 million in the year as a result of acquisitions made by the Group. Impairment testing of the goodwill balance is performed annually for each cash generating unit (‘CGU’).
Goodwill includes £54.1 million relating to the Procurement business, an area that we focused on given the sector loss for the year and the forecast growth rates. The headroom, whilst sufficient to support the carrying value, is lower than in 2013 for the Procurement CGU. In addition, goodwill includes £79.1 million (£40.7 million excluding the acquisitions in the year) relating to the Technology business, a focus area given the low level of Xuber sales in the year.
The Audit Committee then reviewed the carrying value of the Agencyport* business given the CMA review that is ongoing at the year end and
ensured that sufficient disclosure was made of the risk of impairment in the event of an adverse outcome or a failure to integrate the business. The primary judgements, relating to assumptions that support the calculations of the value in use of the CGUs being tested for impairment, are the growth in operating profit of the CGU, and macroeconomic assumptions such as the discount rate. These assumptions were considered by reviewing the Board approved business plans, historic trends, sensitivity analysis, sales pipeline analysis and a qualitative analysis of the business. The Audit Committee focused their discussion on the sales pipeline assumptions, including the track record of conversion, and the business plans for the sector, underpinning the future performance. Having considered the results of the impairment reviews and the assumptions used, the Audit Committee then reviewed the disclosures made in the financial statements in this area.
The Audit Committee reviewed impairment papers prepared by Group Finance and, in addition, the external auditors provide a written report covering this area of significant judgement and audit risk. Further disclosures, particularly in respect of the growth assumptions and the sensitivity analysis, are set out in note 11 to the accounts.
Within the other intangible assets balance of £123.0 million, Xuber (£24.0 million) and Netsett (£4.0 million) were also reviewed for impairment. The same impairment testing process was applied to these assets as described above. The key judgements relate to the conversion of the Xuber sales pipeline and the conversion of the Netsett pilots into future sales. Capitalisation of internal time within intangibles assets was discussed to ensure compliance with IAS 38 Intangible Assets.
The results of the testing were reviewed by the Audit Committee and discussed with management and the external auditors. Details of intangible assets can be found in note 12.
Acquisitions and disposals The Audit Committee considered the acquisition accounting prepared by management for Total Objects and Agencyport*. The key areas of
judgement were the identification and valuation of any intangible assets acquired, any additional opening balance sheet adjustments required and whether any deferred consideration (up to the value of £8.0 million for Total Objects) should be accounted for as post-acquisition expenses. The Audit Committee reviewed the submitted accounting papers and the Board approvals of the due diligence work. They assessed the assumptions used in determining the fair values of the intangible assets all of which was discussed with the external auditors. Further details can be found in note 29.
Exceptional items In 2014 there have been a number of exceptional items which total £7.1 million, the details of which can be found in note 4. The key items are the
net impact of the lease surrender at our Leadenhall Street premises (£9.7 million income), restructuring costs (£10.3 million) and the expense for the exit of the Workers’ Compensation contract with the State of New South Wales (£7.1 million).
The key judgements relate to the nature, amount and presentation of exceptional, along with ensuring that statutory financial information is given equal prominence. Accounting papers are prepared that set out the rational for the classification as exceptional items. The Audit Committee reviewed these papers together with the detail provided by the external auditors in their written report. Full details of the items that have been agreed and presented as exceptional items are set out in note 4 to the accounts.
Revenue recognition The changing business model has increased the level of variable technology based software revenues. Management accounting papers were
reviewed which included presentation and subsequent discussion by the Audit Committee about the revenue recognition policy. The key judgements related to the accounting treatment of software licences, including when bundled with licence support, maintenance and implementation services. Further details about revenue recognition can be found in note 1.
Pensions, taxation and other provisions
The level of provisioning for contingent and other liabilities, including pensions, taxation, litigation and other provisions, requires judgement and subject matter expert advice. The Audit Committee receives written reports from Group Finance and in-house legal counsel and discusses with management the key management, accounting and actuarial judgements, including relevant legal advice. The Audit Committee also discussed how these matters are presented and disclosed in the annual report. The external auditors also report on all material provisions and pension benchmarking to the Audit Committee.
* The Agencyport Europe acquisition is currently under review by the Competition and Markets Authority.
C ORPOR ATE GO VERNANCE FINANCIAL ST ATEMENTS O THER INFORMA TION
opportunities and capital expenditure.
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A defined organisational structure with appropriate delegation of authority across all levels of the organisation.•
Formal authorisation procedures for all investments with clear guidelines on appraisal techniques and success criteria.•
Formal authorisation procedures for all significant sales opportunities and bid management, with clear guidelines on success criteria and contracting practices.The Audit Committee has, on behalf of the Board, conducted an annual review of the effectiveness of the Group’s internal control systems for 2014 and the period prior to approval of this Annual Report. The Audit Committee reported its findings to the Board at the 25 February 2015 Board meeting. It considered all material controls in accordance with the Turnbull guidance. Following this review no significant weaknesses or failings were identified and noted improvement areas are being addressed by management. The internal control environment will continue to be monitored and reviewed by the Board and the Audit Committee.
1. Organisation strategic objectives 6. Monitoring 2. Risk assessment 5. Residential risk reporting 3. Risk reporting 4. Risk mitigating activity Internal Audit
The work performed by the Group’s Internal Audit department is focused on areas of greatest risk to the Group, as well as issues identified by the quarterly performance reporting, including any significant change projects occurring within the business. The objective of Internal Audit is to provide independent assurance to the Audit Committee over the financial, operational and compliance
To ensure that the objectivity and independence of the audit is not compromised, the level of non-audit services provided by the external auditors is regularly monitored, and the appropriateness of the relevant safeguards required to maintain independence are reviewed regularly. The policy for the engagement of external auditors to supply non-audit services is reviewed annually by the Audit Committee. The policy categorises services between prohibited, type 1 and type 2 services. Prohibited services are those which the external auditor are not allowed to undertake, type 1 services are those which are not normally permitted but would be allowable with prior authorisation from the Audit Committee and type 3 services are allowable but require ongoing monitoring by the Audit Committee based upon value. Each service type has clearly defined safeguards required by the Audit Committee to ensure auditor objectivity is maintained.
The level of non-audit services in 2014 is lower than in 2013 as the work of PwC as implementation partner for Xchanging’s new Human Resources System has been completed. The overall level of non-audit services remained at an acceptable level during the year. EU regulations which came into enforce in mid-2014, effective from 2016, state that non-audit fees must be less than or equal to 70% of the average sum of the previous three years’ audit fee. The Group will work towards this ratio.
Based on these considerations the Audit Committee concluded that PwC remained independent during 2014.
Ethics
Xchanging is committed to the highest standards of business integrity in each country where it operates, maintaining an Ethical Business Code of Conduct which applies to all employees and provides guidance regarding their conduct, and how Xchanging conducts business.
Xchanging will not tolerate any form of bribery or corruption by its employees. Measures have been taken to ensure Group-wide compliance with the Bribery Act 2010. In the event of any bribery or corruption incident brought to the Group’s attention, Xchanging would take immediate steps to effect corrective action and report it to the relevant authorities as required. Xchanging considers that each employee has the duty to the Group to act with integrity and good
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The Nomination Committee recognises that diversity, in all its dimensions, across an organisation, including at Board level, is important to support innovation, strategic development and operational efficiency. The Board’s diversity policy includes only using executive search firms that have signed up to the Executive Search Firms Voluntary Code of Conduct and to use long lists that include at least 50% female candidates, wherever possible. The Nomination Committee will consider candidates for appointment as Non-Executive Directors from a wider pool, including those with limited (or no) listed company experience. It is not the Board’s policy to have specific voluntary targets, but it will continue to recruit board members based on skills and experience, having regard to the requirements of the Code in respect of diversity, including gender. For more information about gender diversity in Xchanging, refer to the Corporate Social Responsibility report (page 40).
Key areas of responsibility
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Evaluating the balance of skills, knowledge and diversity of experience of the Board and, in light of such evaluation, preparing descriptions of the role and the capabilities required for any appointment.•
Ensuring that plans are in place for orderly succession for appointments to the Board and senior management, to retain an appropriate balance of skills and experience within Xchanging and on the Board.The Nomination Committee meets at least once a year. During 2014 it met twice, to agree a succession plan strategy for the Directors and senior management, to review the findings of the externally facilitated 2014 Board evaluation and Board succession. The Nomination Committee also reviewed the composition of the Audit Committee and reviewed the Board diversity policy for submission to the Board (which is described above).
While no new appointments were made during 2014, there is a rigorous and transparent procedure for appointments to the Board and its Committees, involving undertaking an assessment of the skills and capabilities required, drafting a description of the role, and carrying out an assessment of potential candidates, before making a recommendation to the Board.
GEOFF UNWIN
CHAIRMAN OF THE NOMINATION COMMITTEE 26 February 2015