Ferguson plc Annual Report and Accounts 2020
74
Audit, risk and internal control
Dear Shareholder
Audit Committee
I am pleased to present this report on the work of the Audit Committee during the financial year ended July 31, 2020. This is my first report as Chairman of the Audit Committee having taken over from Darren Shapland in November 2019. I would like to thank Darren for his outstanding service, both as a Non Executive colleague and as Chairman of the Audit Committee, and on a personal level for the support he provided to me during the transition of responsibilities. It is my view that the Committee’s primary purpose is to act independently and with integrity to provide oversight of the Group’s financial reporting procedures and internal control framework as well as monitoring the effectiveness, performance, objectivity and independence of our internal and external auditors.
Alan Murray Audit Committee Chairman
Audit Committee members Meetings attended (eligibility)
Membership
Alan Murray1 (Chairman)
6 (6)
Tessa Bamford
6 (6)
Cathy Halligan
6 (6)
Tom Schmitt
6 (6)
Nadia Shouraboura
6 (6)
Jacky Simmonds
6 (6)
Members who left during the year
Geoff Drabble2 Darren Shapland
2 (2) 3
2 (2)
1. Chartered management accountant. 2. Geoff Drabble stepped down as a Committee member when his appointment as Chairman became effective on November 21, 2019. 3. Darren Shapland ceased to be a member of the Committee when he stepped down from the Board on November 21, 2019.
Audit Committee overview – Alan Murray succeeded Darren Shapland as Chairman of the Committee on November 21, 2019. – As at the date of this report, the Committee is made up of six independent Non Executive Directors. Details of membership and attendance are set out in the table above. – Other attendees at meetings included the Chairman, Group Chief Executive, Group Chief Financial Officer (“Group CFO”), Group Head of Internal Audit, Group General Counsel and representatives from Deloitte LLP (“Deloitte”). – The Board has reviewed the composition of the Committee and is satisfied that the Committee as a whole meets the requirements for sectoral competence and recent and relevant financial experience. – Private sessions for Committee members are held when necessary to enable the Committee members to discuss agenda items and Audit Committee business without management present. – Deloitte, the Group Head of Internal Audit and the Group CFO meet with the Committee on a periodic basis. An overview of the Committee’s areas of responsibility is set out on page 67 and the Committee’s Terms of Reference are available at www.fergusonplc.com
This has been a year of considerable development for the business and it is important that, in addition to fulfilling its regular duties, the Committee keeps a close eye on future developments both externally and within the Group that could have a significant impact on our operations. During the year we continued to review proposed changes to the UK audit market. We commenced a review of the Group’s internal control framework and US GAAP reporting requirements with a view to ensuring that the Company is prepared for possible changes to its listing structure. As you would expect the Committee also looked at how to operate efficiently in light of the COVID-19 pandemic; in particular, how the external audit could be delivered in the current environment while maintaining the expected high level of rigor, and to ensure that the Internal Audit function had the resources and planning in place to complete its work for 2019/20. Consequently, appropriate changes to the 2019/20 External and Internal Audit plans were considered and approved by the Committee. The Committee’s principal focus during the year has remained on our core areas of responsibility. We maintained oversight of the Group’s financial reporting processes by reviewing the application of financial and accounting policies, challenging the judgments made by management and the assumptions and estimates that underpin those judgments. We received regular reports from Deloitte on various matters and continued to oversee their effectiveness and independence. We gained assurance on the continued effectiveness of the internal control environment by reviewing the work undertaken by Internal Audit as well as the risk and finance functions and considered all matters raised through the Group’s ethics helpline. The Committee recognizes the importance of maintaining a culture of continuous improvement in its own work and in the functions and processes of which it has oversight. The Committee undertook a rigorous review of its effectiveness in July 2020. The review found that the Committee is, overall, highly effective. It also identified areas in which we can strengthen our performance. These are reflected in the Committee’s priorities for 2020/21, set out below: – Continued oversight of the Group’s control environment and risk management processes. – Transition of responsibilities from the outgoing Group CFO to his successor. – Oversight of actions related to the additional US listing, including preparations for compliance with the Sarbanes-Oxley Act and ensuring that reports and information received by the Committee are developed to reflect the evolution towards additional governance requirements while retaining appropriate clarity and succinctness. I hope you find the information on the following pages useful and informative.
Alan Murray Chairman of the Audit Committee
