The Committee is comprised entirely of independent non-executive directors. The Board is satisfied that both Ashley Martin and Peter Williams have recent and relevant financial skills and experience. Both have professional qualifications with the Institute of Chartered Accountants of England and Wales.
The Finance Director and the Head of Finance are normally invited to attend the meetings as well as the external auditor, KPMG and the internal auditor, PwC. Other relevant people from the business are also invited to attend certain meetings in order to provide a deeper level of insight into certain key issues and developments. The Committee regularly meets separately with the external and internal auditors without others being present.
The quorum for meetings of the Committee is two members. Appointments to the Committee are for a period of up to three years, extendable by no more than two additional three-year periods, so long as members continue to be independent.
The Committee Chairman briefs the Board on the matters discussed at each Committee meeting and the effectiveness of the operation of the Committee was reviewed as part of the effectiveness review of the Board and its committees in December 2015.
Principal activities of the Committee during the year
The principal activities of the Committee through the year, and the manner in which it discharged its responsibilities are described below:
The primary role of the Committee in relation to financial reporting is to review with both management and the external auditor the appropriateness of the half year results statement and the Annual Report and financial statements including, amongst other matters:
- The quality and appropriateness of accounting policies and practices;
- The clarity of the disclosures and compliance with relevant financial reporting standards and governance reporting requirements; and
- Key accounting issues or matters in which significant judgements have been applied.
At the request of the Board, the Committee was asked to consider whether the 2015 Annual Report and accounts, taken as a whole, is fair, balanced and understandable and provides the necessary information for shareholders to assess the Group’s performance, business model and strategy, and has concluded that this is the case.
The significant areas of judgment considered by the Committee in relation to the 2015 Annual Report and how these were addressed were:
The timing of revenue recognition in relation to the billing of subscription fees and additional products and services and the accounting for any membership offers to customers with discounted or free periods. This was a prime area of audit focus with KPMG performing detailed analytical procedures using computer assisted audit techniques throughout the year on amounts billed to the two largest customer groups (Agency and New Homes), together with the billing of Overseas customers, investigating any anomalies and outliers identified and providing detailed reporting to the Committee in this regard. The Committee discussed any reported anomalies highlighted by KPMG ensuring that adequate explanations were received from management in line with their business understanding.
In addition the Committee received regular updates from management discussing current customer offers and their impact on revenue recognition.
As this area is of higher audit risk the Committee also received detailed verbal and written reporting from KPMG on this matter. The Committee was satisfied with the explanations provided and conclusions reached.
Share-based incentives and the related deferred tax balance
The external auditors and Committee discussed the audit plan and assessed the risks associated with share-based incentives and the related deferred tax balances and concluded that it was no longer a significant audit risk area. It remains an area of judgement for management given the technical complexity of the calculations and the assumptions around the rate at which the related deferred tax asset is likely to reverse.
The Group established an outsourced internal audit function provided by PwC during 2015 known as Rightmove Assurance. The aim of Rightmove Assurance is to provide independent and objective assurance on the effectiveness of internal control, risk management and governance processes.
During the year and in accordance with the approved internal audit plan, Rightmove Assurance has carried out reviews in respect of: certain core financial processes, the robustness of the risk management framework in the context of the new Corporate Governance Code, options in relation to the provision of mortgage content on the rightmove.co.uk website, the identification and prevention of certain fraudulent online activities by third parties against Rightmove and the systems and controls in place to prevent the loss or malicious publication of Rightmove data. Reports setting out their principal findings and agreed management actions were discussed by the Committee.
KPMG has been the Group’s auditors since 2000. Following the 2012 revision of the UK Corporate Governance Code by the Financial Reporting Council, a decision was made by the Committee to formally tender the provision of audit and taxation services to the Group. A comprehensive tender and review process was concluded in March 2013. The Committee was satisfied that the skills and depth of industry knowledge in the team remained very strong and combined with the fresh perspective of the new audit partner decided that KPMG should be re-appointed as the Group’s auditor, with Karen Wightman taking over responsibility as lead audit partner.
The EU Audit Regulations have not yet been formally enacted in the UK, however in October 2015 the Department for Business Innovation & Skills consultation on the legislative implementation of the EU Audit Directive and Regulation, commented that a tender of an audit engagement resulting in the reappointment of the incumbent auditor for an accounting period beginning up to ten years before the application of the new EU Audit Directive and Regulation, effective 17 June 2016 (The EU Regulation), should be treated as a tender for the purposes of the transitional provisions. As KPMG were reappointed in 2013 following a competitive tender process, we therefore anticipate Rightmove’s next requirement to tender its audit will be for the 2023 calendar accounting year. These timeframes will also ensure compliance with the provisions of the CMA Statutory Audit Services Order 2014.
The external auditor is required to rotate the audit partner responsible for the Group audit every five years. The current lead partner, Karen Wightman, has been in place for three years.
The Committee also approved the fees of KPMG during the year.
Effectiveness of the external audit process
The effectiveness of the external audit process is dependent on a number of matters. These include the quality, continuity, experience and training of audit personnel, business understanding, technical knowledge and the degree of rigour applied in the review processes of the work undertaken, together with appropriate audit risk identification at the start of the audit cycle.
The Committee evaluated the effectiveness of the audit process in addressing these matters together with input from management. Areas the Committee considered in this review included the quality of audit planning and execution, engagement with the Committee and management, quality of reporting and capability and experience of the audit team. For the 2015 financial year, the Committee were satisfied that there had been appropriate focus and challenge on the primary areas of audit risk and concluded that the performance of KPMG remained efficient and effective.
The Committee also discussed its responsibilities to safeguard audit objectivity and independence as well as the needs of the business and agreed that it was practical in certain limited cases for the auditor to be assigned to other non-audit project work due to their knowledge and expertise of the business.
In November 2015 the Committee agreed a policy that management be given authority to incur permitted non-audit fees up to 50% of the annual agreed audit fee in any financial year without the prior approval of the Committee. Thereafter all additional fees will be referred to the Committee in advance, subject to a cap on permitted non-audit fees at 70% of the average audit fees over the three preceding financial years, in line with the forthcoming new EU Regulations. Permitted non-audit fees exclude those services prohibited by the EU requirements, in particular all tax services. Non-audit services required by legislation are not subject to the cap.
In 2015 the non-audit fees were £5,000 in relation to other advisory services and were £10,000 in relation to tax compliance and advice and are fully disclosed in Note 6 of the financial statements. As a result of the forthcoming EU regulations on permitted non-audit services, KPMG will no longer be able to provide tax compliance and advisory services and we have therefore appointed PwC to provide these services in 2016.
The Board has overall responsibility for the Group’s system of internal controls and has established a framework of financial and other controls which is periodically reviewed in accordance with the FRC Internal Control: Guidance to Directors publication for its effectiveness.
The Board has taken, and will continue to take, appropriate measures to ensure that the chances of financial irregularities occurring are reduced as far as reasonably possible by improving the quality of information at all levels in the Group, fostering an open environment and ensuring that the financial analysis is rigorously applied. Any system of internal control is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss.
The Group’s management have established the procedures necessary to ensure that there is an ongoing process for identifying, evaluating and managing the significant risks to the Group. These procedures have been in place for the whole of the financial year ended 31 December 2015 and up to the date of the approval of these financial statements and they are reviewed regularly.
The key elements of the system of internal control are:
- Major commercial, strategic, competitive and financial risks are formally identified, quantified and assessed, discussed with the executive directors, after which they are considered by the Board;
- A comprehensive system of planning, budgeting and monitoring Group results. This includes monthly management reporting and monitoring of performance against both budgets and forecasts with explanations for all significant variances;
- An organisational structure with clearly defined lines of responsibility and delegation of authority;
- Clearly defined policies for capital expenditure and investment exist, including appropriate authorisation levels, with larger capital projects, acquisitions and disposals requiring Board approval;
- A comprehensive disaster recovery and business continuity plan based upon:
- co-hosting of the rightmove.co.uk website across three separate locations which is regularly tested and reviewed; and
- the capability for employees to remote work from home or a third party location in the event of a loss of one of our premises which has been tested for both our London and Milton Keynes offices during the year.
- Regular testing of the security of the IT systems and platforms, regular back ups of key data and ongoing threat monitoring to protect against the risk of cyber attack;
- A treasury function which manages cash flow forecasts and cash on deposit and counterparty risk and is responsible for monitoring compliance with banking agreements, where appropriate; and
- Whistleblowing and bribery policies of which all employees are made aware, to enable concerns to be raised either with line management or, if appropriate, confidentially outside the line management.
Through the procedures outlined above, the Board, with advice from the Committee, has considered all significant aspects of internal control for the year and up to the date of this Annual Report. No significant failings or weaknesses were identified during this review. However, had there been any such failings or weaknesses, the Board confirms that necessary actions would have been taken to remedy them.