74 JUST GROUP PLC Annual Report and Accounts 2020
AUDIT Committee REPORT continued
Alternative Performance Measures The Committee considered the APMs used by the Group and whether these remained appropriate and useful measures. The Committee reviewed the disclosures in the Annual Report and Accounts in relation to the APMs used by the Group and also considered compliance with the guidance on APMs set out by the European Securities and Markets Authority. Going concern As part of the assessment of going concern and longer-term viability for December 2020, the Committee considered the impact of COVID-19 and the regulatory position of the Group. The Committee also considered other risks in stressed scenarios for the going concern assessment including the risks associated with capital requirements to write anticipated levels of new business which form part of the Group’s business plan; the projected liquidity position of the Group; eligible own funds being in excess of minimum capital requirements in stressed scenarios; the findings of the Group Own Risk and Solvency Assessment; risks arising from the UK’s withdrawal from the European Union; and the risk of regulatory intervention. In addition to risks, the Committee considered the Group business plan approved by the Board in November 2020 and the forecast regulatory solvency position calculated on a Solvency II basis, which includes scenarios setting out possible adverse trading and economic conditions as a result of the COVID-19 pandemic. Steps taken by the Group during 2020 to improve capital efficiency were also considered. Regulatory reporting oversight The Committee receives regular updates on the Group’s regulatory reporting matters, including the oversight and preparation of the Group’s annual SFCR. The Committee also receives regular updates relating to the ongoing publication by the Prudential Regulation Authority of supervisory statements that set out its expectations for certain aspects of prudential regulation. The Committee received and discussed reports from Group Internal Audit on the Group’s processes in accordance with the PRA Supervisory Statement, SS3/17, Solvency II: matching adjustment - illiquid unrated assets and equity release mortgages (“SS3/17”). The Committee received assurance that the restructuring of the lifetime mortgages into matching adjustment eligible notes had been designed to satisfy the requirements as set out in SS3/17. The Committee has responsibility for overseeing the recalculation of Transitional Measures on Technical Provisions (“TMTP”). The Committee reviewed and approved changes to the TMTP methodology for inclusion in the SFCR at 31 December 2020 to reflect refinements in the methodology. The implementation of Solvency II in practice has continued to evolve and is expected to do so in the future. There was regular engagement with the PRA on the changes proposed to the TMTP and other matters affecting reporting during the year. EXTERNAL AUDIT Appointment Following the tender process in 2019, the Board approved the appointment of PwC as external auditor for the year ended 31 December 2020 and a resolution put to the shareholders at the 2020 AGM was subsequently approved. KPMG resigned as external auditor following the completion of the audit for the year ended 31 December 2019. Shareholders were notified that there were no matters that needed to be brought to their attention. The lead audit engagement partner who was appointed for the 2020 audit is Lee Clarke. This being the first year since appointment, there are no current plans to re-tender the service of the external auditor, which was last undertaken in 2019. There are no contractual obligations restricting the Group’s choice of external auditor. The Committee confirms it has complied with The Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of Competitive Process and Audit Committee Responsibilities) Order 2014, published by the Competition and Markets Authority on 26 September 2014.
Oversight The Committee is responsible for recommending to the Board the appointment, remuneration and terms of engagement letter of the external auditor. It also ensures that appropriate audit plans are in place and that an effective relationship is maintained with the auditor. This is achieved through regular reports from the auditors and by holding meetings with the lead audit engagement partner, Lee Clarke, without the presence of management. Private meetings were also held with Lee Clarke and the Chair of the Committee on a regular basis. In 2020 and to date in 2021, the Committee: • reviewed the 2020 year-end audit work plan including the scope of the audit and the materiality levels adopted by the external auditor; • reviewed the Group’s policy on the use of the external auditor for non-audit work and concluded that further work commissioned during the year was in compliance with the policy. It also evaluated: a) the independence and objectivity of the external auditor having regard to the report from the external auditor describing the general procedures to safeguard independence and objectivity; b) the level, nature and extent of non-audit services provided by the external auditor; c) whether the external audit firmwas the most suitable supplier of the non-audit services; and d) the fees for the non-audit services, both individually and in aggregate; • agreed the terms of engagement and fees to be paid to the external auditor for the audit of the 2020 Annual Report and Accounts; • reviewed recommendations made by the external auditor in their management letters and on the adequacy of management’s response; and • reviewed the external auditor’s explanation of how the significant risks to accounts were addressed. The Committee received regular updates frommanagement and PwC on preparations for completing the year-end close process and audit in light of the challenges posed to our usual processes, and those of PwC, by the COVID-19 pandemic. The Committee was reassured by the actions that management and PwC had taken to ensure that there was minimal impact on the year-end timetable. The Committee considered the quality and effectiveness of the external audit process. Its effectiveness is dependent on appropriate audit risk identification at the start of the audit cycle. The Committee receives a detailed audit plan from PwC, identifying its assessment of these key risks. For the 2020 reporting period the significant risks identified were broadly in line with 2019. The key risks identified were in relation to the valuation of insurance liabilities, the valuation of loans secured by residential mortgages, recoverability of investment in subsidiaries and the valuation of hard to value investments. The significant judgements made in connection with these risks are set out in the table on page 73. The Committee challenged the work done by the auditor to test management’s assumptions and estimates around these areas. The Committee assesses the effectiveness of the audit process in addressing these matters through the reporting received from PwC at the interim and year end. In addition, the Committee seeks feedback frommanagement on the effectiveness of the audit process. For the 2020 reporting period, management were satisfied that there had been appropriate focus and challenge on the primary areas of audit risk and assessed the quality of the audit process to be good. The Committee concurred with the view of management. During the year, the FRC’s Audit Quality Review team (“AQR”) completed a review of the audit of the Group’s financial statements for the year ended 31 December 2018. The AQR routinely monitors the quality of the work of certain UK audit firms through inspections of sample audits and related procedures. One finding was raised as a limited improvement in relation to work performed by KPMG, the previous external auditor. Having considered the report and discussed it with the KPMG Lead Audit Partner, the Committee was satisfied that the finding was addressed. Independence and non-audit services The Group has a policy in relation to the provision of non-audit services by our external auditor. All non-audit services provided by the external auditor are subject to review and approval by the Committee.
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