Roles of Board of Executives and Independent Auditors

Founded in 1869 with a single shop in Drury Lane, London, J Sainsbury Plc. currently holds the distinction of being second largest super market chain in the United Kingdom. At present the company has a 16.9% market share of the super market in the country. Once was the leader of the super market chain in the country it lost its top position to Tesco in 1995. In 2003 Asda took even the second spot away from Sainsbury PLC however, the company regained its second position by 2014.

David Tyler is the Chairman of the company who has always emphasized on the importance of achieving excellence in business.  The key role of the Board of directors of the company under the Chairmanship of David Tyler is to help the company in crating long term sustainable value for shareholders. The specific roles of Board of executives are explained below:

Strategic leadership: Providing strategic leadership is one of the most important roles of the Board to help the company to achieve its strategic objectives (Thompson and McLarney, 2017).

Managing the performance: The executives are also responsible to manage the performance of the company by providing management leadership.

Managing risk: Risk management is another key role of the Board executives. The risk shall be managed efficiently.

Governance: The Board is also responsible to govern the business in such a way to achieve the desired objectives of the PLC.

Succession planning and management: The Board must ensure that there is an appropriate succession plan to manage the retirements of key executives without any difficulty.

Management of investor relation: Managing the relations with investors is another key part of the overall responsibility of the Board executives (Jenkins and Williamson, 2015).

In relation to the production of financial statements the Board of executives has the main role and responsibility as it is the responsibility of the Board to prepare and present the financial statements of the company by complying with applicable provisions of the Companies Act and accountings standards applicable to the company.  

The responsibility of independent auditors in relation to the production of financial statements is absolutely nil. As the independent auditor is only responsible to conduct an independent verification of the financial statements of the company to express his opinion on the statements (Morgan, Tallontire and Foxon, 2017).

Section 498 of the Companies Act, 2006 provides for all the duties and responsibilities of an auditor in relation to the audit of the companies incorporated in the United Kingdom. An auditor must be independent from the entity in order to conduct an audit effectively. Nigel Jones, senior statutory auditor of Ernst & Young LLP has conducted the audit of Sainsbury PLC. The auditor of the company has made a declaration of independence in the audit report of the company. To give an independent view after verifying the financial statements of the company independently it is absolutely essential for an auditor to be independent of the company (Singleton, Biais and Roberts, 2015).

Companies Act, 2006 has made it mandatory for company auditors to be independent. This requirement is completely rigid thus, there is no way the auditors can compromise with the provisions of section 498 of the act when it comes to duties of an auditor towards the shareholders of a company, including the independence of the auditor. Ernst and Young, the auditor of Sainsbury, has provided certain non-audit services such as consultancy on tax related matters and other consultancy services as per the annual report 2016 of the company (Atkins et. al. 2015). However, the auditor has not provided any non-audit services that is strictly in contravention with the requirements of independence of auditor. The relevance of independence in an audit is of paramount importance and the Companies Act have strictly prohibited any room for flexibility in section 498 of the act when it comes to the duties of the auditor.      

Importance of Auditors’ Independence

Quantification of non-financial issues will enhance the quality of corporate financial reporting significantly. This is because the stakeholders of the company are mainly concerned with the material information about the company. Thus, quantification of non-financial issues will provide the stakeholders with important information to further analyse the financial state and performance of the company. In case of Sainsbury PLC the Board of director has not quantified any non-financial issues though (Renz, 2016).  

The annual report of the company contains information about the future objectives of the company and the strategic leadership that the management expects to provide in the future. However, the Board has stayed away from quantifying the non-financial information in the annual report of the company. Thus, the company has missed an opportunity to enhance the quality of corporate financial reporting (Petty et. al. 2015).  

Tesco PLC is the leader in the supermarket chain in the United Kingdom. The company has been the market leader since 1995 when it took overtook J Sainsbury PLC. Since then the company has maintained a firm grip on the leader tag in the super market chain.

The strategic report of the company provided in the annual report 2016 clarifies that the annual report of the company shall have all the components of financial statements. The financial statements as per the International Financial Reporting Standards Board must have a statement of financial position, income statement, cash flow statement, statement of changes in equity and notes to accounts (Abad, Sánchez?Ballesta and Yagüe, 2017). The strategic report of Tesco provided by the Board clarifies that the company has prepared a complete set of financial statements. The strategic report further clarifies that the financial statements have been prepared in accordance with the requirements of Companies Act, 2006 and the applicable standards on accounting. Apart from that the annual report 2016 of the company contains statement of the Chairman of the company, CEO’s statement and business model of the company to improve the quality of corporate reporting (Li, 2015).

Business Model section in the annual report of the company has discussed various important aspects of the business to help the users of the annual report of the company to understand various important aspects of running the company. This has certainly helped the users of company’s annual report to get better understanding of the company as a whole as well as its financial statements (Council and Britain, 2014).    

For example the business model of the company has discussed about the six key performance indicators for the company. As a result the users of financial statements understood the importance of these key performance indicators (KPIs) and accordingly, they were capable of assessing the financial performance of the company better by specifically given extra attention to these six KPIs. The six KPIs that the business model has disclosed are as following:

1. The group sales of the company is ?48.4 billion.
2. The operating profit of the group before adjustment of exceptional items is ?944 million.

• The company has generated retail cash of ?2,851 million from business.

1. The customer loyalty has increased by 1.2%.
2. Increase of 11% in recommendation of employees and workers. Employees and workers have recommended the work environment and place of work is great.
3. The company builds trusted partnership as there is an increase of 12% in partnership in 2015/16. The group suppliers’ satisfaction is as high as 70% (Cokins, 2017).  

Another example of business model is the explanation of reinvestment process of the company that has showed how the company uses the three elements of the organization, i.e. customers, product and channel to reinvest in the business. The brief discussion on the business model has helped the stakeholders of the company to analyse the financial reports of the company better (Hill,  Jones and Schilling, 2014).   

Quantification of Non-Financial Issues for Enhancing Corporate Financial Reporting

The users of financial statements are mainly concerned about the financial reports however, the non-financial information about an entity often helps the stakeholders of an organization to take important decisions in the future. Often it is forgotten that the financial statements provide information about past performance whereas non-financial information such as the objective of the company in the future, strategy that the company is looking to adopt in the future to achieve these objectives, the goals and targets of the company immediate future and in the long run, the expansion strategy etc (Morecroft, 2015).

The Non-executive Chairman of the company, John Allan has described the importance of strong foundation. According to the Chairman the company will continue to grow in the future as it has a strong foundation laid on the concept of delivering value to the customers. The company will keep on searching for new and better means to serve its customers (Bolden, 2016).

Apart from that the strong push towards technology by investing huge amount of money into research and development initiatives further enhances the confidence of investors that the company is moving towards the right direction. Prioritizing the turnaround practices to regain competitiveness further illustrates that the company is looking to improve its market share in the future. Above non-financial information has certainly enhanced the quality of corporate reporting of the company as the users of annual reports will be able assess the expected strategy of the company to take better decision sin the future (Galliers and Leidner, 2014).

John Allan, Non-executive Chairman of the company, has the responsibility to guide the company in marketing, buying and retail operations. He has a huge amount of experience in the field of Marketing and retail operations.

Deanna Oppenheimar, Non-executive director of Tesco PLC, helps the company in banking and retail operations as she has huge experience in banking and retail operations.     

Byron Grote, Non-executive director, provides strategic support to the company in financial and strategic matter.

The above directors though not interfere in the day to day affairs of the company but their functions include meeting at regular intervals with the management to discuss the operational efficiencies and their respective areas of expertise to recommend better course of action sin the future ((Galliers and Leidner, 2014).  

Conclusion: 

Taking into consideration the discussion in this document it is clear that companies that are listed in FTSE 100 must prepare financial statements annually and issue them along with annual reports to provide the stakeholders of the company with important information about the financial and non-financial matters. This would help the stakeholders of the company to take correct decisions in the future.

References: 

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Abad, D., Sánchez?Ballesta, J.P. and Yagüe, J., 2017. Audit opinions and information asymmetry in the stock market. Accounting & Finance, 57(2), pp.565-595.

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Council, F.R. and Britain, G., 2014. Guidance on the strategic report. FRC Publications. [Online] Available from: https://integratedreportingsa.org/ircsa/wp-content/uploads/2017/05/Guidance-on-the-Strategic-Report.pdf [Accessed 24 September 2018]

Cokins, G., 2017. Strategic business management: From planning to performance. John Wiley & Sons.

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Morecroft, J.D., 2015. Strategic modelling and business dynamics: A feedback systems approach. John Wiley & Sons.

Bolden, R., 2016. Leadership, management and organisational development. In Gower handbook of leadership and management development (pp. 143-158). Routledge.

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