Report of the Audit Committee
The focus on the Audit Committee’s performance of its duties is steadily increasing. To reflect this increased attention, as Chairman of the Audit Committee of METRO AG, I would like to review financial year 2020/21, which was again marked by the effects of the Covid-19 pandemic, from the perspective of the committee and report on the tasks and activities of the corporate body.
Prof. Dr Edgar Ernst
Chairman of the Audit Committee
Profile
Prof. Dr Edgar Ernst studied mathematics with a minor in business administration at the University of Cologne and holds a Master of Operations Research title from the University of Aachen. After completing his studies, he was awarded a doctorate in political science (Dr rer. pol.) from RWTH Aachen (University of Technology in Aachen, North Rhine-Westphalia) in 1982. Prof. Dr Edgar Ernst began his professional career in 1983 at McKinsey & Company, Inc. In 1986, he transferred to Großversandhaus Quelle GmbH. From 1990 to 1992, Prof. Dr Ernst was the Head of Planning and Controlling, and from 1992 to 2007 Chief Financial Officer of Deutsche Bundespost POSTDIENST (later Deutsche Post AG). From 2006 to 2008, he was a member of the Management Board of the WHU Foundation. Since 2006, Prof. Dr Ernst has been an honorary professor at the WHU – Otto Beisheim School of Management. He has been President of the German Financial Reporting Enforcement Panel (FREP) since 2011 and will remain in that position until the end of 2021. Since 2017, he has been a member of the Supervisory Board and Chairman of the Audit Committee of METRO AG.
- More information about the other members of the Supervisory Board can be found on the website www.metroag.de/en in the section Company – Supervisory Board.
The Audit Committee is in particular responsible for supervising the company’s accounting, accounting processes, the effectiveness and development of the internal control systems, the risk management system, the internal audit system, the audit of the annual financial statements (in particular relating to the selection and independence of the auditor, the quality of the audit and any additional services provided by the auditor) as well as compliance. Further information on the work of the Audit Committee is defined in the Code of Procedure of the Audit Committee.
- The Code of Procedure of the Audit Committee of the Supervisory Board of METRO AG can be found on the website www.metroag.de/en in the section Company – Corporate Governance.
The Audit Committee is composed of equal numbers of representatives. The following members are part of the Audit Committee (as of 30 September 2021): Prof. Dr Edgar Ernst (Chairman), Xaver Schiller (Vice Chairman), Marco Arcelli, Stefanie Blaser, Michael Heider and Dr Fredy Raas. As Chairman of the Audit Committee, I fulfil the requirements for assuming the chair according to recommendations of the German Corporate Governance Code and the diversity concept for the Supervisory Board of METRO AG, according to which the Chairman of the Audit Committee should be independent. In other words, I am not affiliated with the company and its Management Board or a controlling shareholder. Moreover, the Chairman of the Audit committee must have special expertise and experience in the application of accounting principles and internal control procedures. Naturally, he must also be familiar with auditing of financial statements. The Audit Committee already meets the new stock corporation law requirement that at least one committee member also has expertise in the field of accounting and at least one other committee member has expertise in the field of auditing.
The Audit Committee held a total of 6 meetings in financial year 2020/21. The itemised meeting attendance of the members of the Audit Committee can be found in the report of the Supervisory Board. The Chairman of the Supervisory Board, Jürgen Steinemann, attended all meetings as a permanent guest. The Management Board was represented by the Chairman of the Management Board and the Chief Financial Officer. Representatives from various METRO departments were available at the meetings to discuss specific topics. The auditor was present for each agenda item that was relevant to the audit of the financial statements. The Audit Committee also conducted separate reporting telephone calls concerning the business development with the Chairman of the Management Board and the Chief Financial Officer between the scheduled meetings.
In order to perform the duties of the Audit Committee, I frequently communicated with Jürgen Steinemann as Chairman of the Supervisory Board and with the Management Board, especially the Chief Financial Officer, outside the meetings to exchange information and ideas on important topics and upcoming decisions. The exchange of information was supported by individual discussions with the auditor and heads of various METRO departments. I notified the Supervisory Board about the content of the discussions as well as about the work and recommendations of the Audit Committee in each of its subsequent meetings.
Main contents of the committee meetings
November 2020 – The committee was briefed on the status of the annual financial statement progress. We focused on the effectiveness and functioning of the group’s governance functions (internal control systems, risk management system, internal audit and compliance). It was followed by an update on the group tax planning. We were also updated about a project aimed at improving and digitalising the internal financial reporting systems.
December 2020 – The Audit Committee routinely prepared the meeting of the Supervisory Board in December and reviewed the annual and consolidated financial statements for financial year 2019/20, the combined management report of METRO AG and the group for financial year 2019/20 as well as the combined non-financial statement contained in the combined management report. The auditor reported on the results of the audits and was available to answer additional questions and provide information in the absence of the Management Board. In the presence of the auditor, the committee also discussed the results of the audit and recommended to the Supervisory Board to approve the annual and consolidated financial statements for financial year 2019/20 and to approve the Management Board’s proposal to the Annual General Meeting 2021 on the appropriation of the balance sheet profit. The Audit Committee also decided on passing on a recommendation to the Supervisory Board or the Annual General Meeting 2021 to elect KPMG AG Wirtschaftsprüfungsgesellschaft as auditors for financial year 2020/21. Furthermore, the Management Board provided information about awarding of donations.
February 2021 – The meeting was focused on the quarterly statement Q1 2020/21. Furthermore, we were updated about utilisation of the financing framework. We passed a resolution on a recommendation to the Supervisory Board to appoint the auditor for financial year 2020/21, which included the following tasks: the audit of the annual financial statements and the consolidated financial statements of METRO AG as of 30 September 2021 as well as the combined management report for METRO AG and the group for financial year 2020/21; the audit review of the condensed interim financial report as of 31 March 2021 as well as the interim group management report for the period from 1 October 2020 to 31 March 2021; and the audit of the combined non-financial statement for financial year 2020/21 in the form of a limited assurance engagement. The Audit Committee based this decision on its discussion of the audit quality, which was particularly based on the elements of quality assurance on the part of the auditor, which included audit quality indicators and the auditor’s statement of independence. The quality of the audit was already confirmed by the Audit Committee in September 2020 as part of the Audit Committee’s self-assessment and rated as very good. As part of the recommendation for the auditor election in December 2020, no deficiencies in the audit-related services to date were identified that would argue against the election of KPMG as auditor. With regard to the internal guideline on engagements of KPMG introduced in 2017, we passed a resolution on its adaptation to current regulatory developments. In addition, we approved non-audit services provided by the auditor that exceeded the threshold for approval of a delegate as set out in the internal policy.
May 2021 – The focus of the meeting was the half-year financial report 2020/21. Once again, we dealt with the assessment of the audit quality of the financial statements and obtained supplementary feedback from the Accounting & Controlling department of METRO AG on individual aspects. The committee routinely obtained information about the status of the auditor’s approved non-audit services and the utilisation of the upper statutory cap. Supported by the corresponding specialist division of METRO AG, we received information on the capital market outlook of METRO. Furthermore, the meeting dealt with the key points ‘strategy/budget 2021/22’ including the investment planning as well as the half-year report on the governance functions. We were given a status overview of the introduction of the Financial Market Integrity Strengthening Act (FISG) and the significant changes to the work of the Supervisory Board that will result from enforcing it. We also received information about the group tax planning.
July 2021 – With the participation of the members of the Presidential Committee, we discussed the budget planning for 2021/22 and subsequent years and received an outlook on key figures relevant to remuneration. Based on the information provided by the auditor about the regulations of the Financial Market Integrity Strengthening Act (FISG), we passed a resolution on the (future) right of the Management Board to participate in audit-related agenda items of the Audit Committee meetings. Thereafter, we issued a recommendation for how this should be handled in Supervisory Board meetings. The quarterly statement Q3 2020/21 was routinely discussed. Additionally, we dealt with particularly important key audit matters and critically reviewed their definition based on the continuous development of the business and, in particular, the environment impacted by the Covid-19 pandemic. Due to new regulatory requirements, we passed a resolution on adapting the guideline on engagements of KPMG and received information about non-audit services provided by the auditor. With an update on accounting standards, we inquired about the expected effects of changes to the IFRS standards and other significant changes due to new external reporting requirements.
September 2021 – The resolution on the recommendation to approve the budget planning for 2021/22 and subsequent years was the focus of the meeting. Another topic was the report of the Group Internal Audit department including the internal audit planning. We also passed a resolution on a recommendation to the Supervisory Board to award another mandate to KPMG regarding the audit of the Related Parties Transaction Report 2020/21. Moreover, we participated in the meeting of the Presidential Committee to discuss the performance targets for the STI 2021/22.
Annual and consolidated financial statements, report on relationships with affiliated companies 2020/21
At the meeting on 13 December 2021, the Audit Committee reviewed and discussed in detail the annual financial statements and the consolidated financial statements, each of which received an unqualified audit opinion from the auditor, the combined management report for METRO AG and the group for financial year 2020/21, the combined non-financial statement contained in the combined management report as well as the report on the company’s relationships with affiliated companies for financial year 2020/21. The auditor reported on the results of the audit and addressed the key audit matters and the accounting-related topics of their audit. After an intensive exchange of views, the Audit Committee recommended that the Supervisory Board take note of and approve the results of the audit of the annual financial statements and the consolidated financial statements of METRO AG as of 30 September 2021, the combined management report for METRO AG and the group for financial year 2020/21, the combined non-financial statement contained in the combined management report as well as the report of the Management Board on relationships with affiliated companies for financial year 2020/21, endorse the results of the audit of the auditor and determine that no objections are to be raised. Furthermore, the Audit Committee recommended that the annual financial statements and the consolidated financial statements of METRO AG as well as the combined management report for METRO AG and the group, including the non-financial statement contained in the combined management report, be approved and that the annual financial statements of METRO AG thus be adopted, and that the Management Board’s proposal to the Annual General Meeting for the appropriation of the balance sheet profit be endorsed.
After challenging, intensive months, I would like to conclude by thanking the Chairman of the Supervisory Board, the auditor and the Management Board for their constructive and dependable collaboration in financial year 2020/21.
Düsseldorf, 13. December 2021
The Audit Committee
Prof. Dr Edgar Ernst
Chairman of the Audit Committee
- Information about the members of the Supervisory Board can be found on the website www.metroag.de/en in the section Company – Supervisory Board.