Board's approach to risk management and internal control
It is the board that is responsible for determining the nature and extent of the risks that it is willing to take to achieve its strategic objectives and for ensuring that risk management and internal control systems are effectively managed across the business and receive an appropriate level of scrutiny and board time.
The risks that we must manage are predominantly those of any water and wastewater company and one of our most important risks is that of fulfilling our regulated activities and obligations. We adopt a prudent approach to the way we manage our business and the risks impacting it as is appropriate for an organisation such as ours that provides a vital service to its customers. This approach is reflected in the culture of our organisation. That being said, we are a commercial organisation operating within a regulated system, and accepting some level of risk is a normal consequence of doing business.
It is the role of the board to ensure that the management team fully understand the risks associated with each activity of the business and that they undertake appropriate mitigating actions, ensuring that the activities of the group do not negatively impact UUW in accordance with the regulatory licence.
We regularly review the principal risks and uncertainties which could impact our business, these can be found in Principal Risks and Uncertainties. We believe that the risk management process and internal control systems and processes are well embedded as business as usual activities. The audit committee, supported by the internal audit team, has an initial overview of these processes and provides information to the board on the assessment of the suitability and effectiveness of these systems and processes throughout the business. Thereafter, the board conducts an annual review of the effectiveness of the company's risk management and internal control systems, including those relating to the financial reporting process, in accordance with the Turnball Guidance on Internal Control. No significant failings or weaknesses were identified in this review. Further information can be found in the Audit Committee Report.
Going concern reporting
The board has decided to await the publication of final guidance by the Financial Reporting Council (FRC), following the outcome of the November 2013 consultation on 'Risk Management, Internal Control and the Going Concern Basis of Accounting', prior to making any changes to its 'going concern' statement (set out below) and the consultation the FRC announced in April 2014 on the 'Proposed Revisions to the UK Corporate Governance Code' . The board expects that there will be clarification on whether the Code will continue to require a 'going concern' statement in the annual report in addition to what is required under accounting standards (see Accounting policies), as a result our review of going concern and our related disclosure is unchanged from our 2013 accounts.
Going concern statement
As part of its review of the financial report and accounts the board considered whether the group had adequate financial resources to continue trading as a going concern. FRC guidance requires that in order to be considered to be a going concern, the group should have adequate financial resources for at least 12 months from the date of approval of the financial statements.
We, the directors, have a reasonable expectation that the group has adequate resources available to it to continue its operational existence for the foreseeable future and have therefore continued to adopt the going concern policy in preparing the financial statements.
This conclusion is based upon, amongst other matters, a review of the group's financial projections together with a review of the cash and committed borrowing facilities available to the group as well as consideration of the group's capital adequacy. In addition, the directors also considered, amongst other matters, the primary legal duty of United Utilities Water PLC's economic regulator to ensure that companies can finance their functions. The directors also took into account potential contingent liabilities and other risk factors as interpreted by the guidance given in 'Going Concern and Liquidity Risk: Guidance for Directors of UK Companies 2009'.