AUDIT AND RISK COMMITTEE REPORT CONTINUED
■ Quality of reports provided to the Committee ■ Communication between the external auditor and the Committee ■ Feedback from management on the quality of the audit team ■ Professional scepticism of the external auditor. The Committee concluded that the audit team had the necessary professionalism, experience and understanding of the business to carry out a thorough and robust audit in FY 2025/26. External auditor independence The Committee believes that the provision of non-audit services to the Group is closely related to external auditor independence and objectivity. The Committee recognises that the independence of the external auditor may risk becoming compromised if it also acts as the Company’s consultant and adviser to any material extent. The Committee accepts that certain work of a non-audit nature is best undertaken by the external auditor. The Committee reviewed its policy on the provision of non-audit services during the year to ensure that there is no likelihood of any impairment of external auditor independence or objectivity. Fees for non-audit services provided by the external auditor during the financial year totalled £6,500 (FY 2024/25: £83,500). Of that total of £nil related to the interim review (FY 2024/25: £80,000) and £6,500 (FY 2024/25: £3,500) related to reporting required by regulators in overseas countries. These were not considered to adversely impact the independence of the external auditor, were in line with the Group’s policy on non-audit services and were permissible under ethical standards. Key areas of focus in 2026/27 ■ Continuing assessment of ESG-related risks and reporting requirements ■ Monitoring the Group’s activities to comply with the revisions to the UK Corporate Governance Code effective from January 2025. Specifically, implementing the lessons learned from the 2025/26 dry run to provide assurance over material controls to support the Group meeting the reporting requirements of Provision 29 of the Corporate Governance Code. Terms of reference The Committee’s terms of reference are available upon request and are on the Company’s website: www.discoverIEplc.com
The corporate criminal offence of failure to prevent fraud came into effect on 1 September 2025. The Committee has maintained a specific focus on overseeing the Group’s response to this legislation. Actions taken include the introduction of annual fraud risk assessments, the issuance of guidance on fraud risk indicators (‘red flags’), and the rollout of targeted training across the Group. In addition, the Group has enhanced its Export Control Framework during the year, including refreshing risk assessments, strengthening guidance and support provided to operating companies, and rolling out mandatory training. These activities further support the Group’s broader risk management framework and compliance obligations. Together, these initiatives complement the Group’s preparations for Provision 29 and contribute to the continued strengthening of the overall control environment. Throughout the year, the Committee has monitored the Group’s internal control and risk management systems and, at its May meeting, carried out a review of their effectiveness. Internal Audit The primary role of the Group Internal Audit function is to provide independent, risk-based assurance, together with advice and insight, to support the continuous improvement of the Group’s governance, risk management and internal control processes. Its remit extends across discoverIE Group plc and all of its subsidiaries. During FY2025/26, the function operated with three full- time employees, supplemented by external consultants and outsourced providers where appropriate. Further details of its activities are set out in the Risk Management section on pages 74 to 78. The Committee has overall responsibility for reviewing the effectiveness of the Group’s risk management and internal control framework, including oversight of the Internal Audit function. In doing so, the Committee ensures that Internal Audit has unrestricted scope, appropriate resources, and full access to information necessary to perform its role effectively. The adequacy of resources available to the function was considered during the year. The Committee receives regular reports on internal audit activity, including key findings and management’s progress in implementing agreed actions. I meet regularly with the Head of Risk and Internal Audit outside of formal Committee meetings to support the effective discharge of the function’s responsibilities and to discuss emerging matters, including regulatory developments. During the year, the following activities were undertaken on behalf of the Committee: ■ Review and approval of the Internal Audit Charter (November 2025) ■ Input into the Risk and Internal Audit plan for FY26 (January 2026)
■ Clearly defined procedures for the authorisation of major new investments and commitments ■ A requirement for each operating company to maintain a system of internal controls appropriate to its own local business environment, recognising that where individual businesses are small there are inherent limitations. The Finance team is responsible for producing financial information that is timely, accurate and in accordance with applicable laws and regulations. In addition, it is responsible for the distribution of financial information, both internally and externally. Key financial and operational performance is reported on a timely basis and measured against both the Board approved budget, management’s rolling forecasts and comparable information from prior periods. A review of the financial statements is completed by management to ensure that the financial position and results of the Group are appropriately reflected. All financial information published externally by the Group is approved by the Board. The above procedures apply to discoverIE Group plc and all of its subsidiary companies. External audit The Committee is responsible for managing the relationship with the Group’s external auditor on behalf of the Board including their appointment, remuneration, independence and performance. During the year, the Committee’s activities in respect of external audit were as follows: ■ Considering and approving the reappointment of Deloitte as the external auditor as a resolution at the 2025 Annual General Meeting ■ Considering and approving the audit approach and scope of the audit undertaken by Deloitte and related fees ■ Agreeing reporting materiality thresholds ■ Reviewing reports on audit findings ■ Considering and approving letters of representation issued to the external auditor ■ Considering the independence of the external auditor. Audit performance and effectiveness The performance and effectiveness of the external auditor, and the related audit, is reviewed annually by the Committee. This covers the robustness of the audit at both a Head Office and entity level. The review covers the following: ■ Robustness of the audit plan and, in particular, the identification of significant risks ■ Execution of the above plan, including the external auditor’s ability to challenge management on key accounting judgements and assumptions adopted ■ Ensuring the external auditor demonstrates a deep and thorough knowledge of the business to enable them to reach appropriate conclusions on key accounting judgements
A programme of internal audit work was completed during the year, focusing primarily on internal financial and operational controls across the Group’s businesses, with particular attention given to recently acquired entities. Additional internal audit work is outsourced where this is considered appropriate. The Internal Audit function last underwent an External Quality Assessment (“EQA”) in August 2022. During the year, the function completed a self-assessment against the revised IIA Global Internal Audit Standards, and the Committee is monitoring the implementation of any actions arising from this review to support continued alignment with best practice. A further EQA is scheduled for FY28. Control Environment While no system of controls can provide absolute assurance against material misstatement or loss, the Group’s systems are designed to manage, rather than eliminate, the risk of failure to achieve business objectives and provide reasonable, and not absolute, assurance against material misstatement or loss. As part of the annual review of the effectiveness of the Group’s internal controls, the Committee, on behalf of the Board, has regard to the design of the risk management framework, including the three lines of defence model, the significance of the risks involved, the likelihood and severity of an event occurring, and the costs associated with any relevant controls. The formal Annual Opinion for FY 2025/26 issued by the Group Internal Audit function was reviewed by the Committee, concluding that there were no material failings or weaknesses identified in the Group’s internal control systems. Where improvements are identified through internal audits or through the Group’s external audit remedial actions are put in place and progress monitored by the Audit & Risk Committee. The principal components of the Group’s systems of control are: ■ A well defined organisational structure with short and clear reporting lines ■ Recruitment of high-quality staff ■ An ongoing process for the identification, regular review and management of the principal risks and issues affecting the business, both at Group and operating levels ■ In-house and outsourced internal audit activities ■ An ongoing review of regulatory compliance ■ A regular review of the principal suppliers and customers of the Group, and how each impacts upon the Group’s businesses ■ A comprehensive planning process, which starts with a strategic plan and culminates in an annual budget and a long-term plan ■ Regular rolling forecasting throughout the year of orders, sales, profitability, cash flow, working capital and balance sheets ■ A monthly review of operating company performances against budget and forecast, plus bi-monthly reviews by the Group Management Committee and Board
Clive Watson Chair of the Audit and Risk Committee 2 June 2026
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discoverIE Group plc Innovative Electronics
Annual Report and Accounts for the year ended 31 March 2026
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