Thank you for the opportunity to comment on the Corporate Finance Faculty s draft Guidance on Financial Position and Prospects Procedures ( FPP ).

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1 Katerina Joannou ICAEW Chartered Accountants' Hall Moorgate Place London EC2R 6EA Deloitte LLP Athene Place 66 Shoe Lane London EC4A 3BQ Tel: +44 (0) Fax: +44 (0) July 2012 Dear Sirs Guidance on Financial Position and Prospects Procedures Thank you for the opportunity to comment on the Corporate Finance Faculty s draft Guidance on Financial Position and Prospects Procedures ( FPP ). We believe that the time is right to replace FRAG 10/95 and that the draft Guidance, once finalised, will contribute to an improved mutual understanding amongst market participants as to what is required of them. We agree with the summary of regulatory drivers for FPP assurance set out in the draft Guidance, including the assertion that a similar basis of FPP procedures is required for applications for a Premium Listing, admission to AIM or admission to the PLUS-quoted market. Whilst this may result in a change in the scope of work to be performed for some transactions, we believe that the analysis of the requirements of the markets set out in the guidance supports this stance. We think that it would be helpful for the ICAEW to take forward further work on assurance around FPP in the circumstances set out in paragraphs of the Introduction to the proposed Guidance. This might also usefully include (a) assurance on integration plans relating to a Class 1 acquisition or a reverse takeover of one existing listed company by another and (b) assurance where more than one firm of reporting accountants is involved. This should not delay finalisation of the draft Guidance but could be taken forwards as a potential second technical release or a further appendix to the Guidance. Paragraph 2.3 of the Developing the Guidance section of the paper states that the ICAEW does not intend to provide guidance to replace the reporting accountant s role in relation to the old Listing Rule 2.8, on the grounds that this rule does not exist in a similar form in the current FSA Listing Rules. Nevertheless, reporting accountants are often asked to confirm that, within the context of their instructions, they have reported to the company and the Sponsor/Nomad all matters which have come to their attention in fulfilling their instructions which they consider should be disclosed as being in their view material to the transaction. We believe it would be helpful for the ICAEW to consider developing guidance as to the reporting accountant s interaction with the Sponsor s declaration under LR 8.4.3R(3). Our responses to the consultation questions asked in section 1 of the draft Guidance are set out in Annex 1 to this letter, together with some minor editorial comments and suggestions in Annex 2 and a suggested redraft of the assurance report in Annex 3. If you have any questions concerning our comments, please contact Yvette Allen (Partner) on or Richard Gillin (Director) on Yours faithfully Deloitte LLP Deloitte LLP is a limited liability partnership registered in England and Wales with registered number OC and its registered office at 2 New Street Square, London EC4A 3BZ, United Kingdom. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited ( DTTL ), a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see for a detailed description of the legal structure of DTTL and its member firms. Deloitte LLP is the United Kingdom member firm of DTTL.

2 Appendix 1 response to consultation questions 1. Do you have any comments on the material set out in the Introduction to the new guidance and on the transitional arrangements set out in Section 2.3? We agree with the stance explained in section of the Developing the guidance material on page 6 of the draft as to the scope of the guidance, and in particular the approach of addressing financial position and prospects procedures rather than financial reporting procedures. This point might usefully be made in the permanent guidance, as otherwise users might be surprised by the fact that section G in Appendix 1 is flagged as supplementary rather than core. Potentially a new paragraph could be inserted beneath paragraph 16 as follows: This guidance addresses FPP the ability of the directors to assess the entity s position and prospects is related to, but not the same as, the ability to produce the periodic reports required by the Listing Rules/AIM Rules/Plus Rules for Companies. Directors duties in respect of periodic reports may be both wider (e.g. narrative reporting) and narrower (only at set dates rather than the ongoing assessment of position and prospects). Any additional work required in relation to compliance with other such rules would need to be agreed between the reporting accountant and the sponsor. We believe that the adoption of a risk-based approach (as set out in paragraphs 13-14) of the Introduction is the right approach for both directors and reporting accountants. We strongly support the adoption of ISAE 3000 as the underlying framework for the reporting accountants assurance work. In due course we would encourage the ICAEW to update the guidance once the IAASB has issued a revised ISAE This would also allow time for the working group to consider early feedback from stakeholders applying the FPP guidance and the sponsors and boards receiving opinions and long form reports under this guidance. The transitional provisions in section 2.3 are practicable. 2. Does the material on directors in Part 1 of the new guidance satisfactorily address both their responsibilities and the main challenges in establishing FPP procedures? Yes. In particular, we believe that the idea of a risk-based approach is helpful, and that the starting point should be the directors assessment which the reporting accountant then provides assurance on. 3. Do you have any comments on the role of advisers described in Part 2 of the new guidance? 4. Does the material on reporting accountants in Part 3 of the new guidance set out clearly the framework for FPP assurance engagements and the reporting accountant s main considerations? Yes. We would, however, suggest that further guidance be provided to support paragraph 98 as to the factors which might affect the level of work which the reporting accountant performs and the nature of the evidence to be obtained. We suggest that the end of the paragraph be redrafted as follows (with new material in italics): Procedures will vary for each engagement and may include inspection, observation, confirmation, recalculation, re-performance, analytical procedures and inquiry., but This will predominantly involve: obtaining a description of the FPP procedures,; considering whether the FPP procedures (if followed) would address the risks that they were designed to address; 2

3 based on the reporting accountants assessment of risk, which may include their own assessment of management s risk assessment (see section A of Appendix 1) and the high-level reporting environment (see section B of Appendix 1), considering on a selective sample basis the directors evidence that they have established such FPP procedures. which may This might include limited walk-through testing to observe the control in operation. Where management have established monitoring controls to determine whether the FPP procedures have been established, the reporting accountant may wish to carry out testing of those monitoring controls and, assuming such testing is successful, reduce the level of testing of underlying procedures,; and obtaining written representations from the directors. We suggest that the first bullet point in paragraph 69 also be amended to read descriptions of the procedures that the applicant considers to be necessary vital in meeting.... The reporting accountant would otherwise have to not only consider which objectives are core and which supplementary, but which procedures are vital and which are less than vital. If the concern is that the sponsor and applicant may not want commentary on all procedures, this could be addressed by an additional comment at the end of paragraph 69 beneath the bullet points saying The parties to the engagement may agree that the reporting accountant s report covers all FPP procedures or focuses on certain areas. 5. Do you have any comments on the illustrative objectives in Appendix 1 to the new guidance and the extent to which they provide useful reference material? 6. Do you have any comments on the example wording for matters for approval by the board in Appendix 2 to the new guidance? 7. Do you have any comments on the example paragraphs from the engagement letter in Appendix 3 to the new guidance? 8. Do you have any comments on the example assurance report in Appendix 4 to the new guidance and on the proposed form of opinion for Main Market, AIM and PLUS-quoted market FPP assurance engagements? Yes. Some of the terms in the example report are not consistent with those used elsewhere in the Guidance, and the wording could also be simplified in places whilst still complying with ISAE For example, the reports in the SIRs comply with ISAE 3000 but do not use separate headings for Subject matter and Objectives and Scope. We have set out a simpler form of report which we believe complies with ISAE 3000 and the Guidance in Annex 3 to this letter. Finally, the context section is presumably not intended to form part of this report. This material should either be removed (with content over and above that in section 2 of the Guidance moved to that section) or the material should be put in italics or otherwise clarified as not forming part of the example report. 9. Are there any other matters which should be taken into account when finalising the new guidance? 3

4 Appendix 2 Editorial comments and suggestions Introduction Paragraph 17...on a Class 1 acquisition or disposal or on a... Section 1 Paragraph 52(c) we suggest that instead of its implications for the FPP procedures the guidance says the extent of FPP procedures necessary to respond to the identified risks. Paragraph 53 Some directors may object to committing to the future maintenance of FPP as this is not directly the subject matter of this form of assurance engagement. Consider replacing the second sentence with Sponsors may wish to ask directors to affirm their commitment to do so as part of the board approval process, but this does not form part of the subject matter of the reporting accountant s engagement. Section 2 Paragraph 62 It would be helpful to explain why this is not normally possible, in order to manage the expectation that a reporting accountant might be asked to give an assurance opinion on matters such as wider corporate governance matters e.g. whether a particular proposed audit committee member was independent of the executive management. We suggest: Notwithstanding this, it is not usually possible to extend the reporting accountant s assurance opinion on FPP procedures to such other matters, as they may be subjective (rather than objectively verifiable) and/or suitable assurance criteria may not exist. That The reporting accountant s assurance opinion on FPP is given on a specific... Appendix 1 Section A Second bullet align with paragraph 36 of the Guidance. Section A - Third bullet, first sub-bullet the high-level reporting and control environment. Section A - Fourth bullet align and re-order to match sections E-H and add a cross reference (see also section [ ]) to each. Appendix 2 For clarity we suggest that: Heading Board responsibilities should be moved above As directors of ABC plc we are responsible for... Three bullets after In carrying out our responsibilities... do not match with paragraph 36 of the Guidance or the start of section A of Appendix 1 that relates to risk assessment. We have evaluated... and the objectives set out in Appendix 1 of that document. We have set out a description of the relevant... (the ABC plc Board Memorandum ABC plc document) would reflect the title commonly given to such documents in practice (with conforming amendments to Appendix 3 which refers to a company document in the directors responsibilities section and Appendix 4 which refers to a FPP procedures statement ). where we have described FPP procedures... implementation have been drawn up by the directors, but which the directors have not yet been brought into operation... would better reflect the fact that this statement is being made by the directors themselves. 4

5 Appendix 3 In the Responsibilities of advisers section clarify the meaning of This by changing the start of the last sentence of: the AIM version to read This Nomad s confirmation includes the issuer s declaration... ; and PLUS version to read This PLUS Corporate Adviser s confirmation includes the requirement... In the directors responsibilities section: Replace company document with Board Memorandum (or whatever title the working group decides on see comment on Appendix 2 above). Capitalise directors statement to be clearer that this is the statement referred to in Appendix 2). With regard to the square bracketed paragraph at the top of page 35: Amend the first sentence to say...certain aspects of ABC plc FPP procedures... We recommend adding a footnote at the end of the paragraph See paragraph 69 of the Guidance for a discussion of the scope of such a long form commentary and paragraphs regarding extension of the scope of the engagement to other areas. Given what is said in paragraphs we suggest adding some words to the inner square-bracketed section of this paragraph [and of the following additional areas which will not be the subject of our opinion:...its other accounting and control procedures]. This would avoid the default being a commentary on all accounting and control procedures (which could be burdensome to applicants) and encourage more tailoring, whilst also clarifying that there would not be an opinion on such matters. Appendix 4 We suggest that the sentence In relation to the FPP procedures... within the section Objectives and scope on page 37 should be moved to after the end of the first sentence of the Respective responsibilities section on the same page. 5

6 Appendix 3 - redrafted example assurance report reflecting the comments in Appendix 2. Independent reasonable assurance report to the directors of ABC plc ( the Directors ) and XYZ Ltd on the Financial Prospects and Position procedures of ABC plc [and its group] This report is produced under the terms of our engagement letter dated [ ] (the Engagement Letter). Use of report This report is made solely for the use of the Directors, as a body, and XYZ Ltd and solely for the purpose of assisting the addressees in accordance with the terms of the Engagement Letter. Our report must not be recited or referred to in whole or in part in the [prospectus/admission document] or in any other document nor made available, copied or recited to any other party, in any circumstances, without our express prior written permission, other than in accordance with the terms of the Engagement Letter. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the directors, as a body, and XYZ Ltd for our work, for this report or for the opinions we have formed. Respective responsibilities The Directors responsibilities for establishing procedures that provide a reasonable basis for making proper judgements [on an ongoing basis] as to the financial position and prospects of ABC plc [and its group] ( the FPP procedures ) and for preparing a Board Memorandum and for preparing the Directors Statement are set out in the Directors Statement. In preparing the Directors Statement and the Board Memorandum, for which they are solely responsible, the Directors have had regard to ICAEW Technical Release [ ] ( the Technical Release ), including the objectives set out in Appendix 1 of that Technical Release. [We note and draw to your attention that the Board Memorandum describes a range of FPP procedures for which plans have been drawn up by the Directors, but which the Directors have not brought into operation as at the current date. We also draw to your attention the commitment made by the Directors as recorded in the ABC plc document that they will ensure that the FPP procedures are brought into operation, and subsequently operated, in accordance with the plans. In providing this report we are relying on this commitment of the Directors]. In the context of ABC plc s application for listing of its securities, the sponsor s responsibility, in accordance with Listing Rule 8.4.2(4) issued by the financial services Authority (FSA), is not to submit to the FSA an application for listing on behalf of ABC plc, in accordance with Listing Rule 3, unless it has come to a reasonable opinion, after having made due and careful enquiry, that the Directors have established procedures which provide a reasonable basis for them to make proper judgements on an ongoing basis as to the financial position and prospects of ABC plc [and its group]. OR In the context of ABC plc s application for admission to trading of its securities, the Nominated Adviser s responsibility, in accordance with the AIM Rules for Nominated Advisers issued by the London stock Exchange, is to be satisfied that ABC plc and its securities are appropriate to be admitted to AIM, having made due and careful Include the words on an ongoing basis in connection with a Premium Listing on the Main Market of the London Stock Exchange. Or whatever term the working group decides on see comments on Appendices 2 and 3 of the Guidance in Appendix 2 to this letter. 6

7 enquiry and considered all relevant matters set out in the AIM Rules for Companies and the AIM Rules for Nominated Advisers. OR In the context of ABC plc s application for admission to trading of its securities, the Corporate Adviser s responsibility, in accordance with the Corporate Advisers Handbook issued by PLUS, is to ensure that ABC plc and the securities to which the application relates meet the eligibility objectives and are otherwise suitable for admission to the PLUS market. The subject matter of our engagement is the FPP procedures. Our responsibility is to form an independent conclusion, based on the work carried out in relation to the FPP procedures, and report this to the Directors and XYZ Ltd. Basis of our opinion We conducted our engagement in accordance with International Standard on Assurance Engagements (ISAE) 3000, the Standard for Investment Reporting (SIR) 1000 issued by the Auditing Practices Board and ICAEW Technical Release [ ]. We performed a reasonable assurance engagement as defined in ISAE Our work was based upon obtaining an understanding of the FPP procedures as described in the Directors Statement and the Board Memorandum and carrying out such testing as we considered necessary to obtain reasonable assurance so as to form our conclusion. Our work does not comply with professional standards and practice in any jurisdiction other than the UK. Accordingly our work should not be relied upon as if it had been prepared in accordance with professional standards and practice in any other country than the UK. Inherent limitations In common with all such procedures, the FPP procedures are dependent for their effectiveness on the diligence and propriety of those responsible for operating them. such procedures cannot guarantee protection against (among other things) fraudulent collusion especially on the part of those holding positions of authority or trust. In addition the directors need to maintain the FPP procedures, review them on an ongoing basis and adapt them to changing circumstances. Our conclusion as set out below gives no assurance as to the day-to-day operation, or where relevant the bringing into operation, of the FPP procedures as at any date, or the commitment and the ability of the directors to react to changing circumstances and to revise their plans as necessary. 7

8 Conclusion On the basis of the foregoing, in our opinion the directors have established procedures which provide a reasonable basis for them to make proper judgements on an ongoing basis as to the financial position and prospects of ABC plc [and its group]. *** OR On the basis of the foregoing, in our opinion procedures have been established which provide a reasonable basis for the directors to make proper judgements as to the financial position and prospects of ABC plc [and its group]. OR On the basis of the foregoing, in our opinion ABC plc has established sufficient procedures to ensure a reasonable basis for making informed decisions about its financial position and prospects. Name of firm Chartered Accountants Location Date *** Include the words on an ongoing basis in connection with a Premium Listing on the Main Market of the London stock Exchange. for admission to AIM. for admission to the PLUS-quoted market. 8