NON AUDIT SERVICES POLICY

Transcription

1 NON AUDIT SERVICES POLICY MAY 2014 NON AUDIT SERVICES POLICY This document details IG GROUP HOLDINGS PLC s (the Company ) policy in relation to the provision of nonaudit services by the external auditors ( the Auditors ) on behalf of the Company and its subsidiaries ( the Group ) and outlines the control processes that are in place to ensure compliance with this Policy. Purpose The objectives of this Policy are: (a) (b) to preserve the independence and objectivity of the Auditors in performing the statutory audit, and to avoid any conflict of interest by outlining both the types of work that the Auditors can and cannot undertake and the considerations that should be applied in assessing potential conflicts of interest. The Policy classifies non-audit work into assignments for which: Auditors can be engaged without referral to the audit committee; a case-by-case decision is necessary; from which the Auditors are excluded. The Policy aims to ensure that in providing non-audit services the Auditors are not in a position whereby they: Audit their own work; Make management decisions for the Group; Create a mutuality of interest; or Find themselves in the role of advocate for the Group. Additionally the Policy provides guidance, should there be any perception of a threat to Auditor independence as a result of the provision of non-audit services by the Auditor, as to what constitutes adequate safeguards to ensure the threat to auditor independence is eliminated, or reduced to an acceptable level. The policy has been developed with reference to the Smith report and the specific examples with reference to the APB Ethical Standard 5 Non Audit Services Provided to Audit Clients and the ICAEW Guidance for Audit Committees. The Policy also clarifies responsibilities for the agreement of fees payable to the Auditor for non-audit work and for the periodic reporting of those fees to the Audit Committee.

2 NON AUDIT SERVICES POLICY MAY Audit related Services The Executive Directors can employ the Auditors to provide Audit-related services without reference to the Audit Committee. Audit-related services are defined as those services that are specifically required of the Groups Auditor through regulatory, legislative or contractual requirements. Such services are considered to be wholly compatible with independent external audit services. Such audit-related services include, but are not limited to:- Assurance services required of the Auditor by the regulatory authorities in whose jurisdiction the Group operates, for example regulatory or regulatory return assurance reports including client money reports or regulatory capital returns. Additional legislative or contractual requirements for assurance reports to be undertaken by the Auditors, for example: Legal requirements to report on matters such as share issues for non-cash consideration and expenditure for grant purposes. Contractual requirements, for example to report to lenders or vendors on net assets or covenant requirements. 2. Permitted Non Audit Services In addition to Audit-related Services, there are certain services that are best provided by the Auditors because of their existing knowledge of the business, or because the information required is a by-product of the audit process. Such services are typically not required to be provided by the Auditor by regulatory, legislative or contractual requirements however they are also considered to be wholly compatible with independent external audit services. These include: Services that overlap with the audit process or where the use of a party other than the Auditor would result in significant duplication of audit work, including, for example, specific internal control reviews. Services that the Auditors are not required by law to undertake, but where the information largely derives from the audited financial records. Tax compliance, where much of the information derives from the audited financial records. Other independent assurance work. The Executive Directors can employ the Auditors to provide Permitted Non Audit Services with a cost not exceeding 50,000 without reference to the Audit Committee.

3 NON AUDIT SERVICES POLICY MAY Other non-audit work that is permitted in certain circumstances: Any other non-audit services beyond those mentioned in the previous sections might be considered to be potentially incompatible with independent external audit services and therefore must require case by case consideration. This section details the types of further services that the Auditors, subject to the provisions of the non-audit policy, can provide to the Group but where allocation of the work should be carefully considered on a case-by-case basis. The Executive Directors have the authority to commission the Auditors to undertake non-audit work where this is a specific project with a cost not exceeding 50,000. This work should be reported to the Audit Committee at its next meeting. If the cost is likely to exceed 50,000 the agreement of the Chairman of the Audit Committee is required before the work is commissioned. Additionally, for all work where the fees are expected to be greater than 100,000, allocation of the work shall automatically be subject to a tender process, with the decision of which firm to appoint being made by the Audit Committee, unless there are exceptional circumstances, which in the opinion of the Audit Committee would mean a tender process is unviable. The Audit Committee will consider whether the skills and experience of the auditor make it the most suitable supplier of the non-audit work. If it is not possible to obtain full Audit Committee approval in advance of the need to make a decision on the allocation of work referred to in this section, the Chief Financial Officer or delegated representative shall agree an appropriate process with the Chairman of the Audit Committee and the decision shall be submitted for ratification at the next Audit Committee meeting. In deciding whether to appoint the Auditors to carry out the services detailed in this section, the principal consideration should be to ensure that the provision of the service does not impair the Auditor s independence or objectivity. If there is perceived to be such a threat then the Audit Committee must satisfy itself that there are adequate safeguards in place to ensure that the threat to auditor independence is eliminated, or reduced to an acceptable level. Guidance with regards to the key factors to consider in approving non audit services and with regards to threats and appropriate safeguards are given in Appendices 1 and 2 respectively. Examples of services that are permitted in certain circumstances are provided in Appendix 3.

4 NON AUDIT SERVICES POLICY MAY Non Audit Services that cannot be provided by the Auditors Certain services are recognised as being wholly incompatible with the provision of independent external audit services. The guidance in this section ensures that the Auditors cannot provide a Non Audit Service whereby they: Audit their own work; Make management decisions for the Group; Create a mutuality of interest; or Find themselves in the role of advocate for the Group. Examples of services that are not permitted are provided in Appendix General 5.1 Annually the Audit Committee will ensure that the Auditors formally report to the Audit Committee and the Board on the safeguards that are in place to maintain their independence as Auditors and on the internal safeguards that that they have in place to ensure their objectivity in carrying out non-audit services. 5.2 The Company s Annual Report shall explain to shareholders how, if the Auditor provides non-audit services, auditor objectivity and independence is safeguarded. 5.3 The Audit Committee must give its prior approval of the employment of any individual who has been engaged by the External Auditor in the audit of the Group within the last annual audit cycle. 5.4 Management or the Auditor shall provide a summary of non-audit fees both incurred to date and of approved but yet to be performed services to the Audit Committee on a periodic basis and at the minimum at each of the interim and full year Audit Committee meetings.

5 APPENDIX 1: KEY FACTORS TO BE CONSDIERED Key factors to be considered in approving services include the following: whether, in the judgement of a reasonable and informed third party, the objectivity of the external auditor would be threatened by: o the nature of the service; or o the significance of the fee to the firm or to the audit partner the safeguards put in place by the external auditor to protect the objectivity and independence of the audit the extent to which business knowledge of the external auditor makes it more effective or cost-efficient to instruct them

6 APPENDIX 2: THREATS AND SAFEGUARDS Threat Explanation Potential safeguards Self-interest threat A self-interest threat exists when the auditor has financial or other interests which might cause the auditor to be reluctant to take actions that would be adverse to the interests of the audit firm or any individual in a position to influence the conduct or outcome of the audit. Utilisation of separate engagement teams and engagement partners Review of non-audit service fee levels on a periodic basis or prior to approval of the service by the audit Committee. Review is made with reference to each of the overall fee level, the fee level in comparison to the audit fee, the recurring or non-recurring nature of the work and the fee levels significance to the audit firm. Excessive multiples of recurring non-audit fees to audit fees are to be avoided on a long term basis

7 APPENDIX 2: THREATS AND SAFEGUARDS Threat Explanation Potential safeguards Self-review threat A self-review threat exists when the results of a non-audit service performed by the engagement team or by others within the audit firm are reflected in the amounts included or disclosed in the financial statements. In assessing the significance of the self-review threat, consideration of the extent to which the non-audit service will involve a significant degree of subjective judgment; and have a material effect on the preparation and presentation of the financial statements. Where the provision of a proposed non-audit service would also have a material effect on the financial statements, it is unlikely that any safeguard can eliminate or reduce to an acceptable level the self-review threat. Management threat A management threat exists when the audit firm undertakes work that involves making judgments and taking decisions that are properly the responsibility of management. Partners and employees of the audit firm are prohibited from taking decisions on behalf of the management of the Company or Group. In determining whether a non-audit service does or does not give rise to a management threat, consideration of: - If a member of management has been designated to receive the results of the non-audit service and has the authority to make the required judgments and decisions - If management has the capability to make independent management judgments and decisions on the basis of the information provided. In the absence of such capability the non-audit service cannot be performed by the Auditor.

8 APPENDIX 2: THREATS AND SAFEGUARDS Threat Explanation Potential safeguards Advocacy threat An advocacy threat exists when the audit firm undertakes work that involves acting as an advocate for the Group or supports a position taken by management in an adversarial context. Where the provision of a non-audit service would require the auditor to act as an advocate for the Group in relation to matters that are material to the financial statements, it is unlikely that any safeguards can eliminate or reduce to an acceptable level the advocacy threat that would exist.

9 APPENDIX 3: EXAMPLES OF PERMITTED AND EXCLUDED SERVICES Service type Permitted in certain circumstances Not permitted Internal Audit Operational internal audit services unrelated to the accounting controls, financial systems or financial statements The Auditors cannot be engaged to provide internal audit services if, for the purposes of the audit of the financial statements, they would need to place significant reliance on the internal audit work or if the audit firm would take a management role as a result of undertaking the internal audit work. IT Services Engagements to design provide or implement information technology systems that are not important to any significant part of the accounting system or to the production of the financial statements and do not have significant reliance placed upon them by the auditors. The Auditors cannot be engaged to design, provide or implement information technology systems where the systems concerned would be important to any significant part of the accounting system or to the production of the financial statements and the Auditors would place significant reliance on them as part of the audit of the financial statements; or for the purposes of the provision of information technology services, the audit firm would undertake part of the role of management.

10 APPENDIX 3: EXAMPLES OF PERMITTED AND EXCLUDED SERVICES Service type Permitted in certain circumstances Not permitted Valuation Services Situations where Auditors are designated by legislation or regulation as being eligible to carry out a valuation. Accounting advice on valuation matters during the audit, and verification of data to be used in a valuation performed by others. Services that involve highly subjective judgements and are material to the financial statements of the Group or Company e.g. reports where the auditors provide an opinion on the adequacy of consideration in a transaction, valuation of real estate and financial instruments Actuarial Valuation Services Services where the Group s management make all significant judgements including assumptions, or the amount is immaterial to the financial statements

11 APPENDIX 3: EXAMPLES OF PERMITTED AND EXCLUDED SERVICES Service type Permitted in certain circumstances Not permitted Litigation Support Acting as an expert witness, for example, in matters relating to forensic accounting, interpretation of Accounting Standards principles, etc. If the work would involve the estimation of likely outcome of pending legal matter that could be material to amounts to be included in disclosures in financial statements and there is a significant degree of subjectivity involved. Recruitment and remuneration Services Advice on the split between different elements of remuneration, but not advice on actual amounts of remuneration, for directors and senior executives. The Auditor cannot be used to provide recruitment services or act as negotiators in the recruitment process for directors and key management positions at the Company or its subsidiaries. The Auditor cannot be used to provide advice on the quantum of the remuneration package or the measurement criteria on which the quantum is calculated for directors or key management. Corporate Finance & Transaction Based Services Due diligence work in respect of matters which do not have a direct significant and subjective impact on subsequently audited accounts. Providing assistance in developing corporate strategies, identifying possible sources of capital and advice on analysing the accounting effects of proposed transactions Services that would involve the audit firm taking responsibility for dealing in, underwriting or promoting shares (including broker dealer services); or Services that would depend on a judgemental accounting treatment, or on a contingent fee basis if material to audit firm, or the outcome involves a future or contemporary audit judgement relating to a material balance in the financial statements.

12 APPENDIX 3: EXAMPLES OF PERMITTED AND EXCLUDED SERVICES Service type Permitted in certain circumstances Not permitted Accounting Services Provision of accounting services in emergency situations, subject to approval of the Audit Committee (irrespective of the fees involved), e.g. Disaster recovery claims, etc. Maintenance of accounting records or the preparation of financial statements that are then subject to audit. Legal services Provision of legal advice or advisory services that are not a judgemental matter subject to audit consideration and / or disclosure within the financial statements. The Auditors cannot act as an advocate before a tribunal or court, if the issue is material to the financial statements; or dependent on a future or contemporary audit judgement. Taxation services Provision of corporate, sales or any other taxation advice, in particular whereby the tax treatment is dependent upon the accounting treatment adopted. If tax services that are provided on a contingency fee basis and if those fees are material to the audit firm (or relevant part thereof) or the outcome of the tax service is dependent on uncertain application of laws or on current or future audit judgements relating to a material balance. If the establishment of specific tax planning schemes could lead to conflict of interest on the statutory audit as a result of subjective judgements that are material to the financial statements of the Group or Company. The Auditors cannot act as an advocate before a tax tribunal or court, if the issue is material to the financial statements; or dependent on a future or contemporary audit judgement.

13 APPENDIX 3: EXAMPLES OF PERMITTED AND EXCLUDED SERVICES Service type Permitted in certain circumstances Not permitted Other Services Provision of administration, company secretarial and other incidental services where there is no perceived threat to auditor independence and no conflicts of interest arise.