ESSENTIAL SERVICES COMMISSION '""- GUIDELINE No. 16 REGULATORY AUDITS OF DISTRIBUTION BUSINESSES ELECTRICITY AND GAS INDUSTRIES March 2004
ELECTRICITY AND GAS INDUSTRIES GUIDELINE No. 16 This guideline replaces: Electricity Industry Guideline No.9 in relation to compliance audits of electricity distribution licensees Gas Industry Guideline No. 8 in relation to compliance audits of gas distribution licensees Enquiries concerning the currency of this Guideline should be addressed to - The Essential Services Commission Level 2, 35 Spring Street Melbourne. 3000 Telephone (03) 9651 0222, facsimile (03) 9651 3688 AMENDMENT RECORD Part Issue No. Date Pages Checked Essential Services Commission, Victoria Original Issue March 2004
ELECTRICITY AND GAS INDUSTRIES GUIDELINE NO. 16 - REGULATORY AUDITS CONTENTS 1. BACKGROUND 1 1.1. Audit objectives 1 1.2. Licence obligation 1 1.3. Distributors of both gas and electricity - audit approach 1 2. OVERVIEW OF AUDIT GUIDELINE 2 2.1. Purpose of the guideline 2 2.2. A staged approach 2 2.3. Frequency and timing of the audits 2 3. APPOINTING THE AUDITOR 2 3.1. Skill and experience 2 3.2. Independence and duty of care 3 3.3. Commission approval 3 3.4. Conditions 4 4. APPROVING THE AUDIT SCOPE 4 4.1. Identifying obligations 4 4.2. Assessing risk 4 4.3. Specifying the minimum audit scope 5 4.4. Approval of licensees' submissions 6 4.5. Briefing the auditor 6 5. CONDUCTING THE AUDIT 6 5.1. Audit methodology 6 5.2. Compliance issues 6 6. ASSESSING AND REPORTING ON COMPLIANCE 7 6.1. Standard compliance grades 7 6.2. Content of reports 7 6.3. Reporting procedures 7 7. RESPONDING TO THE AUDITS 8 Essential Services Commission, Victoria Original Issue March 2004
ELECTRICITY AND GAS INDUSTRIES GUIDELINE NO. 16 - REGULATORY AUDITS 1. BACKGROUND 1.1. Audit objectives 1.1.1. The Commission requires audits to be conducted of the performance of distributors and retailers against key licence obligations and the quality of regulatory data- for example, performance indicators and forecasts - reported pursuant to the licences. 1.1.2. The audits are also designed to enhance the licensees' understanding of their compliance with key licence conditions and provide a basis for implementing performance improvements and innovations. The auditors will need to have relevant skill and expertise and sufficient independence to ensure that the quality and credibility of audit findings are not compromised by conflicts of interest. 1.2. Licence obligation 1.2.1. This guideline is published by the Commission under the Essential Services Commission Act 2001 and applies to distribution licences under the Electricity Industry Act 2000 and the Gas Industry Act 2001 which include a requirement that licensees: comply with this guideline or any guideline applicable to audits; or appoint an independent auditor to conduct audits of: (1) their compliance with licence obligations, including obligations to comply with industry codes and guidelines; and (2) the reliability and quality of information reported by them to the Commission, and the consistency of that information with the Commission^ specifications. 1.2.2. The licences referred to in 1.2.1 may further provide that: audits must be conducted by an independent auditor appointed by the licensee and approved by the Commission, subject to any terms and conditions specified by the Commission; the scope of the audit is to be approved by the Commission, and must meet any minimum requirements specified by the Commission; and (c) the audits must be conducted, and the results reported to the Commission, in accordance with any applicable guidelines. 1.3. Distributors of both gas and electricity - audit approach 1.3.1. Distributors of both gas and electricity may engage the same auditor to conduct regulatory audits in relation to their electricity and gas licences for the purpose of this guideline on the basis that: the Commission requires that similar audits be conducted by gas distributors and electricity distributors which may be in the same timeframe; and such distributors may make use of common systems for their electricity and gas distribution businesses. I Essential Services Commission, Victoria Original Issue March 2004
ELECTRICITY AND GAS INDUSTRIES GUIDELINE NO. 16 - REGULATORY AUDITS 1.3.2. The Commission's general approach is to require gas and electricity licensees to conduct regulatory audits in the same timeframe and accordingly, the Commission will be prepared to align the scopes for regulatory electricity and gas licence audits in relation to a distributor of both electricity and gas as far as practicable. However, the use of a common timeframe for gas and electricity audits may not always be appropriate. 2. OVERVIEW OF AUDIT GUIDELINE 2.1. Purpose of the guideline 2.1.1. This guideline sets out how the Commission will exercise its licence powers to request audits, approve auditors and the scope of audits and outline how audits are to be conducted and reported. 2.1.2. This guideline is designed to: ensure that audits are conducted in an independent, rigorous and comparable manner by establishing minimum requirements for the independence and expertise of auditors, and the conduct and reporting of audits; foster a culture of continuous improvement by minimising the probability that significant non-compliance will go undetected, and providing licensees with an opportunity to rectify non-compliance before the Commission considers enforcement action; and (c) maximise the cost-effectiveness of the audits by taking a risk-based approach to defining their scope. 2.2. A staged approach 2.2.1. This guideline sets out a staged approach to approving and conducting the audits (summarised in the flow chart in Attachment I). 2.3. Frequency and timing of the audits 2.3.1. The Commission anticipates that audits will be conducted no more than annually. The frequency and scope of audits will be determined through the risk assessment described in section 4.2 of this guideline. 3. APPOINTING THE AUDITOR 3.1. Skill and experience 3.1.1. The auditor and the audit team must have: skill and substantiated experience in, and detailed knowledge of, quality assurance, including operational or compliance auditing; where relevant, skill and substantiated experience in, and detailed knowledge of, science or engineering, asset management, information systems and customer service; and (c) detailed knowledge of the electricity or gas industry (as the case requires). 3.1.2. The audit team must be led by a partner (or equivalent) of the auditor. The team leader must sign and take full responsibility for all audit reports. Essential Services Commission, Victoria Original Issue March 2004
ELECTRICITY AND GAS INDUSTRIES GUIDELINE NO. 16 - REGULATORY AUDITS 3.1.3. The auditor must enter into a tripartite deed ("Audit Deed") with the Commission and the licensee in the form of the standard Audit Deed set out in Attachment 2 ("Standard Audit Deed") or in such other form as the Commission may agree to. Amongst other things, the Audit Deed further specifies obligations of the auditor and any sub-contractors to demonstrate and maintain their skill, experience and detailed knowledge. 3.2. Independence and duty of care 3.2.1. The auditor must not do, and must not recently have done, work which would create, or could be seen to create, a conflict of interest with its duty to the Commission. The audit deed elaborates on this requirement and qualifies its application in the context of protocols agreed with the Commission. 3.2.2. The auditor and any sub-contractors may be placed in a position where their duty to another and their duty to the Commission conflict; in such an event, the auditor's primary duty must be to the Commission. The duty of care and a procedure for addressing conflicts of interest are also specified in the audit deed. 3.2.3. Apart from its obligation concerning conflicts of interest, an Auditor must also ensure that no member of the audit team performs fee earning work for the relevant licensee and that no work is undertaken which either influences any members of the audit team or which could reasonably be considered to give rise to a material risk of any members of the audit team being influenced in relation to the relevant audit or the audit deed. The audit deed elaborates on this requirement and qualifies its application in the context of work undertaken in connection with the audit, certain financial auditing services under the Corporations Act and work undertaken under protocols agreed with the Commission. 3.3. Commission approval 3.3.1. Commission approval of the auditor and the audit team is required, to ensure that the audit is conducted by personnel who meet the requirements of this guideline. 3.3.2. To obtain approval of the auditor and the audit team, a licensee should make a submission to the Commission on its nominated firm which provides details of: the firm's field of work, core expertise and experience and corporate structure; work which has been done by the firm for the licensee in the previous two years, and work which the firm is currently doing for the licensee or has bid for; (c) the work history and skills of each team member, and the role s/he would play in the audits; and (d) advice of any potential conflict of interest and, if so, the manner in which the potential conflict of interest is proposed to be managed. 3.3.3. If the firm meets the approval criteria stated in clauses 3.1 and 3.2. the Commission will give its in-principle approval to the appointment of that firm. The Commission envisages that auditors may be engaged for up to five years. Final approval will be conditional on satisfactory execution of the audit deed. If an audit deed is terminated any approval of the relevant auditor lapses. Essential Services Commission, Victoria Original Issue March 2004
ELECTRICITY AND GAS INDUSTRIES GUIDELINE NO. 16 - REGULATORY AUDITS 3.3.4. If the firm does not meet the approval criteria, the Commission will reject the nomination. 3.4. Conditions 3.4.1. The Audit Deed must include conditions acceptable to the Commission addressing the matters described below. Conditions which the Commission considers appropriate in this regard are set out in the clauses of the Standard Audit Deed referred to below: The auditor must ensure that conflict of interest issues do not arise in relation to the audit (clauses 4.1, 4.2, 4.6 and 4.7 of the Standard Audit Deed). The auditor must keep appropriate records and provide them to the Commission or its consultants on request (clause 9 of the Standard Audit Deed). (c) The re-audit of specific matters at the direction of the Commission (clauses 11.1 and 11.2 of the Standard Audit Deed). (d) Early termination of the audit engagement (clause 13.2 of the Standard Audit Deed). 3.4.2. The licensee may not require the auditor to change an audit finding, and may not withhold payment or terminate the contract in respect of an adverse audit finding which has been competently made. If the licensee wishes to withhold payment or terminate the contract due to poor performance, the Commission must be consulted. 4. APPROVING THE AUDIT SCOPE 4.1. Identifying obligations 4.1.1. Prior to each audit, the Commission, in consultation with the licensee, will review the obligations of the licensee which are open for inclusion in the audit. 'Obligation' means anything the licensee is required to do pursuant to its licence, in particular complying with performance requirements and reporting regulatory information to the Commission (regulatory information includes performance information for comparative reporting and forecasts for price review purposes). 4.1.2. Based on an assessment of the consequences of non-compliance, the Commission will then nominate those obligations which should be included, as a minimum, within the scope of that audit. 4.1.3. Where a licensee has implemented a service innovation which it proposes that the Commission describe in a comparative performance report, then the Commission will generally require that the innovation is audited to ensure it is being delivered, except where compliance may be reliably demonstrated without scrutiny by the auditors. 4.2. Assessing risk 4.2.1. The risk associated with non-compliance is a product of the likelihood of noncompliance and its consequences. 4.2.2. A number of generic 'consequence factors' will be considered by the Commission in assessing risk. Where relevant, these include: Essential Services Commission, Victoria Original Issue March 2004
ELECTRICITY AND GAS INDUSTRIES GUIDELINE NO. 16 - REGULATORY AUDITS cost to customers or the public; danger to public health or safety; (c) damage to property; (d) loss or reduction of essential service; (e) environmental damage; (f) adverse public reaction; and (g) threat to actual or comparative competition (eg - making invalid comparisons between licensees' performance). 4.2.3. The Commission will also consider the likely or known extent of non-compliance in assessing risk. This will include assessment of previous audit results. 4.2.4. In considering these issues the Commission wilt have regard to the extent to which a licensee's performance of an obligation is already audited under a separate regulatory requirement. 4.2.5. While the Commission will conduct a risk assessment to ensure that the audit meets its information needs, it is equally if not more important that licensees conduct their own risk assessments to ensure that all high risk obligations are identified. As discussed below, licensees should ensure that all high risk obligations are audited, not only those identified by the Commission. 4.3. Specifying the minimum audit scope Obligations to he audited 4.3.1. The risk assessment will be used by the Commission, in consultation with the licensees, to identify the minimum set of obligations to be audited; this will constitute the minimum audit scope. Priority will be given to auditing high risk obligations. Low-medium risk obligations may be audited less intensively and less frequently than high risk obligations. 4.3.2. Notwithstanding the Commission's risk assessment, licensees have a responsibility to ensure that any obligation which they identify as carrying a high risk, and which is eligible for inclusion in the audit, is audited and reported even if the Commission has not included the obligation in its minimum audit scope. Compliance issues 4.3.3. Where specific compliance issues have been identified for an obligation which is included in the minimum audit scope, those issues must be addressed by the auditor in its report. Timeframe A3 A. For some obligations, auditors will be required to assess compliance over a period of time, as well as at the time of the audit. This is particularly important, for example, in assessing regulatory information to be published by the Commission; the reliability of the information should be assessed over the period to be covered by the Commission's report. Essential Services Commission, Victoria Original Issue March 2004
ELECTRICITY AND GAS INDUSTRIES GUIDELINE NO. 16 - REGULATORY AUDITS 4.3.5. The time frame to be covered will be specified by the Commission in the minimum audit scope. 4.4. Approval of licensees' submissions 4.4.1. Following consultation, the Commission will advise licensees of the minimum audit scope - including the obligations to be audited, compliance issues and the time frame of the audit. 4.4.2. The licensees should then submit their proposed audit scope to the Commission. It should comply with the minimum scope and should specify any additional obligations to be audited, in particular any obligation which the licensee or its auditor has identified as high risk and which has not been included by the Commission in its minimum scope. 4.4.3. If a licensee's audit proposal meets the Commission's minimum requirements, the Commission will approve the proposal. 4.5. Briefing the auditor 4.5.1. When the auditor has been appointed and the audit scope approved, the Commission will brief the auditor's audit team in the presence of the licensees, prior to the audit commencement to ensure that the Commission's requirements are clearly understood by licensees and the audit team. Licensees must give the auditor a copy of the approved audit scope at or before the briefing. 5. CONDUCTING THE AUDIT 5.1. Audit methodology 5.1.1. To ensure that audits are comparable, the methodology employed must comply with the generic minimum requirements specified in item I of schedule 2 of the Standard Audit Deed or, where they are inappropriate, such other requirements specified by the Commission. 5.1.2. The importance of the generic minimum requirements will vary according to the nature of the obligation. In some cases, there may be no requirement for regulatory information relating to the obligation in question, hence no scope for a data audit. 5.2. Compliance issues 5.2.1. There are generic compliance issues which the auditor must address for each obligation. Those issues are specified in item3 of schedule 2 of the Standard Audit Deed. 5.2.2. In addition to generic issues, obligation-specific compliance issues, as specified in the approved audit scope, must also be addressed. Essential Services Commission, Victoria Original Issue March 2004
ELECTRICITY AND GAS INDUSTRIES GUIDELINE NO. 16 - REGULATORY AUDITS 6. ASSESSING AND REPORTING ON COMPLIANCE 6.1. Standard compliance grades 6.1.1. It is important that compliance is assessed using standard confidence and compliance grades, thereby maximising the comparability of the results reported to the Commission. The Commission has prescribed standard grades for regulatory information and other licence obligations. Compliance grades are to be based on statistical methods where possible and assessed to confidence levels specified by the Commission. The standard grades and confidence levels will be specified in the Audit Deed: refer to item 1 of schedule 3 of the Standard Audit Deed. 6.2. Content of reports 6.2.1. Audit reports must meet the minimum requirements specified by the Commission. The minimum requirements will be set out in the Audit Deed: refer to item 2 of schedule 3 of the Standard Audit Deed. 6.3. Reporting procedures The role of boards 6.3.1. The licensee must ensure that its board considers the auditor's report and forwards it to the Commission (in both the summary and full versions). This allows the licensee an opportunity to: assess whether the report accurately reflects the licensee's performance; and begin taking corrective action where non-compliance has been identified. 6.3.2. The licensee must not, however: require or seek changes to be made to the auditor's report which conflict with the auditor's professional judgement and its primary responsibility to the Commission including, for instance, requiring a change to be made that would, in effect, remove or obscure any adverse finding of the auditor; Unreasonably withhold payment or terminate the audit contract over a disputed audit finding; or (c) Significantly delay the forwarding of the report to the Commission. Copies of reports and other documents 6.3.3. The licensee must provide the following to the Commission: both a hard copy and an electronic copy of the audit report; and a copy of each publicly available report, record or document on which the auditor has relied in arriving at a finding in the audit report promptly after being requested by the Commission to do so. 7 Essential Services Commission, Victoria Original Issue March 2004
ELECTRICITY AND GAS INDUSTRIES GUIDELINE NO. 16 - REGULATORY AUDITS 7. RESPONDING TO THE AUDITS 7.1.In responding to an audit report, the Commission may: require further auditing at the licensee's expense in circumstances outlined in the audit deed (such as where the Commission considers that information available to it is suggestive of the report or a finding in it being unsatisfactory); conduct (or procure that a consultant engaged by it conduct) its own audit of the full audit report(s) or an aspect of it where it might require further auditing under the audit deed or where: (1) it is not satisfied that the individual audits provide adequate assurance that the licensee is, or was at the relevant time, meeting its obligations (eg: reporting regulatory information) in a comparable manner; or (2) it requires better information on which to assess whether compliance action should be taken; (c) require termination of the audit contract; (d) review obligations which appear inadequate, excessive or trivial; (e) publish audit results; (f) require action to be taken by a licensee to comply with a particular obligation; and/or (g) issue orders to comply under the powers specified in the Essential Services Commission Act 2001. 8 Essential Services Commission, Victoria Original Issue March 2004
ELECTRICITY AND GAS INDUSTRIES GUIDELINE NO. 16 - REGULATORY AUDITS ATTACHMENT 1 - AUDIT FLOWCHART Commission identifies obligations and compliance issues Stakeholder contacts Commission assesses non-compliance risk danger to public health or safety cost to customer or the public damage to properly loss or reduction of essential service environmental damage adverse public reaction threat to competition Commission issues minimum audit scope obligations to be audited compliance issues to be addressed audit time frame l ) Essential Services Commission, Victoria Original Issue March 2004
ELECTRICITY AND GAS INDUSTRIES GUIDELINE NO. 16 - REGULATORY AUDITS ATTACHMENT 2 - STANDARD AUDIT DEED l() Essential Services Commission, Victoria Original Issue March 2004
DEED made at Melbourne on 200x BETWEEN AND AND ESSENTIAL SERVICES COMMISSION, of 2nd Floor, 35 Spring Street, Melbourne. Victoria ("Commission") THE PERSON WHOSE NAME AND ADDRESS IS SPECIFIED IN ITEM 1 OF SCHEDULE 1 ("Licensee") THE PERSON WHOSE NAME AND ADDRESS IS SPECIFIED IN ITEM 2 OF SCHEDULE 1 ("Auditor") RECITALS A. The Licensee is the holder of a distribution licence issued under the [insert whichever is relevant: Electricity Industry Act 2000 or Gas Industry Act 2001]. B. A condition of the Licence, requires, in essence, that certain audits be conducted by a third party nominated by the Licensee and approved by the Commission. C. Pursuant to the Licence, appointment of an auditor by the Licensee must be approved by the Commission, subject to any terms and conditions specified by the Commission. D. The Licensee has nominated the Auditor as the auditor to conduct each Audit during the Initial Term and has requested that the Commission approve of the Auditor as that auditor. E. The Commission has agreed to approve of the Auditor as the auditor to conduct each Audit during the Term, subject to the terms and conditions set out in this Deed. THIS DEED PROVIDES 1. DEFINITIONS AND INTERPRETATION 1.1 Definitions In this Deed, unless the context otherwise provides: "Audit" means an audit conducted under a Licence or which is required under a Licence to be conducted, as applicable. "Audit Contract" means any agreement between the Auditor and the Licensee under which the Auditor is engaged to conduct each Audit during the Initial Term. "Audit Report" means a written report on the results of an Audit prepared by the Auditor. "Audit Scope" means, in relation to an Audit or proposed Audit, a document prepared by the Licensee which sets out the scope of the Audit or proposed Audit including, without limitation, the Licence Obligations to be audited, any related compliance issues and the
timeframe for completion of the Audit or proposed Audit, which document has been approved by the Commission and given by the Licensee to the Auditor. "Audit Team" means the group of persons specified as such in item 3 of Schedule 1. as the composition of that group may have changed otherwise than in breach of clause 11.5. "Business Day" means a day, other than a Saturday or a Sunday, on which banks are open for general banking business in Melbourne. "Check-Auditor" has the meaning given to it in clause 9.6. "Initial Term" means the period specified in item 5 of Schedule 1 or such longer period as the parties may from time to time agree in writing. "Licence" means the distribution licence issued to the Licensee pursuant to the Relevant Act. "Licence Obligation" means anything which the Licensee is required to do pursuant to the Licence including, without limitation, complying with performance requirements and reporting regulatory information (including performance information for comparative reporting and forecasts for price review purposes) to the Commission. "Prescribed Amount" means the amount specified in item 6 of Schedule 1. "Proscribed Services" means any or all of the following services: (c) (d) auditing services with respect to the Licensee or any business conducted under a Licence; services which could reasonably be considered to be relevant to the strategic approach adopted (or to be adopted) by or in connection with the Licensee or any business conducted under a Licence; services which could reasonably be considered to be relevant to the overall management of the Licensee or any business conducted under a Licence; services which could reasonably be considered to be relevant to the formulation or content of planning processes or investment processes adopted (or to be or which may be adopted) by or in connection with the Licensee or any business conducted under a Licence, being processes of relevance to the standard of any services supplied (or to be supplied) by or in connection with the Licensee or any business conducted under a Licence, but not including services in respect of an audit carried out under the Licence or financial auditing services carried out under the Corporations Act 2001 (Cth). "Relevant Act" means the Act specified in item 7 of Schedule 1. "Relevant Guideline" means, at any time, a guideline or statement published by the Commission under the Essential Services Commission Act 2001 (as revised or substituted prior to the relevant time) and which relates to or is relevant to the conduct of audits
under any Licence and at the date of this Deed includes the guideline described in item 4 of Schedule 1. "Subcontractor" means a contractor who has been appointed by the Auditor under clause 11.5. "Term" means the period commencing on the date of commencement of the Initial Term and ending on the date of termination of this Deed. 1.2 Interpretation In this Deed, unless the contrary intention appears: (c) (d) (e) (f) (g) (h) (i) (j) a reference to this Deed or to another instrument includes any variation or replacement of either of them; a reference to a clause or Schedule is a reference to a clause or Schedule of this Deed; a reference to a paragraph is a reference to a paragraph of the clause in which the reference appears; a reference to a statute, ordinance, code or other law includes regulations and other instruments made under it and consolidations, amendments, re-enactments or replacements of any of them; the singular includes the plural and vice versa; one gender includes the other genders; the word "person" includes a firm, a body corporate, an unincorporated association, a government agency and an authority; a reference to a person includes a reference to the person's executors, administrators, successors, substitutes (including persons taking by novation) and permitted assigns; headings are for ease of reference only and do not affect interpretation; and the terms "including" and "include" mean including or include (as applicable) without limitation. 2. AUDITOR APPROVAL 2.1 Nomination The Licensee nominates the Auditor as the auditor to conduct each Audit to be undertaken during the Initial Term. 2.2 Approval The Commission approves of the Auditor as the auditor to conduct each Audit to be undertaken during the Term.
2.3 Others Nothing in this Deed restricts or qualifies the right of the Commission to approve of another or others as the person or persons to conduct Audits. 3. DUTY OF CARE 3.1 Duty If the Auditor conducts (or purports to conduct) an Audit, it must: do so honestly, fairly, professionally, independently and objectively; and in doing so, exercise a standard of skill, care and diligence that would be reasonable to expect of a person who is skilled, and who has substantiated experience, in the provision of services of a nature the same as or similar to those to be provided by the Auditor in connection with the Audit, being a person who, in particular (i) (ii) is skilled and has substantiated experience in the areas which are identified in any Relevant Guideline as areas in which an auditor must have experience; and has a detailed knowledge of the matters which are identified in any Relevant Guideline as matters of which an auditor must have detailed knowledge. 3.2 Acknowledgement The Auditor acknowledges that: the Commission is relying and will rely on the Auditor to conduct in accordance with this Deed any Audit it conducts (or purports to conduct); and a failure to so conduct each such Audit may cause loss or damage to the Commission including as a result of the Commission: (i) (ii) improperly exercising (or failing to exercise) any right or remedy against the Licensee; or publishing any report or other material (including any comparative report), 4. CONFLICTS 4.1 Existing Conflict in reliance on material received from, prepared by or checked by the Auditor. Subject to clause 4.3, the Auditor represents and warrants to the Commission that the Auditor, and each Subcontractor: does not hold any office or possess any property;
(c) (d) is not engaged in the provision of Proscribed Services; has not recently been engaged in the provision of Proscribed Services; does not have any interest, obligation or duty (whether owed to the Licensee or any other person), as a direct or indirect result of which any of its or the Subcontractor's obligations, duties or interests are, or could reasonably be seen to be, in conflict with (in the case of the Auditor) the Auditor's duties to the Commission or (in the case of a Subcontractor) duties which the Subcontractor would owe to the Commission were the Subcontractor party to this Deed, as Auditor. 4.2 Future Conflict Subject to clause 4.3, the representation and warranty made under clause 4.1 shall be deemed to have been repeated on each day occurring during the Term, by reference to the facts and circumstances then subsisting. 4.3 Notified Conflicts The subsistence or occurrence of a particular circumstance or event on a day shall not constitute a misrepresentation or breach in respect of the representation and warranty made under clause 4.1, or deemed under clause 4.2 to have been repeated, on that day if (but only insofar as) either prior to that day or (with the consent of the Commission) after that day: the Auditor or the Licensee has expressly identified (by notice in writing to the Commission expressed to be given under this clause 4.3) the relevant circumstance or event; and the Commission and the Auditor have agreed a protocol in relation to the relevant circumstance or event. 4.4 Protocol Promptly after a notice under paragraph 4.3 is given, the Auditor and the Commission shall meet in an endeavour in good faith to agree a protocol the objectives of which would be to ensure that: in the event of any conflict of a type described in clause 4.1 as a direct or indirect result of a circumstance or event identified in that notice, duties owed to the Commission (or in the case of a Subcontractor, which would be owed to the Commission were the Subcontractor party to this Deed, as Auditor) are treated as paramount; and no member of the Audit Team is influenced, or could reasonably be considered to be exposed to a material risk of being influenced, as a direct or indirect result of the circumstance or event identified in the notice.
4.5 Observe Protocol The Auditor must satisfy and observe each requirement and obligation which is specified in or arises under a protocol agreed under this clause 4. 4.6 Limit on Future Work Without limiting this clause 4, the Auditor must ensure that no member of the Audit Team performs any fee-earning work for the Licensee during the Term, other than feeearning work undertaken: in the conduct of (and for the purposes of) an Audit; or in the provision of services in respect of either an audit carried out under the Licence or financial auditing services carried out under the Corporations Act 2001 (Cth). 4.7 Avoid Conflict Pressures The Auditor must ensure that no work is undertaken by partners, employees, contractors or agents of the Auditor or of a Subcontractor, being work which influences any members of the Audit Team, or which could reasonably be considered to give rise to a material risk of any members of the Audit Team being influenced, either in relation to services provided in connection with an Audit or the performance by the Auditor of its obligations under this Deed. This clause does not, however, apply: to work undertaken by members of the Audit Team of the type to which paragraph 4.6 or 4.6 applies; or to work undertaken by persons who are not members of the Audit Team, being work relating to a circumstance or event the subject of a protocol agreed under this clause 4. 5. COMPLIANCE WITH GUIDELINES 5.1 Compliance by Auditor The Auditor must satisfy and observe each requirement and obligation which is specified in or arises under a Relevant Guideline and which is to be satisfied or observed by an auditor. 5.2 Compliance with Deed and Guidelines If: as a consequence of clause 5.1 an obligation is imposed on the Auditor which involves an issue being addressed in a particular way; and as a consequence of another provision of this Deed, an obligation is imposed on the Auditor which also involves that issue being addressed.
then the Auditor must: (c) (d) to the extent that such obligations are not inconsistent (in the sense that they are, as a practical matter, both capable of being satisfied), comply with each obligation; and to the extent that such obligations are inconsistent (in the sense that they are not, as a practical matter, both capable of being satisfied): (i) (ii) notify the Commission of the inconsistency promptly after becoming aware of it; and comply with the obligation specified in or arising under the Relevant Guideline. 6. CONDUCTING THE AUDIT The Auditor must ensure that: the methodology adopted to conduct an Audit is appropriate having regard to the Audit Scope for the Audit. As a minimum, the Auditor must ensure that the Audit Team implements the procedures described in item 1 of Schedule 2; the Audit is conducted in accordance with the principles in item 2 of Schedule 2; and (c) the generic compliance issues described in item 3 of Schedule 2 are addressed for each Licence Obligation which is the subject of the Audit. 7. ASSESSING & REPORTING ON COMPLIANCE 7.1 Standard Compliance Grades In conducting the Audit, the Auditor must assess compliance by the Licensee with its Licence Obligations using the standard confidence and compliance grades described in item 1 of Schedule 3. 7.2 Audit Reports The Auditor must prepare: in relation to each Audit, a full Audit Report which contains, as a minimum, all of the information described in item 2 of Schedule 3 (unless directed otherwise by the Commission); and if requested to do so by the Commission, a summary Audit Report in relation to an Audit in accordance with any standard reporting format prescribed by the Commission from time to time. 7.3 Signing of full Audit Report Each full Audit Report described in clause 7.2 must include a statement signed by the partner (or equivalent) leading the Audit Team which states that: