Non-Audit Services Policy
Policy for engagement of the external auditors to supply non-audit services
1. Scope and purpose
The policy covers the engagement of External Auditors to supply Non-Audit services. The objectives of the policy are:
- Ensuring that neither the nature of the service nor the level of reliance placed on it by the Group could, or could be seen to, impair the objectivity of the External Auditors’ opinion on the Financial Statements.
- Establishing of a straightforward and transparent process and reporting to enable the Committee to monitor policy compliance.
- Avoidance of unnecessary restrictions on the purchase of services from the External Auditors where they are able to demonstrate provision of a higher quality and more cost effective service than other providers.
2. Principles
In all services purchased, the Group aims to select the provider who is best placed to deliver the service in terms of quality and cost. It is recognised that the knowledge of key areas of the Group gained by the external auditors through the performance of their statutory audit work may enable them to be well placed to provide valuable services to the Group in respect of these areas.
In order to retain the option of utilising the External Auditors to provide non-audit services where it is in the Group’s best interests to do so, a number of criteria have to be met. These are that the external auditors do not:
- Audit their own work
- Make management decisions for the Group
- Create a conflict of interest
- Find themselves in the role of advocate for the company. This is defined by the Institute of Chartered Accountants (ICAEW) guidance as ”promoting or being perceived to promote an audit client’s position or opinion to the point where objectivity may be compromised”
Before appointing the External Auditors to undertake a non-audit service consideration should be given to whether this would create a threat to independence. The External Auditors should not be appointed if the threat is other than clearly insignificant, unless appropriate safeguards can be applied to eliminate or reduce the threat to an acceptable level.
3. Types of service
Restricted services from our external auditors will be divided into three categories:
- Those services which the External Auditors are not allowed to undertake.
- Those services which the External Auditors would not normally be permitted to provide, where prior authorisation of GAC or the Chairman of GAC will be required and where additional safeguards may need to be put in place.
- Services which may be supplied by External Audit, which require approval by the Group Finance Director or Director of Financial Control & Reporting to confirm necessary safeguards in place.
All services are also subject to the Group’s usual tendering and approval procedures.
Restricted Services are as follows:
1 - Services which the External Auditors are not allowed to provide
Any service where there is involvement in management functions or management decision making; and/or any service that Management may place primary reliance on in determining the adequacy of internal controls, financial systems, or financial reporting. These specifically include but are not limited to the following:
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2 - Services which the External Auditors can only provide where prior authorisation of GAC (or the Chairman of GAC) has been obtained and where additional safeguards may need to be put in place.
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Guidance from the ICAEW |
Taxation services where advice given or position taken is material to the financial statements or where there is a high degree of uncertainty – e.g. with a ‘ground-breaking scheme’. |
Such assignments are generally not seen to create threats to independence though it is necessary to assess and react to potential threats. Safeguards may include the following:
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Internal Audit services where acting under the instruction of Group Internal Audit management. |
The guidance provides that it is only considered acceptable to provide internal audit services where there are specific safeguards. These should include the following:
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Corporate finance and similar activities where there is not a significant advocacy role but where advice given or position taken is material to the financial statements. |
Corporate finance services may create advocacy or self-review threats, however safeguards may be available to reduce these threats to an acceptable level for example by:
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3 - Services which may be supplied by the External Auditors, which require approval by the Group Finance Director or Director of Group Financial Control & Reporting to confirm necessary safeguards in place.
Service |
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Safeguards that must be considered:
- Ensuring the engagement letter for the work includes a paragraph confirming compliance with APB Ethical Standard 5.
- Ensuring Management has sufficient knowledge to take responsibility for all management decisions and for the outcome of any reviews
- Service performed by personnel not involved in the audit
- Additional arrangements for objectively and independently evaluating work performed as part of this service to form the audit opinion.
Any other services may be provided without restriction subject to the Group’s usual tendering and approval processes.
Reporting
A report will be provided to each GAC by the Director of Group Financial Control & Reporting outlining:
- All proposals considered since the previous meeting and the decisions taken
- Compliance with safeguards set out in previously approved Category 3 proposals
- Any Category 2 proposals which GAC or the Chairman of GAC is requested to approve
- Current Level of expenditure (actual and committed) for non-audit fees. This will include a description of the nature of the service provided and a comparison with the external audit fee and with the total fees earned by the external auditors.
Where Category 2 proposals have been approved by GAC or the Chairman of GAC subject to safeguards, confirmation of compliance with these safeguards will be provided by the Senior Manager who requested GAC or the Chairman of GAC approval of the proposal.
The External Auditors will be requested to confirm that this is a complete and accurate representation.
Written confirmation from the External Auditors outlining their independence policy and their compliance therewith will also be required annually and at other times as the Committee may request. This should include reassurance that External Audit staff have no family, financial, employment, investment or business relationship with the Company other than in the normal course of business.
The Group also has a policy of not employing a partner from the External Auditors within two years of the conclusion of the last audit of the Group in which they were involved.