Subject Fees for non-audit services provided by the External Auditor Section Financial Controls Sponsor Vice President Internal Audit

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Clarissa Fowler
6 years ago
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1 I. OBJECTIVE AND SUMMARY The objective of the policy is to provide guidance on how approval should be obtained for services provided by PwC (the Group s external auditor) which are in addition to the external audit fees. This policy is required to assure that the ongoing independence of our External is not compromised. The policy is supervised by the Audit Committee, who has delegated day-today management to the Group CFO and the VP Internal Audit. II. POLICY A. General Concept The principle of the policy is to ensure that other than in exceptional circumstances on an annual basis non-audit fees do not exceed 50% of the Group s external audit and audit related assurance service fees on an aggregate basis. In summary, 1. All individual commitments for accounting assistance (technical advice) require SVP Group Controller pre-approval 2. Any other individual commitments above 50k require SVP - Corporate Controller preapproval 3. Individual commitments above 100k require Group CFO pre-approval 4. Individual commitments above 250k require Group CFO and Audit Committee preapproval 5. Where the Group aggregate threshold of 50% has been reached, Group CFO and Audit Committee pre-approval are required for all individual commitments above 50k. 6. Where the Local aggregate threshold of 100% of external audit fees has been reached, Group CFO pre-approval is required for all individual commitments thereafter a. Aggregate thresholds are on an annualised basis, so must consider incurred fees as well as approved fees not yet incurred but expected within the financial year. All fees for non-audit services (regardless of level) must be reported to the SVP Corporate Controller B. Definitions External audit fees are all fees paid for the group and subsidiary statutory audits and the group interim review. Audit related assurance services are those non-audit services where the work involved is closely related to the work performed in the audit and the threats to auditor independence are clearly insignificant. This includes: Reporting required by law or regulation to be provided by the auditor; Reporting on regulatory returns; Reporting to a regulator on client assets or on government grants Reporting on internal financial controls when required by law or regulation; For clarity, these services are still subject to the non-audit service approval process. a This requirement is not applicable where a country does not have any external audit fees. In these circumstances approval thresholds are in accordance with requirements 1 through 5 above. 1

2 Non-audit fees are all amounts paid to our external auditor over and above the external audit fees, as reported. For clarity all fees for audit related assurance services must comply with the non-audit approval process, but are not included in the numerator in the 50% threshold calculation (i.e. total non-audit fees less audit related assurance services / total audit fees plus audit related assurance services). Pre approval means that appropriate approval as required by this policy should be obtained prior to the commencement of work by PwC. C. Specific Policy Requirements The requirements are specified in the following tables: Service provided by external auditors Bookkeeping or other services related to the accounting records or financial statements Prohibited. Financial information systems design and implementation Prohibition on consultancy services related to implementation of management information systems. Appraisal or valuation services Prohibited where significant subjectivity is involved and amounts are material to the financial statements. Acquisition / Disposal advice and support Prohibited where amounts are material to the financial statements. Actuarial services Prohibited when they involve the determination of amounts recorded in the financial statements. The external auditors may assist, however, in understanding of methods, models, assumptions and inputs in computing an amount. Internal audit outsourcing services Restricted to provision of specialist resources under direct supervision of RB internal audit management. Also, restricted to areas where the external audit team will not place reliance on their own work. Legal services Prohibited, if related to significant group matters as this would involve the auditors acting as advocates for the company. 2

3 Service provided by external auditors Tax compliance, tax planning and tax advisory work Permitted where auditors are best placed to perform the work. to audit committee pre-approval for significant contracts and annual review of overall amounts. Prohibited for tax services on a contingent fee basis where the outcome of the services is dependent on the proposed application of tax law which is uncertain or has not yet been established. Expatriate tax work Permitted, subject to routine Group HR approval and Audit Committee pre-approval for significant contracts and annual review of overall amounts. Other assurance services Permitted without pre-approval where it is in the normal course of the auditors work to perform such activities; e.g. other assurance services for half year review work, work on stock exchange circulars etc. Accounting Assistance As a general rule, we should not hire external advisors for accounting assistance (technical advice). This should be done by internal resources. No external accounting assistance should be hired without the prior approval of the SVP Group Controller (via your Area Finance Director). Thresholds for approval Threshold for pre-approval of non-audit services by SVP Corporate Controller All accounting assistance and all other non-audit services over 50,000 will be pre-approved by the SVP Corporate Controller. Threshold for pre-approval of non-audit services by Group CFO All non-audit services over 100,000 will be preapproved by the Group CFO. Fees for non-audit services should not exceed 100% of the agreed Local external audit fee without Group CFO pre-approval. Once this threshold is reached, Group CFO pre-approval is required for all individual commitments thereafter*. * This is not applicable for countries with nil audit fees. 3

4 Thresholds for pre-approval of non-audit services by Audit Committee All non-audit services which could exceed 250,000 (whether or not the final amount has been determined) will be presented for pre-approval at each Audit Committee meeting as they arise. Fees for non-audit services should not materially exceed 50% of the agreed Group aggregate external audit fee without Audit Committee pre-approval. Once this threshold is reached, any individual services over 50,000 require audit committee pre-approval. Reporting Reporting of non-audit fees All non-audit fees with our external auditors must be reported, whether or not pre-approval is required, to the SVP - Corporate Controller. The report must specify the nature of the service delivered, its timing and the amount paid. Where pre-approval is required, a one-page summary must be submitted to the SVP - Corporate Controller; this must specify the nature of the service to be delivered, the rationale for utilising the external auditors and other options considered, the period over which the services will be delivered and the maximum expected cost to be paid. Refer to Appendix I for non-audit fee approval template Cumulative year-to-date non audit fees, analysed by category and country, will be presented routinely to the Audit Committee. Audit Committee to perform formal annual review of both audit and non audit fees and review independence of external auditors including understanding key safeguards in place. III. OTHER CONSIDERATIONS A. Responsibility The SVP - Corporate Controller will maintain an analysis of all non-audit fees paid to the external auditor at the end of each quarter and routinely provide a summary of spend at each Audit Committee meeting. The SVP - Corporate Controller will immediately notify the Audit Committee if the 50% aggregate threshold is exceeded. The SVP - Corporate Controller (copied to VP Internal Audit) will receive and process pre-approval requests for the Group CFO. 4

5 The VP Internal Audit will forward approval requests to the Audit Committee as appropriate. B. Procedures The Group CFO will maintain a control list and reconciliation of all reported payments. No separate local procedures are required other than as requested in order to understand details of amounts booked locally. IV. CHANGE CONTROL Issued/Revised Effective Date Key changes 22 July July 2011 Initial issue January 2012 January 2012 Incorporation of policy on accounting assistance. April 2012 April 2012 Clarified what is included in non-audit fees and external audit fees and added reporting template for non-audit fees. July 2012 July 2012 Clarified that where a country does not have audit fees, Group CFO approval is not required for all non-audit fee engagements. The normal threshold limits will apply Clarified that the Group may exceed 50% threshold only in exceptional circumstances Clarified that the threshold denominator includes both audit and audit related assurance services. However audit related assurance services must still follow the approval process. 5

6 Appendix I Non Audit fee approval template PwC: Non-audit Fee Approval form Background: Date of request: Requestor Name: Requestor Position: Legal name of statutory entity(s): JDE entity code(s): HFM entity code(s): PwC lead partner: Service Details Category of Service to be provided: Expected start date of service: Expected end date of service: Details of service to be provided: Rationale for why PwC has been selected above other providers: Other providers who were considered: Costs Expected cost of service: Maximum cost of service: GBP GBP Reporting Expected financial periods when costs will be incurred: Period Year Amount (GBP) - HFM required reporting submission: Approval required Total local non-audit fee > local audit fee? Level of fee approval required: Local country FD approval required SVP - Corporate Controller Group CFO Audit Committee Based on Maximum cost Approval required: Approval Date: Name: Yes No No No Centrally allocated reference number: 6

POLICY ON NON-AUDIT SERVICES FROM EXTERNAL AUDITORS

POLICY ON NON-AUDIT SERVICES FROM EXTERNAL AUDITORS The Audit Committee recognises that: the independence of the external auditors is a fundamental safeguard to the interests of the Company s shareholders;