Auditor Independence Policy

Introduction

The policy is to establish procedures and guidance under which the Company’s relationship with its external auditor will be governed so that the Audit Committee is able to satisfy itself that there are no factors which may, or may be seen to, impinge upon the independence, objectivity and effectiveness of the audit process.

The Audit Committee operates in accordance with the Audit Committee – Terms of Reference which include duties to:-

  • consider and make recommendations to the Board, to be put to shareholders for approval at the AGM, in relation to the appointment, re-appointment and removal of the company’s external auditor; and
  • oversee the relationship with the external auditor including (but not limited to) assessing annually their independence and objectivity taking into account relevant UK professional and regulatory requirements and the relationship with the auditor as a whole, including the provision of any non-audit services.

The Audit Committee is authorised to investigate any activity within its Terms of Reference.

This policy augments the Terms of Reference and clarifies the means by which the independence and objectivity of the external auditor will be ensured and maintained. In addition, the external auditor is required to comply with the provisions of the  FRC Revised Ethical Standard 2019 (“the Ethical Standards”) with effect from 15 March 2020 , as updated by new standards from time to time.

Accountability and Access

The external auditor is accountable to the Audit Committee and to the Chair of the Board.  Accordingly, the lead audit partner, together with other key members of the audit team as may be appropriate, must have unfettered access to the Chair of the Audit Committee and to the Chair of the Board as well as other Directors and staff of the company as they deem necessary.

The membership of the Audit Committee is established by its Terms of Reference and is comprised entirely of non-executive directors.  The Terms of Reference also establish the normal attendance at Audit Committee meetings and state that at least once a year the Committee will meet with the external auditors without management being present.

Members of the Audit Committee, either individually or collectively, are able to obtain independent professional advice at the Company’s expense, in furtherance of their duties upto a maximum of £5,000, beyond which they should speak with and seek the agreement of the Chair of the Board

Appointment of the auditor

It is the duty of the Audit Committee to make recommendations to the Board on the appointment of the external auditor, the audit fee, and any questions of resignation or removal of the external auditor.  In addition, it is the duty of the Audit Committee to review the quality and cost effectiveness of the audit and the independence and objectivity of the external auditor.  In furtherance of these duties the Audit Committee shall annually consider the re-appointment of the auditor and in making any recommendation to the Board shall consider:-

  • whether the auditor has performed to the required standard
  • the effectiveness of the audit
  • whether the audit fee is reasonable taking into account the process by which the proposed fee has been agreed by management
  • the benefit of seeking tenders for the audit, taking into account the quality and cost of the audit, the cost and management time required to conduct a tender exercise and the tendering and rotation requirements of the [Statutory Audit and Third Country Auditors Regulations 2016].

In carrying out its annual review, the Audit Committee shall require the auditor to:-

  • disclose all relationships which may affect the firm’s independence and the objectivity of the audit partner and staff
  • disclose the safeguards and steps taken by the auditor in order to ensure its independence and objectivity
  • confirm in writing to the Audit Committee that in its judgement, it is independent within the meaning of the relevant regulations and professional requirements
  • disclose any gifts or hospitality which have been provided or exchanged between the Company and the auditor, unless in the case of gifts, the value is clearly insignificant and in the case of hospitality it is reasonable in terms of its frequency, nature and cost.

Audit personnel

The auditor should be required to rotate the lead audit partner after a maximum of five years and to rotate any other key audit partners after a maximum of seven years, and otherwise in accordance with the  Ethical Standards.

No partner, director, manager, staff, reviewing actuary or reviewing tax professional associated with the Company’s external auditor who works on any aspect of the annual audit of the Company’s consolidated financial statements shall be employed by the Company or any of its subsidiaries in a financial reporting oversight role for a period of two years following their association with the audit.  A financial reporting oversight role is any position that has direct responsibility for overseeing those who prepare the Company’s financial statements.

No former employee of the Company’s external auditor shall be appointed to a senior management or board position with the Company or any of its subsidiaries for two years after the termination of their employment with the Company’s external auditor without the prior consent of the Audit Committee.

The external auditor shall not enter into an agreement to provide a partner or employee to work on a temporary basis for the Company or any affiliate of the Company without the prior consent of the Audit Committee.

The external auditor shall not enter into an agreement to provide a partner or employee to work on a temporary basis for the Company or any affiliate of the Company without the prior consent of the Audit Committee.

Each year the Head of Human Resources shall report to the Audit Committee the profile of former employees of the external auditor employed by the Company or its subsidiaries in the preceding year.

Allocation of non audit work

In order to ensure that the provision of non audit services does not affect, or appear to affect, the independence and objectivity of the external auditor, it is the policy of the Audit Committee that non audit services shall be allocated in accordance with the following principles:-

5.1 The general principle will be that no non-audit services are undertaken by the incumbent audit firm, unless:

  • The work is pre-approved in accordance with paragraph 5.2 of this policy,
  • the work to be allocated requires a certificate or other assurance of the Company’s appointed auditor,
  • the services provided relate to reporting accountant activity, or
  • exceptional circumstances warrant it,

and only then where the work is permitted by the Revised Ethical Standard (2019), the non-audit fee cap is not breached (see paragraph 5.5), and the Committee is satisfied the engagement of the audit firm is justified on merits which are clearly articulated by management and agreed in advance by the Committee. In the first instance the Audit Committee Chair should be consulted on any proposed work to be undertaken, explaining the scope, rationale for the engagement of the audit firm, expected cost and management’s explanation of other service providers which have been considered

5.2 The review by the external auditor of interim financial statements

5.3 The following categories of non-audit service may at the discretion of the Committee be permitted, PROVIDED THAT the requirements of paragraph 5.1 are adhered to.

Services required by law or regulation, and exempt from the non-audit services cap:

  • Reporting required by a competent authority or regulator under law or regulation, for example:
  • Reporting to a regulator on client assets
  • Reporting to a regulator on regulatory financial statements
  • Reporting on a Solvency and Financial Consition Report under Solvency II
  • In the case of a controlled undertaking incorporated and based in a third country, reporting required by law or regulation in that jurisdictionwhere the auditor is permitted to undertake that engagement;
  • Reporting on internal financial controls when required by law or regulation;
  • Reporting on the iXBRL tagging of financial statements in accordance with the European Single Electronic Format for annual financial reports;
  • Reports, required by or supplied to competent authorities / regulators supervising the audited entity, where the authority / regulator has either specified the auditor to provide the service or identified to the entity that the auditor would be an appropriate choice for service provider;
  • Services which support the entity in fulfilling an obligation required by UK law or regulation, including listing requirements where: the provision of such services is time critical; the subject matter of the engagement is price sensitive; and it is probable that an objective, reasonable and informed third party would conclude that the understanding of the entity obtained by the auditor for the audit of the financial statements is relevant to the service, and where the nature of the service would not compromise independence.

Services subject to the non-audit services cap:

  • Reviews of interim financial information; and providing verification of interim profits not otherwise required by law or regulation;
  • Where not otherwise required by law or regulation, non-audit and additional services, as defined in the FRC Revised Ethical Standards 2019 (https://www.frc.org.uk/getattachment/601c8b09-2c0a-4a6c-8080-30f63e50b4a2/Revised-Ethical-Standard-2019-With-Covers.pdf) provided as auditor of the entity, or as reporting accountant, in relation to information of the audited entity for which it is probable that an objective, reasonable and informed third party would conclude that the understanding of the entity obtained by the auditor is relevant to the service, and where the nature of the service would not compromise independence;
  • Extended audit or assurance work that is authorised by those charged with governance performed on financial or performance information and/or financial or operational controls, in an entity relevant to an engagement or a third-party service provider, where this work is closely linked with the audit work;
  • Additional assurance work or agreed upon procedures, authorised by those charged with governance performed on material included within or referenced from the annual report of an entity relevant to an engagement;
  • Reporting on government grants;
  • Reporting on covenant or loan agreements, which require independent verification, and other reporting to third parties with whom the entity relevant to an engagement has a business relationship in accordance with Appendix C of this Ethical Standard;
  • Services which have been the subject of an application to the Competent Authority in accordance with Regulation 79 of The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2019 (SI 2019/177);
  • Generic subscriptions providing factual updates of changes to applicable law, regulation or accounting and auditing standards.

5.4 Where such services are provided, they shall not include any elements of those services subject to outright prohibition in regulation 80 of The Statutory Auditors and Third Country Ausitors (Amendment) (EU Exit) Regulations 2019. Such services include, but are not necessarily limited to; tax, bookkeeping, preparation of accounting records or financial statements, payroll, valuations, internal audit, human resources and any services that involve playing a part in the management or decision making of the Group.

5.5 Fees payable in respect of non-audit services that are subject to the non-audit fees cap shall not exceed the non-audit fees cap. The non-audit fees cap for a given financial year is equivalent to 70% of the average audit fees paid by the Group, in respect of the audit of the Group’s financial statements and the audits of the financial statements of the Group’s controlled undertakings, for the preceding three financial years.

5.6 If there is an urgent need to allocate work before the next scheduled meeting of the Audit Committee, management shall take reasonable steps to obtain approval from all members of the Committee individually or where practicable the Board.  The requirement for approval in advance by the Audit Committee may be satisfied by obtaining written (including email) approval of any two or more members of the Audit Committee.  Such approval shall be reported to the next meeting of the Audit Committee.

5.7 At each meeting the Audit Committee shall receive a report of the fees paid to the external auditor in all capacities in respect of the current financial year, and the amounts of any future services which have been contracted, or where a written proposal has been submitted. All fee reporting will be divided into three categories as follows:

  1. Fees for audit services
  2. Fees for non-audit services that are exempt from the non-audit fee cap
  • Fees for non-audit services that are subject to the non-audit fee cap

The report shall include the relevant value of the non-audit services fee cap for the financial year.