Auditor independence policy - Drax
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 Accounting Practices Board Ethical Standards issued in October 2004 (“the APB Ethical Standards”) for the year ended 31 December 2008, as updated by new standards for any subsequent year.

Accountability and access

The external auditor is accountable to the Audit Committee and to the Chairman 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 Chairman of the Audit Committee and to the Chairman 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 comprises 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.

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 5 years and to rotate any other key audit partners after a maximum of 7 years, and otherwise in accordance with the APB 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.

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, and does not 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:-

 

  1. The external auditor shall not be allocated the following categories of non audit work unless support from the external auditor in respect of such services is required by law:-
    • Bookkeeping or other services related to the preparation of accounting records or financial statements of any Group company
    • Designing or implementing internal control or risk management procedures related to the preparation and/or control of financial information or designing and implementing financial information technology systems
    • Taxation services relating to preparation of tax forms, payroll tax, customs duties, identification of public subsidies and tax incentives, support regarding tax inspections by tax authorities, calculation of direct, indirect or deferred tax, or the provision of tax advice
    • Appraisal or valuation services, fairness opinions or contributions in kind reports (save as permitted by paragraph 5(iii) below)
    • Actuarial services
    • Legal services with respect to the provision of general counsel, negotiating on behalf of the Group and acting in an advocacy role in the resolution of litigation
    • Internal audit function on an outsourced basis or internal audit services
    • Management functions
    • Services linked to the financing, capital structure and allocation and investment strategy of the Group, ecept where providing assurance services in relation to the financial statements (such as the issuing of comfort letters in connection with prospectuses issued by the Group)
    • Broker or dealer, investment advisor, investment banking services or any other work that involves the promotion of, dealing in or underwriting shares issued by the Group
    • Human resources, recruitment or remuneration consultancy or payroll services
    • Audit of any of the Group’s pensions schemes
    • Any services which would involve acting as an advocate for a group company before an appeals tribunal or court where the issue is material to the financial statements of the relevant company
    • Any other non-audit services prohibited by the Revised Ethical Standard 2016 issued by the FRC.
  1. The review by the external auditor of interim financial statements and of financial statements of the Group’s subsidiaries registered in the Cayman Islands shall be deemed to be pre-approved by the Audit Committee.
  2. Routine due diligence work on potential transactions may be allocated to the external auditor subject to the approval of the  Chief Financial Officer where it is clear that it is more cost effective than instructing a firm which is not familiar with the Group.  Any such engagement where the fee will be £50,000 or more, or result in aggregate fees for non audit work paid to the external auditor exceeding £100,000 in any financial year, or if a contingent fee is proposed for any such services, should be subject to approval in advance by the Audit Committee.
  3. The external auditor shall not provide legal or litigation support services where the likely outcome could be material to the amounts to be included on the disclosures to be made in the financial statements of the relevant group company.
  4. Non audit work which does not fall into the categories in paragraphs 2, 3, or 4 above shall only be allocated to the external auditor if:-

    i) it is authorised by the Chief Financial Officer, and provided that the fee to be paid is less than £50,000 and will not result in aggregate fees for non audit work paid to the external auditor exceeding £100,000 in any financial year; or

    ii) the allocation of work to the external auditor is approved in advance by the Audit Committee; or

    iii) the work to be allocated requires a certificate or other assurance of the Company’s appointed auditor.

  5. 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.  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.
  6. At each meeting the Audit Committee shall receive a report of the fees paid to the external auditor in all capacities, and the amounts of any future services which have been contracted, or where a written proposal has been submitted.  In addition, the external auditor shall report any contingent fee arrangements for non-audit services.