Internal and external audit.

Internal and external audit.

Internal audit

The Committee reviews the effectiveness of the Group’s internal audit function, including internal audit resources, plans and performance as well as how the function interacts with management. Throughout the year, the Committee reviewed the internal audit function’s plans and its achievements against those plans. The Committee considered the results of the audits undertaken by the internal audit function and considered the adequacy of management’s response to matters raised, including the issues identified, management’s resolution plans and the time taken to resolve any such matters.

This year, the Committee closely followed the consultation on the expectations for the internal audit function within a major financial services company. The Chartered Institute of Internal Auditors (CIIA) Guidance for Internal Audit in the Financial Services sector (the Code) was issued in July. The Committee recognises that the Code sets high (and challenging) standards. The Committee continues to work with management on the necessary development of the Company’s internal audit function to ensure that it is well equipped to perform in line with the Code’s standards and support ongoing delivery of effective internal audit assurance.

The chair and the Committee held private meetings with the group chief internal auditor in the absence of management during 2013.

External auditor and effectiveness of the external audit

Each year, the Committee reviews the external auditor’s audit plan to ensure it aligns with the Committee’s view of the significant risk areas of financial misstatement.

The Committee judges the external auditor on the quality of their audit findings, management’s response and stakeholder feedback. The Committee regularly assesses the effectiveness of the external auditors against the following criteria:

  • Provision of timely and accurate industry specific and technical knowledge
  • Maintaining a professional and open dialogue with the Committee chairman and members at all times
  • Delivery of an efficient audit and the ability to meet objectives within the agreed time frames
  • Provision of sufficient resource and high quality and consistent advice at all times

The Committee also reviewed the Financial Reporting Council’s 2012/13 Audit Quality Inspections Annual Report and the 2012/13 Public Report on PricewaterhouseCoopers LLP. Based on the feedback, the Committee continues to believe that PricewaterhouseCoopers LLP is the appropriate audit firm for the Group taking into account their performance during 2013, the audit needs of the Group and our principal business areas, the regulatory landscape and our footprint.

The Committee is cognisant of the current and emerging requirements governing the appointment of external auditors, notably the mandatory re-tendering requirements of the UK Corporate Governance Code and Competition Commission, together with the draft mandatory firm rotation proposals from the European Commission.

PricewaterhouseCoopers LLP has been our external auditors for a number of years. The audit was last tendered in full in 2006 with a partial re-tender process in 2009. The Committee continues to monitor the requirements and recognises the need to carry out a review of the external audit provider. Accordingly the current intention of the Committee is to carry out a review at an appropriate time between now and 2017.

There are no contractual obligations which restrict the Committee’s choice of external auditor.

In 2013, the Group spent £1.4m on non-audit services provided by PricewaterhouseCoopers LLP. Further details can be found in Note 35 to the consolidated financial statements.

Analysis of current and prior-year spend on audit, other assurance and non-assurance services:

Analysis of current and prior-year spend on audit, other assurance and non-assurance services

(XLS:) Analysis of current and prior-year spend on audit, other assurance and non-assurance services

 

2013

2012

2011

Audit and Related

5.6

4.6

4.5

Other Assurance

0.1

1.8

0.9

Non-assurance

1.3

1.1

1.0

Total

7.0

7.5

6.4

A significant proportion of the non-assurance fees in 2013 relate to tax compliance and other tax related services and support provided in relation to corporate transactions undertaken during the year. The external auditor was selected to undertake this work because of their expertise and experience. Separate teams from the external auditor undertake audit and non-audit work in order to ensure independence and objectivity of the audit team and this control is monitored internally by the Committee.

The Group’s policy requires that all services with an anticipated cost in excess of a specified amount are subject to a full competitive tender involving at least two other alternate parties in addition to the external auditor. If the external auditor is selected following the tender process, the Committee is responsible for approving the external auditor’s fees on the engagement. For services with an anticipated cost below the specified amount, the group chief financial officer has authority to approve the engagement. The external auditor and management report regularly to the Committee on the nature and fees relating to non-audit services provided under this authority.

In order to maintain the objectivity of the external audit process, the Committee supports the rotation programme for audit engagement partners who are required to rotate every five years. The previous audit partner commenced his engagement in 2008 and therefore stepped down as the audit engagement partner following the 2012 audit. The 2013 audit is the first audit undertaken by the new audit partner.

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