Barclays 2014 Annual Report Download - page 48

46 I Barclays PLC Annual Report 2014 barclays.com/annualreport
The Committee also covered the following matters:
Q Considered the proposed level of dividends to be paid, ahead of their
approval by the Board;
Q Assessed plans to build a global Compliance function: progress is
now being tracked by the Board Conduct, Operational and
Reputational Risk Committee;
Q Approved Barclays Pillar 3 policy, as required by CRD IV, and asked
for any exceptions or dispensations to be reported to the Committee;
Q Discussed and recommended to the Board revisions to its terms of
reference to reflect changes in best practice and other requirements
for audit committees; and
Q Evaluated the outcomes of the annual Office of Foreign Assets
Control compliance review.
In addition, a briefing session on client assets was given to the
Committee.
Assessing external auditor effectiveness, auditor objectivity and
independence, non-audit services
The Committee is responsible for monitoring the performance,
objectivity and independence of the external auditor, PwC. In 2014 the
main activities of the Committee in discharging that responsibility were
as follows:
Q Assessed and agreed the scope of PwC’s Group Audit Plan, including
debating and approving a revised plan following the announcement
of the Group Strategy Update in May 2014. The Committee examined
how PwC had refined its risk assessment in light of the
resegmentation of the business and the creation of the Non-Core
business and looked at the key areas of IT, valuations, impairment,
conduct and litigation;
Q Settled the terms of the audit engagement letter and approved, on
behalf of the Board, the audit fees payable;
Q Assessed the competence with which PwC handled the key
accounting and audit judgements and how they were communicated
to management and the Committee;
Q Discussed with PwC the appointment of a new lead audit partner
given that the current audit partner’s five year tenure ends at the
conclusion of the 2014 audit. The Committee considered potential
candidates and recommended to the Board the new audit partner to
be appointed with effect from the audit for the 2015 financial year
onwards;
Q Deliberated and decided upon the timeline, governance
arrangements and the process to be followed in submitting the
external audit for tender and to rotate the audit firm. Read more
about the audit tender below;
Q Reviewed and updated the policy relating to the provision of
non-audit services and regularly evaluated reports summarising the
types of non-audit services for which PwC had been engaged and
the level of fees payable, including assessments from PwC on how its
independence and objectivity had been safeguarded. Read more
about non-audit services below;
Q Ensured, by assessing regular reports of any appointments made,
that management confirmed compliance with the Group’s policy on
the employment of former employees of PwC; and
Q Evaluated reports issued following inspections of PwC by the FRC’s
Audit Quality Review Team and the US Public Company Accounting
Oversight Board. The Committee scrutinised the findings of each
report, including actions taken to address prior findings and any
areas of further focus that had been identified. It agreed that the
audit was acceptable overall and that any identified areas for further
improvement had been addressed or had appropriate action plans in
place.
The Committee also evaluated the performance, independence and
objectivity of the auditor in the delivery of the external audit. Key
stakeholders across the Group were surveyed, including members of
the Committee and certain audit committees of Barclays’ subsidiaries.
The questionnaire incorporated recommendations from a number of
professional and governance bodies regarding the assessment of the
quality of the external audit and also took into account the key findings
from the 2013 evaluation. Questions were designed to obtain empirical
evidence of how PwC met certain expected behaviours and also how
individual audit team members had performed whilst also capturing
data to assess qualitative attributes such as efficiency, forward-
thinking, teamwork, integrity, quality of knowledge and judgement,
including PwC’s performance on specific areas of judgement. PwC also
made available the outputs from its client review interviews, conducted
at the end of the current audit partner’s term as lead audit partner, to
further inform the auditor effectiveness assessment.
The results of the assessment confirmed that both PwC and the audit
process were considered effective and that a good working relationship
was accompanied by an appropriate level of challenge and scepticism.
Following all the above, and in particular the process of evaluation, the
Committee recommended to the Board and to shareholders that PwC
should be reappointed as the Group’s auditors at the AGM on 23 April
2015.
To help assure the objectivity and independence of the external auditor,
the Committee has in place a policy that sets out the circumstances in
which the external auditor may be permitted to undertake non-audit
services. Details of the non-audit services that are prohibited and
allowed under the policy can be found in the corporate governance
section of Barclays’ website, barclays.com/corporategovernance.
Allowable services are pre-approved up to £100,000, or £25,000 in the
case of certain taxation services. Any proposed non-audit service that
exceeds these thresholds up to £250,000 requires specific approval
from the Chairman of the Committee and non-audit services of
£250,000 and above require the approval of the Committee before the
external auditor can be engaged. When calculating the expected
engagement fees, the policy also requires that expected expenses and
disbursements are taken into account.
The overriding principle of the policy is that the Group should only
engage the external auditor to supply non-audit services (other than
those services that are legally required to be performed by the external
auditor) in specific, carefully controlled circumstances. Prior to
considering the engagement of the external auditor to carry out any
non-audit service, alternative providers must be considered. Where it is
proposed that the external auditor should be engaged, the request
must be supported by a detailed explanation of the clear commercial
benefit, why an alternate service provider was not selected and why the
external auditor is best placed to carry out the service. In each case, the
request to use the external auditor for these services must be
sponsored by a senior executive, and the relevant audit partner is
required to attest that provision of the services has been approved in
accordance with the external auditors’ own internal ethical standards
and that its objectivity and independence would not be compromised.
Governance: Directors’ report
What we did in 2014
Board Audit Committee Report