National Grid 2014 Annual Report Download - page 53

Strategic Report Corporate Governance Financial Statements Additional Information
External audit
The Committee is responsible for overseeing relations with the
external auditors, including the approval of fees, and makes
recommendations to the Board on their appointment and
reappointment. Details of total remuneration to auditors for the
year, including audit services, audit-related services and other
non-audit services, can be found in note 3 (e) of the consolidated
financial statements on page 98.
Auditor independence and objectivity
The independence of the external auditors is essential to the
provision of an objective opinion on the true and fair view
presented in the financial statements.
Auditor independence and objectivity is safeguarded by a number
of control measures, including limiting the nature and value of
non-audit services performed by the external auditors, ensuring
that employees of the external auditors who have worked on the
audit in the past two years are not appointed to senior financial
positions within the Company, and the rotation of the lead
engagement partner at least every five years. The current lead
engagement partner has held the position for fouryears.
Non-audit services provided by the external auditors
Non-audit services provided by the external auditors require
approval by the Committee. Approval is given on the basis the
service will not compromise independence and is a natural
extension of the audit or if there are overriding business or
efficiency reasons making the external auditors most suited to
provide the service. Certain services are prohibited from being
performed by the external auditors, as required under the SOX Act.
Total non-audit services provided by PwC during the year ended
31 March 2014 were £1.7 million (2013: £2.3 million), which
comprised 15% (2013: 23%) of total audit and audit-related fees.
Total audit and audit-related fees include the statutory fee and
fees paid to PwC for other services that the external auditors
are required to perform, for example regulatory audits and SOX
Act attestation. Non-audit fees represent all other services
provided by PwC not included in the above.
Significant non-audit services provided by PwC in the year
included the review of US pensions and other post-retirement
benefits census data (£0.5 million) and tax compliance services
in territories other than the US (£0.5 million).
PwC were engaged to review census data used in US pensions
and other post-retirement benefit calculations and advise on
enhancements to procedures and controls surrounding census
data completeness and accuracy.
The Committee considered PwC best placed to provide this
service given their in-depth understanding of our processes
and control environment. In order to maintain the external
auditors’ independence and objectivity, the work was
performed by a team independent of the audit team,
management reviewed and considered PwC’s findings and
PwC did not make any decisions on behalf of management.
Additionally, PwC had no input in respect of the production of
financial information subsequently used by the audit team.
The Committee also considered that tax compliance services
were most efficiently provided by the external auditors, as
much of the information used in preparing computations and
returns is derived from audited financial information. In order
tomaintain the external auditors’ independence and objectivity,
management reviewed and considered PwC’s findings and
PwC did not make any decisions on behalf of management.
Audit quality
To maintain audit quality and provide comfort on the integrity of
financial reporting, the Committee reviews and challenges the
proposed external audit plan to make sure that PwC has identified
all key risks and developed robust audit procedures.
The Committee also considers PwC’s response to accounting,
financial control and audit issues as they arise, and meets with
them at least annually without management present, providing
theexternal auditors with the opportunity to raise any matters
inconfidence.
Auditor appointment
An annual review is conducted by the Committee of the level
andconstitution of the external audit and non-audit fees and
theeffectiveness, independence and objectivity of the
externalauditors.
The annual review includes consideration of:
• the external audit process globally;
• the auditors’ performance;
• the expertise of the firm and our relationship with them; and
• the results of questionnaires completed by National Grid
employees engaged with the audit and members of the
AuditCommittee.
Following this year’s annual review, the Committee is satisfied with
the effectiveness, independence and objectivity of the external
auditors, and recommends to the Board their reappointment for
afurther year. A resolution to reappoint PwC and giving authority
to the Directors to determine their remuneration will be submitted
to shareholders at the 2014 AGM.
Audit tender
PwC have been the Company’s external auditors since the merger
with Lattice Group plc in 2002, having been the incumbent external
auditors of both the merging parties and the audit contract has not
been put out to tender since then. Their performance has been
reviewed annually by the Committee since that time.
During the year the Committee spent time discussing a potential
tender for the external audit, following the new requirement on
audit tendering and rotation of auditors.
The Committee has also discussed the implications of the
proposals by both the UK Competition Commission (implementing
its decision to mandate tendering every 10 years) and the EU
(requiring audit firm rotation at least every 20 years), and will
implement them when they become final. These proposals have
effectively superceded the comply-or-explain provision that
underpins the Code. The Financial Reporting Council has decided
to defer consideration of whether to make any changes to these
sections of the Code until its next review, currently scheduled
for2016.
The Committee considered the additional disruption that both an
audit tender and any change in audit firm would involve in light of
the ongoing US financial controls program, and the services we
currently receive from other firms that may be considered in a
tender process.
The Committee concluded that a tender is not in the Company’s
interests at this time but agreed that this issue wouldbe reviewed
annually as part of the auditor appointment process. No
representatives from PwC were present during theCommittee’s
discussion of the options for a tender of the external audit.
There are no contractual obligations restricting our choice
ofexternal auditors and we have not entered into any auditor
liabilityagreement.
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