Vodafone 2015 Annual Report Download - page 69

External audit process effectiveness
We have sought to evolve our approach this
year in relation to assessing the effectiveness
of the external audit process. The framework
we used had a number of facets
and comprised:
a an assessment by the Committee of the
performance of PricewaterhouseCoopersLLP,
including consideration of the speed in which
they gained a detailed understanding of the
Group given the first year of their audit tenure;
a detailed questioning of management
in operating companies and Group
on a range of factors that we considered
relevant to audit quality. This covered the
Group’s most senior nance personnel
exposed to the audit process;
a feedback from the independent chairman
of the Vodacom local audit committee; and
a feedback from PricewaterhouseCoopers
LLP on their performance against their own
performance objectives.
The observations from this assessment for
the 2015 nancial year were presented and
discussed at the May 2015 meeting. We also
considered the rm-wide audit quality
inspection report issued by the FRC in relation
to PricewaterhouseCoopers LLP in May 2014.
The Committee concluded that there had
been appropriate focus and challenge
on the primary areas of audit focus and
PricewaterhouseCoopers LLP had applied
robust challenge and scepticism throughout
the audit. Management concurred with
this view.
Independence and objectivity
In its assessment of the independence
of the auditor and in accordance with the
US Public Company Accounting Oversight
Board’s standard on independence,
the Committee receives details of any
relationships between the Company and
PricewaterhouseCoopers LLP that may have
a bearing on their independence and receives
conrmation that they are independent of the
Company within the meaning of the securities
laws administered by the US Securities and
Exchange Commission (‘SEC’).
Prior to the Board decision in February 2014
to recommend PricewaterhouseCoopers
LLP as the external auditor for the year ended
31 March 2015, PricewaterhouseCoopers LLP
were providing a range of non-audit services
to the Group. A signicant joint exercise was
undertaken to conrm their independence
from both a UK and US regulatory perspective.
The Committee then set the parameters
for any ongoing and future activity. It was
mandated that:
a all services that were prohibited by the
SEC for a statutory auditor to provide were
to cease by 31 March 2014; and
a all engagements that were not prohibited
by the SEC but would not have met the
Group’s own internal approval policy for
non-audit services were to cease by 30 June
2014 to enable a transition to alternative
suppliers, where required. These services
had a value of approximately £3 million
through to completion.
As one of the ways in which it seeks to protect
the independence and objectivity of the
external auditor, the Committee has a policy
governing the engagement of the external
auditor to provide non-audit services. This
precludes PricewaterhouseCoopersLLP from
providing certain services such as valuation
work or the provision of accounting
services and also sets a presumption that
PricewaterhouseCoopersLLP should only
be engaged for non-audit services where there
is no legal or practical alternative supplier.
Except as noted above in relation to the auditor
transition, no material changes have been
made to this policy during the nancial year.
For certain specic permitted services,
the Committee has pre-approved that
PricewaterhouseCoopers LLP can be engaged
by management, subject to the policies set
out above, and subject to specied fee limits
for individual engagements, and fee limits
for each type of specic service. For all other
services or those permitted services that
exceed the specied fee limits, I, as Chairman,
or in my absence another Committee member,
can pre-approve permitted services.
During the year, PricewaterhouseCoopers
LLP and related member rms charged
the Group £12 million for statutory audit
services. The Committee approved these
fees which represented the fee proposed
as part of the audit tender and scope
changes during the 2015 nancial year,
including the impact of business acquisitions
which were primarily in relation to Ono.
The Committee received formal assurance
from PricewaterhouseCoopers LLP that the
fees were appropriate for the scope of the
work required.
In addition to the statutory audit fee,
PricewaterhouseCoopers LLP and related
member rms charged the Group £4 million
for audit-related and other assurance services,
comprising £3 million for services that had
ceased by 30 June 2014 and £1 million
of other non-audit fees. Further details of the
fees paid, for audit and non-audit services
to both PricewaterhouseCoopers LLP for
the current nancial year and to Deloitte LLP
for prior years, can be found in note 3 to the
consolidated nancial statements.
Oversight of the
Group’s system of internal
control including the
internal audit function
Assessment of internal controls
The Group has in place an internal control
environment to protect the business from
the material risks which have been identied.
Management is responsible for establishing
and maintaining adequate internal controls
over nancial reporting and we have
responsibility for ensuring the effectiveness
of these controls.
We reviewed the process by which the Group
evaluated its control environment. Our work
here was driven primarily by the Group
Audit Director’s reports on the effectiveness
of internal controls, signicant identied
frauds and any identied fraud that involved
management or employees with a signicant
role in internal controls. We also held
a number of detailed reviews of the control
environment in Vodafone Italy, Australia and
the UK. Oversight of the Group’s compliance
activities in relation to section 404 of the
Sarbanes-Oxley Act also falls within the
Committee’s remit.
The Committee has completed its review
of the effectiveness of the Group’s systems
of internal control during the year and
up to the date of this Annual Report,
in accordance with the requirements of the
revised Turnbull Guidance on Internal Control,
published by the FRC. It conrms that
no signicant failings or weaknesses were
identied in the review for the 2015 nancial
year. Where areas for improvement were
identied, processes are in place to ensure that
the necessary action is taken and that progress
is monitored.
Internal audit
Monitoring and review of the scope, extent
and effectiveness of the activity of the Group
Internal Audit department is an agenda item
at each Committee meeting. Reports from the
Group Audit Director usually include updates
on audit activities, progress of the Group audit
plan, the results of any unsatisfactory audits
and the action plans to address these areas.
On an annual basis the Committee reviews
and approves both the audit plan for the year
and the resources required to accomplish the
agreed work programme. I play a major role
in setting the Group Audit Director’s annual
objectives and I meet with him regularly in the
year to be briefed on his team’s activity and
the nature of any signicant issues arising from
their work.
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Annual Report 2015
67