Aer Lingus 2014 Annual Report Download - page 74

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Internal audit
The Company’s internal audit function is provided by EY under a service agreement. The effectiveness and independence of the function
was monitored and kept under review by the Audit Committee through regular meetings with EY during the course of 2014. EY was
appointed for a three year period. Its current contract expired at the end of 2014, but was extended at the option of Aer Lingus until
September 2015. The annual internal audit plan is developed each year in response to risks in the business and in consultation between
management, the internal auditors and the Audit Committee. In developing the plan, enough flexibility is built in to allow the internal audit
function to respond to either changes in the risk profile or issues that arise during the course of the year.
The internal audit plan approved for 2014 was kept under review by the Audit Committee throughout the year and the main findings of each
resulting internal audit report were then reported to the Audit Committee. The Audit Committee monitored management action to
implement the findings and recommendations of the internal auditors through the maintenance of a log, which was updated on a rolling basis
and kept under review at meetings of the Audit Committee. In addition to attendance at meetings of the Audit Committee, EY also met
privately with the members of the Audit Committee in the absence of management during the course of the year.
External audit
The Audit Committee received audit plans and reports from the Company’s external auditors, PwC, throughout the year. In addition, the
members of the Audit Committee met privately with PwC in the absence of management to discuss the work of PwC and any issues arising
from the audit process.
The effectiveness of the audit process itself was kept under review by the Audit Committee through its engagement with PwC. The Audit
Committee has adopted a formal framework for its review of the effectiveness of the external audit process and audit quality focused on
strong audit governance, the firm’s methodology and its application to Aer Lingus, robustness of challenge and findings on areas which
require management judgement and quality of senior members of the audit team. Specifically, this includes assessments in the following
areas:
 the lead audit engagement partner;
 the audit team;
 planning and scope of the audit and identification of areas of audit risk;
 responsiveness of the audit plan to changes in our business;
 the execution of the audit;
 the role of management in an effective audit process;
 communications by the auditor with the Audit Committee;
 how the auditor supports the work of the Audit Committee;
 how the audit contributes insights and adds value;
 a review of the audit firm’s independence and objectivity; and
 the quality of the formal audit report to shareholders.
An auditor assessment tool is now completed each year by each member of the Audit Committee and by the CFO. This tool has been used
to assess the audit of the 2014 financial statements. Feedback is also sought from the CEO, and senior members of the finance team. The
feedback from this process is considered by the Audit Committee and is provided both to the auditors and to management. If necessary,
action plans arising would also be reviewed by the Audit Committee, although to date this has not been considered necessary.
The effectiveness of management in the external audit process is assessed principally in relation to the timely identification and resolution of
areas of accounting judgement, the quality and timeliness of papers analysing those judgements, management’s approach to the value of
independent audit, the booking of any audit adjustments arising and the timely provision of draft financial statements for review by the
auditors and the Audit Committee.
Every two years, the Audit Committee requests that a partner independent of the audit engagement team discusses the quality of the external
audit process with the Audit Committee Chair and the CFO using this evaluation framework. The first such discussion has occurred in early
2015 relating to the audit of the 2014 financial statements and the principal elements of that discussion focused on retention of a strong team
through a period of uncertainty associated with the rotation of the partner, forthcoming tendering on foot of the new EU regulatory
framework (see below for details) and the IAG proposal.
Following its review of the external audit, the Audit Committee has concluded that the audit was effective, and that the Company receives
good and proactive service from PwC. The Audit Committee therefore recommended to the Board that PwC should be proposed for re-
appointment as auditors of the Company at the Company’s Annual General Meeting.
PwC has served as Company’s external audit firm since 1996 and the audit was last put out to tender in 2003. A new EU regulatory
framework was introduced during 2014 requiring mandatory rotation of the external auditors of public interest entities (including listed
companies) at least every ten years. EU Member States can extend the maximum audit tenure up to twenty years, provided that a public
tender is conducted at least every ten years and this is currently under consideration by the Irish Government. We anticipate the new
requirements around tendering will apply to accounting periods commencing on or after 17 June 2016. The current lead partner will rotate
off the Aer Lingus audit following the completion of the 2015 year end reporting.
In accordance with our Terms of Reference it is the Audit Committee’s responsibility to develop and implement a policy on the supply of
non-audit services by the external auditor, taking into account any relevant ethical guidance on the matter. The Audit Committee permits the
external auditors to perform a certain amount of non-audit work where they are best placed to provide those services and they are not of a
scale or nature that would pose a threat to independence. It is the policy of Aer Lingus to restrict aggregate fees for non-audit activities of the
auditors in any given year to €200,000, unless the Audit Committee is satisfied that there are good reasons for exceeding this amount and
that there is no alternative service provider who could discharge the required service. In this regard in 2014 the Audit Committee was
consulted in relation to the services undertaken by PwC in relation to the IASS pension circular and the associated fees.
In addition, it is the policy of Aer Lingus that the Chair of the Audit Committee is consulted in advance if it is proposed to engage the
auditors on any individual piece of non-audit work where the fee is likely to exceed €50,000.