SABMiller has a well-established policy on the independence of the external auditors and management of the company’s relationship with them. This sets out: the committee’s responsibilities in the selection of auditors to be proposed for appointment or reappointment and for agreement on the terms of their engagement, audit scope and remuneration; the auditor independence requirements and the policy on the provision of non-audit services and the rotation of audit partners and staff; and the conduct of the relationship between the auditors and the committee.
The auditors are precluded from engaging in non-audit services that would compromise their independence or violate any professional requirements or regulations affecting their appointment as auditors. The auditors may, however, provide non-audit services which do not interfere with their independence, and where their skills and experience make them a logical supplier, subject to pre-approval by the committee. The policy stipulates the types of work that are not permitted to be performed by the auditors and those which may be permitted in appropriate circumstances. The group’s procedures require that any non-audit services proposed to be provided by the auditors be supported by justification as to why the appointment of the external auditors to provide the services is in the best interests of the group, and how auditor independence would be safeguarded in the specific context of the proposed services. The committee has, at each meeting, reviewed and agreed the non-audit services provided in the year and the related fees, which are summarised in note 3 to the consolidated financial statements. SABMiller does not indemnify its external auditors and there are no contractual obligations restricting the choice of external auditors.
The external auditors, PricewaterhouseCoopers, later becoming PricewaterhouseCoopers LLP (PwC) in 2003, were appointed as the company’s auditors in 1999 when the company moved its headquarters from Johannesburg to London and listed on the London Stock Exchange.
PwC has confirmed to the committee its continuing independence and compliance with the SABMiller policy on auditor independence. The external auditors are required to rotate the lead audit partner responsible for the audit engagement every five years, unless there are unusual extenuating circumstances when a further year may be considered. The lead audit engagement partner, Richard Hughes, has now completed five years.
In view of the recommended offer for the company, the significant deal-related activity and additional workloads and pressures on management, the committee has agreed with PwC that Richard Hughes should continue as the lead audit partner for the current financial year ending 31 March 2017, which is one year beyond the normal five year term. The committee believes that continuity at this time will best serve audit quality and reduce risk. To address any possible independence concerns arising from this extension of term, PwC has arranged to appoint an independent partner to monitor the execution of the audit. This is additional to the oversight of the audit by the engagement quality review partner assigned to our audit. This latter role is not part of an audit team per se but provides an internally independent view within an audit firm on the conduct of the audit and the audit judgements made.
The committee conducted its annual review of the performance of the external auditors and the effectiveness of the external audit process for the year ended 31 March 2016. The review was based on a survey of key stakeholders across the group, consideration of public regulatory reports on PwC member firms, and the quality of the auditors’ reporting to and interaction with the committee. Based on this review, the committee was satisfied with the performance of the auditors, their objectivity and the effectiveness of the audit process. In the light of this and their continued independence, the committee has recommended to the board that a resolution for the reappointment of PwC as the external auditors for the financial year ending 31 March 2017 be proposed at the annual general meeting.
The European Union has directed member states to adopt legislation by 2016 requiring that companies change their external auditors at least every 10 years, or every 20 years if an audit tender is held after 10 years, subject to transitional rules, and restricting further the non-audit services that may be provided. Under the transitional rules of the new EU regulations, mandatory auditor rotation would require that new auditors for the company be appointed for the year ending 31 March 2024 at the latest. The Competition and Markets Authority Statutory Audit Services Order 2014 is consistent with these requirements on audit tendering. The UK Corporate Governance Code requires, on a comply or explain basis, that the audit is put out to tender at least every 10 years, subject to transitional guidance that, when a tender has not been held in the past 10 years, it would be appropriate to coincide a tender with the next rotation of the lead audit engagement partner.
In view of the recommended offer, the committee will not now hold the audit tender that was planned for later this year for appointment for the financial year commencing 1 April 2017. The committee believes avoiding the distraction of a tender during the period preceding a conclusion of the recommended offer to be in the best interests of shareholders. Should a transaction not be completed, it is the committee’s intention that an audit tender process be initiated as soon as practicable thereafter for appointment for the following year, which in these circumstances would likely be the financial statements for the year ending 31 March 2018.
The Competition and Markets Authority Statutory Audit Services Order 2014 sets out certain regulations in respect of audit tendering and appointments and related audit committee responsibilities which came into effect for financial years commencing on or after 1 January 2015. The company has complied with the provisions of the Order for the financial year ended 31 March 2016.