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External audit independence and effectiveness

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 audit committee. The policy stipulates the types of work which 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 a 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 four years.

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 2015. 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 2016 be proposed at the annual general meeting.

The committee has monitored recent regulatory developments in the UK and the European Union regarding the length of audit tenure, audit tendering and audit firm rotation, and the provision of non-audit services by auditors. The European Union has now 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. 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. This would suggest a tender for the year commencing 1 April 2016, since the next rotation of the lead audit engagement partner is scheduled to take place after the conclusion of the audit for the year ending 31 March 2016.

Taking into account these regulations and developments in the business, the committee has determined to conduct a tender in 2016 for audit services for the financial year commencing 1 April 2017. This is 12 months later than suggested in the Code transitional guidance, but is considered to be in the best interests of the group as it allows appropriate time for a new chief financial officer to be appointed and to become established and for any actions required to ensure compliance by the chosen firm with new regulations on restricted non-audit services. Under the transitional rules of the new EU regulations, should PwC be reappointed following the tender, mandatory auditor rotation would require that new auditors be appointed for the year ending 31 March 2024 at the latest.