2017 Audit Transparency Report

Deloitte LLP Audit Transparency Report 2017 For the year ended 31 May 2017 Regulatory context This Audit Transparency Report (Report) has been prepared in accordance with the provisions of the Statutory Auditors (Transparency) Instrument 2008 (the Instrument), made by the Professional Oversight Board (POB) of the Financial Reporting Council (FRC) on 3 April 2008. The Instrument came into force on 6 April 2008 and requires the publication of certain information by transparency reporting auditors1, such as Deloitte LLP2 (Deloitte or the firm). This Report relates to the firm’s principal activities in the UK for the year ended 31 May 2017, unless otherwise stated. In addition to the requirements of the Instrument, the POB issued the Audit Quality Framework (AQF) in February 2008 and indicated that Transparency Reports may represent a useful opportunity for audit firms to set out the steps that they are taking to achieve audit quality by reference to the AQF. This Report addresses all of the elements set out in the AQF. A reconciliation of this Report to the AQF has been supplied to the Conduct Committee. This Report has also been prepared with due regard to publications issued by, and comments received from, the POB and its successor, the Conduct Committee, regarding transparency reporting by audit firms. In January 2010, the Institute of Chartered Accountants in England & Wales (ICAEW) published the Audit Firm Governance Code (Code), which sets a benchmark for good governance and applies to firms auditing 20 or more listed companies. A revised Code was published on 27 July 2016, applicable for financial years beginning on or after 1 September 2016. Whilst adherence to the revised Code is not required for this year’s Report, we include relevant disclosures throughout the Report and a reconciliation to the revised Code in Appendix 6. 1 Transparency reporting auditors are defined as statutory auditors that have made an audit report on the annual accounts of one or more public interest entities during the financial year of that statutory auditor. 2 Deloitte LLP is the United Kingdom affiliate of Deloitte NWE LLP, a member firm of Deloitte Touche Tohmatsu Limited (DTTL), a UK private company limited by guarantee. DTTL – also referred to as Deloitte Global – and each of its member firms are legally separate and independent entities. DTTL and Deloitte NWE LLP do not provide services to clients. Please see www.deloitte.com/about to learn more about our global network of member firms. Contents Section 1 – Introduction 1.1 Foreword, our purpose and priorities 1 1.2 Report from the Independent Non-Executives 3 1.3 Report from the Chairman of the Audit & Risk Committee 5 Section 2 – Providing trust 2.1 Delivering quality audits 10 2.2 Measuring quality 17 2.3 Managing risk 30 Section 3 – Governance and structure 3.1 UK Governance and legal structure 34 3.2 Deloitte NWE 41 3.3 Deloitte Global 44 Appendices Appendix 1 – Independence 47 Appendix 2 – Current UK Executive Group and UK Oversight Board members 49 Appendix 3 – Financial information 53 Appendix 4 – Public Interest Entities (PIEs) 54 Appendix 5 – Partner and INE Remuneration 58 Appendix 6 – Audit Firm Governance Code and disclosure requirements 59 Glossary 68 Section 1 Introduction Audit Transparency Report 2017 1.1 Foreword, our purpose and priorities Foreword Addressing this is critical to foster Welcome to Deloitte’s Audit Transparency investment and drive growth in the UK, Report for the year ended 31 May 2017. and the government’s focus on Industrial Strategy and Corporate Governance will Quality is, of course, of paramount provide critical platforms for opportunity importance to Deloitte. This Report and change. In providing robust, high plays a critical role in communicating quality audits and other business services, our transparency around audit quality we are an important contributor to, and to regulators, investors, audit committee enabler of, trust and confidence. chairs and other stakeholders and reflects the requirements of the revised Audit Firm We strive to remain at the forefront Nick Owen Governance Code, which was published of innovation in the profession and Chairman last year. deliver solutions every day that help our clients unlock possibilities and navigate The last few months have been a period complexities. We must also ensure that of great change for Deloitte. 1 June 2017 Deloitte remains a dynamic, diverse and heralded the creation of Deloitte North inclusive place to work, open and attractive West Europe (NWE), combining the UK, to people from all backgrounds, and that Swiss, Nordic, Belgian and Dutch firms to we support our clients to do the same. serve globally connected clients. I chair Inclusive behaviour and respect are the new NWE Board, which ensures the expected of all our people and form a key governance and stewardship of the NWE part of our talent strategy. firm, working with the NWE Executive to set and approve our long-term strategic aims. We are proud of the progress we have While this Transparency Report is focused made on social mobility, for example our on our UK operations in the year to 31 ‘blind’ and ‘contextualised’ recruitment May 2017, we also reflect on the changes practices3 and growing apprentice and resulting from NWE throughout the report, school-leaver programmes. We continue including our new governance structure (in to prioritise the recruitment and retention section 3.2). of senior women, are working to a plan that we put in place in 2014 to improve Our purpose and priorities are set out gender balance at all levels and engage below. On these and much else, I remain in the debate on gender diversity with ever grateful to our Independent Non- government, our clients and through Executives – Ruth Markland, Sir Gerry the media. We have published data on Grimstone and Sir Michael Peat – for the the proportion of our partners who are effective external perspective, challenge black, Asian or from an ethnic minority and wise counsel they provide. (BAME) and are working towards targets to increase these numbers. We are also Our purpose supporting increased diversity at board Our purpose, to make an impact that level through the Deloitte Academy matters for our clients, our people and ‘Women on Boards’ and ‘BAME on Boards’ society, remains the foundation of what we programmes designed for senior business do, day in, day out. As set out in our annual leaders aspiring to take on their first Impact Report, which seeks to bring it to board role. life, our purpose is shaped by the work we do to provide trust and confidence, The services we provide and the training support inclusive growth and build skills. of those who deliver them must also adapt 3 Blind recruitment seeks to prevent unconscious and remain ‘future-fit’; section 2.1 sets out bias and ensure that job offers are made on the We recognise that the general level of trust how we are evolving the audit and section basis of present potential, not past personal in business has declined in recent years. 2.3 looks at some of the priority risks we circumstance; interviewers do not have access ourselves face and the actions we are to applicants’ school or university details until an offer has been made. Contextualised recruitment taking to mitigate them. provides recruiters with a range of standardised data on candidates’ economic backgrounds and personal circumstances, allowing them to consider the context in which their academic achievements have been gained. 1 Audit Transparency Report 2017 Our priorities for FY18 Engaging proactively with regulators Over the coming year we will focus on: and other key stakeholders This remains critical at local, national, Driving further improvements in audit regional and international levels. Moving to quality NWE, the uncertainty around what shape We have made significant progress to date, Brexit will take, the shifting corporate but there is still more to do. As set out in governance landscape and other factors detail in this report, we are undertaking will make this particularly important in the a number of initiatives to shift the dial coming years. ever further. The FRC’s 2016/17 Audit Quality Inspection Report on Deloitte Driving international consistency highlighted many areas in which we improvements and enhanced network have further improved audit quality, but collaboration we were disappointed that two audits Our strategy is to deliver services to were identified as requiring significant clients as one seamless global network. improvement. We accept those findings Challenges in certain parts of the world and have taken swift action to respond. require us to focus ever more on this. We are firmly committed to achieving and As section 2.1 sets out, we now have exceeding the FRC’s objective that, by additional guidance for group auditors. 2019, 90% of FTSE audits reviewed will be assessed as requiring no more than limited Culture improvements. We believe our continued The firm’s culture is critical to engendering investment in audit quality will allow us to and preserving trust, and leadership has do this. Furthermore, quality remains our a vital role to play in setting the right ‘tone focus within the NWE audit practice and, from the top’. Next year we will continue to reflecting this, the leadership structure assess our current culture and to build on includes a quality leader for the whole and drive our ethical values and principles of NWE. across the firm. Capitalising on the opportunities One Million Futures arising from NWE The aim of our five-year responsible Combining across the markets in North business strategy is to support and inspire West Europe will increase our ability to a million people get to where they want positively influence the growth of our to be – in the classroom, workplace or clients and provide positive impact for board room.

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