Audit & Assurance Aspire with Assurance 2018 Transparency Report
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Aspire with assurance 2018 Transparency Report Deloitte LLP For the year ended 31 May 2018 Audit & Assurance Regulatory context This Audit Transparency Report (Report) has been prepared in accordance with Article 13 of the Regulation No 537/2014 of the European Parliament and of the Council of 16 April 2014 (the EU Audit Regulation). The EU Audit Regulation came into force on 17 June 2016 and requires the publication of an annual transparency report by audit firms that carry out statutory audits of public interest entities. It supersedes the provisions of the Statutory Auditors (Transparency) Instrument 2008. As we have made an audit report on the annual accounts of one major local audit1 during the year ended 31 May 2018, we are also required to comply with The Local Auditors (Transparency) Instrument 2015. In January 2010, the Institute of Chartered Accountants in England & Wales (ICAEW) published the Audit Firm Governance Code (the 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. This Report includes disclosures required by the revised Code and explains the steps taken to comply. A reconciliation to the revised Code is provided in Appendix 6. This Report relates to Deloitte LLP’s2 principal activities in the UK for the year ended 31 May 2018, unless otherwise stated. 1. As defined in The Local Audit (Professional Qualifications and Major Local Audit) Regulations 2014 2. Deloitte LLP (Deloitte or the firm) 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 Leadership messages 02 Providing trust Delivering quality audits 14 External and internal audit quality monitoring 24 Governance, legal structure and Deloitte Network UK governance and legal structure 40 NWE Governance 43 Deloitte network 46 Conducting business with honesty, integrity and high standards of professional behaviour Independence, ethics and risk management 48 Appendices Appendix 1 – Executive Group and UK Oversight Board members, 58 including biography and meeting attendance details Appendix 2 – Financial information 63 Appendix 3 – Public interest entities 65 Appendix 4 – Partner and INE remuneration 71 Appendix 5 – EU/EEA audit firms 73 Appendix 6 – Audit Firm Governance Code and 77 EU Audit Regulation disclosure requirements Aspire with assurance | 2018 Transparency Report Leadership messages Foreword from David Sproul, I do not believe that separating audit work Senior Partner and Chief Executive from other services is the solution, nor do I support breaking up the Big Four as Welcome to Deloitte’s Audit Transparency I believe both would be to the detriment of Report for the year ended 31 May 2018. audit quality and of the UK capital markets. It has perhaps never been more important Our Managing Partner Audit & Risk for us to talk transparently about audit. Advisory, Stephen Griggs, discusses this in more detail later in this report. This has been a year of intense scrutiny, both for our firm and our profession. Audit is of vital importance to our firm. It is High profile corporate failures have led the bedrock of what we do and we are all people to question the role of auditors and committed to ensuring its continued role in to ask whether there’s enough choice in the serving the public interest. Audit is of vital importance audit market; whether it’s right that audit firms also provide advisory services; and I hope you find this report interesting and to our firm. It is the whether breaking up the four largest firms insightful. Please do get in touch via bedrock of what we do (the Big Four) is the answer. [email protected] to share any feedback. and we are all committed We take these questions very seriously to ensuring its continued – we have to, but we also want to. We recognise that change is needed role in serving the public and we want to work with other market interest. participants to really look at how audit can David Sproul match the evolving needs of stakeholders Senior Partner and Chief Executive and society, as well as the needs of Deloitte LLP increasingly complex businesses. The concentration of the Big Four in the FTSE audit market has developed over decades. Since 1989, various mergers (driven by the need for international expansion as clients began operating more globally) and the collapse of one of the largest firms have reduced the number of major professional services firms from eight to four. It can’t be undone overnight, but we strongly support measures that encourage other firms to succeed in entering the market. 02 Aspire with assurance | 2018 Transparency Report Message from Stephen Griggs, Is audit quality high enough? Managing Partner Audit & Risk Advisory First, I’d like to say that I’m immensely proud of our 4,000 audit professionals It’s fair to say there’s been a significant who are dedicated to delivering the highest focus on the audit profession in recent quality work. While a small number of months. failures understandably make the news, we shouldn’t lose sight of the fact that we sign While criticism of our profession 14,500 audit reports in the UK every year. undoubtedly makes for uncomfortable reading, we acknowledge the need for Given recent high profile failures and the us to truly reflect on our public interest deterioration in the FRC’s Audit Quality role and to recognise that there is now Review scores for the Big Four compared a great opportunity for the profession to with the previous year, I can understand … there is now a great further engage with stakeholders (including why people are concerned. Despite this, regulators, the government, company audit quality in the UK is very strong and opportunity for the management, audit committees and has improved significantly in recent years: profession to further investors) to bring about changes that will the FRC’s Audit Quality Inspections rated ultimately benefit the public interest. 72% of audits as good or requiring limited engage with stakeholders improvements in 2017/18, compared with (including regulators, the I set out below my own views on some of 50% in 2009/10. the key questions being asked. government, company We address all our inspection findings and management, audit What should the role of audit be? use what we learn to drive improvements I believe that public confidence in audit has across our entire audit portfolio. committees and investors) fallen due, in part, to a difference between All findings are investigated so we can learn to bring about changes what an audit does and what people from them and ensure mistakes are not think it does or should do. For example, repeated. We set out in the Providing trust that will ultimately benefit some believe that audit can, and should, section of this report how we do this. the public interest. guarantee a company won’t fail, but the reality is that audit isn’t designed to do that. Generally, over time, the companies that we audit have grown enormously in scale, Deloitte strongly supports an independent international reach and complexity and their review into the role and responsibilities financial statements often include complex of auditors. I hope we can use the estimates requiring difficult judgements current debate to open up a dialogue and assessments. Consequently, auditing with stakeholders about what the audit those financial statements has become ‘product’ should look like in an age of more complex and requires significantly exponential technological transformation, more input from experts in areas such as globalisation and increasing business valuations, property, IT and insolvency. complexity. The audit quality bar is continually being raised, and rightly so, and we will keep Changing the scope of audit will require improving the quality of our work to meet carefully considered legal and regulatory and exceed those expectations. change. The firm and the profession as a whole have made substantial investments in improving audit quality. Our audit practice of today looks very different to our audit practice of even a few years ago. We will continue to evolve to deliver audits of the highest quality and to provide confidence and transparency to all our stakeholders. 03 Aspire with assurance | 2018 Transparency Report Would it be better to have How can you be independent while How can you manage conflicts of audit‑only firms? still providing other services to the interest when you offer such a broad I strongly believe that it wouldn’t. companies you audit? range of services? Although, as a firm, we offer a broad range Details of the procedures we use to If we changed to an audit‑only model, we’d of services, the recent EU audit legislation manage conflicts are set out in the in the have less knowledge about the entities and the FRC’s Ethical Standard severely Independence, ethics and risk management we audit, less access to technology and restrict – both in nature and volume – section of this report. innovation, and a shallower pool of talent the non‑audit services that auditors can with the necessary skills and industry provide to the entities they audit. We take the issue of conflicts very experience. I believe that would reduce seriously – both in terms of those defined audit quality and therefore be detrimental The effect of these regulations has been by our regulatory standards and of to the capital markets and to the public dramatic.