BAKER TILLY UK AUDIT LLP Transparency Report 2014 Baker Tilly UK Audit LLP Transparency Report 2014
www.bakertilly.co.uk Baker Tilly UK Audit LLP 2 Transparency Report 2014
Contents Foreword 3 Introduction from the Head of Audit 4 Comments from the Public Interest Committee 5 Legal structure, ownership and governance 6 The RSM International network 20 Commitment to quality 25 Training, recruitment and personal development 32 Ethics and independence 40 Client and financial information 42 Partner remuneration 43 3 Baker Tilly UK Audit LLP Transparency Report 2014
Foreword Welcome to the Baker Tilly UK Audit LLP 2014 Transparency Report. The 2014 year has been an historic one for Baker Tilly as we made the largest acquisition in the history of the firm, radically changing the scale of our service offering. This acquisition secured the jobs and employment rights of RSM Tenon’s 2,300 partners and staff in its 35 offices across the UK whilst providing Baker Tilly access to new geographic locations and clients. Operating in similar markets across the UK and internationally, we believe that bringing the professional skills, strengths and expertise of Baker Tilly and RSM Tenon together as one firm will significantly enhance our offering to the market and provide further opportunities for growth. We have been working very hard to integrate the two businesses which has involved aligning our systems and methodologies. It has been essential for us to do this decisively and efficiently to ensure that our enlarged business can start exploiting the synergistic benefits and other opportunities available to us, whilst cementing our position as a leading mid-tier firm. We are also very pleased to have recently announced that we have taken the decision to join the RSM International network as their UK member firm. RSM International is the seventh largest global network of independent audit, tax and advisory firms, encompassing over 100 countries, 700 offices and 32,500 people internationally. It is encouraging that we are finally seeing signs that the UK economy is mounting a sustainable recovery and we remain cautiously optimistic that this will continue in 2014-15. Most sectors and regions of the economy are showing positive growth trends with signs that business investment and transactional activity are both picking up. Our recent SME survey indicated that confidence is slowly returning. 45% of SMEs are either extremely confident or confident about growth opportunities over the next 12 months and 48% said they expected to increase turnover by 5% or more over the same period. However, caution is still the watchword. 96% said they were happy achieving their current level of success, 74% expect their workforce to stay the same and only 23% intend to increase their sales and marketing spend. We are looking forward to a successful year for our clients and even as we continue to evolve and grow our commitment to excellent client service will never change. Martin Rodgers Chairman, Baker Tilly UK Holdings Limited 30 June 2014 Baker Tilly UK Audit LLP 4 Transparency Report 2014
Introduction from the Head of Audit The year ended 31 March 2014 has seen significant change and opportunity. Our merger with RSM Tenon has not only increased our client base but has provided us with an enlarged audit team with new skills and sector expertise. Both firms shared a common goal to deliver quality audits through efficient working practice and continual improvement. This common goal has ensured that our integration is proceeding well. Our audit approach is based on having an in-depth understanding of our clients’ businesses and their marketplaces. We achieve this through regularly talking with companies to ensure we are aware of their views. This year we conducted our second survey to explore the value of audit. We wanted to find out what businesses think about their audit, what an audit means to stakeholders and whether the proposed legislation seeking to make audits more effective is welcome or not. Encouragingly, a significant majority, 61%, of the businesses that currently have an audit would not want to be released from the audit requirement and while only 25% thought that audit reports filed at Companies House were valuable for investment purposes, 63% thought that the changes to the audit report would increase its value. The positive feeling towards changes to audit reports may just be an acceptance of the inevitable but, hopefully, it also means that there is a growing appetite to invest and seek out investment. As auditors, we need to continue to listen to the marketplace and remain focused on ensuring that audit and its outputs are useful to businesses and stakeholders. We are committed to delivering audits of the highest quality. We work with our firm’s Quality Assurance Department and our Regulators to continually review our work and procedures. Every single member of the audit firm from partner through to trainee embraces this culture. We have rigorous recruitment procedures aiming to recruit only the best and our people are continuously trained, developed and challenged. Over the past three years Jane Bleach, now Head of Quality, Diversity and Partner Development and on the Baker Tilly UK Holdings Board, has actively led the Audit Management Team in building and driving this ethos. As I take the lead in our audit business I am confident that the focus on development and quality in our audit teams along with our values, structure and processes will ensure we are best placed to meet the challenges ahead and to seize opportunities as we have done this past year.
Jonathan Ericson Head of Audit, Baker Tilly UK Audit LLP 30 June 2014 5 Baker Tilly UK Audit LLP Transparency Report 2014
Comments from the Public Interest Committee Review and discussion has been held within the firm, which we three were fully involved in, surrounding continuous improvement in governance arrangements. Three years on from the introduction of related functions, and those others • the technical capabilities of the Audit Firm Governance Code (the relevant to maintenance of its those in the audit business and Code), and coinciding with the end of reputation, are in place. We have how those internal authorisation the Independent Non-Executives’ (INE) embarked on having a programme of rights are validated terms of office it was decided that interfaces with the firm and its staff, • staff members’ adherence to the the firm should set up a new body, a understanding in three dimensions the firm’s procedures and to those Public Interest Committee. Its place in ways in which it secures audit quality, external ones to which it is subject the organisational hierarchy would be and interrogating reports from its consistent with the expectations of the senior executives. • how exacting the firm’s Quality Code and its majority would lie with the Assurance function is We meet separately as well as with firm’s INEs. That body is now in place, the Board, and operate entirely • and how matters affecting Audit with the three of us as its complement. independently. The firm is receptive Quality in the round are addressed Invited still to take part in Baker Tilly of all of our requests for information The degree of active and indeed UK Audit LLP Board discussions and and sympathetic to the scope of any pre-emptive co-operation we receive always apprised of both the Board’s enquiry which we set. Indeed, we were continues to be exemplary, which agenda and the other papers its largely the authors of our own terms of in turn favourably impacts on our members see, the new Committee reference, which faithfully reflect the capacity to direct scrutiny of the firm’s allows us an autonomous existence text and the spirit of the Code. operations. We are satisfied about and an emphasised capacity in our The central thread of our work has been the fitness-for-purpose of the firm’s own right to direct enquiries where we to maintain our focus on key indicators policies and procedures, its promotion think fit and of most benefit in terms of the protection of audit quality: of professional ethics, the spirit of of satisfaction of the Code and of the ‘restless discontent’ and prudence it firm’s own best interests. • the degree of emphasis the firm exhibits in the pursuit of audit quality. gives to the quality, frequency, and Revised and extended terms of effectiveness of training of staff reference and an exacting plan for engagement with the firm’s audit-
Tom McMorrow Roger Alexander Sir Ian Byatt Chair INE INE Baker Tilly UK Audit LLP 6 Transparency Report 2014
Legal structure, ownership and governance Leadership The Managing Director of Baker Tilly UK Holdings Limited (BTUK Holdings) is appointed by the company’s shareholders to hold office for a period of four years. Laurence Longe was re-appointed for a further four years from 1 April 2014. The Managing Director appoints the remainder of the Board of BTUK Holdings. The Board of BTUK Holdings appoints the National Management Team (NMT) of Baker Tilly UK Group LLP (BTUK Group). The Board is responsible for setting the group’s overall strategy and the NMT is responsible for driving it forward.
Board of Baker Tilly UK Holdings as at 30 June 2014 Martin Rodgers Chairman Laurence Longe Managing Director of BTUK Holdings and National Managing Partner of BTUK Group Jane Bleach Head of Quality, Diversity and Partner Development David Gwilliam Chief Operating Officer Martin Laurence Elfed Jarvis Rodgers Longe Regional Managing Partner, South Nigel Tristem Finance Director
National Management Team as at 30 June 2014 Graham Bushby* Jez Filley* Laurence Longe Head of Restructuring & Recovery Regional Managing Partner, London National Managing Partner Rob Donaldson* David Gwilliam Kevin O’Connor Head of Corporate Finance Chief Operating Officer Regional Managing Partner, North East & Yorkshire Alan Duley* Simon Hart* Chief Financial Officer Regional Managing Partner, Midlands Robert Ross* Regional Managing Partner, Scotland Jonathan Ericson* Elfed Jarvis Head of Audit Regional Managing Partner, South Richard Smith* Head of Risk Advisory Jill Jones* Regional Managing Partner, North West
* from 18 June 2014 7 Baker Tilly UK Audit LLP Transparency Report 2014
Jane David Elfed Nigel Bleach Gwilliam Jarvis Tristem
The following also served on the BTUK Holdings Board during the year: • Kevin O’Connor, Regional Managing Partner, North, to 12 June 2014 • Jon Randall, Chief Operating Officer, to 2 June 2014
The following also served on the National Management Team during the year: • Jane Bleach, Head of Quality, Diversity and Partner Development, to 16 June 2014 • Jon Randall, Chief Operating Officer, to 2 June 2014 • Nigel Tristem, Finance Director, to 10 June 2014 • Martin Rodgers, Chairman, to 31 March 2014 Baker Tilly UK Audit LLP 8 Transparency Report 2014
Organisational structure Baker Tilly UK Holdings Limited
Baker Tilly UK Group LLP
Baker Tilly UK Baker Tilly Tax and Baker Tilly Baker Tilly Baker Tilly Risk Audit LLP Advisory Services Corporate Finance Restructuring and Advisory Services LLP LLP Recovery LLP LLP
Baker Tilly Audit Limited
Note: The shares in Baker Tilly Audit Limited are held by individual Responsible Individuals (RIs) on trust for BTUK Audit LLP.
Baker Tilly (Overseas) Limited
Note: Minority stake: ownership of 1/3 of the ordinary shares.
Baker Tilly UK Holdings Arrandco Investments Limited, which Baker Tilly group formally adopted Limited is a 100% subsidiary of the parent the Baker Tilly brand. For a period of company, holds investments in single approximately six months to 31 March The principal service lines of Baker purpose companies which do not 2014, part of the legacy RSM Tenon Tilly are Audit, Restructuring and impact the audit function. Audit staff non-audit business was carried out for Recovery, Tax, Accounting, Business are employed by Baker Tilly Tax and the account of BTUK Holdings, at which Advisory and Outsourcing, Corporate Accounting Limited and support point it was hived down to relevant Finance and Risk Advisory. The staff are supplied by Baker Tilly trading entities within the group. parent company, BTUK Holdings, Management Limited. derives its income primarily from On 2 September 2013, BTUK Holdings BTUK Holdings Audit dividends from subsidiaries and acquired the main trading operations of from a profit share, as a member Committee RSM Tenon, from the administrators of of BTUK Group. BTUK Holdings is BTUK Holdings has, as part of its RSM Tenon Group plc. On 1 October owned by its shareholders who are governance procedures, an Audit 2013, those former RSM Tenon mainly current and former partners. Committee. The Audit Committee entities that had been acquired by the 9 Baker Tilly UK Audit LLP Transparency Report 2014
We have worked with Baker Tilly for several years now and have always enjoyed a good working relationship. Despite many changes to the audit team, as there always is with progression, there has been a very good level of “ continuity of personnel with changes managed seamlessly – this has obviously given us stability and a good continuity of knowledge helping to smooth the audit process. Karen Rees, Finance Director Frozen Value Ltd Trading as Fultons Foods ”
Arrandco Investments Limited
Baker Tilly Creditor Baker Tilly Tax Baker Tilly Services LLP and Accounting Business Services Limited Limited
Baker Tilly Debt Lifeboat Baker Tilly Revas Other Management Limited Limited Baker Tilly Limited Companies
Note: The diagram is a simplified view of the organisational structure and only includes the main trading entities of the Baker Tilly Group.
comprises three members who are • Scrutiny of the integrity of the • Review and agreement of the appointed by BTUK Holdings. consolidated financial statements external auditor’s audit scope and proposing the approval of proposals The Audit Committee at 31 March the financial statements to the 2014 and at 30 June 2014 comprised: • Review of final audit findings and Board of BTUK Holdings recommendations Martin Rodgers • Review of the significant estimates Chairman of BTUK Holdings All three members of the Audit and judgements made by the Committee met with the external Tony Pierre directors in the preparation of the auditors twice during the year to Chairman of the LLP Council financial statements 31 March 2014. There were no (senior non-executive) • Evaluation and monitoring of the significant matters arising from the Elfed Jarvis external auditor’s independence audit including no recommendations Board member of BTUK Holdings and performance for improvements to internal controls or procedures. The Audit Committee performs several • Recommendation of the external important functions which include: auditor’s remuneration Baker Tilly UK Audit LLP 10 Transparency Report 2014
Baker Tilly UK Audit LLP Audit LLP Management Board such management with the Audit The executive members of the Audit Management Team. On 2 September 2013, in a related LLP Management Board are appointed The Management Board meets at least transaction to the acquisition by by a vote of the members of BTUK three times a year and additionally BTUK Holdings of the main trading Audit on candidates approved by as required. All Board meetings in operations of RSM Tenon, BTUK BTUK Group. Executive members are the year were attended by all Board Audit acquired the beneficial interest appointed for terms of four years and members holding office at the relevant in the entire issued share capital are eligible to stand for re-election time. The agenda consistently covers of RSM Tenon Audit Limited, with with the approval of BTUK Group. legal ownership of the shares being a discussion on aspects of governance transferred to two BTUK Audit RIs, On 4 March 2014, following the and a report by the Head of Audit Jane Bleach and Nigel Tristem, jointly, setting up of the Public Interest on operational issues and financial on trust for BTUK Audit. RSM Tenon Committee, the Members’ Agreement performance. Audit quality always Audit Limited changed its name for BTUK Audit was amended to features prominently at the meetings. to Baker Tilly Audit Limited on 30 remove the requirement for non- The Head of the Quality Assurance September 2013. The business of executive members to be appointed Department (QAD) provides a written Baker Tilly Audit Limited was hived up to the Management Board. Prior to report and the Board monitors closely into BTUK Audit with effect from 31 that, non-executive members of the actions taken to address QAD findings. March 2014. Management Board were appointed by Specifically, the Board discusses and the executive members, with approval ratifies any proposed RI appointments This report is made in respect of Baker by BTUK Group. and changes in authorisations, Tilly UK Audit LLP. During the period and monitors whether training The Management Board is responsible some audits were performed by Baker requirements are being addressed. for all aspects of the management Tilly Audit Limited or RSM Tenon Reports from external regulators are and governance of the LLP. Any of the Audit Limited. discussed and the firm’s action plans Management Board’s powers may be to address regulatory findings are At 31 March 2014, BTUK Audit had delegated to any individual member critically assessed and monitored on 114 members, 111 of whom were or members of the Board and, in an on-going basis. Finally, any ethical Responsible Individuals (RIs). In practice, the responsibility for the issues are raised and discussed so addition, there were 40 RIs who were day-to-day operational management that action plans can be put in place not members of BTUK Audit giving a of the service line is entrusted to to deal with any perceived breach. total of 151 RIs. the Head of Audit who carries out 11 Baker Tilly UK Audit LLP Transparency Report 2014
Members of the Audit LLP Management Board as at 30 June 2014
Jonathan Ericson Nigel Tristem Derek Lemay Head of Audit Finance Director Chairman, Audit Technical Committee Appointed 29 March 2014 Appointed 26 June 2014 Appointed 26 June 2014
The following people also served on the Audit LLP Management Board during the year: Roger Alexander Jez Filley Tom McMorrow Independent Non-Executive RAMP for South and West Independent Non-Executive Retired 4 March 2014 Appointed 29 March 2014 to Retired 4 March 2014 26 June 2014 Jane Bleach Head of Audit John Hudson Jonathan Ericson was Regional Audit Retired 2 June 2014 Head of National Audit Technical Managing Partner (RAMP) for London Services and East until his appointment as Retired 31 May 2014 Head of Audit on 1 May 2014. Baker Tilly UK Audit LLP 12 Transparency Report 2014
Public Interest Committee Three years after the introduction of the Code the Board reviewed the firm’s governance arrangements and concluded that a Public Interest Committee (PIC) should be formed to assume responsibility for the roles previously performed by the two Independent Non-Executive (INE) members of the Board of BTUK Audit. The PIC was set up on 1 March 2014 and has predominance in oversight over all public interest matters. INEs form the majority of the new Committee’s complement which enables them to direct the Committee’s work and see that its principal objectives are fulfilled. The Public Interest Committee has a key role to perform in respect of: • Fulfilling the terms of the Audit Firm Governance Code • Underpinning the confidence that third parties have in the firm • Bringing meaningful challenge to BTUK Audit’s governance and to the Management Board’s stewardship of the firm’s management and its identification, handling and management of risk Members of the Public Interest Committee are appointed to serve for a period of three years, renewable for further periods of three years by joint agreement of the member and the firm. Members are subject to a contract of service, setting out their individual obligations, the firm’s indemnification of their activities and the right to any necessary legal support in the course of their duties. We believe that the new Public Interest Committee clearly demonstrates our commitment to the Audit Firm Governance Code, Ethical Standards for Auditors and our pursuit of excellence in the delivery of audit quality. 13 Baker Tilly UK Audit LLP Transparency Report 2014
Members of the Public Interest Committee
Tom McMorrow Roger Alexander Sir Ian Byatt Chair INE INE Trained as a solicitor, Tom McMorrow Roger Alexander was appointed to the Sir Ian Byatt was appointed as an spent 17 years with ICAS in PIC on 1 March 2014. Roger was an Independent Non-Executive and professional conduct-related roles, audit partner from 1969 to retirement joined the PIC on 1 March 2014. latterly as General Counsel, and in March 2002. He was a lead audit He is the former Director General then as a prosecutor with the Crown partner on several high profile jobs of OFWAT, a post he held between Office’s Financial Crime Unit. Tom has including Securicor Group, (now G4S), 1989 and 2000 during which time a love for the RAF and flying which a FTSE 100 company; Shapland and he established and implemented the has recently seen him dedicate seven Petter a large manufacturer (now regulatory regime for the privatised years as the Commanding Officer Shapland Laidlaw); Columbia Ribbon England and Wales water sector. of Grangemouth Air Cadets, a role and Carbon Manufacturing, a UK Previously Deputy Chief Economic which he most thoroughly enjoyed. He subsidiary of a US listed company. Advisor to the Treasury, Head of served on the BTUK Audit Board for Roger served on the BTUK Audit Public Sector Economic Unit in the three years. Board for three years. Treasury and Director of Economics in the Environment Department, he has also been active in the world of academia lecturing at two of the UK’s most prestigious Universities. Baker Tilly UK Audit LLP 14 Transparency Report 2014
Independent Non-Executives (INE) In line with the Code, we have two INEs, Roger Alexander and Sir Ian Byatt. We consider Roger’s experience of public interest entity audit invaluable. Sir Ian’s experience of Boards and governance outside audit firms will provide very useful insights and bring a different perspective to the table. Roger and Sir Ian sit on the PIC, neither are members of BTUK Audit nor do they sit on the Board. This provides a safeguard to their independence from potential operational conflicts. Although Roger is a former audit partner, his role was purely client facing not executive management. Tom McMorrow, our Ethics Partner, was also an INE until his resignation from the Management Board. Tom resigned as a Non-Executive on 4 March 2014. We assess the effectiveness of our INEs by reference to how regularly they attend Board meetings of BTUK Audit and the degree to which they interrogate the substantial and unexpurgated information the Board provides them with, and are impressed by how assiduous our appointees are in both respects. The INEs meet regularly and they attend and contribute to the regular six-monthly meetings of the major audit firms’ INEs held by the Financial Reporting Council so that they are fully conversant with INE policy at the highest level. Role of the INEs As well as giving influential third parties confidence in the firm, the duties of the non-executives are to: • Engage meaningfully with external stakeholders including regulators, investors and shareholders, and respond purposefully to any concerns • Engage with internal stakeholders including meeting with the Managing Director and Chairman of BTUK Holdings annually and being satisfied that principals and employees have a discreet avenue of recourse for dispute resolution or counsel • Recognise and ensure the firm’s adherence to its public interest responsibilities including attending PIC meetings • Ensure that any weaknesses which are identified with regards to quality are addressed 15 Baker Tilly UK Audit LLP Transparency Report 2014
Fundamental Disagreements The importance of the INEs’ role to the firm cannot be overstated and the firm makes a public commitment to support them in their work. To ensure that their views are properly addressed, the firm has established a protocol for dealing with any fundamental disagreement the INEs may have at any time with the executive of the firm. Ease of communication between the Committee and the executive, the potential for several layers of consultation to be deployed, access to alternative dispute resolution machinery, if necessary, and the right to resign and make the fact of it public are the key features of the protocol. The INEs have a contractual right to obtain outside opinions (at the firm’s expense) and to disclose to any relevant authority the fact and nature of any fundamental disagreement with the firm’s management that cannot otherwise be resolved. They are also provided with relevant indemnity insurance in respect of legal action against them.
The Police Treatment Centres have worked with Baker Tilly as auditors for the last three years. The decision to appoint was made by the Trustees and management of the Charity following rigorous selection criteria in which “ their capability and professionalism shone through. This professionalism has carried on throughout the audits with all agreed time scales being adhered to. The Charity has benefited from the continuity of audit staff assigned as they understand the business and can commence audit work with minimal input from management. Our initial contract was with RSM Tenon who were taken over by Baker Tilly in 2013 but as a result of the service provided and the continuity of the audit team the Charity had no hesitation in retaining their services. Peter Moore, Finance Manager The Police Treatment Centre ” Baker Tilly UK Audit LLP 16 Transparency Report 2014
Day to day management of The RCPs manage Audit Quality • appropriate business Baker Tilly UK Audit LLP Champions in their region to ensure development initiatives that best practice, efficiency and • staff development and talent The Board has delegated responsibility quality are embedded in audit teams. management initiatives for the strategy, performance and The Audit Quality Champion (AQC) compliance of the audit practice ensures that high audit quality is • resource allocation and for audit quality to the Audit top priority in every office. The AQC Information from the Audit Management Team (AMT). For is responsible for promoting and Management Team meetings is taken management purposes, as at 30 achieving a culture of audit quality by the RAMPs and cascaded down to June, the national audit practice is in the office, working with a number their regional teams through regular divided into five regions. Prior to the of interested parties to bring about regional RI and RCP meetings, and merger on 2 September our business continuous improvement. meetings of AGMs and AQCs. was divided into four regions. Each The AGMs work closely with the Region has a Regional Audit Managing The Audit Management Team meets AQCs to ensure that the dual aims of Partner (RAMP) who is appointed by regularly and is joined, by invitation, enhanced audit quality and improved the Head of Audit. by representatives from Technical, audit profitability are achieved. An Quality Assurance, Training, Human Reporting to the RAMPs in each annual meeting of the AGMs is held to Resources (HR) and Marketing. Not all office is an Audit Group Manager discuss issues and agree on initiatives RAMPs are present at every meeting. (AGM), responsible for the day-to-day for the forthcoming year. Specific management of audit staff in that training is given to the AQCs on an The Audit Management Team is subject office. The AGM in each office leads annual basis linking with the Quality to the same rigorous appraisal regime the local audit group and manages Assurance, National Audit Technical which is in place for all partners. staff and other resources in order to Services and Training teams to equip The process involves a self-assessment ensure optimum profitability, efficiency them with the skills to perform their by the partner, peer reviews from other and client service in line with regional roles. partners, upward feedback from the and national strategic objectives. Audit Management Team meetings manager group, feedback from QAD Following the merger the scale of The Audit Management Team meeting and feedback collected from clients. the business increased and we agendas cover all operational areas of There is a formal appraisal session therefore created the new role of the audit business including: which results in an agreed personal Regional Compliance Partner (RCP), action plan for the forthcoming year. • budget setting and review of reporting directly to the RAMP, financial performance The RAMPs’ appraisals are carried out ensuring our continued emphasis by the Head of Audit and the Head of on quality. The role of the RCP is to • technical developments and their Audit’s appraisal is carried out by the ensure compliance with the firm’s impact on internal authorisation, Chairman of BTUK Holdings. policies and procedures relating to training, ethical and other policies integrity, objectivity and independence • QA findings and progress in and ensure compliance with audit addressing issues arising regulations on a regional basis. The RCPs are responsible in their region • training programmes including for oversight of the application of the the agreement of mandatory audit methodology, compliance with courses and consideration of auditing and accounting standards and course content ethical issues. 17 Baker Tilly UK Audit LLP Transparency Report 2014
BTUK Audit Management Board Public Interest Committee
AMT
RCP
AGM AQC
RCP, AQC & AGM – Key objectives Regional Compliance Partner Audit Quality Champion Audit Group Manager
• Ensuring compliance with the • Keep Audit Quality objectives • Drive the achievement of firm's policies and procedures prominent in the office and take financial targets and promote relating to integrity, objectivity appropriate actions to bring audit efficiency at all times and independence, and about improvements • Ensure quality processes compliance with APB Ethical • Ensure quality processes and procedures exist and are Standards and procedures exist and are supported in conjunction with • Ensuring that the firm complies supported the AQC, RCP and RAMP with the Audit Regulations on a • Provide quality-related feedback • Undertake the central role in regional basis about RI’s, managers and staff managing the performance of • Overseeing the implementation, for use in the appraisal process the audit group and lead on staff by the AQCs, of the firm’s quality resource management • Encourage a working control procedures, including environment, culture, attitudes • Promote the achievement of the personal action plans and the and behaviours that prioritise firm’s professional and ethical national action plan Audit Quality standards and enable all staff to share best practice • Promote the achievement of the firm’s professional and ethical standards and enable all staff to share best practice Baker Tilly UK Audit LLP 18 Transparency Report 2014
Members of the Audit Management Team Jonathan Ericson Simon Hart Alex Tait Head of Audit Regional Audit Managing Partner Regional Audit Managing Partner Midlands Scotland and North East Jonathan qualified in 1995. Prior to Simon qualified in 1992. As well Alex qualified with Baker Tilly in becoming Head of Audit Jonathan was as being a Regional Audit Managing 1999 and has been an audit partner Regional Audit Managing Partner for the Partner he is the Birmingham Office since 2006. His specialisms include London Region. Jonathan is involved Managing Partner and Regional construction, property, recruitment in the audit of large owner managed Managing Partner for the Midlands. and technology companies. He also businesses (OMBs) operating in a Prior to these roles, he was an has experience of working with diverse range of sectors in both UK and audit partner in the South East and international groups and is a member international markets. previously Head of the firm’s Charities of the ICAS Audit and Assurance and Education team. He continues Committee. Prior to becoming a to act for a portfolio of clients, Regional Audit Managing Partner, he specialising in the Charity sector. ran the audit team in the Edinburgh and Glasgow offices. 19 Baker Tilly UK Audit LLP Transparency Report 2014
Baker Tilly has been our auditor since transfer from the Council 10 years ago and was reappointed by the Audit Committee three years ago following a retender process. They demonstrate deep understanding of the social housing “ sector and the finance team and Audit Committee appreciate this insight. Issues are dealt with in a pragmatic, realistic manner as was especially evident when component accounting came in. Phil Canham, Director of Finance Incommunities Group
The following also served on the” Audit Jez Filley Eric Solomons Regional Audit Managing Partner, Regional Audit Managing Partner Management Team during the year: South and South West North West Jane Bleach Jez qualified in 1998. He was Eric qualified in 1987. He became an Head of Audit previously national head of audit for audit partner with another large firm April 2013 to May 2014 RSM Tenon. He works mainly with in 1994 and joined Baker Tilly in the James Marchant large privately owned and AIM listed Leeds office in April last year before RAMP for London groups and those businesses with moving to Manchester to become April 2013 to September 2013 significant overseas interests. North West RAMP at the start of 2014. Eric’s experience covers private Jon Pinder and AIM listed companies as well as RAMP for North West international groups. He has industry September 2013 to December 2013 specialisms in the recruitment, real estate, professional practices and retail/wholesale sectors. Baker Tilly UK Audit LLP 20 Transparency Report 2014
The RSM International network On 15 April 2014 BTUK Group announced that it was formally going to join RSM International, the seventh largest global network of independent audit, tax and advisory firms, as its UK member firm.
RSM International exists to connect member is responsible for the services International Board of member firms through commonly or actions of another. Although many Directors agreed and applied quality standards. member firms take the RSM name, RSM International’s vision is for its there is no common ownership RSM International is an organisation members to be the provider of choice between these firms or ownership of with the infrastructure and resources to internationally active and growing them by RSM International Limited. needed to establish common organisations who are looking for standards and quality assurance audit, accounting, tax, advisory and Funding programmes, as well as to facilitate specialist consulting services that will effective management of transnational create lasting success and help them The cost of coordinating the RSM work by its member firms. reach their goals. International network is funded by member firms. Each year the board of Governance of RSM International Baker Tilly is in the process of directors approves the budget for the is comprised of representatives of transitioning from the Baker Tilly coming year. Substantially all budgeted member firms who form the Board International network to the RSM income is derived from annual of Directors. The directors elect International network. In the short membership fees paid by member a Chairman and appoint a Chief term we will continue to trade firms. The fees for member firms Executive Officer. The Board sets as Baker Tilly whilst prominently are calculated on a sliding scale that the international strategy of RSM displaying that we are a member of takes into account a number of factors International and acts in the interest the RSM International network. including the member firm revenues of all member firms. and it’s level of net referral fees. The current chair of the RSM Legal structure and International Board of Directors ownership Management and is Mike Kirley, who also acts as the Chief Operating Officer of RSM International Limited is a governance McGladrey LLP, USA. The full time company limited by guarantee and The organisational structure of RSM CEO is Jean Stephens who leads is incorporated in England & Wales. International is aimed at executing the international Executive Office RSM International Limited does not the RSM strategy and providing in London and is responsible for itself provide professional services to member firms with the platforms to the day to day leadership and clients but acts as a member services develop business together in a high management of the network. organisation. Client services are quality manner. The structure also delivered by the independent members reflects the network’s geographic Regional operation of RSM International, each of which coverage, ensuring representation is a separate and independent legal from all key regions. The member firms of RSM entity. Members are not members of International are organised into an international partnership or legal geographic regions for purposes partners with each other. No single of administrative and quality 21 Baker Tilly UK Audit LLP Transparency Report 2014
control programmes, as well as and standards among member firms, for coordination of cross-border or RSM International has developed multinational team assignments. a number of global methodologies, policies and practices which are Currently, the key regions of RSM compliant with International Standards International are Africa, Asia-Pacific, (where applicable). These have been Europe, Latin America, North America developed by specialists and leaders at and Middle East/North Africa (MENA). member firms and the RSM Executive All of the regions are led by a Regional Office, under the oversight of the RSM Council with the support of a Regional Transnational Assurance Services Leader. Each council is comprised Executive Committee (TASEC). of the Managing Partners of each Every member firm is required to member firm within that region. conduct an internal inspection of Regional Leaders are devoted to the their own policies and procedures development of the region and work each year. RSM International with the member firms in that region organises global observations of on a daily basis. these inspections on a cyclical basis. The current Regional Leaders are: If a firm’s annual inspection or the cyclical global observations highlight • Africa – Clive Betty significant non-compliance, a follow- • Asia Pacific – Neil Hough up review is scheduled to check progress on issues raised. Significant • Europe – Robert Coles non-compliance can result in a firm’s • Latin America – Brendan Quirk membership being terminated. • MENA – Bassam Dahman • North America – McGladrey International Office
RSM International’s commitment to quality Quality is the absolute cornerstone for RSM International and as such every member firm is required to meet a number of obligations in relation to quality. To ensure consistent practices Baker Tilly UK Audit LLP 22 Transparency Report 2014
RSM International key statistics 23 Baker Tilly UK Audit LLP Transparency Report 2014
7th largest network in the world by combined fee income 35,000 US$3.7 billion: people in over the combined revenue of 117 independent member and independent member and correspondent firms correspondent firms in 700 offices 107 countries worldwide Baker Tilly UK Audit LLP 24 Transparency Report 2014
Baker Tilly International BTUK Group was a member firm of the Baker Tilly International network during the period covered by this report and gave notice of its resignation from the network on 12 April 2014. Baker Tilly International Limited is a company limited by guarantee and is incorporated in England & Wales. It is owned by its members, each of whom holds an equal interest in the legal entity. Baker Tilly International Limited does not itself provide professional services to clients but acts as a member services organisation. Client services are delivered by the independent members of Baker Tilly International, each of which is a separate and independent legal entity. Members are not members of an international partnership or legal partners with each other and there is no common ownership between these firms or ownership of them by Baker Tilly International Limited. Baker Tilly International Limited operates with a board of 16 directors. Board members are senior partners drawn from member firms across the network and are democratically elected by members worldwide for a three year term. 25 Baker Tilly UK Audit LLP Transparency Report 2014
Commitment to quality BTUK Audit is committed to quality and, whilst the profitability of our audit business is important, our primary objective is the maintenance and enhancement of audit quality. Our commitment is underpinned by our emphasis on professional and decisive leadership, technical and IT capability and investment, effective training and personal development of staff, the operations of the Quality Assurance Department (QAD) and being responsive to the findings of the firm’s regulators in external monitoring visits. We are continually striving to improve our internal and external monitoring procedures. The firm aims to attain the highest standard of professional conduct through the cumulative effect of the following: • internal quality control procedures (at the point of delivery of the engagement) • internal quality assurance by ‘cold’ reviews of engagements and of principals’ and staff’s competence • continuous training, informing and assessment of all audit principals and staff • the external quality monitoring by the firm’s regulators All partners and staff are provided with access to the employee guide which sets out the firm’s code of conduct. The employee guide contains information ranging over all aspects of day to day working life, and is available on the intranet as a reference tool, ensuring that both partners and staff always act in a professional manner.
Quality control in the delivery of the audit engagement Baker Tilly applies its own risk-based, analytical audit methodology supported by the firm’s own computerised audit software, aud-IT. Aud-IT allows audit teams to focus on the exercise of judgement and evidence their scepticism and challenge of management which leads to well-documented, effective and robust audits. It also enables the audit work to be tailored based on the team’s documented risk assessment. This functionality, along with the inbuilt controls and structured work flows, enhances audit quality, promoting discipline and compliance with International Standards on Auditing (UK and Ireland). Baker Tilly UK Audit LLP 26 Transparency Report 2014
Audit planning Because we use our knowledge of our client’s business to inform our audit, every audit is planned from scratch. This means that our work is specifically focussed towards addressing the audit risks arising from the current assignment not the previous one. Our regular client contact throughout the financial year ensures that we are aware of key developments at the client and also provides an opportunity for the client to be informed of and act upon relevant technical and regulatory changes. These exchanges inform the development of the audit strategy and the production of the audit plan that is based on a detailed risk assessment and expectations of the numbers in the financial statements. The audit plan is revisited and revised during the course of the audit as the audit team reacts to their findings. To ensure that the team selected has the appropriate skills and expertise for a particular engagement, the audit principal has access to the audit staff resource planning tool, Retain. This enables the audit principal to view the availability of all staff, and their particular specialisms.
Execution Our audit methodology requires us to perform only that work necessary to obtain sufficient appropriate audit evidence to support our opinion. We believe that a sound understanding of our client and its environment is essential to an effective and efficient audit, and for that reason our approach places significant reliance on the performance of substantive analytical review, augmented by tests of control and/or tests of detail, as appropriate. Our audit teams are encouraged to consult and to challenge their own, their colleagues’ and the client’s assumptions and conclusions during the performance of the audit, and to document the resolution of matters arising. This helps the team to demonstrate the appropriate level of scepticism which is a basic feature of any assurance engagement. A broad spectrum of experts in IT, taxation, valuations and financial instruments are on hand to consult, assist or use where necessary, when obtaining sufficient appropriate audit evidence on a complex technical matter.
Review Each audit team member is responsible for reviewing his or her work before signing it off. In addition, the work of every team member is reviewed and signed off by a second, more senior person. Further reviews by colleagues who are independent of the audit team are required in certain circumstances, for example where there is a public interest, where a long-standing relationship exists, or where the audit principal is being mentored. Additionally, independent reviews are conducted whenever the issue or removal of a modified audit opinion or emphasis of matter is contemplated. Reviews of audit opinions and public interest engagements are always conducted by appropriately qualified and 27 Baker Tilly UK Audit LLP Transparency Report 2014
experienced technical specialists and our computerised audit software ensures that all these quality controls are applied and evidenced. Mentors are selected from a pool of appropriately experienced audit principals who submit regular reports to the Audit Management Team.
Quality Assurance Department Audit quality is the responsibility of all partners and staff. Internal quality assurance review systems must be adequate, appropriate, and make a contribution to audit quality. This function is delivered by QAD. QAD is a separate, independent department and is responsible for checking compliance with the firm’s procedures and giving feedback to promote continuing improvement in the quality of work. The QAD team states on the firm’s intranet that it aims to be: • Comprehensive in its coverage and scope of reviews • Consistent in application of review procedures • Critical in identification of areas for improvement • Constructive in communication of review findings • Cooperative in arranging and performing reviews The monitoring procedures applied by QAD are in accordance with the International Standard on Quality Control (UK and Ireland). The QAD team carries out reviews of audit files, either in physical visits to offices or remotely, and also reviews ‘whole firm’ matters such as the audit manual, training programme, CPD records, appraisals and ethical compliance, and internal controls, such as internal authorisation, aud-IT access and financial management. The proportion of QAD reviews to audit engagements is approximately 1:30. QAD achieves a high coverage of offices and RIs, with physical visits to each office on a frequent basis. QA file reviews cover a mixture of client types and sizes, including the various specialist audits such as listed companies, charities, pension schemes, social housing and education. In 2013/14, there were visits to 19 out of 21 offices (2012/13: 14 out of 21) and reviews of 67 (2012/13: 71) different RIs. In addition, 2013/14 included a QA review of 22 of the RIs who joined upon the merger with RSM Tenon, across all 13 of the new offices. This QA review of work performed by Baker Tilly Audit Ltd, in the period between the merger and 31 March 2014, provided continuity to the previous reviews which had been performed in August 2013, prior to the merger, and helped to identify training needs and transitional issues for RIs and staff as they changed from the RSMT audit methodology to the Baker Tilly methodology. The use of IT by QAD is extensive and the consistency of review procedures is ensured by the deployment of dedicated QAD team members, the use of file review work programmes and the pre-issue review by the Head of QAD of all reports. Baker Tilly UK Audit LLP 28 Transparency Report 2014
Audit file review findings are issued in writing to the principal and manager and then discussed in a meeting with them, following which they provide written responses. This dialogue includes recognition of instances of good quality work as well as the identification of areas for improvement. Each principal and manager then produces a Personal Action Plan, to complement the firm’s National Action Plan. This approach combines collective effort with personal responsibility and accountability, in accordance with the Companies Act 2006 and the Audit Regulations. Quality Assurance (QA) file review findings are published on the intranet in a series of positive reminders about the firm’s procedures. QAD team members have quarterly meetings with Training and Technical counterparts, so that QA findings are used in training course material and in enhancements to the audit manual and aud-IT. The Head of QAD provides a monthly written report to the Audit Management Team, setting out any current concerns and obtaining prompt responses and actions as necessary. The Head of QAD also produces a quarterly written report to the Management Board and the Audit Management Team and an annual summary report to the Board, with an abbreviated version published on the intranet. QAD also provides feedback to RAMPs about each principal and manager reviewed and this information is then used within the appraisal process as necessary. Each of the five audit regions has a QAD team member allocated to it, who meets at least every quarter with the Regional Compliance Partner and the Audit Quality Champions to assess progress being made in the implementation of action plans and to discuss other audit quality issues and initiatives. QAD has a programme of taking high performing audit staff on secondment, to give them experience of QA work and a deeper understanding of audit quality, which they then disseminate in their office after the secondment.
National Audit Technical Services The firm has a dedicated audit technical department, National Audit Technical Services (NATS). As at 30 June 2014, NATS comprised three partners, four directors, three associate directors, four senior managers and one supervisor. Eight of the team are RIs and all of the team members are committed full time to supporting high quality audit delivery. Whilst the ultimate responsibility for the overall quality of the services provided by NATS lay with the Head of Audit Technical during the year, following his retirement post year end, this role has been assumed by a 29 Baker Tilly UK Audit LLP Transparency Report 2014
technical committee. The Audit Technical Committee (ATC) comprises three of the RIs in the team who are committed to providing the practice with the necessary framework, tools and support to enable effective and efficient engagements to be carried out in compliance with relevant professional standards and legislation. They work closely with the Audit Management Team, Regional Compliance Partners, and other members of NATS to ensure that the needs of the business are understood and responded to appropriately. The ATC also has a direct line of communication into the firm’s Ethics Partner by virtue of one of the members being a member of the firm’s Ethics Team. NATS is responsible for the technical quality of the firm’s audit operational procedures. It does this by producing and maintaining the firm’s audit manual and other technical material as well as monitoring the technical quality of technical training courses and assisting in the provision of such courses. In addition, NATS provides technical advice and opinions to partners and staff and conducts hot, second opinion and efficiency reviews. NATS also plays a significant role in responding to FRC, IASB and other consultation documents. The mix of experience and specialisms within NATS ensures that the most appropriate resource can be allocated to support audit teams and to conduct independent pre-sign-off reviews. Members of the department are located in key offices throughout the UK, so as to be visible to those who seek their support and to be close to the work of audit teams. It is our experience that this proximity enables personal relationships to develop which encourages consultation and enables potential problems to be identified at an early stage. To ensure this quality of technical support is available to all audit teams, NATS team members also make frequent visits to nearby offices where there is no resident team member. Informal communication between NATS members is a daily occurrence, with team consultations taking place before advice is given on any but the most straightforward issues. In addition there is a database of examples to which team members can refer and regular formal meetings are held at which emerging issues are discussed and actions agreed.
Authorisation and Mentoring BTUK Audit maintains an audit RI and manager authorisation system such that only those individuals with the requisite skills, experience and training can undertake specialist audits, including those of listed entities, charities and pensions. Regular reviews are always undertaken and a full scale review of authorisations was conducted in January 2014 to ensure that they remained fit for the purpose of the enlarged firm. Regional Compliance Partners are now responsible for conducting reviews of the authorisation list on a quarterly basis to ensure that the system is up to date. Prior to being involved in specialist assignments, our audit staff must have received appropriate specialist introductory or update training. To ensure that Baker Tilly UK Audit LLP 30 Transparency Report 2014
this policy is adhered to, RIs are required to confirm, at the initial planning stage of each audit engagement, that they are satisfied that the allocated staff have the appropriate skills and expertise. There are mentoring arrangements for all new RIs, for RIs engaging in new specialist areas, for RIs that are about to relinquish their audit authorisation and for RIs where the Head of Audit considers that mentoring is necessary for quality or other reasons. The number of RIs requiring mentoring on quality grounds is reviewed regularly by the Board.
Risk management The Boards of the various group entities have primary responsibility for dealing with strategic and operational risk management including internal controls. The group has also established an internal Risk Advisory Group which is led by the group Chief Operating Officer and comprises members from its operations, compliance, regulation, legal and quality assurance teams. Their work has been to look at risk matters and internal controls within the group and advise and support management to improve risk management strategy, operations and internal controls. The firm requires the completion of the Client and Engagement Acceptance Programme (CEAP) for all new clients and additional and continuing engagements in relation to existing clients. The programme is designed to assist in identifying and managing risk, including the risk of breaching ethical standards, and incorporates an automated upward review and authorisation process. It forms an important element of the firm’s procedures to enable the firm to obtain reasonable assurance that it, and its personnel, comply with those standards before undertaking or retaining an engagement. Compliance, Regulation and QAD all undertake frequent spot checks on CEAPs to ensure procedures are being followed appropriately. The CEAP system is continually enhanced and extensive intranet guidance and training is provided to users. A group-wide Risk Register has been compiled and is used by QAD in the performance of an internal audit function for the group. The compilation of the Risk Register and the review of effectiveness of controls have made use of the Turnbull Guidance (Revised). The annual review of the audit practice’s internal controls has found them to be effective, with a small number of improvements suggested. Actions have been or are being taken to address these matters. The Management Board and Audit Management Team are satisfied that the internal quality control systems are functioning effectively. 31 Baker Tilly UK Audit LLP Transparency Report 2014
External monitoring The last ICAS monitoring took place between September and October 2013 and their report was issued on 7 March 2014. Reports from ICAS are for the use of that body as the firm’s licensor and thus confidential. Reports produced by the Audit Quality Review team (AQR), are made public and the AQR’s most recent public report on Baker Tilly UK Audit LLP was published on 17 April 2014, and is available on the FRC website: www.frc.org.uk The Board is closely involved with all regulatory visits and reviews all findings and recommendations in detail. Our training and processes are under constant review in order to ensure that our audits are of the highest quality. We have already taken action to address many of the issues in the recent AQR report and are working to ensure procedures, processes and training address all recommendations. The progress in implementation of these actions is and will continue to be monitored by QAD.
Whistleblowing The firm’s intranet states that “Audit Quality is core to the firm’s audit business and it is the responsibility of all partners and staff to be alert to matters that may be detrimental to Audit Quality and to react appropriately.” Partners and staff are encouraged to raise concerns about audit quality, without fear of reprisals, and the intranet lists various ways in which that can be done, including reports to line managers, to senior management, to QAD or to a confidential Audit Helpline. Appropriate action is taken to investigate and address the concerns raised. The non-executives are kept informed of these matters. All partners and staff have completed mandatory training in the firm’s whistleblowing policy and practice.
Large firm audit quality indicators The Financial Reporting Council’s Professional Reputation Group (PRG) has been discussing the idea of audit firms publishing a set of “audit quality indicators”, with the objective of promoting a better understanding of factors contributing to audit quality, and giving audit committee chairs and others an opportunity to make more informed comparisons between firms. The PRG has agreed a set of indicators which the six largest UK audit firms will publish in their transparency reports. These are now being officially shared with the Group A firms so they can decide whether to participate in the initiative. Given the time frames, we have not been able to consider these for this report, however, we may apply them as appropriate in our year to March 2015. Baker Tilly UK Audit LLP 32 Transparency Report 2014
Training, recruitment and personal development Development of partners and staff is core to the provision of high quality audits.
Training students joining the audit faculty also and listed companies. Ethical issues, received integration training delivered professional scepticism and audit quality We have an experienced technical by the technical training team and all are key themes throughout their training, training and development team that students are now fully integrated into which is reinforced by their work works closely with NATS, QAD and the the existing training programme for experience. Audit Management Team to ensure that Baker Tilly students. an appropriate programme of courses is Partners and staff also attend courses provided for all audit partners and staff. Every year all audit partners and staff designed to improve their management attend a full day audit workshop. skills, as we recognise that high levels We provide a core programme of audit This covers developments within of ability in these areas help to ensure and financial reporting training which the business, highlights key areas that audits run smoothly and effectively all qualified audit personnel must attend to improve quality and addresses and relevant technical knowledge can and where we monitor attendance. All technical obligations. The workshops be applied at the appropriate stage of courses are designed to be practical and are developed and written by NATS the audit. In addition, there are personal real life case studies are used on courses and our technical training team and are development courses for managers, where possible. Many courses also have approved by the Audit Management senior managers, directors and partners. an element of pre-course work and post Team. Sessions are delivered by course assessment to ensure learning On top of classroom and web-based appropriate members of these teams objectives are absorbed and to complete courses, champions are appointed for and ethical standards are integrated the learning circle. specific topics including the new UK into presentations and exercises. The GAAP and Financial Instruments. They During the year ended 31 March 2014, workshops ensure that all staff receive provide one to one support and training we ran practical audit integration the same messages at the same time to partners and staff in the offices. training for all staff and partners joining and are fully briefed. the audit team as part of the RSM Tenon Management of learning within the Partners and qualified staff are provided merger. For qualified staff this training practice is assisted by the use of the with further training according to their was delivered by NATS and comprised intranet based Learning Management specific roles and areas of specialism. of a two day classroom course where System. This system allows individuals Listed audit work is a specialism and the Baker Tilly audit methodology was to build their own curriculum based a suite of training courses on IFRS, delivered through the use of real life on their areas of specialism and to together with updates of particular case studies and examples. Experienced track their own development in terms relevance to the audit of listed entities, staff and partners from around the of planned and actual learning. The ensures that this particularly demanding business also attended each course to Learning Management System provides area of audit work is carried out by provide additional practical support. As information for appraisers and training partners and staff with the relevant part of the integration training delegates received and planned is a key element of knowledge and skills. were required to listen to pre and post the appraisal process. We have several course webinars covering points on There is a mandatory core programme layers of monitoring of attendance at audit methodology and the use of the for audit students, expanding on their courses, with reviews by QAD overlaying software package aud-IT with access college studies in the areas of financial the work done by National Training being granted to aud-IT only once both reporting, audit, business awareness, to promote enrolment on courses and the classroom course, a number of tax and personal skills. They also receive to take action in the event of non- mandatory webinars and a successful training in any specialist areas they are attendance. assessment had been completed. The involved in such as charities, pensions 33 Baker Tilly UK Audit LLP Transparency Report 2014
Audit workshops – key features Mandatory attendance for all from assistants to RIs • Active involvement by Head of Audit and RAMPs at every workshop to Feedback on the Audit workshops add emphasis to the messages has been very positive: • Members of National Audit Technical Services presented case studies “” in the light of issues found during the year. A case study was covered A good course promoting on each of the following topics: the need for all levels on the team to think o Substantive analytical review and emphasising the o Inherent risk importance of intuition o Fraud / scepticism / common o Revising the audit plan sense in the audit • Consideration of ethical standards in all sessions A thoroughly researched, RI Induction – key features well presented workshop • Mandatory for all new RIs Very beneficial to have • Led by the Head of Audit to demonstrate the importance of the role a mix of legacy RSM and the issues discussed Tenon and legacy Baker • Interactive presentation by the Head of QAD on the meaning of Tilly to share experience ‘Responsible Individual’ • Particular emphasis on ethics and professional scepticism Timely reminder, as • Bringing home key issues through live case studies usual thought provoking and good that it involves • Featuring the Head of NATS, General Counsel and the Technical Director for Compliance demonstrating the significance of providing all audit staff so we quality technical advice and the level of support provided by the firm can gauge each other’s perspectives
The Head of Audit’s This was a very informative training session. As a attendance shows that new RI I found the presentations extremely useful this course is important and the main message I took away was to never for us and the firm ‘ compromise on personal integrity and audit quality. ’ Baker Tilly UK Audit LLP 34 Transparency Report 2014
Recruitment Through our HR and Development policies and processes and our outstanding training programme, we ensure we attract talented individuals and provide them with the development and skills they need to fulfil a long and committed career with Baker Tilly. Our recruitment practice ensures we reach as many talented individuals as possible through our presence at universities, colleges and schools as well as through hiring directly. Our selection methodologies focus on testing the full range of skills and qualities that we believe are essential to succeed as an auditor within Baker Tilly.
Appraisal We have invested significant time and energy into ensuring employees know what is expected of them at every stage of their career so that they know how to progress. Having clear competencies for staff at each level also means our clients can be assured of the same level of service regardless of location. Every employee has regular feedback and appraisal. There are audit assignment feedback forms as well as the appraisal form and appraisals are conducted twice yearly. The appraisal form requires managers to incorporate reference to any QAD and external regulator findings through the year and action is taken in relation to these. Individuals are also expected to provide their line manager with a copy of their Continuing Professional Development record at the time of appraisal. Line managers are provided with relevant training and appraisal quality reviews are undertaken on a regular basis to ensure our line managers are equipped with the skills they need to conduct meaningful appraisals. At the point at which employees are nominated for promotion to Director or Partner, further references are sought from QAD and NATS. No nomination is progressed to formal assessment unless it receives support from these departments. 35 Baker Tilly UK Audit LLP Transparency Report 2014
I just wanted to drop you a line to sing the praises of the Baker Tilly team with regard to our audit. They’ve been a pleasure to work with and I think everyone at BUCS appreciates how easy they have been to deal with. “ Tim Nicholls, Head of Finance British Universities & Colleges Sport ”
Stephanie Mersh Assistant In 2012 I joined Baker Tilly’s Birmingham office as a junior in the audit department having just graduated with a degree in Accounting and Finance. I knew I wanted to train as a chartered accountant and Baker Tilly seemed like the perfect place to do this with opportunities to work on the audits of a vast range of clients across many sectors and locations around the country. The recruitment process was very rigorous and involved completing numerical and verbal reasoning tests online alongside a detailed application form. This was followed by an assessment centre which involved sitting further reasoning tests, a group activity and interviews with managers and partners. The whole process was designed to test confidence, team working, discussion and presentational skills to enable the assessors to understand more about the candidates and how they would fit into the firm. At the end of the process I was even more convinced that Baker Tilly was where I wanted my career to start because it proved that they are actively recruiting people they believe will fit in and reach their full potential within the firm. I have not regretted my decision. Baker Tilly is an excellent place to work and has given me the chance to work on the audits of a wide range of clients. On top of this I have attended a programme of internally run training courses which have helped me to develop in my role as well as complementing my ACA studies. I am very much looking forward to my future at Baker Tilly and the exciting opportunities that await. Baker Tilly UK Audit LLP 36 Transparency Report 2014
Personal development Development of our people is something which Baker Tilly is passionate about. We offer a wide range of personal development courses, assessment centres and a Leadership Programme, all of which are designed to support individuals as they progress through their career.
Leadership programme Leadership programme Executive development phase 1 phase 2 programme
Transition Accelerate EDC1 EDC2
The Leadership Programme is designed to bring together, develop and inspire our future leaders. It aims to identify those with high potential and explore ways in which this can be realised through a wide range of activities and the building of networks. It bridges the gaps between the different assessment centres and keeps long term development at the forefront to provide momentum and motivation. Transition has been designed to prepare employees for their first step into a management role. After attending the two day programme, which assesses attendees against manager competencies, each individual will receive a personal development plan designed to support them in developing the necessary skills to become an effective manager. Accelerate is aimed at our emerging leaders. The purpose of Accelerate is to provide high potential individuals with assessment and feedback on their leadership styles, personal qualities and strengths. Following attendance at Accelerate each individual will work with one of our development managers to create a detailed and tailored development plan. The Executive Development Programme is aimed at those managers who display the potential to become a partner, and is designed to provide the best possible preparation for the role of partner. The programme includes two Executive Development assessment centres (EDC1 and EDC2), each stage being followed up with comprehensive, competency based feedback, one to one coaching and monitoring in order to support development towards partnership. In addition to honing and assessing the leadership skills of our key employees we also offer other training and opportunities to develop. 37 Baker Tilly UK Audit LLP Transparency Report 2014
The Personal and Management development courses provide a wide range of courses to support employees’ on-going development needs as they progress through different roles within their career. This suite of courses is designed and delivered by our in-house Development Managers using accelerated learning techniques and covers people management, task management, personal effectiveness and business development skills. Coaching is utilised to unlock the potential in our people to maximise their performance and contribute to the future success of the firm. To achieve this we undertake on-the-job coaching to build skills and abilities in existing roles, development coaching to support future progression and behavioural coaching to achieve long term, significant change through enhanced self-awareness. We offer a number of secondment opportunities to clients, industry, different internal faculties and international secondments. These secondments contribute to an individual’s personal development by providing the opportunity to build internal and external relationships and create networking and business development opportunities. Secondments give employees a greater depth of experience and understanding of clients and our business, which can be drawn upon on their return.
Graham Ricketts Partner I joined the London office in 2004 as a graduate trainee and progressed through the audit team, becoming a Responsible Individual in 2012. I previously acted as Audit Group Manager for the Milton Keynes office and became a partner in that team in 2013. The firm’s personal development programme has been key to my career progression. I have attended Transition, Accelerate and EDC. All of the programmes are challenging and provide great opportunities to test yourself and identify your strengths and development needs. The feedback then contributes to your on-going development plan. Baker Tilly invests a lot of resources in training and mentoring talented, hard-working people to achieve their career goals. Following the merger with RSM Tenon, I was given the opportunity to become Regional Compliance Partner for the London and East region. This role provides a great opportunity to use the skills I learnt on the development programmes to ensure that audit quality remains at the top of the agenda as the business develops and grows. But it’s not all about work… as a geography graduate, one of my passions is travel and I have set myself a challenge of keeping the number of countries I have visited ahead of my age...I recently visited my 49th country so am on track so far! Baker Tilly UK Audit LLP 38 Transparency Report 2014
Stuart Clowser Senior Manager I joined Baker Tilly as a graduate in January 2004, and qualified as an ACA in January 2007. Since day one Baker Tilly has supported my development through a mixture of on the job training, working with inspiring partners and staff, and structured leadership development assessment centres, such as Transition, Accelerate and EDC. Specialising in the Tech & Media and Property sectors, I have had the opportunity to meet some amazing people and work in some great places, including an assignment in Saudi Arabia. In 2011 I completed a six month secondment in our Quality Assurance Department, increasing my technical knowledge and communication skills. Since then I have balanced client work with the management of the audit business in the Southern Region, taking on the role of Audit Quality Champion in 2011 and Audit Group Manager in 2013. In addition, I have worked nationally on the standardisation and integration of procedures following the merger. Key to my success is the fact that Baker Tilly allows me to balance my career goals and my personal achievements. I am a sports enthusiast and prior to joining Baker Tilly, I competed as part of the British Snowboard Team. Now a keen surfer and cyclist, I have raised money for charity by stand up paddleboarding the length of the Thames in 2010 (210 miles) and cycling to Paris in 2013 (290 miles). 39 Baker Tilly UK Audit LLP Transparency Report 2014
The key strength in our relationship is both the individual strengths of the Baker Tilly staff and the collaborative team approach adopted. Baker Tilly offers a good balance of both technical knowledge and commerciality. For “ particular praise is the proactive way that any potential issues are raised well in advance of audit deadlines so as to ensure that deadlines are met. Paul Carter, Group Finance Director Manroy PLC ” Louise Ward Senior Manager I joined RSM Tenon as a Senior Manager in Audit in August 2011, after spending seven years at Deloitte post qualification. I have a varied client portfolio and specialise in large corporates and international groups. I was with RSM Tenon for two years prior to the merger with Baker Tilly. I was the Audit Group Manager whilst at RSM Tenon until March 2013, responsible for the day to day running of the Thames Valley Audit Team (Reading and Basingstoke). The merger between Baker Tilly and RSM Tenon is a new and exciting opportunity for the combined firm, and also for me personally. The merger provides the opportunity to work on new clients, with new colleagues and strengthens the services that the combined firm is able to offer. I have enjoyed working with new colleagues and learning from their experiences, both in terms of technical expertise and their knowledge of the new audit approach. My personal development has continued to be supported by the enlarged firm and I have been provided with the opportunity to join the Executive Development Programme, a structured leadership programme that is well established at Baker Tilly. This is an exciting opportunity for me to continue to receive support and on-going development to help me to achieve my long term career aspirations to become an Audit Partner. Baker Tilly UK Audit LLP 40 Transparency Report 2014
Ethics and independence The firm has devoted a high degree of resource to training in ethics. Ethics materials are readily available to staff at all levels, covering the external ethical obligations to which the firm is subject (such as the ‘Ethical Standards for Auditors’, and the Institutes’ Codes of Ethics), as well as its own ethical policies. Two key tools which have been developed to enhance training are the ‘Ethics Toolkit’ (an intranet-based, one-stop facility for all staff), and computer-based learning for those engaged in audit and non-audit activities.
Ethics Partner and Panel Ensuring firm compliance is the Ethics Partner, Tom McMorrow, the Ethics Panel and the Ethics Team. Audit is represented by an RI appointed by the Management Board. The Ethics Panel was set up to act as a custodian of the ethical policies which the firm and the wider Baker Tilly group adopts and to be responsible for the communication of those policies group wide. The Ethics Partner keeps members of the Panel informed on operational and policy related issues, and briefs its members on his expectations across all of the service lines. The Terms of Reference of the Panel acknowledge the Ethics Partner’s entitlement to determine any matter related to the taking on, continuation of, and disengagement from an audit engagement for ethical reasons, an entitlement underscored by the Ethics Partner’s own Terms of Reference. The Ethics Partner prepares and distributes the agenda for Panel meetings. The Ethics Partner also chairs the firm’s Public Interest Committee which is the body that oversees the firm’s compliance with the Audit Firm Governance Code. Responsibility for decisions on the operational application of the firm’s ethical policies lies with the Ethics Partner, assisted by the Ethics Team. It is the Ethics Partner’s function to act as the ultimate arbiter of the application of the Ethical Standards to any given set of circumstances and all partners and audit staff are apprised of the need to consult the Ethics Team on any issue, particularly of interpretation, that they are unclear about.
Head of Regulation In addition to the above, there are internal reviews of independence practices. The firm’s Head of Regulation, Anne Thomas, produces annually a summary report in relation to the ‘fit and proper’ and the independence declarations that all principals and staff need to make. 41 Baker Tilly UK Audit LLP Transparency Report 2014
Auditing Practices Board clients benefit from the availability of Staff training (APB) Ethical Standards expertise across the Baker Tilly group, access to non-audit services is subject Mandatory relevant computer based The firm has well-established systems to compliance with the APB’s Ethical training (CBT) programmes are and procedures in place to help Standards, and in particular, the firm’s periodically required to be completed safeguard the objectivity of staff and insistence that the remuneration of by all staff, with 100% completion avoid conflicts of interest, whilst audit staff cannot be determined rate achieved. In 2013/14 these have complying with ethical and other by reference, even in part, to non- included CBTs on Professional Ethics applicable standards. audit fees provided to audit clients. and Anti-Money Laundering. Whilst this training should act as a refresher Partners and staff (upon joining the firm Contingent fees are not permitted for to staff, most CBTs include an and annually thereafter) are required any project where the firm is required assessment which staff are required to declare financial interests held by to give an independent opinion. to pass to register their completion. themselves, members of their immediate Client acceptance and continuation All include an interactive element to or close family or in their capacity as procedures are extensive and ensure that staff engage in the learning trustee in any client or affiliate. intended to identify any particular aims of the training. Similarly, policies are in place providing circumstances of a given client that guidance on business relationships and might cause an insuperable threat the purchasing of goods and services to auditor independence. In such in the normal course of business. The a situation, the firm will not take annual declarations completed by staff, on or continue the engagement. Partners and consultants are monitored Before engagement, all potential for any change in business relationships. assignments are subject to completion of an on-line Client and Engagement Compliance with the firm’s audit rotation Acceptance Programme, including a policy is monitored and is applicable to Conflict Threat Assessment, designed all audit partners and senior members of to identify any such threats in staff involved in an audit. discharging a particular engagement There are clear guidelines for together with details of any necessary dealing with gifts, hospitality and safeguards required to be applied. sponsorship so that any self-interest Within each quality assurance file threat is avoided and objectivity is not review, checks are made by QAD impaired. The firm has a clear and on identifying threats to auditor extensive gifts and hospitality policy independence and other conflicts in place to determine whether or not a of interest, or other potential non- gift should be accepted. compliance with the Ethical Standards BTUK Audit services the small and and on the completeness of the medium-sized enterprise sector whose associated reporting to those charged individual enterprises benefit from with governance in the Audit Plan and having access to the services that the subsequent Audit Findings Report. Baker Tilly group provides. Though Baker Tilly UK Audit LLP 42 Transparency Report 2014
Client and financial information List of ‘major audits’ as defined by the Financial Reporting Council in respect of which an audit report has been made by BTUK Audit in its financial year.
Babcock International Group Pension Evergreen Marine (UK) Limited Restore plc Scheme G4S Pension Scheme Retroscreen Virology Group plc Bayer Pension Plan Honeywell UK Pension Scheme Sanofi Pension Scheme Bet365 Foundation Housing Securities Limited* Saxon Weald Capital plc* Bet365 Group Ltd Iofina plc Saxon Weald Homes Limited* Bowmer and Kirkland Limited** ITV Pension Scheme School Partnership Trust Academies** Bloomsbury Publishing plc* London & Associated Properties plc* Smart Metering Systems plc Brightside Group plc Methodist Homes for the Aged The Atkins Pension Plan CML Microsystems plc* Michelin Pension and Life Assurance Plan The Legal Education Foundation Downing ONE VCT plc* (previously (previously The College of Law) NOW: Pension Trust Plan Downing Distribution VCT 1 plc) Treatt plc* Puma High Income VCT plc* Downing Income VCT 3 plc* UK Fuels Limited Puma VCT 8 plc* Earthport plc Viridian Housing Puma VCT VII plc* Education Endowment Foundation Willis Pension Scheme PwC Pension Fund
* Public interest entities as defined ** These entity audits were signed by by The Statutory Auditors RSM Tenon Audit Limited, or Baker (Transparency) Instrument 2008 Tilly Audit Limited
Financial information The turnover of BTUK Audit represents group entities; and disbursements. Statements for the year ended 31 amounts chargeable for professional Unaudited turnover of BTUK Audit for March 2014. services provided during the period. the financial year to 31 March 2014 Audit fees billed for the year ended It comprises the net chargeable was £54 million. 31 March 2014, exclusive of amount of time spent by the partners BTUK Audit’s most recent audited disbursements, were £48.9 million, and staff of BTUK Audit in providing accounts, for the year ended 31 of which £46.2 million related to audit and assurance services; an March 2013, can be found statutory audit work. allowance for time spent on audit and www.bakertilly.co.uk/ assurance services by partners and Note: this excludes Baker Tilly Audit auditedaccounts2. Information staff of other Baker Tilly group entities; Limited required by the Voluntary Code an allowance for time spent by the of Practice on Disclosure of Audit partners and staff of BTUK Audit on Profitability will be provided in the services provided by other Baker Tilly firm’s Annual Report and Financial 43 Baker Tilly UK Audit LLP Transparency Report 2014
Partner remuneration It is our firm belief that audit quality is best improved by imbuing in partners the ethos that audit quality is at the core of all that we do. A partner’s performance is assessed by reference to his or her individual role, contribution and adherence to standards. The partner group comprises both national and regional partners with similar but not identical remuneration structures. Both national and regional partners receive a notional basic (market) salary and are eligible to participate in the partner bonus plan. Elements of the bonus can be awarded at local office, regional or national level. National partners are also participants in the long term incentive plan which comprises the residual profits for the year (after salaries and bonuses). This is based on a variable ‘lock step’ mechanism. The remuneration of regional partners (who comprise over half of the partner group) is charged directly to the relevant trading LLP within which they operate. National partner remuneration costs are charged to BTUK Group. In addition, all partners, should they choose to do so, are able to become shareholders in BTUK Holdings and accordingly will receive dividends when declared and paid. Until 1 September 2013 the legacy RSM Tenon partners were dual employees of RSM Tenon Limited and RSM Tenon Audit Limited. As employees they received a fixed market salary and were entitled to a discretionary bonus subject to certain performance conditions. A partner’s performance is assessed by reference to his or her individual role, contribution and adherence to standards. An appraisal system is applied to all partners and, in the case of audit partners, audit quality criteria must be considered, both in the review of past performance, and in the objectives for the following year. Other criteria included within the appraisal system are business development, client development, technical skills, management skills, staff development and financial performance. The relative importance attached to each of these criteria is dependent upon the partner’s role within the firm but the appraisal system and the partner’s objectives are designed to play to a partner’s particular strengths. For audit partners, success in selling non-audit services to the entities they audit is specifically excluded from performance evaluation criteria and from decisions on remuneration. Contributions to improving audit quality, on the other hand, are specifically included in the criteria for assessing and remunerating audit partners. Baker Tilly UK Audit LLP, Baker Tilly Tax and Advisory Services LLP, Baker Tilly Corporate Finance LLP, Baker Tilly Restructuring and Recovery LLP, Baker Tilly Risk Advisory Services LLP, Baker Tilly Creditor Services LLP and Baker Tilly Tax and Accounting Limited are not authorised under the Financial Services and Markets Act 2000 but we are able in certain circumstances to offer a limited range of investment services because we are members of the Institute of Chartered Accountants in England and Wales. We can provide these investment services if they are an incidental part of the professional services we have been engaged to provide. Baker Tilly & Co Limited is authorised and regulated by the Financial Conduct Authority to conduct a range of investment business activities. This communication is designed for the information of readers. Whilst every effort has been made to ensure accuracy, information contained in this communication may not be comprehensive and recipients should not act upon it without seeking professional advice. © 2014 Baker Tilly UK Group LLP, all rights reserved. 0370