Transparency report 2015

EY UK – volume 2

Contents Foreword to Volume 2 ...... 3 About us ...... 3 Legal structure, ownership and governance ...... 3 Network arrangements ...... 5 Independent non-executive representatives ...... 6 EY UK’s Internal control system ...... 8 Effectiveness of the Firm’s system of internal control ...... 8 Commitment to quality ...... 9 Infrastructure supporting quality ...... 9 Instilling professional values ...... 10 Internal quality control system ...... 11 Client acceptance and continuance ...... 11 Performing audits ...... 12 Review and consultation ...... 13 Audit partner rotation ...... 15 Audit quality reviews ...... 15 External quality assurance review ...... 16 Compliance with legal requirements ...... 16 Independence practices ...... 17 Creating high-performing teams ...... 19 Continuing education of statutory auditors ...... 20 Revenue and remuneration ...... 21 Financial information ...... 21 Partner remuneration ...... 22 Working with our stakeholders and communities ...... 23 Stakeholder dialogue ...... 23 Environmental sustainability ...... 26 Appendix A: EY UK public interest entity audit clients ...... 28 Appendix B: Audit Governance Code disclosure requirements ...... 30

More information about EY can be found at ey.com

Transparency report 2015 — EY UK — Volume 2 2

This Volume 2 accounts to stakeholders on the recurring Foreword to Volume 2 aspects of our activities as described in the contents page. Taken together, these volumes meet our obligations under

the European Union’s eighth Company Law Directive and the In Volume 1 of our 2015 Transparency Report we account to Statutory Auditors (Transparency) Instrument 2008. the external stakeholders in our Audit practice on market We always welcome feedback on our Transparency Reports. developments, the over-arching aspects of our performance Kindly contact your usual EY representative with your and how we have delivered value to the capital markets in thoughts or email us at UKProfessionalPractce- the United Kingdom. If you are reading this Volume online [email protected]. then Volume 1 may be accessed here.

About us Legal structure, ownership and entity for the EYG member firms in the EMEIA Area. EMEIA Limited facilitates the coordination of these firms and governance cooperation between them, but it does not control them. EMEIA Limited is a member firm of EYG and has no financial In the United Kingdom, Ernst & Young LLP is a limited operations and does not provide any professional services. liability partnership incorporated in England & Wales and is a member firm of Ernst & Young Global Limited, a UK company Each Region elects a Regional Partner Forum (RPF), whose limited by guarantee. In this report we refer to ourselves as representatives advise and act as a sounding board to EY UK, ‘we’ or ‘us’ or ‘our’. EY refers collectively to the Regional Leadership. The partner elected as Presiding global organization of member firms of Ernst & Young Global Partner of the RPF also serves as the Region’s Limited (EYG). representative on the Global Governance Council (see page 5). Details of related entities of EY UK can be found in its statutory financial statements. In Europe, a holding entity, Ernst & Young Europe LLP (EY Europe), was formed in conjunction with EMEIA Limited. EY At 3 July 2015, EY UK had 647 partners and operated from Europe is an English limited liability partnership, owned by 20 offices across the UK as well as in Jersey and Guernsey. partners of the EYG member firms operating in Europe. It is EY is organized in four geographic Areas: Americas, Asia- an audit firm registered with the Institute of Chartered Pacific, EMEIA (Europe, Middle East, India and Africa) and Accountants in England and Wales (ICAEW), but it does not Japan. The Areas comprise a number of Regions, which carry out audits or provide any professional services. To the consist of member firms or sections of those firms. extent permitted by local legal and regulatory requirements, EY Europe has acquired or will acquire control of the EYG Our EMEIA Area comprises EYG member firms in 99 member firms in the European countries in the EMEIA Area. countries in Europe, Middle East, India and Africa. EY Europe is a member firm of both EYG and EMEIA Limited. EY member firms are grouped into four geographic Areas: EY Europe acquired control of EY UK in November 2008. Americas, Asia-Pacific, EMEIA (Europe, Middle East, India, and Africa) and Japan. The Areas comprise a number of EY Europe’s principal governing bodies are: Regions, which consist of member firms or sections of those Europe Operating Executive firms. The Europe Operating Executive (EOE) operates as the board EY UK is part of the EMEIA Area, which comprises EYG of EY Europe. It has authority and accountability for strategy member firms in 99 countries in Europe, the Middle East, execution and management of EY Europe’s operations. The India and Africa. Within the EMEIA Area, there are 12 EOE comprises: the Europe Managing Partner; the leaders Regions. EY UK is made up of the UK element of our UK and for Accounts, Talent and Risk Management; the service line Ireland Region together with UK Financial Services office. leaders for Assurance, Advisory, Transaction Advisory Ernst & Young (EMEIA) Limited (EMEIA Limited), an English Services and Tax; and all European Regional Managing company limited by guarantee, is the principal coordinating Partners.

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The Europe Executive meets at least monthly. fora. The day-to-day management of the UK business is undertaken by two Regional Managing Partners who are At 3 July 2015 the Europe Executive comprised members of the Europe Executive, and who each lead a Abdulaziz Al-Sowailim, Andy Baldwin1, Rudi Braes, Andy Regional Leadership team. Embury1, Donato Iacovone Jacek Kredizor, York Zoellkau, At 3 July 2015 the Board comprised: Jean-Pierre Letartre, Pascal Macioce, Jean-Yves Jegourel, Eric Mamelund, Rajiv Memani, Mark Otty1, Seshni Samuel, Alisdair Mann Managing Partner, Chief Operating Ajen Sita, Andrea Guerzoni, Julie Teigland, Steve Varley1, Officer EMEIA FSO Georg Graf Waldersee, Joe Watt. Christopher Price Global Leader – People Advisory Services Europe Advisory Council Hywel Ball UK Head of Audit Regional Managing Until 3 July 2015, EY Europe had an elected Europe Partner — UK & Ireland Assurance Advisory Council, which comprised a number of partners of the EYG member firms in Europe. It served in an advisory Lisa Cameron General Counsel and Country & UK & role to the Europe Executive on policies, strategies and other Ireland Regional Risk Management matters, and its approval was required for a number of Leader significant matters, e.g., the appointment of the Europe Lynn Rattigan UK & Ireland Chief Operating Officer Managing Partner, approval of the financial reports of EY Europe and material transactions. The Europe Advisory Robert Overend UK Country Professional Practice Director Council met four times during the year. and UK Audit Compliance Principal

From 4 July 2015, the Europe Advisory Council was Eamonn McGrath UK Head of Regulatory & Public Policy replaced with the Europe Governance Sub-Committee, which comprises the Presiding Partner of each Regional Partner Steve Varley CMP and UK & Ireland Regional Managing Partner Forum in Europe. It has a similar role to the one previously conducted by the Europe Advisory Council. Victor Veger UK FSO Assurance Leader The UK Board The day-to-day management of the UK&I Assurance practice The Board of EY UK (the ‘Board’) is appointed by the Europe is led by Hywel Ball, who reported directly to the Europe Executive and the UK Country Managing Partner (the’ CMP’) Assurance Leader and to the CMP. Hywel is also UK Head of who has full authority to deal with the Firm’s general and Audit. operational management. Board members serve for such The day-to-day management of the Financial Services term as is appropriate for their experience and their other Assurance practice in the UK is led by the UK FSO Assurance roles and responsibilities. The CMP is appointed by the Leader, Victor Veger, who reports to the Europe Financial Europe Managing Partner who has the right to remove the Services Assurance Leader, Isabelle Santenac, who in turn CMP, with the consent of the Europe Executive, having reports to the Europe Assurance Leader. consulted with the Board and appropriate partners. BDO LLP is the external auditor of EY UK. The CMP of EY UK is Steve Varley. The role of the CMP includes:

• Representing the Firm • Providing leadership for the partners and employees of the Firm • Acting as the interface with regulators and governmental authorities The CMP leads the Board. The Board is responsible for the commercial, financial and reputational standing of the Firm as a whole, implementing the admission of new members, maintaining liaison with members, approving the financial statements and other matters delegated to it from time to time by the Europe Executive. The Board met on nine occasions during the year ending 3 July 2015 and, in addition, routinely conducts business through electronic

1 Denotes EY UK members.

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Network arrangements At the same time, this new operating model allows for greater stakeholder focus in the 28 Regions, permitting member firms to build stronger relationships with clients and others in each country and be more responsive to local needs. Global Governance Council

EMEIA The Global Governance Council (GGC) is the main Regions 12 governance body of EYG. It comprises a representative from Regions 12 Countries 99 AAmericasmericas Countries 99 each Region and the four independent non-executives (INEs) Regions 10 referenced on page 7 below. The Regional Representatives, CountriesRegions 10 30 who otherwise do not hold senior management roles, are Countries 30 elected by their RPFs for a three-year term, with provisions Japan for one successive re-appointment. The GGC advises EYG on Regions 1 policies, strategies and the public interest aspects of their CountriesRegion 1 1 decision-making. The approval of the GGC is required for a Country 1 AsiaAsia--PacificPacific number of significant matters that could affect EY. Regions 5 RegionsCountries5 22 A number of sub-committees of the GGC have also been Countries 22 established, one for each Area, and ones for Finance and Audit, Global Chair/CEO performance and remuneration and the Public Interest.

Global Executive EY is a global leader in assurance, tax, transaction and advisory services. Worldwide, 190,000 people in member The GE brings together EY’s leadership functions, services firms in more than 150 countries share a commitment to and geographies. It is chaired by the Chairman and CEO of building a better working world and are united by shared EYG and includes its Global Managing Partners of Client values and an unwavering commitment to quality, integrity Service and Business Enablement; the Area Managing and professional skepticism. In today’s global market, EY’s Partners; the global functional leadership for Talent, Risk integrated approach is particularly important in the delivery Management and Finance; the leaders of the global service of high-quality multinational audits, which can span multiple lines — Assurance, Advisory, Tax and Transaction Advisory jurisdictions. Services; and the Global Leader for Public Policy. EY’s central entity, EYG, coordinates the member firms and The GE also includes the Chair of the Global Accounts promotes cooperation among them. EYG does not provide Committee and the Chair of the Emerging Markets services, but its objectives include promoting the provision Committee as well as a representative from the emerging of exceptional, high-quality client service by member firms markets practices. The GE and the GGC approve nominations worldwide. Each member firm is a legally distinct entity. for the Chairman and CEO of EYG and ratify appointments of Their obligations and responsibilities are governed by the the Global Managing Partners. The GE also approves regulations of EYG and various other agreements. appointments of Global Vice Chairs. The GGC ratifies the appointments of any Global Vice Chair who serves as a The structure and principal bodies of the global organization member of the GE. Furthermore, the GE appoints Area during the year ended 3 July 2015 are described below. Managing Partners and approves appointments of Regional They reflect the principle that EY, as a global organization, Managing Partners. The appointments of the Area Managing has one shared strategy. Partners are subject to ratification by the GGC. In July 2013, EY streamlined its operating model by creating The GE’s responsibilities include the promotion of global the Executive and the Regions. The Executive includes the objectives and the development, approval and, where Global Executive (GE), its committees and teams, and the relevant, implementation of: leadership of the four Areas. This streamlined structure • Global strategies and plans allows EY to further enhance its global scale and the delivery • Common standards, methodologies and policies to be of consistent exceptional client service worldwide, with the promoted within member firms Executive responsible for one global approach to strategy, quality, risk management, business planning, investments and priorities.

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People initiatives, including criteria and processes for and obligation to use the EY name and the sharing of admission, evaluation, development, reward and retirement knowledge. of partners Member firms are subject to reviews that evaluate their Quality improvement and protection programmes adherence to EYG requirements and policies governing Proposals regarding regulatory matters and issues such as independence, quality and risk management, public policy audit methodology and human resources. As necessary, Policies and guidance relating to member firms’ service of special focus reviews are performed to address situations or international clients, business development, markets and concerns as they arise. Member firms unable to meet the branding quality commitments and other EYG membership requirements may be subject to separation from the EY EY’s development funds and investment priorities organization. EYG’s annual financial reports and budgets GGC recommendations Independent non-executive Any other proposal that supports the global objectives representatives It also has the power to mediate and adjudicate disputes EY has invited world-class leaders in related fields to serve between member firms. as Independent non-executive representatives (INEs). They GE committees provide an independent voice to the highest levels of management and offer insight into the interests of EY’s key Chaired by members of the GE and bringing together stakeholders. EY follows the UK Audit Firm Governance representatives from the four Areas, the GE committees are Code model for INEs by selecting individuals who command responsible for making recommendations to the GE. There respect and collectively enhance shareholder confidence by are committees for Global Markets and Investments; Global virtue of their independence, stature, experience and Accounts; Emerging Markets; Talent, Risk Management; expertise. Assurance; Advisory; Tax; and Transaction Advisory Services. Appointment Global Practice Group The INEs are nominated by the INE Nominating Committee comprising the Chairman/CEO of EYG, the presiding partner This group brings together the members of the GE, GE of the Global Governance Coucil, and other persons as the committees and Regional leaders. The Global Practice Group Chairman/CEO and the presiding partner in their discretion seeks to promote common understanding across member deem appropriate. The nominations require approval by the firms of EY’s strategic objectives and consistency of Global Executive and ratification by the Global Governance execution across the organization. Council (GGC). EYG member firms Support

Under the regulations of EYG, member firms commit INEs are entitled to receive information about global affairs. themselves to pursue EY’s objectives, such as the provision To facilitate their effectiveness, they receive administrative of high-quality service worldwide. To that end, the member support and any independent professional advice that may firms undertake to implement the global strategies and plans be required. and to maintain the prescribed scope of service capability. They are required to comply with common standards, Term methodologies and policies, including those regarding audit The term of an INE is three years with provision for one re- methodology; quality and risk management; independence; appointment at the request of the INE Nominating knowledge sharing; human resources; and technology. Committee and the GE. Above all, EYG member firms commit themselves to Disagreements conducting their professional practices in accordance with applicable professional and ethical standards and all Any disagreement between an INE and others on the GGC applicable requirements of law. This commitment to integrity would be resolved by mediation by the Chairman/CEO of and doing the right thing is underpinned by EY’s Global Code EYG through a defined process of notification and of Conduct and EY’s values (see page 10). consultation. Besides adopting the regulations of EYG, member firms Independence enter into several other agreements covering aspects of EYG has considered the auditor independence standards as their membership in the EY organization such as the right they apply to INEs in their role as members of the GGC, and EYG is satisfied these standards have been met. Transparency report 2015 — EY UK — Volume 2 6

EY’s INEs Shyamala Gopinath Shyamala Gopinath is the former deputy governor of the Reserve Bank of India (RBI), a post she held from September 2004 to June 2011. She joined the RBI in 1972 and worked in different capacities, including as Executive Director from June 2003 until her elevation to deputy governor. She also served for two years on deputation to the International Monetary Fund. Sir Richard Lambert Sir Richard Lambert is Chairman of the British Museum, the Chancellor of the University of Warwick, a member of the Supervisory Board for the Foreign and Commonwealth Office (UK), a former Director-General of the Confederation of British Industry and a former editor of the Financial Times. Sir Richard was knighted for services to business in the 2011 New Year Honours. Klaus Mangold Klaus Mangold serves as a director at many companies, including Alstom S.A., Continental AG, TUI AG, Metro AG and Rothschild GmbH. His former directorships include DaimlerChrysler Services AG, and he has been the Chairman of the East-West Committee of German Industry. He is Commander of the Legion of Honor (France) and Professor of the European Business School. Mark Olson Mark Olson’s former positions include Federal Reserve Board Governor; Chairman of the US PCAOB (Public Company Accounting Oversight Board); Staff Director of the US Senate Securities Subcommittee of the Banking, Housing, and Urban Affairs Committee; Chairman of the American Bankers Association; bank president and CEO of Security State Bank. He was a partner at Ernst & Young LLP from 1988 to 1999. Volume 1 contains a report from Sir Richard Lambert describing his role and that of the INEs generally.

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EY UK’s Internal control system Effectiveness of the Firm’s Statement on the effectiveness of the Firm’s system of internal control system of internal control As part of its annual procedures and in compliance with the The Audit Firm Governance Code issued by the FRC and the Code, the Board confirms that it has performed a review of ICAEW (the Code) requires the Firm to conduct, at least the effectiveness of the system of internal control, including annually, a review of the effectiveness of its system of considering the: internal control. The table in Appendix B maps the • Process undertaken by the Risk Forum to update the disclosure requirements of the Code to the contents of this Risk Register for significant risks, controls and report. monitoring mechanisms. In summary, this involved meetings with senior members of the Firm’s The UK Board has overall responsibility for risk management management to whom all significant risks are assigned, and internal control over the entire UK business, including a and who sit on the Risk Forum. This was followed by a periodic review of its effectiveness. The Regional Managing meeting of the Risk Forum members to challenge and Partners are responsible for implementing and maintaining approve the updated Risk Register the necessary control systems. • Process undertaken by the Risk Oversight Committee, including the reports and findings from the internal In maintaining a sound system of internal control and risk audits over the effectiveness and operation of the key management and in reviewing its effectiveness, we have internal controls related to those risks that have been used the Turnbull framework issued by the FRC. The internal assessed as ‘critical’ in the Key Risk Register control system is designed to manage rather than eliminate • Reports and findings from regulatory reviews the risk of failure to achieve the objectives of the Firm, and • Review of the conclusions of our external auditors can only provide reasonable and not absolute assurance including comments in relation to the control against material misstatement or loss. environment Enterprise risks In the course of this review of effectiveness of internal control we have not identified any significant weaknesses The Firm maintains a Key Risk Register containing details of but have identified actions which we believe will strengthen the most significant risks faced by the Firm, the controls and controls to mitigate significant risks. On the basis of the procedures implemented to mitigate these risks, as well as reviews carried out the Board is satisfied that the Firm’s mechanisms for monitoring the most significant controls. systems of internal control are operating effectively. The content of the Register is determined through regular discussion between senior management and is reviewed by the Board. A balanced approach allows the degree of controllability to be taken into account when considering the effectiveness of mitigation, recognizing that some activities carry inherent risk which may be outside the Firm’s control. Internal controls assurance

An Independent Risk Oversight Committee reports to the Board and provides assurance over the effectiveness and operation of the key internal controls related to those risks that have been assessed as ‘critical’ in the Key Risk Register. The Risk Oversight Committee obtains the assurance through a programme of internal audit reviews focused on these ‘critical’ risks. It approves the overall plan for each year, confirms the terms of reference for each internal audit, and reviews the final internal audit reports.

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Commitment to quality • Internal-control reporting and related aspects of our Infrastructure supporting quality audit methodology Quality in our service lines • Accounting, auditing and risk issues for specific industries and sectors Vision 2020, which sets out EY’s purpose, ambition and • Event-specific issues involving areas of civil and political strategy, calls for EY member firms to provide exceptional unrest; or sovereign debt and related accounting, client service worldwide. This is supported by an unwavering auditing, reporting and disclosure implications commitment to quality and service that is professionally and • General engagement issues and how to work effectively globally consistent, and means service that is based on with audit committees objectivity, professional skepticism and adherence to EY and professional standards. In EY UK our PPD has responsibility for the following EY service lines are accountable for delivering quality • The Accounting Technical Group engagements, including managing quality reviews and • Audit Reporting Group real-time quality assurance of engagements, which • Capital Markets Group measures compliance with professional standards and all • Audit Methodology Group EY policies. Each of those groups is available to support individual Vision 2020 has reinforced the ownership of quality within engagement teams in the resolution of complex matters. the service lines, including audit. It has also resulted in increased clarity around the role of risk management The UK Professional Practice Group has responsibility for in policies and practices that support and improve ensuring that our Global audit methodology also meets UK quality audit. requirements. The Global Vice Chair — Assurance coordinates member Our PPD also has responsibility for performance of Audit firms’ compliance with and implementation of EY policies Quality Reviews (discussed further on page 15) in the UK and procedures for assurance services. and ensuring appropriate responses to issues identified. Professional Practice function The EY UK PPD is a member of the EY UK Board which ensures that quality issues are fully considered by the The Global Vice Chair — Professional Practice, referred to as Board. the Professional Practice Director (PPD), is overseen by the Global Vice Chair — Assurance and works directly with the Risk management function Area PPDs to establish global audit quality control policies The Global Risk Management Leader is responsible for and procedures. The Area PPDs are overseen by the Global enterprise-wide risk management, including oversight of the PPD and the Area Assurance Leader. This helps provide quality of EY’s four service line functions in Assurance, greater assurance as to the objectivity of audit quality and Advisory, Tax and Transaction Advisory Services. consultation processes. Member firm partners are appointed to lead risk The Global PPD and Area PPDs also lead and oversee the management initiatives in the service lines and member Professional Practice group. This is a Global and Area firms, supported by other staff and professionals. The network of technical subject matter specialists in accounting Global Risk Management Leader is responsible for and auditing standards who consult on accounting, auditing establishing globally consistent risk management execution and financial reporting matters and perform various priorities and enterprise-wide risk management. These practice monitoring and risk management activities. priorities cascade to member firms, and their execution is The Global PPD oversees development of the EY Global monitored through an Enterprise Risk Management Audit Methodology (EY GAM) and related technologies to be programme. consistent with relevant professional standards and Components of audit quality control programme regulatory requirements. The Professional Practice group also oversees development of the guidance, training and In the following sections, we describe the principal monitoring programmes and processes used by member components of the EY UK audit quality control programme: firm professionals to execute audits consistently and effectively. The PPDs, together with other professionals • Instilling professional values who work with them in each member firm, are • Internal quality control system knowledgeable about EY people, clients and processes and • Client acceptance and continuance are readily accessible for consultation with audit • Performing audits engagement teams. Additional resources are often brought • Review and consultation in to augment the Professional Practice group, including networks of professionals focused on:

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• Audit partner rotation Code of conduct • Audit quality reviews We promote a culture of integrity among our professionals. • External quality-assurance reviews The EY Global Code of Conduct provides a clear set of the • Compliance with legal requirements standards that guide our actions and our business conduct. Instilling professional values It is organized into five categories containing principles that are to be followed by everyone at EY UK to guide behavior Sustainable Audit Quality across all areas of activity: We understand that audit quality is our primary goal. • Working with one another Globally, EY has a multi-faceted Sustainable Audit Quality • Working with clients and others (SAQ) effort underway to support the execution of the • Acting with professional integrity highest-quality audits. SAQ reinforces our quality-driven • Maintaining our objectivity and independence culture and supports the delivery of the highest-quality • Respecting intellectual capital audits. It involves a focus on continuous improvement and The Global Code is supplemented by codes applicable to emphasis on key areas such as professional skepticism. particular parts of the business, such as the Professional SAQ includes: tone at the top; resources; simplification; Conduct in Relation to Taxation, adopted by the various UK audit transformation/technology innovation; enablement, professional bodies/regulators, such as the ICAEW. quality support and monitoring; and accountability. Through our procedures to monitor compliance with the EY In the UK the SAQ will be built into our Audit Quality Global Code of Conduct, and through frequent Programme discussed further in Volume 1. communications, we strive to create an environment that encourages all personnel to act responsibly, including Tone at the top reporting misconduct without fear of retaliation. Senior EY leadership is responsible for setting the right tone The EY/Ethics Hotline provides our people, clients and others at the top and demonstrating EY’s commitment to building a outside of the organization with a means to report activity better working world through behavior and actions. While confidentially that may involve unethical or improper the tone at the top is vital, our people also understand that behavior and that may be in violation of professional quality and professional responsibility start with them. Our standards or otherwise inconsistent with the EY Global Code shared values, which inspire our people and guide them to of Conduct. The hotline is operated by an external do the right thing, and our commitment to quality are organization that provides confidential and, if desired, embedded in who we are and in everything we do. anonymous hotline reporting services for companies Our approach to business ethics and integrity is embedded worldwide. in our culture of consultation, training programmes and When a report comes into the EY/Ethics Hotline, either by internal communications. Senior management regularly phone or internet, it receives immediate attention. reinforces the importance of performing quality work, Depending on the content of the report, appropriate complying with professional standards and adhering to our individuals from Risk Management, Talent, Legal or other policies, leading by example and through various functions are involved to address the report. All matters are communications. Also, our quality review programmes handled by experienced individuals, with oversight from the assess professional service as a key metric in evaluating and global Risk Management function. For those matters that are rewarding all professionals. reported outside of the EY/Ethics Hotline, the same Our culture strongly supports collaboration, and places procedures are followed. special emphasis on the importance of consultation in dealing with complex or subjective accounting, auditing, Our values reporting, regulatory and independence matters. We believe Who we are it is important to determine that engagement teams and People who demonstrate integrity, respect and teaming clients correctly follow consultation advice, and we emphasize this when necessary. People with energy, enthusiasm and the courage to lead

Our stance consistently has been that no single client is People who build relationships based on doing the right thing more important than professional reputation — the reputation of EY UK and the reputation of each of our professionals.

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Internal quality control system The results of the AQR programme and external inspections are evaluated and communicated within EY UK to provide EY UK’s reputation for providing high-quality professional the basis for continuous improvement in audit quality, audit services independently, objectively and ethically is consistent with the highest standards in the profession. fundamental to our success as independent auditors. We The GE is responsible for implementing quality improvement continue to invest in initiatives to promote enhanced and protection programmes. As such, it reviews the results objectivity, independence and professional skepticism. These of our internal AQR programme and external regulatory are fundamental attributes of a high-quality audit. reviews, as well as any key actions designed to address areas At EY UK, our role as auditors is to provide assurance on the for improvement. fair presentation of the financial reports of the companies The recent results of such monitoring as set out in volume 1, we audit. We bring together qualified teams to provide our together with the recent feedback from independent services, drawing on our proven experience across industry regulatory inspection visits, provide EY UK with a basis to sectors and services. We continually strive to improve our conclude that our internal control systems are designed quality and risk management processes, so that the quality appropriately and are operating effectively. of our service is at a consistently high level. We recognize that in today’s environment — characterized by Client acceptance and continuing globalization and the rapid movement of capital — continuance the quality of our audit services has never been more important. As part of Vision 2020, EY continues to invest EY policy heavily in developing the audit methodology, tools and other The Client Acceptance and Continuance Policy sets out resources needed to support quality service delivery. principles for member firms to determine whether to accept While the market and stakeholders continue to demand a new client or a new engagement or to continue with an high-quality audits, they also demand increasingly efficient existing client or engagement. These principles are and effective delivery of audit services. In addition to the fundamental to maintaining quality, managing risk, investment mentioned, EY continues to seek ways to protecting our people and meeting regulatory requirements. improve the effectiveness and the efficiency of its audit The objectives of the policy are to: methodology and processes, while maintaining audit quality. • Establish a rigorous process for evaluating risk and We work to understand where our audit quality may not be making decisions to accept/continue clients or up to our own expectations and those of stakeholders, engagements including external audit firm regulators. We seek to learn • Meet applicable independence requirements from external and internal inspection activities and to • Identify and deal appropriately with any conflicts of identify root causes of quality occurrences for continuous interest improvement in audit quality, and we believe that an • Identify and decline clients that pose excessive risk important part of the audit inspections process is to take • Require consultation with designated professionals to effective and appropriate action to improve quality. identify additional risk management procedures for Effectiveness of quality control system specific high-risk factors • Comply with legal, regulatory and professional EY has designed and implemented a comprehensive set of requirements global audit quality control policies and practices. These policies and practices meet the requirements of the In addition, the EY Conflicts of Interest Global Policy defines International Standards on Quality Control issued by the global standards for addressing categories of potential International Auditing and Assurance Standards Board conflicts of interest and a process for identifying them. It (IAASB). EY UK has adopted these global policies and also includes provisions for managing potential conflicts of procedures and has supplemented them as necessary to interest as quickly and efficiently as possible through the use comply with local laws and professional guidelines and to of appropriate safeguards. Such safeguards range from address specific business needs. obtaining a client’s consent for EY member firms to act for We also execute the EY Audit Quality Review (AQR) two or more clients to declining an engagement in order to programme in order to evaluate whether our system of audit avoid an identified conflict. quality control has operated effectively in a manner so as to The EY Conflicts of Interest Global Policy, and associated provide reasonable assurance that EY UK and our people guidance, was updated in early 2015. The updates take into comply with applicable professional and internal standards account the increasing complexity of our engagements and and regulatory requirements. client relationships, and the need for speed and accuracy in responding to our clients. They also align with the latest Transparency report 2015 — EY UK — Volume 2 11

International Ethics Standards Board for Accountants secondments to enable civil servants to experience different (IESBA) standards. organizations and learn different skills.

Putting policy into practice EY recognizes, however, that Government secondments may raise wider concerns for external observers in relation to We use the EY Global Tool for Acceptance and Continuance perceived conflicts of interest and confidentiality. EY has (GTAC), an intranet-based system, for efficiently specific internal guidance for all secondments, including coordinating client and engagement acceptance and Government secondments. The information provided in this continuance activities in line with global, service line and Transparency Report, and in future Transparency Reports, is member firm policies. GTAC takes users through the intended to address such concerns. acceptance and continuance requirements and identifies the policies and references to professional standards needed to The precise scope of any secondment varies but we are assess both business opportunities and associated risks. consistent in our approach to actual or perceived conflicts of interest and to confidentiality. We have general secondment As part of this process, we carefully consider the risk guidance and more detailed provisions for certain characteristics of a prospective client and several due secondments. diligence procedures. Before we take on a new engagement or client, we determine if we can commit sufficient resources Before any EY secondment, including a Government to deliver quality service, especially in highly technical areas, secondment, we establish whether there are any regulatory and if the services the client wants are appropriate for us constraints prohibiting the secondment. If not, we go on to to provide. The approval process is rigorous, and no new check if there are any existing or potential conflicts issues audit engagement may be accepted without the approval of and, if there are, we liaise with the relevant Government our PPD. department to determine how these will be managed should the secondment proceed. In our annual client continuance process, we review our service delivery and ability to continue to provide quality EY secondees are expected to act openly and transparently service and confirm that clients share EY UK’s commitment to provide input based on their expertise and experience. to quality and transparency in financial reporting. The Their role is to serve the interests of the Government partner in charge of each audit, together with our Assurance department to which they are seconded. leadership, annually reviews our relationship with the audit EY secondees owe duties of confidentiality to the client to determine whether continuance is appropriate. Government department and are not permitted to disclose, Close monitoring either during the secondment or after their return to EY, any confidential information obtained in the course of the As a result of this review, certain audit engagements are secondment, unless the Government department has given identified as requiring, and are then subjected to, additional permission or where there is a legal or professional right or oversight procedures during the audit, and some audit duty to do so. clients are discontinued. As with the client acceptance process, our PPD is involved in the client continuance Performing audits process and must agree with the continuance decisions. As part of Vision 2020, EY has invested significantly in Both client acceptance and client continuance decisions improving our audit methodologies and tools, with the goal consider the engagement team’s assessment of whether the of performing the highest-quality audits in the profession. company’s management could pressure us to accept This investment is consistent with EY’s goal to have the inappropriate accounting, auditing and reporting leading Audit practice in the profession by 2020 and reflects conclusions to undermine quality. Considerations and our commitment to building trust and confidence in the conclusions on the integrity of management are essential to capital markets and in economies the world over. acceptance and continuance decisions. Central government secondments Audit methodology In May 2015, we released a new Global Audit Methodology At any given time a small number of our people will be on (EY GAM), which was redesigned to make it easier to follow secondments to clients and other third parties including and use, and to support our new documentation tool, central Government departments. EY Canvas. We have made extensive use of technology to Such secondments enable ‘UK Plc’ to benefit from the simplify the presentation and, as a result, the content is experience, expertise and commercial insights that our more accessible and user-friendly. We have made use of partners and staff can bring and enable EY to fulfil its public intelligent editing, better design and interactive graphics. interest role and commitment to building a better working EY GAM provides a global framework for delivering high- world. Occasionally we reciprocate with reverse quality audit services through the consistent application of Transparency report 2015 — EY UK — Volume 2 12 thought processes, judgments and procedures in all audit documentation templates. It is built with a fresh, clear engagements. Making risk assessments, reconsidering and design and user interface that allows users to visualize risks modifying them as appropriate, and using these and their relationship to our planned response and work assessments to determine the nature, timing and extent of performed in key areas. EY Canvas also enables a linkage for audit procedures are fundamental to EY GAM. EY GAM also our group audit teams to communicate interoffice risks and emphasizes applying appropriate professional skepticism in instructions, so that the primary team for each audit has the execution of audit procedures. EY GAM is based on control over planning and monitoring of the group audit. International Standards on Auditing (ISAs) and is Over the coming year, we will phase out our existing audit supplemented in the UK to comply with the local UK auditing support tool, GAMx. standards and regulatory or statutory requirements. Audit engagement teams use other software applications, Using technology, our auditors select the audit approach forms and templates during various phases of an audit to within our methodology applicable to the reporting assist in making and documenting audit considerations, requirements of the entity being audited. For example, there sourcing data and analysis. are approaches to audit both listed entities and entities EY has a number of data analysis tools for use in audits. considered non-complex. These help our engagement teams analyze a client’s data, The auditor is presented with a version of EY GAM organized enhancing our risk assessment processes and enabling the into interdependent phases and designed to focus on the audit of higher-risk transactions. client’s business and financial statement risks and on how Formation of audit engagement teams those risks affect our audit of the financial statements. EY GAM consists of two key components: requirements; and EY UK policies require an annual review of partner supporting forms and examples. The requirements reflect assignments by our Assurance leadership and PPD to make the typical flow of how EY UK executes an audit. The forms sure that the professionals leading listed-company audits and examples include leading practice illustrations and assist possess the appropriate competencies (i.e., the knowledge, in performing and documenting audit procedures. skills and abilities) to fulfil their engagement responsibilities and are in compliance with applicable auditor rotation Enhancements to the audit methodology are made regularly regulations. as a result of new standards, emerging auditing issues and matters, implementation experiences, and external and The assignment of professionals to an audit engagement is internal inspection results. also made under the direction of our Assurance leadership. Factors considered when assigning people to audit teams In addition, we monitor current and emerging developments include competence, engagement size and complexity, continually and issue timely audit planning and other specialized industry knowledge and experience, timing of reminders. These reminders emphasize areas noted during work, continuity and opportunities for on-the-job training. inspections as well as key topics of interest to the For more complex engagements, consideration is given to International Forum of Independent Audit Regulators whether specialized or additional expertise is needed to (IFIAR). These include professional skepticism, group audits, supplement or enhance the audit engagement team. revenue recognition and engagement quality reviews. EY GAM requires compliance with relevant ethical requirements, In many situations, internal specialists are assigned as part including independence from the company we audit. of the audit engagement team to assist in performing audit procedures and obtaining appropriate audit evidence. These Technology professionals are used in situations requiring special skills or Our audit engagement teams use technology to assist in knowledge, such as information systems, asset valuation and executing and documenting the work performed in actuarial analysis accordance with EY GAM. During fiscal year 2015, we began the phased deployment of our next generation global audit Review and consultation platform, EY Canvas. EY Canvas is web-based, built using Reviews of audit work state-of-the-art technology to provide heightened data security and allow us to easily evolve our software to Our policies describe the requirements for timely and direct respond to changes in the accounting profession and senior professional participation as well as the level of regulatory environment. review required for the work performed. Supervisory members of the audit engagement team perform a detailed Audit engagements in EY Canvas are automatically review of the audit documentation for accuracy and configured with information relevant to our client’s listing completeness. Engagement partners perform a second level requirements and industry, helping keep our audit plans review to determine adequacy of the audit work as a whole customized and up-to-date and providing direct linkage to and the related accounting and financial statement our audit guidance, professional standards and Transparency report 2015 — EY UK — Volume 2 13 presentation. A tax representative reviews the significant tax Engagement quality reviewers are experienced professionals and other relevant working papers. For listed and certain with significant subject matter knowledge. They are other companies, an engagement quality reviewer independent of the engagement team and able to provide (described below) reviews important areas of accounting, objective evaluation of significant accounting, auditing and financial reporting and audit execution, as well as the reporting matters. In no circumstances may the financial statements of the company we audit and our responsibility of the engagement quality reviewer be audit report. delegated to another individual. The nature, timing and extent of the reviews of audit work The engagement quality review spans the entire depend on many factors, including: engagement cycle, including planning, risk assessment, audit strategy and execution. Policies and procedures for the • The risk, materiality, subjectivity and complexity of the subject matter performance and documentation of engagement quality • The ability and experience of the audit team members reviews provide specific guidelines on the nature, timing and preparing the audit documentation extent of the procedures to be performed and the required • The level of the reviewer’s direct participation in the documentation evidencing their completion. Our PPD audit work approves all engagement quality review assignments for • The extent of consultation employed listed companies and those considered higher risk. Our policies also describe the roles and responsibilities of Audit engagement team resolution process for each audit engagement team member for managing, differences of professional opinion directing and supervising the audit, as well as the EY has a collaborative culture that encourages and expects requirements for documenting their work and conclusions. people to speak up, without fear of reprisal, if a difference of Consultation requirements professional opinion arises or if they are uncomfortable about a matter relating to a client engagement. Policies and Our consultation policies are built upon a culture of procedures are designed to empower members of an audit collaboration, whereby audit professionals are encouraged engagement team by requiring them to raise any to share perspectives on complex accounting, auditing and disagreements relating to significant accounting, auditing or reporting issues. Consultation requirements and related reporting matters. policies are designed to involve the right resources, so that audit teams reach appropriate conclusions. These policies are made clear to people as they join EY, and we continue to promote a culture that reinforces a person’s Consultation is built into the decision-making process; it responsibility and authority to make their own views heard is not just a process to provide advice. and canvas the views of others. Differences of professional opinion that arise during an audit For complex and sensitive matters, we have a formal process generally are resolved at the audit engagement team level. requiring consultation outside of the audit engagement team However, if any person involved in the discussion of an issue with other personnel who have more experience or is not satisfied with the decision, he or she has both the specialized knowledge, primarily Professional Practice and right and the obligation to see that the issue is referred to Independence personnel. In the interests of objectivity and the next level of authority until agreement is reached or a professional skepticism, our policies require members of final decision is made. Until such time, the parties to the Professional Practice, Independence and certain others to discussion do not withdraw, step aside or otherwise extract withdraw from a consultation if they currently serve, or have themselves from the process. served, within a specified period of time, the client to which Furthermore, if the engagement quality reviewer makes the consultation relates. recommendations that the engagement partner does not Our policies also require that we document all consultations, accept or the matter is not resolved to the reviewer’s including written concurrence from the person or persons satisfaction, the audit report is not issued until the matter is consulted, in order to demonstrate their understanding of resolved by following consultation processes for resolving the matter and its resolution. differences of professional opinion. Our documentation requirements for disagreements and their resolution are the Engagement quality reviews same as for other consultations. Anyone involved in the Engagement quality reviews are performed by audit partners process may separately document his or her personal in compliance with professional standards for audits of all position in an attachment to the documentation of the final listed companies and those considered higher risk. decision.

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Audit partner rotation Implemented annually, the programme is coordinated and monitored by representatives of the PPD network, with EY supports mandatory audit partner rotation to help oversight by the Assurance Leadership. strengthen auditor independence. EY UK complies with the The engagements reviewed each year are selected on a risk- audit partner rotation requirements of the code of the based approach emphasizing audit clients that are large, International Ethics Standards Board for Accountants complex or of significant public interest. The Global AQR (IESBA) and the FRC’s Ethics Standards (ES), as well as the programme includes detailed, risk-focused file reviews U.S. Securities and Exchange Commission (SEC), where covering a large sample of listed and non-listed audit required. EY UK supports audit partner rotation because it engagements to measure compliance with internal policies provides a fresh perspective and promotes independence and procedures, EY GAM requirements, and relevant local from company management while retaining expertise and professional standards and regulatory requirements. It also knowledge of the business. Audit partner rotation, combined includes reviews of a sample of non-audit engagements. with independence requirements, enhanced systems of These measure compliance with the relevant professional internal quality controls and independent audit oversight, standards and internal policies and procedures that should helps strengthen independence and objectivity and are be applied in executing non-audit services. In addition, important safeguards of audit quality. practice-level reviews are performed to assess compliance We have tools to track partner rotation that enable effective with quality control policies and procedures in the functional monitoring of compliance with requirements. We have also areas set out in ISQC No. 1. The Global AQR programme implemented a process for partner rotation planning and complements external practice monitoring and inspection decision-making that involves consultation with, and activities, such as regulatory inspection programmes and approvals by, our Professional Practice and Independence external peer reviews. professionals. The results of our current year AQR process are set out in In exceptional cases ethical standards provide that it might Volume 1 of the Transparency Report together with further be appropriate for a partner to serve for longer than the details of our process. maximum period otherwise permitted. Any such extension AQR reviewers and team leaders are selected for their skills requires consultation with our Independence Professionals and professional competence in accounting and auditing, as and approval by the PPD. well as their industry specialization; they often work in the Global AQR programme for a number of years and are highly Audit quality reviews skilled in the execution of the programme. Team leaders and The Global Audit Quality Review (AQR) programme is the reviewers are assigned to inspections outside of their home cornerstone of our process to monitor audit quality. location and are independent of the audit teams reviewed. EY UK executes the Global AQR programme, reports results The results of the Global AQR programme and external and develops responsive actions plans. The primary goal of practice-monitoring and inspection activities are evaluated the programme is to determine whether systems of quality and communicated to improve quality. Any quality controls, including those of EY UK, are appropriately improvement plans describe the follow-up actions to be designed and followed in the execution of audit taken, the people responsible, the timetable and deadlines, engagements to provide reasonable assurance of compliance and sign-off on completed actions. Measures to resolve audit with policies and procedures, professional standards, and quality issues noted from the Global AQR programme, regulatory requirements. The Global AQR programme regulatory inspections and peer reviews are addressed by complies with guidelines in the International Standard on our Assurance leadership and our PPD with input from Risk Quality Control No. 1, as amended (ISQC No. 1), and is Management groups. The actions are monitored by our PPD supplemented where necessary to comply with UK and Assurance leadership. These programmes provide professional standards and regulatory requirements. It also important practice monitoring feedback for our continuing aids EY UK’s continual efforts to identify areas where we can quality improvement efforts. improve our performance or enhance our policies and procedures.

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External quality Document retention EY UK’s record retention policy applies to all engagements assurance review and personnel. This policy emphasizes that all documents We have included in Volume 1 of our Transparency Report a must be preserved whenever any person becomes aware of discussion of our external quality assurance inspection any actual or reasonably anticipated claim, litigation, process and our response thereto. investigation, subpoena or other government proceeding involving us or one of our clients that may relate to our Compliance with legal work. It also addresses UK legal requirements applicable to the creation and maintenance of working papers relevant to requirements the work performed. The EY Global Code of Conduct provides a clear set of standards that guide our actions and business conduct. EY UK complies with applicable laws and regulations, and EY’s values underpin our commitment to doing the right thing. This important commitment is supported by a number of policies and procedures, including: Anti-bribery

The Anti-bribery Global Policy provides our people with direction around certain unethical and illegal activities. It emphasizes the obligation of our people to comply with anti- bribery laws and provides greater definition of what constitutes bribery. It also identifies reporting responsibilities when bribery is discovered. In recognition of the growing global impact of bribery and corruption, efforts have been increased to embed anti-bribery measures across EY, and training is mandated for all our people. Insider trading

The Insider Trading Global Policy reaffirms the obligation of our people not to trade in securities with insider information, provides detail on what constitutes insider information and identifies with whom our people should consult if they have questions regarding their responsibilities. Trade sanctions

Given the level of EY’s global integration, it is important that we are aware of the ever-changing situation in respect of international trade sanctions. EY monitors sanctions issued in multiple geographies and provides guidance to our people on impacted activities. Data privacy

The Global Personal Data Privacy Policy sets out the principles to be applied to the use and protection of personal data, including that relating to current, past and prospective personnel, clients, suppliers and business associates. This policy is consistent with applicable laws and regulations concerning data protection and privacy when processing personal data. It provides a foundation for maintaining the privacy of all personal data used by EY UK. Furthermore, we have a policy to address our specific UK data privacy requirements and business needs.

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Independence practices

EY Independence policies require EY UK and our people to Global Monitoring System comply with the independence standards applicable to The Global Monitoring System (GMS) is another important specific engagements, including, for example, the global tool that assists in identifying proscribed securities independence standards of the International Ethics and other impermissible financial interests. Professionals Standards Board for Accountants (IESBA) of the ranked as manager and above are required to enter any International Federation of Accountants (IFAC) and FRC’s securities they hold, or those held by their immediate family, Ethical Standards. into the GMS. When a person enters a proscribed security or We consider and evaluate independence from several if a security they hold becomes proscribed, they receive a perspectives, including: our financial relationships and those notice and are required to dispose of the security. Identified of our people; employment relationships; business exceptions are reported through the Global Independence relationships; the permissibility of non-audit services we Incident Reporting System (GIIRS) for regulatory matters. provide to audit clients; partner rotation; fee arrangements; GMS also facilitates annual and quarterly confirmation of audit committee preapproval, where applicable; and partner compliance with independence policies, as described below. remuneration and compensation. Independence compliance Failure to comply with applicable professional independence requirements will factor into a person’s EY has established a number of processes and programmes promotion and compensation decisions and may lead to aimed at monitoring the compliance with independence other disciplinary measures. requirements of EY member firms and their people. These include the following activities, programmes and processes:

Independence confirmations EY UK has implemented EY’s global applications, tools and Timely and accurate completion of annual and quarterly processes to support us, our professionals and other independence confirmations is a high priority for the employees in complying with independence policies. responsible leadership teams. EY Global Independence Policy Annually, EY UK is included in an Area-wide process to The EY Global Independence Policy contains the confirm compliance with the Global Independence Policy and independence requirements for member firms, professionals requirements and to report identified exceptions, if any. and other personnel. It is a robust policy predicated on the All EY professionals, and certain others based on their role IESBA Code of Ethics, supplemented with more stringent or function, are required to confirm compliance with requirements where prescribed by a given regulator. The independence policies and procedures at least once a year. policy also contains guidance to help people apply the All partners are required to confirm compliance quarterly. independence rules. The EY Global Independence Policy is readily accessible and easily searchable through Global independence compliance reviews EY’s intranet. EY conducts a number of testing and member firm visits to Global Independence System assess compliance with independence matters. These reviews include aspects of compliance related to non-audit The Global Independence System (GIS) is an intranet-based services, business relationships with the companies we audit tool that helps our professionals identify the listed entities and financial relationships of member firms. from which independence is required and the independence restrictions that apply. Most often these are listed audit EY UK confirms that the Global Internal Audit last occurred clients and their affiliates, but they can be other types of during 2014. attest or assurance clients. The tool includes family-tree Each year, EY’s global Independence team establishes a data relating to affiliates of listed audit clients and is programme for testing compliance with personal updated by client-serving engagement teams. The entity independence confirmation requirements and with reporting data includes notations that indicate the independence rules of information into GMS. For the 2014 testing cycle, EY UK that apply to each entity, helping our people determine the tested more than 320 partners and other personnel. type of services that can be provided or other interests or relationships that can be entered into.

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Non-audit services Audit committees and corporate governance

We monitor compliance with professional standards We recognize the important role audit committees and governing the provision of non-audit services to audit clients similar corporate governance bodies play in the oversight of through a variety of mechanisms. These include the use of auditor independence. Empowered and independent audit tools (e.g., GTAC — see page 12 and Service Offering committees perform a vital role on behalf of shareholders in Reference Tool (SORT) — see below), training and required protecting independence and preventing conflicts of procedures completed during the performance of audits and interest. We are committed to robust and regular internal inspection processes. communication with audit committees or those charged with governance. Through our quality review programmes, we Global independence learning monitor and test compliance with our standards for audit EY develops and deploys a variety of independence learning committee communications, as well as the pre-approval of programmes. All professionals and certain other personnel services, where applicable. are required to participate in annual independence learning to help maintain our independence from the companies we audit.

The goal is to help our people understand their responsibility and to enable each of them, and EY, to be free from interests that might be regarded as being incompatible with objectivity, integrity and impartiality in serving an audit client.

The annual independence learning programme covers independence requirements focusing on recent changes to policy, as well as recurring themes and topics of importance. Timely completion of annual independence learning is required and is monitored closely. EY UK supplements this programme with local content to cover local independence requirements under FRC Ethical Standards that differ from the EYG Independence Policy. In addition to the annual learning programme, independence awareness is promoted through a number of events and materials, including the new-hire programme, milestone programmes and core service line curricula. Service Offering Reference Tool We assess and monitor our portfolio of services on an ongoing basis, confirming that they are permitted by law and professional standards, and to make sure that we have the right methodologies, procedures and processes in place as new service offerings are developed. We restrict services from being provided that could present undue independence or other risks. Service Offering Reference Tool (SORT) provides our people with information about our service offerings. SORT includes guidance around which services can be delivered to audit and non-audit clients, as well as independence and other risk management issues. Business Relationship Evaluation Tool The Business Relationship Evaluation Tool (BRET) process helps to support our business relationships’ compliance with independence requirements. Our people are required to use BRET in many circumstances to evaluate and obtain advance approval of potential business relationship with an audit client. Transparency report 2015 — EY UK — Volume 2 18

Creating high-performing teams

EY member firms are building a better working world for inclusiveness and for providing an excellent working their people by developing outstanding leaders and creating environment. a culture of high-performance teaming. Our people are Led by the Government Equalities Office, the ‘Think, Act, encouraged to build their skills and experiences, learn from Report’ voluntary framework supports and encourages each other, and deliver exceptional client service. This organizations to improve gender equality in their culture of high performance is supported by EY member organizations. EY has signed-up to ‘Think, Act, Report’, but firms’ commitment to recruiting, managing and retaining top has taken it a step further and looks beyond just gender talent; learning and development; and EY member firms’ reporting to also include reporting on Black and Minority inclusive culture. Ethnic (BME) statistics. We will apply the same principle to This is why one of our strategic objectives is to attract and pay gap reporting. build lifelong relationships with a diverse group of talented Our UK and Ireland Regional business aims to have at least assurance professionals. 30% female and 10% BME representation in our new partner intake, measured over a rolling three year period. We are proud of our inclusive people culture, and we are committed to doing even more to advance We also have a longer-term aim to achieve these levels of our people’s development. representation on both our leadership team and within our wider partner population. This commitment will drive us towards a more diverse and representative talent pipeline, Recruitment and hiring which will ensure our goals are achievable and sustainable. Recruiting for our Audit practice is performed primarily on university campuses and through schools and supplemented, when necessary, by hiring people with prior work experience. Student hires are evaluated using a combination of online and face to face assessments based around firm wide strengths, numerical ability and strengths specifics to the Assurance Service line EY aspires to have a leading people culture everywhere in the world. We believe that creating a culture that attracts, retains and develops outstanding people from diverse backgrounds leads to higher quality service. Valuing diversity and inclusiveness

The global workforce is becoming more diverse as a result of an increasingly mobile international workforce and demographic and social shifts. For organizations such as EY, which serve global clients, an important aspect of creating the right solutions for clients and the right working environment is a focus on inclusive leadership. Inclusive Leadership is about getting the best from a diverse team that includes our clients and our people. It is about seeking out different perspectives, communicating and working effectively with people who are different from you. In our increasingly interconnected world, developing inclusive leaders who can connect and engage with anyone – regardless of their background, style or culture – is a crucial part of EY’s approach to people and clients. We are proud that EY member firms are regularly cited by external organizations as being leaders in diversity and

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Continuing education of statutory auditors Professional development • Point of view and Overviews, which provide important perspectives on current public policy and regulatory The EY career development framework, EYU, provides our developments. people with opportunities for the right experiences, learning • Practice alerts and webcasts covering a range of global and coaching to help them grow and achieve their potential. and country-specific matters designed for continuous improvement in the member firms’ Assurance practices. The learning component of EYU is based on an extensive and globally consistent learning curriculum that helps all our people develop the right technical and personal leadership Performance management skills, wherever they are located around the world. Core audit training courses are supplemented by learning A comprehensive performance management process programmes that are developed in response to changes in requires our people to set goals, have clear work accounting and reporting standards, independence and expectations, receive feedback and talk about their professional standards, and emerging practice issues. performance. The Performance Management and Development Process (PMDP) is designed to help our people EY UK requires our audit professionals to obtain at least 20 grow and succeed in their careers. hours of continuing professional education each year and at least 120 hours over a three-year period. Of these hours, Under the PMDP, periodic job performance reviews are 40% (8 hours each year and 48 hours over a three-year combined with annual self-appraisal and annual reviews. As period) must cover technical subjects related to accounting part of the annual review process, each professional, in and auditing. conjunction with his or her counselor (an assigned, more experienced professional), identifies opportunities for In addition to formal learning, professional development further development. Professionals and their counselors are occurs through coaching and experiences our professionals guided by a set of expectations that articulate the receive on the job. Coaching helps to transform knowledge knowledge, skills and behaviors that should be maintained and experience into practice. and developed for their respective rank. These expectations Experienced professionals are expected to coach and derive from, and align with, EY’s global strategy and values. develop less experienced personnel to create a continual learning environment. We also manage the assignment of our people to particular engagements in a systematic way that helps to ensure they have exposure to a range of experiences as part of their own development. Knowledge and internal communications

In addition to professional development and performance management, we understand the importance of providing client engagement teams with up-to-date information to help them perform their professional responsibilities. EY makes significant investments in knowledge and communication networks to enable the rapid dissemination of information to help people collaborate and share best practices. Examples include: • Global Accounting & Auditing Information Tool (GAAIT), which includes local and international accounting and auditing standards as well as interpretive guidance. • Publications such as International GAAP, IFRS developments and illustrative financial statements. • Global Accounting and Auditing News, a weekly update covering assurance and independence policies, developments from standard setters and regulators as well as internal commentary thereon.

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Revenue and remuneration

Financial information

The financial information presented below for EY UK represents combined, not consolidated, revenues and includes expenses billed to clients and revenues related to billings to other EYG member firms.

Financial information for the period ended 3 July 2015 Financial information for the period ended 27 June 2014

Service1 Revenue (£mn) Percent Service Revenue (£mn) Percent Assurance 585 29 Assurance 550 30 Advisory 584 29 Advisory 559 30 Tax 517 26 Tax 470 25 Transaction Transaction 289 15 Advisory 324 16 Advisory Total 2,010 100 Total 1,868 100

Revenue (£mn) 2015 Revenue (£mn) 2014 Non-audit Non-audit Service Audit clients clients Service Audit clients clients Assurance 407 178 Assurance 376 174 Advisory 26 558 Advisory 32 527 Tax 139 378 Tax 132 338 Transaction Transaction 65 224 Advisory 65 259 Advisory Total 637 1,373 Total 605 1,263

Revenue (£mn) 2015 Revenue (£mn) 2014 Non-audit Non-audit Service Audit clients clients Service Audit clients clients Statutory audit 370 0 Statutory audit 341 0 Other assurance 37 178 Other assurance 35 174 Total assurance 407 178 Total assurance 376 174

2015 2014 £mn £mn Revenue 407 376 Profitability2 69 66

1 Assurance includes statutory audit, accounting advisory, forensics and other assurance services. Advisory includes actuarial, business risk (including internal audit), information security and performance improvement. Tax includes business tax, indirect tax, human capital and international tax services. Transaction Advisory includes M&A advisory, project finance, transaction real estate, restructuring, transaction support and integration valuations and business modelling services.

2 We have disclosed profit for statutory audit services and all assurance services provided to audit clients. It is not possible for us to identify profit at the level of reportable segment under the Voluntary Code of Practice on Disclosure of Audit Profitability. Operating profit for statutory audit services is calculated based on direct costs including staff costs recorded on audit engagements, together with an allocation of overheads such as property and IT. Overhead costs have been allocated on a pro-rata basis based on headcount or revenues. The profit relating to other assurance services provided to audit clients is based on the average profit for our other assurance business, since it is not possible to specifically identify the relevant profit Transparency report 2015 — EY UK — Volume 2 21

• Demonstrating knowledge of, and leadership in, quality Partner remuneration and risk management Quality is at the center of EY business strategy and a key • Compliance with policies and procedures component of our performance management systems. EY • Compliance with laws, regulations and UK partners and other professionals are evaluated and professional duties compensated based on criteria that include specific quality • Contributing to protecting and enhancing the EY brand and risk management indicators, covering both actions Our compensation philosophy calls for meaningfully and results. differentiated rewards based on a partner’s level of performance, as measured by the GPPM process. Partners The Global Partner Performance Management (GPPM) are assessed annually on their performance in delivering process is a globally consistent evaluation process for all quality, exceptional client service and people engagement partners in EYG member firms around the world. It alongside our financial and market metrics. reinforces the global business agenda by linking their performance to wider goals and values. GPPM is an ongoing, To recognize different market values for different skills and cyclical process that includes goal setting, personal roles, and to attract and retain high-performing individuals, development planning, performance review, and recognition the following factors are also considered when calculating and reward. It is the cornerstone of the evaluation process to total reward: document partners’ goals and performance. A partner’s • Seniority goals are required to reflect various global priorities, one of • Role and responsibility which is quality. • Long-term potential We prohibit evaluating and compensating lead audit • Mobility engagement partners and other key audit partners on an Instances of non-compliance with quality standards result in engagement based on the sale of non-assurance services to remedial actions, which may include compensation their audit clients. This reinforces to our partners their adjustment, additional training, additional supervision or professional obligation to maintain our independence and reassignment. A pattern of non-compliance or particularly objectivity. serious non-compliance may result in actions that include Specific quality and risk performance measures have been requiring the partner to withdraw from the firm or developed to account for: withdrawing a person’s Responsible Individual status. • Technical excellence • Living the EY values as demonstrated by behaviors and attitude

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Working with our stakeholders and communities Stakeholder dialogue • Worked jointly with the Investment Association to produce a report on “Board effectiveness – continuing As an auditor of listed companies and other public interest the journey”, to highlight and share leading practice and entities, EY UK is acutely aware of the important public new ideas for improving and demonstrating board interest role we play in promoting trust and confidence in effectiveness and provoke new thinking, discussion and business, capital markets and economies. better outcomes with individual existing and future board members, entire boards, executive management We take our public interest responsibilities seriously, and we and investors. This report was based on a series of work hard to maintain an open and frank dialogue with our individual meetings and roundtables which brought stakeholders as part of our broader commitment to building together leading chairmen, board directors and senior a better working world. When meeting with our investors to debate the issue of board effectiveness. The stakeholders, we seek to better understand their points of report drew on the contributions from these discussions view and provide our perspective. We support improvements and was supplemented by insights and perspectives in corporate governance, financial reporting and other from EY and The Investment Association. matters that affect our capital markets more broadly. • Identified and tracked regulatory developments and Our environment is shaped by a wide range of policy makers, submitted formal responses to public consultations. including governments, regulators, standard setters and These responses covered a broad range of issues international organizations. EY is engaging increasingly with affecting the wider public interest. In particular, we global organizations like the Financial Stability Board, the have focused on EU audit reform and the UK International Forum of Independent Audit Regulators, the implementation of the Audit Directive and Regulation, Basel Committee on Banking Supervision, the Organisation including: for Economic Co-operation and Development (OECD) and the International Organisation of Securities Commissions. EY o the Department for Business Innovation & also participates in global forums, such as those held by the Skills (BIS) discussion document on World Economic Forum in Davos and elsewhere, that bring “Auditor regulation: discussion document together thought leaders on issues important to us and our on the implications of the EU and wider stakeholders. reforms”; and Selected stakeholder engagement globally in 2015 o the FRC consultation paper on “Auditing and Ethical Standards: Implementation of EY welcomes opportunities to contribute to the development the EU Audit Directive and Audit of effective and efficient regulation and public policy and to Regulation.” help facilitate communication between policy makers and companies in relevant industry sectors. In the UK, EY has Example of other issues include: continued to engage actively in contributing to public o Prudential regulation - The Prudential consultations and other requests for input from policy Regulation Authority (PRA) consultation makers. paper CP 8/15, “Engagement between During FY15, EY UK has: external auditors and supervisors and commencing the PRA’s disciplinary powers • Shared good practice on corporate governance, over external auditors and actuaries”; regulatory and financial reporting matters through the publication of regulatory updates and via EY forums o The UK implementation of the EU Solvency such as the: II Directive – the HM Treasury consultation document on ”Resolving the remaining o Independent Director Programme; policy issues for UK transposition” and the o Finance Professionals’ Programme; and PRA consultation paper CP16/14 on “Transposition of Solvency II: Part 3”; and o Audit Committee Chair Programme (and related forum).

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o Accounting – the BIS second consultation improving Black and Minority Ethnic (BME) representation on on the “UK implementation of the EU boards. Accounting Directive…” Supporting communities though time and resources • Helped clients manage change by tracking key We contribute both through the giving of our people’s time regulatory and public policy developments, engaging and our financial resources to not-for-profit organizations with key stakeholders and analysing possible impacts that are aligned with our purpose and global corporate and timing. When requested by regulators and policy sustainability strategy. We believe that this is where we makers, EY has also been pleased to provide input from make the biggest impact and address the most pressing relevant experts and facilitate contact between needs of the communities in which we live and work. regulators and specific industry sectors. Been represented by partners and senior professional staff on In the UK the firm founded a new independent charity – the other UK bodies and organizations such as: EY Foundation – to which we have made the same commitment. The charity celebrated its first anniversary on o Business Disability Forum 1 July 2015. We are proud to have played a role in o British Venture Capital Association supporting young people disadvantaged in the labour market into education, employment and enterprise through our o Confederation of British Industry investment of people’s time and financial resources into the o FRC Committees charity’s work. o Investor Relations Society In FY15, we supported our communities by: o Insolvency Practitioners Association • Investing time and resource that has helped the EY Foundation to provide great experiences of work, o Institute of Chartered Accountants in mentoring or business coaching to 240 young people England & Wales and social entrepreneurs that have directly participated in its programmes: Smart Futures, Our Future and o Institute of Chartered Accountants in Accelerate. And an additional 172 young people and Scotland social entrepreneurs through its work with other o The City UK charities. • Supporting the EY Foundation with expanding its o The Two Percent Club programmes and activities from six to 11 UK locations; and helped scale a number of the EY Foundation’s o Employers Stammering Network programmes. For example, Smart Futures supported • Engaged with stakeholders on developments relating to 30% more young people in FY15. diversity and inclusiveness. For example, during FY15 • Supporting staff fundraising endeavours by providing EY continued as a signatory of the Government’s Think, £339,992 of matched funding to charities (this does not Act, Report framework, which encourages a new include the EY Foundation). voluntary approach to gender equality reporting. EY • Working in collaboration with a number of the EY also engages with organizations such as Stonewall, Foundation’s charitable partners to increase the firm’s social and economic impact on young people and social OUTstanding and Working Families and is an active enterprise, including skills based volunteering. EY member of organizations such as: Foundation charitable partners include The Prince’s o The 30% Club: as part of our commitment Trust, UnLtd, Think Forward, the Social Business Trust to change we led a new cross corporate and Comic Relief. mentoring programme designed to achieve • Being awarded Social Mobility Business Compact higher representation of women on Champion status - one of just 12 organisations to receive the award. EY was recognised for its leadership boards; and and exemplary practice in the field of social mobility for o ENEI (the ‘Employers Network for Equality showing a strong commitment to improving social and Inclusion’), which works with members mobility and for being an employer who creates fair to achieve and promote best practice in opportunities for young people from all backgrounds. equality and inclusion in the workplace. EY is a Social Mobility Business Champion, working with the other 12 Champions to engage businesses with the agenda through the social mobility business compact. EY also initiated Campaign 2020 to engage business leadership on

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The UN Global Compact’s ten principles

Human rights 1. Businesses should support and respect the protection of internationally proclaimed human rights; and

2. Make sure that they are not complicit in human rights abuses.

Labor

3. Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining;

4. The elimination of all forms of forced and compulsory labor;

5. The effective abolition of child labor; and

6. The elimination of discrimination in respect of employment and occupation.

Environment

7. Businesses should support a precautionary approach to environmental challenges;

8. Undertake initiatives to promote greater environmental responsibility; and

9. Encourage the development and diffusion of environmentally friendly technologies.

Anti-Corruption

10. Businesses should work against all forms of corruption, including extortion and bribery.

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Environmental sustainability Travel is an essential element in delivering our advisory, tax, transaction and assurance services to clients and is heavily We recognised that we have an important role to play in influenced by the rate at which the organisation is growing building a sustainable world and so challenge ourselves to and EY’s strategy for delivering our services. FY2014 saw a find ways to reduce our environmental impacts. significant rise in our total scope 3 emissions (13% / 7,106 tCO2e), 98% of which originated from additional business EY continues to build its greenhouse gas measurement and travel. Whilst emissions from road and rail travel grew reporting. Working with Climate Change and Sustainability relatively modestly compared to FY2013 (by 2% and 8% Services professionals in EY member firms, we have respectively), those from air travel rose much faster (by established a global methodology for calculating 15%). environmental impacts. In the UK we have been measuring our carbon impact and environmental performance for a However, in FY2014 we achieved our target of ensuring GHG number of years, which we publish in full via our website. emissions from business travel (kg CO2e) grew at a lower % rate than our revenue growth. UK revenues grew by 8.5% GHG emissions - performance overview whilst business travel emissions per kilometre travelled fell Our most significant sources of carbon emissions are by 7.8%. This is an indication that we are generating business travel (78%) and energy consumption in our revenue in a less carbon intensive manner, even as the buildings (18%). In FY2014 our total combined GHG business continues to grow. emissions (scopes 1 + 2 + 3) increased 12% (by 7,962 Continuous improvement in energy efficiency tCO2e) compared to the previous year. A breakdown of performance in each material area is provided below:

*100% of purchased electricity is from renewable sources *in EY controlled buildings where appropriate ‘green’ tariffs are available

In FY2014, our total scope 1 emissions fell by 5% compared to the previous year, mainly due to a reduction of 10% in both natural gas consumption (kWh) and kerosene (for heating) as a result of a relatively mild winter period. Total energy consumption fell by more than 4% compared in the same period. However, total combined emissions from energy consumption (scopes 1 + 2) in FY2014 rose by 6% compared to the previous year. This was due to an increase in total scope 2 emissions from purchased electricity, despite a

reduction in our total electricity consumption of 541 MWh. We will continue to strive to improve these numbers but The cause of this was an 11% increase in the UK recognise that it may be necessary to invest in extra Government’s emissions conversion factors for electricity resources in order to grow the business in line with the compared with the prior year. organisation’s ambitious targets whilst aiming to minimise We continue to identify opportunities for increased energy the environmental impacts from travel. efficiency across our real estate, investing in upgrades to Focus on business travel plant and equipment as well as new office locations. Recent

examples include the replacement of eight building chillers at our More London office at a cost of approximately £2 million, as well as the decision to relocate our FS employees to 25 Churchill Place in London’s Canary Wharf — a building which features elevators that store and reuse energy elsewhere, the latest ultra-efficient air conditioning equipment that recycles the energy from exhaust air, photo

voltaic cells and a ‘green’ roof to enhance biodiversity and * includes employees’ vehicle mileage, taxis and car rentals energy efficiency.

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Waste not, want not…

By FY2016 we are aiming to reduce waste generated per Supporting our clients’ sustainability programmes head by 10% (against base year FY10) and send zero waste to landfill (for offices where EY controls the building We offer a range of options to reduce the environmental services). To meet these targets, we have introduced a wide impacts of our service delivery to clients, including: range of initiatives in place including: • Audio conferencing, web-based meetings and extensive video conferencing and tele-presence facilities. • Unsold food items from London sites are donated to a local vocational training centre for homeless and • When travel is necessary, we encourage our people to vulnerably housed people. use the most sustainable transport options and can work with clients to ensure these are fully integrated • ‘Follow-me’ printing to reduce paper and toner into specific engagements. consumption and unclaimed document waste. • We have a strong culture of flexible working and can • Food waste from London, Birmingham and Liverpool work with clients to integrate this approach into each offices is sent for anaerobic digestion. project where appropriate. • Used cooking oil from our London offices’ restaurants is • Ensuring that communications and correspondence re-processed into biofuel. between our organisations are conducted via electronic External recognition media (i.e. email, scanned documents, source files etc.) • In 2015 EY achieved certification to the Carbon Trust wherever feasible and practicable. Waste Standard, recognising our actions to measure, EY also provides knowledge-based services to clients in manage and reduce waste output year on year. optimising market opportunities as we shift towards a • Our response to CDP’s 2014 Climate Change resource-efficient and low-carbon economy: Information Request received a score of 98%. • Our Power & Utilities service line can help clients • The Real Estate & Facilities Management functions respond to the challenges of the energy ‘trilemma’ - the within our UK offices are certified to the ISO 14001 need to define and create the right balance between low environmental management standard. carbon, security of supply and cost pressures. • Since 2011 EY has been certified to the Carbon Trust • EY’s Climate Change and Sustainability Services team is Standard, confirming to that we have measured, grounded in assurance, tax, transactions and advisory managed and reduced carbon emissions across our UK and can assist in navigating the evolving sustainability operations. landscape. They help organisations understand • We received an award from the Mayor of London’s 2014 commercial and regulatory threats and opportunities, Business Energy Challenge following our actions to explore and execute transactions, monitor performance reduce energy consumption across EY’s London estate. and assure public disclosures on progress whilst To find out more about our approach to environmental embedding climate change and sustainability into the sustainability in the UK, please visit business. www.ey.com/UK/en/About-us/Corporate- • Our Energy Optimisation practice builds energy Responsibility/About-EY---Cmt-to-Corp-Resp---environment. management and procurement strategies, minimising consumption costs and associated emissions. • Our Energy and Environmental Finance team helps maximise value from renewable energy activity and are ideally placed to help clients tackle the challenges and seize the opportunities presented by developing renewable energy markets.

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Appendix A: EY UK public interest entity audit clients

In the financial year ended on 3 July 2015, EY UK performed statutory audits of the following public interest entities: 3i Group plc Eurosail 2006-1 plc AA PLC Eurosail 2006-2BL plc Aberdeen Asian Smaller Companies Investment Trust PLC Eurosail 2006-3NC plc ABP Finance Plc Eurosail 2006-4NP plc Acal plc Eurosail Prime-UK 2007-A plc AGA Rangemaster Group plc Eurosail-UK 2007-1NC plc Aggregate Industries Holdings Ltd Eurosail-UK 2007-2NP plc Algeco Scotsman Global Finance plc Eurosail-UK 2007-3BL plc Alliance Automotive Finance Plc Eurosail-UK 2007-4BL plc Alpha Plus Holdings plc Eurosail-UK 2007-5NP plc Amec Foster Wheeler plc Eurosail-UK 2007-6NC plc Argo Underwriting Agency Limited EVRAZ plc ASDA Group Limited Exova Group plc AVEVA Group PLC F&C Managed Portfolio Trust plc Awilco Drilling PLC F&C Private Equity Trust plc Bank of Georgia Holdings PLC Ferrexpo Finance plc BG Energy Capital plc Ferrexpo PLC BG Group plc Fresnillo plc Biz Finance Plc Friends Life Holdings plc Blackrock Commodities Income Investment Trust plc GCP Student Living plc BlackRock Frontiers Investment Trust plc Greene King Finance Plc Blackrock Greater Europe Investment Trust plc Greene King plc Blackrock Throgmorton Trust Plc Henderson European Focus Trust plc BlackRock World Mining Trust plc Henderson Global Trust plc BP Capital Markets p.l.c. Herald Investment Trust plc BP p.l.c. Hitachi Capital (UK) PLC BrightHouse Group Plc Hochschild Mining Plc Brit PLC Huntsworth plc British Airways Plc IMI plc British Assets Trust plc Impax Environmental Markets plc British Empire Securities & General Trust plc InterContinental Hotels Group PLC Britvic plc Invesco Perpetual Select Trust plc Burford Capital PLC Investec Bank plc Castle Trust Direct plc Investec Finance plc Capital Holdings Limited Investec Investment Trust PLC Clipper Logistics plc Investec plc Clydesdale Bank PLC Investors Capital Trust plc Communisis plc Jazztel PLC Computacenter plc John Menzies plc Coventry Building Society JPMorgan Brazil Investment Trust plc Cranswick plc JPMorgan Claverhouse Investment Trust Plc CRH Finance (U.K.) plc JPMorgan Elect plc Dairy Crest Group plc JPMorgan European Investment Trust plc Dialog Semiconductor Plc JPMorgan Global Emerging Markets Income Trust plc Dignity (2002) Ltd JPMorgan Income & Growth Investment Trust plc Dignity Finance PLC JPMorgan Russian Securities plc Dignity Plc Jupiter European Opportunities Trust PLC Domino's Pizza Group plc Kensington Mortgage Securities plc Eco-Bat Technologies Ltd. Laird PLC Eco-Bat Finance PLC Land Securities Capital Markets PLC Ecofin Water & Power Opportunities plc Land Securities Group Plc EE Finance plc Landmark Mortgage Securities No. 2 plc EMF-UK 2008-1 PLC Landmark Mortgage Securities No. 3 plc EnQuest PLC Landmark Mortgage Securities No. 1 plc Enterprise Inns plc Lannraig Master Issuer Plc EP Global Opportunities Trust plc London Stock Exchange Group plc

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LSL Property Services plc Shortline Plc Majedie Investments PLC Skyepharma PLC Marble Arch Residential Securitisation No. 4 PLC Smith & Nephew plc Martin Currie Asia Unconstrained Trust plc South West Water Finance Plc Marubeni Finance Europe plc Southern Pacific Financing 04-A plc Mecom Group plc Southern Pacific Financing 04-B plc Michael Page International plc Southern Pacific Financing 05-A plc Money Partners Securities 1 plc Southern Pacific Financing 05-B plc Money Partners Securities 2 plc Southern Pacific Financing 06-A plc Money Partners Securities 3 Plc Southern Pacific Securities 04-1 plc Money Partners Securities 4 Plc Southern Pacific Securities 04-2 plc Montanaro European Smaller Companies Trust plc Southern Pacific Securities 05-1 plc Mortgage Funding 2008-1 plc Southern Pacific Securities 05-2 plc Murray Income Trust PLC Southern Pacific Securities 05-3 plc Murray International Trust PLC Southern Pacific Securities 06-1 plc Nanoco Group plc SP Distribution plc New India Investment Trust PLC SP Manweb plc New Star Investment Trust PLC Spire Healthcare Group plc Next Plc Spirent Communications plc NMC Health plc Standard Life UK Smaller Companies Trust plc Nomura Bank International plc Stock Spirits Group PLC Nomura International plc Strategic Equity Capital plc Northern Ireland Electricity Limited SVG Capital plc Nostrum Oil & Gas PLC Temple Bar Investment Trust PLC Ophir Energy plc The Biotech Growth Trust PLC Opportunity Investment Management Plc The Diverse Income Trust plc Optos plc The Go-Ahead Group plc Orange Brand Services Limited The Independent Investment Trust PLC Orange Telecommunications Group Limited The Innovation Group plc Pacific Horizon Investment Trust PLC The Rank Group Plc Pearl Group Holdings (No. 1) Limited The Scottish Oriental Smaller Companies Trust plc Pennon Group Plc Theatre (Hospitals) No.1 plc Personal Assets Trust PLC Theatre (Hospitals) No.2 PLC Pirelli International plc Titan Global Finance plc Polypipe Group plc TR Property Investment Trust plc PPL WW Holdings Limited Troy Income & Growth Trust plc PPL WEM Limited Tyseley Finance plc Preferred Residential Securities 05-1 plc UTV Media plc Preferred Residential Securities 05-2 plc Veolia Environmental Services (UK) Plc Preferred Residential Securities 06-1 plc Volution Group plc Preferred Residential Securities 7 plc VTB Capital plc Preferred Residential Securities 8 plc The Weir Group PLC Premier Energy & Water Trust PLC Western Power Distribution (East Midlands) plc Private Equity Investor PLC Western Power Distribution (South Wales) plc Rank Group Finance Plc Western Power Distribution (South West) plc Renold plc Western Power Distribution (West Midlands) plc Residential Mortgage Securities 19 Plc Western Power Distribution plc Residential Mortgage Securities 20 Plc Westfield Stratford City Finance PLC Residential Mortgage Securities 21 Plc Whitbread PLC Residential Mortgage Securities 22 Plc ZEAL Network SE Residential Mortgage Securities 23 Plc Residential Mortgage Securities 26 Plc Royal Mail plc Saga plc Schroder UK Mid Cap Fund plc Scots Road Partnership Holdings Limited Scottish Oriental Smaller Companies Trust PLC Scottish Power Ltd Scottish Power UK plc Midas Income & Growth Trust PLC Servelec Group plc Sherwood Castle Funding Series 2004-2 Plc Sherwood Castle Funding Series 2006-1 Plc

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Appendix B: Audit Governance Code disclosure requirements

Provision Description Volume Page(s) Provision Description Volume Page(s) A.1.2 The Firm should state in its 1 16 D.2.2 The Firm should state in its 2 8 transparency report how its 2 3-4 transparency report that it governance structures and has performed a review of management team operate, the effectiveness of the their duties and the types of system of internal control, decisions they take. summaries the process it A.1.3 The Firm should state in its 2 3-4 has applied and confirm that transparency report the necessary actions have names and job titles of all been or are being taken to members of the Firm’s remedy any significant governance structures and failings or weaknesses its management team, how identified from that review. they are elected or It should also disclose the appointed and their terms, process it has applied to length of service, meeting deal with material internal attendance in the year, and control aspects of any relevant biographical significant problems details. disclosed in its financial C.2.1 The Firm should state in its 1 4-5 statements or management commentary. transparency report its 2 6-7 criteria for assessing the D.2.3 In maintaining a sound 2 8 impact of independent non- system of internal control executives on the Firm’s and risk management and independence as auditors reviewing its effectiveness, and their independence the Firm should use a from the Firm and its recognized framework such owners. as the Turnbull Guidance D.1.3 The Firm should state in its 2 11-12, and disclose in its transparency report the transparency report how it 13-14, framework it has used. applies policies and 17-18 procedures for managing potential and actual conflicts of interest.

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