Policy on auditors' independence

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  1. An important element of good governance is the independence and objectivity of the external and the internal auditors. This Policy sets out the University’s objectives for protection of the independence of the external and the internal auditors, and the arrangements it has adopted to enable it to safeguard the independence of the audit firms engaged by the University. 
  2. The provision of any non-audit related services to the University by the external or the internal auditors must not compromise this independence and objectivity.
  3. The provision of any services (courses, training, consultancy, publishing or other academic or commercial services) to the external or the internal auditors by the University or any member of University staff must not compromise this independence and objectivity.
  4. Philanthropic support or sponsorship must only be accepted from the external or the internal auditors where it does not affect, or cannot be perceived to affect, the auditors’ independence and objectivity. 

5. The University’s objectives in respect of the independence of the external and the internal auditors are:

  1. to safeguard the independence and the objectivity of the external and the internal auditors, in accordance with good governance;
  2. to comply with guidance from HEFCE and relevant professional, legal, ethical and regulatory standards on auditor independence;
  3. to have procedures for the engagement of the external and the internal auditors for the conduct of non-audit related work;
  4. to have procedures for the acceptance of donations from or sponsorship by the external or the internal auditors; and
  5. to have procedures for the engagement of the University or its staff by the external and the internal auditors for the provision of academic services.

6. This Policy has been adopted by Council and applies throughout the University excluding the Press.

7. This Policy applies in full to the University’s subsidiary companies (save for those controlled by the Press).

8. The Press, which is a department of the University, has its own governance arrangements under the University Statutes and Regulations, and the annual accounts of the Delegates of the Press are audited according to instructions received from the Delegates by an auditor appointed annually by Council.  The Press has a separate policy on auditor independence which is approved by the Press’s Finance Committee.  The Press’s policy mirrors the objectives contained in paragraph 5 above, and reflects the restrictions referred to in paragraph 11 below in relation to the Press.

9. The Press’s policy applies to subsidiary companies of the University controlled by the Press.

10. The Finance Directors of the University and of the Press will consult under the terms of this Policy and the Press’s Policy to ensure that the University including the Press meets its objectives for auditor independence, and that fees paid to the external auditors for non-audit services do not exceed 70% of the average of the total external audit fees paid in the last three consecutive financial years.

11. The University follows best practice in the safeguarding of auditor independence. The University is mindful of guidance from the Office for Students and of relevant professional, ethical and legal standards, including the Financial Reporting Council’s ‘Ethical Standard’[1]. The University notes that external and internal auditors are subject to different professional and ethical obligations in relation to their independence and objectivity, as a result of the different services that they provide. This is reflected in the provisions of this Policy.

12. On the issuing of a bond in December 2017, the University became a Public Interest Entity[2]. This brings into scope additional restrictions under the Financial Reporting Council’s ‘Ethical Standard’ on the provision of non-audit services by the external auditors. The restrictions that particularly affect the University and are reflected in this Policy are (a) a list of prohibited non-audit services (at Appendix A) and (b) a limit on the total fees for non-audit services, which must not exceed 70% of the average of the total external audit fees paid in the last three consecutive financial years. These restrictions are reflected in the provisions of the Policy at paragraphs 23 to 24 below. 

 

[2] A Public Interest Entity (PIE) is a UK entity with securities traded on an EU-regulated exchange. 

 

 

Responsibilities of Council

 

13. Council is responsible for approving the Policy and has overall responsibility for safeguarding the independence and objectivity of the external and the internal auditors. 

 

Responsibilities of the Audit and Scrutiny Committee

 

14. The Audit and Scrutiny Committee is responsible for proposing and maintaining the University’s Policy to safeguard the independence of the external and the internal auditors. 

15. The Committee receives an annual report on the fees paid to the external and the internal auditors for audit and permitted non-audit services, and an annual report on donations and sponsorship received from the external and internal auditors. 

16. The Committee is responsible for ensuring that, in accordance with the Ethical Standard, the total fees for non-audit services paid to the external auditors do not exceed 70% of the average of the total external audit fees paid in the last three consecutive financial years[1]

17. The Committee has delegated authority for approving permitted non-audit work from the external auditors in the University (excluding the Press) up to 30% of the annual external audit fee of the University (excluding the Press) in any year to the Assurance Management Group, in line with the provisions of this Policy.

18. Above this level, the Committee is responsible for approving permitted non-audit services from the external auditors, as referred to it by the Assurance Management Group following consultation between the Finance Directors of the University and the Press, in order to ensure that the total combined University and Press fees for non-audit services will not exceed 70% of the average of the audit fees paid in the last three consecutive financial years.

19. The Committee has delegated authority for approving permitted non-audit work from the internal auditors to the Assurance Management Group up to the value of 50% of the annual internal audit fee of the University (excluding the Press), in line with the provisions of this Policy. Above this level, the Committee is responsible for approving non-audit services from the internal auditors, as referred to it by the Assurance Management Group.

 

Responsibilities of the Assurance Management Group[2]

 

20. The Assurance Management Group is responsible for considering proposals for permitted non-audit work from the external and internal auditors in the University (excluding the Press) on behalf of the Audit and Scrutiny Committee, in line with the provisions of this Policy. 

a) In respect of external audit

The Assurance Management Group has delegated authority from the Audit and Scrutiny Committee to approve proposals for permitted non-audit work from the external auditors up to the value of 30% of the annual external audit fee of the University (excluding the Press).

 

The Assurance Management Group refers proposals relating to the appointment of the external auditors for the conduct of non-audit related work to the Audit and Scrutiny Committee as necessary, including all proposals for work from the external auditors where the total non-audit fee would exceed 30% of the annual external audit fee of the University (excluding the Press). Referral of such proposals to the Audit and Scrutiny Committee must only be made following consultation between the Finance Directors of the University and the Press, in order to ensure that the total combined University and Press fees for non-audit services will not exceed 70% of the average of the audit fees paid in the last three consecutive financial years.

b) In respect of internal audit

The Assurance Management Group has delegated authority from the Audit and Scrutiny Committee to approve proposals for permitted non-audit work from the internal auditors up to the value of 50% of the annual internal audit fee of the University (excluding the Press).

 

The Assurance Management Group refers proposals relating to the appointment of the internal auditors for the conduct of non-audit related work to the Audit and Scrutiny Committee as necessary, including all proposals for work from the internal auditors where the total non-audit fee would exceed 50% of the annual internal audit fee of the University (excluding the Press).

 

21. The Assurance Management Group also considers proposals to engage the University or its staff to provide academic services (including courses) to the auditors or to engage in joint academic activity with the auditors; and considers proposals for donations to or sponsorship of the University and colleges by the auditors.

22. The Assurance Management Group makes an annual report to the Audit and Scrutiny Committee on fees paid to and donations or sponsorship received from the external and the internal auditors. 

 

[1] Fees: the total external audit fee is the external audit fee of the University Group, which includes the University and the Press and their subsidiaries. The external audit fee of the University (excluding the Press) is the University’s external audit fee plus its subsidiary company audit fees.

[2] The Assurance Management Group comprises University staff and representatives of the internal auditors. In this Policy, references to the Assurance Management Group are to the University members of the Group only; that is, the internal auditors are not party to discussions relating to auditor independence. 

 

 

 

 

 

  

 

 

 


 

23. The University may engage the external or the internal auditors for the conduct of certain non-audit related work, according to the provisions of this Policy, and subject to the approval process in paragraphs 30 to 33. Separate provisions apply for the external auditors and the internal auditors, reflecting the different services that they provide and the different professional, ethical and legal standards to which they are subject.

 

Proposals to engage the external auditors to provide non-audit services

 

24.The Policy defines non-audit services that the external auditors are prohibited from providing to the University, and non-audit services that the external auditors are permitted to provide.     

a) Prohibited non-audit services

Prohibited non-audit services are those activities that the external auditors are prohibited from undertaking as the activities are generally perceived to involve the external auditors making judgments or decisions that are the responsibility of the University’s senior officers or would interfere with the external auditors’ objectivity when undertaking the external audit. The external auditors are therefore explicitly excluded from undertaking this type of work.

 

A list of prohibited non-audit services is attached to this Policy as Appendix A; this is taken from the Ethical Standard section 5.167. 

 

The list of prohibited non-audit services in Appendix A reflects the provisions of the Ethical Standard. The list may be amended only by the Audit and Scrutiny Committee. It is not intended to be exhaustive.

 

b) Permitted non-audit services

It may be permissible to instruct the external auditors to undertake non-audit services that are not prohibited, rather than another body, because of the external auditors’ detailed understanding of the University’s business; this may result in cost efficiencies and, where relevant, may assist with the maintenance of confidentiality. A list of specific considerations to be borne in mind when considering whether to approve a proposal for a non-audit service is attached to this Policy as Appendix B; this is taken from the Ethical Standard sections 5.168-5.170. 

 

Work that, in the view of the Assurance Management Group in consideration of advice from the external audit firm, can be undertaken without risk to the external auditors’ independence will be classified as permitted non-audit services.

 

25. The Ethical Standard defines a cap on the level of fees for permitted non-audit services from the external auditors, at 70% of the average audit fees for the preceding 3-year period. The calculation of the fee cap is set out in the Ethical Standard and any proposed non-audit services will be considered in the light of this limit.   

26. Specific approval (see paragraphs 31 to 34) is required before the external auditors are contracted to deliver non-audit related services. 

27. Where there is any doubt over the categorisation as prohibited or permitted non-audit service, please contact the Head of Assurance and Risk Management or the Director of Finance for guidance.

 

Proposals to engage the internal auditors to provide non-audit services

 

28. Work that, in the view of the Assurance Management Group and the Head of Internal Audit, can be undertaken by the internal auditors without risk to their independence will be classified as permitted non-audit services. 

29. The Assurance Management Group may refer proposals to engage the internal auditors to provide non-audit services to the Audit and Scrutiny Committee for approval. 

30. Specific approval (see paragraphs 31 to 34) is required from the Assurance Management Group before the internal auditors are contracted to deliver non-audit related services.

 

31. The advance written approval of the Assurance Management Group must be obtained prior to the engagement of the external or the internal auditors with respect to any permitted non-audit services on a case by case basis. It is also necessary to obtain the approval of the Assurance Management Group for any proposed fee to be charged by the external or the internal auditors for providing the permitted non-audit service.

32. A specific written request for authorisation for the provision of non-audit services must be submitted to the Assurance Management Group. Each request must include:

a) a description of the nature of the non-audit service to be provided;

b) whether there are any safeguards in place to eliminate or reduce to an acceptable level any potential threat to the auditors’ objectivity and independence that may result from the provision of the services; and

c) an estimate of the total fees (including reasonable expenses) that will accrue to the external or the internal auditors in the provision of the services, both for individual services and in aggregate, noting the period over which they will be incurred and the amount relative to the audit fee (including the basis on which fees are calculated).

33. The external or internal auditors may only be engaged to provide the services in question once the written submission has been formally approved by the Assurance Management Group.

34. The Assurance Management Group may refer proposals to the Audit and Scrutiny Committee for approval, in line with the provisions of this Policy. 

35. The external or the internal auditors may seek to make donations in support of, or to sponsor activity in, the collegiate University (excluding the Press). Acceptance of donations from, or sponsorship by, the external or the internal auditors may affect, or be perceived to affect, their independence and objectivity. If the external or internal auditors wish to make a donation to the University or to a college, or to sponsor a University or college activity or event, the external or the internal auditors shall first put the proposal to the Assurance Management Group for consideration. 

36. If the Assurance Management Group agrees that the proposed donation or sponsorship proposal would not affect, or be perceived to affect, the external or the internal auditors’ independence or objectivity, then:

a) in the case of a proposed donation to the University, the proposal shall be passed to the Development Office for processing in the usual way, including, where appropriate, the seeking of approval from the Committee to Review Donations;

b) in the case of a proposal for sponsorship of a University event or activity, the proposal shall be referred to the General Purposes Committee or other body (as appropriate) for further consideration; or

c) in the case of a proposed donation to, or sponsorship of an event or activity at, a college, the auditors shall be free to take forward its discussions with the college.

37. If the Assurance Management Group considers it appropriate it may, at its discretion, set an approval threshold below which certain donations or sponsorship received from the audit firms, such as donations to student sports clubs and societies, would not require specific approval. 

38. If the Assurance Management Group is of the view that the proposed donation or sponsorship proposal, whether concerning the University or a college, would affect or be perceived to affect the external or the internal auditors’ independence or objectivity, then that proposal shall no longer be pursued by the auditors.

39. All donations and sponsorship received from the external and internal auditors will be reported annually to the Audit and Scrutiny Committee. 

40. The University and its staff may from time to time supply the external or the internal auditors with consultancy, research, or other academic services. In general, such provision of services will not be considered to compromise the independence and objectivity of the external or the internal auditors. The following conditions apply.   

Courses

 

41. Attendance by the auditors’ staff on a course or a series of courses designed and delivered by the University and provided on normal commercial terms (i.e. not bespoke courses) is permitted under this Policy. 

42. Separate provisions apply to the provision of bespoke courses by the University to the audit firms, reflecting their different professional and ethical obligations in relation to their independence and objectivity. 

a) For the external auditors: attendance by the external auditors’ staff on a course or a series of courses designed and delivered by the University specifically for the external auditors (i.e. bespoke courses) is prohibited under this Policy. 

b) For the internal auditors: specific approval is required from the Assurance Management Group before the University can be engaged to deliver bespoke courses to the internal auditors’ staff. Bespoke courses that, in the view of the Assurance Management Group, can be delivered without risk to the internal auditors’ independence will be permitted. The Assurance Management Group will report its decisions on proposals to deliver bespoke courses to the internal auditors to the Audit and Scrutiny Committee, and in certain cases may refer proposals to the Committee for approval.

Other academic services

 

43. Consultancy, research, advice or other academic services provided on normal commercial terms will in general not be considered to compromise the independence and objectivity of the external or the internal auditors. 

 

Obligation to notify the Assurance Management Group

 

44. Departments are required to notify the Assurance Management Group of proposals to provide the auditors with services in case the work is of such a scale, nature or risk to the University that there is a potential threat to the auditors’ objectivity and independence.

45. If the Assurance Management Group considers that the auditors’ objectivity and independence is threatened by the provision of work for the external or the internal auditors, the work will not be permitted to proceed. 

46. This Policy interacts and overlaps with a number of other University policies and procedures, including but not limited to:

  • Financial Regulations;
  • Conflict of Interest Policy;
  • Anti-Bribery Policy;
  • Anti-Fraud Policy;
  • Gifts and Hospitality Policy; and
  • the policy framework in place at Oxford University Press, including the Press’s own policy in respect of auditor independence.

47. This Policy also takes account of the University’s wider legislative obligations including the Terms and conditions of funding for higher education institutions from the Office for Students.

The external auditors are explicitly excluded from undertaking work in this List. This List is taken from the Financial Reporting Council’s Ethical Standard, section 5.167[1]

5. 167R  An audit firm carrying out the statutory audit of a public interest entity, or any member of the network to which the audit firm belongs, shall not directly or indirectly provide to the audited entity, to its parent undertaking or to its controlled undertakings within the Union any prohibited non-audit services in:

a) the period between the beginning of the period audited and the issuing of the audit report; and

b) the financial year immediately preceding the period referred to in point (a) in relation to the services listed in point (e) of the second subparagraph.

 For these purposes, prohibited non-audit services shall mean:

 a) tax services relating to:

i. preparation of tax forms;

ii. payroll tax;

iii. customs duties;

iv. identification of public subsidies and tax incentives unless support from audit firm in respect of such services is required by law;

v. support regarding tax inspections by tax authorities unless support from the audit firm in respect of such inspections is required by law;

vi. calculation of direct and indirect tax and deferred tax;

vii. provision of tax advice;

b) services that involve playing any part in the management or decision-making of the audited entity;

c) bookkeeping and preparing accounting records and financial statements;

d) payroll services;

e) designing and implementing internal control or risk management procedures related to the preparation and/or control of financial information or designing and implementing financial information technology systems;

f) valuation services, including valuations performed in connection with actuarial services or litigation support services;

g) legal services, with respect to:

i. the provision of general counsel;

ii. negotiating on behalf of the audited entity; and

iii. acting in an advocacy role in the resolution of litigation;

h) services related to the audited entity's internal audit function;

i) services linked to the financing, capital structure and allocation, and investment strategy of the audited entity, except providing assurance services in relation to the financial statements, such as the issuing of comfort letters in connection with prospectuses issued by the audited entity;

j) promoting, dealing in, or underwriting shares in the audited entity;

k) human resources services, with respect to:

i. management in a position to exert significant influence over the preparation of the accounting records or financial statements which are the subject of the statutory audit, where such services involve:

  • searching for or seeking out candidates for such position; or
  • undertaking reference checks of candidates for such positions;

ii. structuring the organisation design; and

iii. cost control.

Specific approval is required before the external auditors are contracted to undertake any non-audit work. Consideration will be given to proposals for non-audit work in accordance with the following sections from the Financial Reporting Council’s Ethical Standard[1], (5.169 – 5.170). 

5.169   Where there are doubts about whether a service would have an inconsequential effect on the audited financial statements in the view of and objective, reasonable and informed third party, then the effect is not regarded as inconsequential.

5.170R  An audit firm carrying out statutory audits of public interest entities and, where the audit firm belongs to a network, any member of such network, may provide to the audited entity, to its parent undertaking or to its controlled undertakings non-audit services other than the prohibited non-audit services referred to in paragraphs 1 and 2 5.167R [List A] subject to the approval of the audit committee after it has properly assessed threats to independence and the safeguards applied in accordance with this Ethical Standard Article.

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