Annual report and financial statement 2009 - United Utilities

GOVERNANCE: CORPORATE GOVERNANCE REPORTCorporate governance reportcontinuedAudit committee activitiesAn overview of the work undertaken by the audit committee duringthe year ended 31 March 2009 is described within the followingsections of this report.The audit committee met four times during the financial year ended31 March 2009. It has a formal policy, endorsed by the board,to keep under review the independence and objectivity of theexternal auditors. The audit committee determined that it wassatisfied that the independence of the external auditors hadbeen maintained, having taken into account the external auditors’written representations and the committee’s own enquiries. Thesewere facilitated by a private meeting with the external auditorswithout executive management being present. The independencepolicy sets out certain disclosure requirements by the externalauditors to the audit committee, including restrictions on mutualhiring of personnel, rules for rotation of audit partners andprocedures for the approval of non-audit services providedby the external auditors. The audit committee has monitoredthe application of the policy both during the year ended31 March 2009 and up to the date of this report.The audit committee reviewed the external auditors’ audit scope,plans and materiality levels and the resources proposed to executethe plans. Having done so, the committee approved the terms ofengagement and the audit fees. The committee also reviewed thefindings of the external auditors and their management letters oninternal financial controls.The audit committee also assessed the qualifications, expertiseand resources and independence of the external auditors and theeffectiveness of the audit process. Through an embedded regularaudit effectiveness review, the audit committee has continuedto keep the performance of the company’s auditors and auditeffectiveness under review. Mindful of the costs associatedwith the company’s compliance requirements, the audit committeecontinues to seek the most cost-effective approach to complianceand external audit generally.The policy relating to the provision of non-audit services bythe external auditors specifies the types of work from which theexternal auditors are excluded; for which the external auditors canbe engaged without referral to the audit committee; and for whicha case-by-case decision is required. The ratio of non-audit fees toaudit fees was monitored by the committee throughout the yearended 31 March 2009. The audit committee is satisfied thatthis policy in respect of the provision of non-audit services wasapplied during the year ended 31 March 2009 and up to the dateof this report.FeesAs summarised above, the committee has established policiesand procedures to pre-approve the engagement of the auditor toprovide any audit or non-audit services and keep the nature andextent of non-audit services under review. All audit and auditrelated services proposed to be provided by Deloitte LLP arepre-approved by the audit committee and reviewed annually. Theprovision of audit related services is generally highly correlatedwith the role of independent auditors. Such services includeassurance on non-statutory information, assurance work carriedout in connection with reporting to a statutory regulator, analysisand interpretation of accounting principles, support for debtissues and similar transactions and other services that have abearing on the group’s financial statements on which the externalauditors provide their opinion.Non-audit services are allowed under the procurement of anaudit and non-audit services policy, where they do not affectthe independence of the external auditors, but do require thepre-approval of the audit committee prior to the engagement.Specific approval may be delegated to a designated member ofthe audit committee, with such approvals to be reported at thenext audit committee meeting. In granting such approval, thedesignated member of the audit committee is required to considerthe cumulative proportion of fees paid for such work comparedwith the statutory audit fees. In the financial year ended 31 March2009, all such services were approved by the audit committee.The company also maintains a list of prohibited services thatcannot be provided by the group’s auditors; as they are consideredby statute or in the group’s opinion to be incompatible with therole of the independent auditors.The fees paid or payable to the auditors in the year ended31 March 2009 and the preceding year were as follows:2009 2008Year ended 31 March £m £mStatutory audit of the financial statements 0.4 0.5Other fees to the auditors:Local statutory audits for subsidiaries 0.3 0.4Other audit related 0.1 0.1Regulatory reporting 0.4 0.2Due diligence and transaction support 1.2 3.62.4 4.8Included in the above statutory audit fee is £50,000 in relation tothe company for the period ended 31 March 2009.For the year ended 31 March 2009, the substantial majority ofnon-audit related fees relate to the services provided by DeloitteLLP in their advisory capacity in relation to their provision of duediligence services to United Utilities PLC to support the creationand listing of a new holding company to facilitate the necessarydistributable reserves to allow the proposed return of capitalto shareholders.Having undertaken a review of the nature and the amount ofnon-audit related work, the audit committee has satisfied itselfthat the services undertaken during the financial year ended31 March 2009 did not prejudice the auditors’ independence.Other activitiesThe audit committee met prior to the board meetings at whichthe annual and half-yearly financial reports were approved. Thecommittee reviewed significant accounting policies, financialreporting issues and judgements and, in conducting this review,considered reports from management, the external auditors,and internal audit.At three of its meetings, the committee reviewed and consideredreports from the director of audit and risk. Those reports includedthe status of the company’s risk management systems, findingsfrom the internal audit function concerning internal controls andreports on the status of the correction of any weaknesses ininternal controls identified by the internal or external auditors.The audit committee also reviewed and approved the remit,organisation, plans and resources of the company’s internalaudit function and carried out a review of the effectivenessof that function.Disclosure policyThe committee’s objective is to ensure that arrangements are inplace for the proportionate and independent investigation ofmatters raised in confidence and for appropriate follow-up action.Accordingly, the audit committee reviews, at least annually, thearrangements by which employees may, in confidence, raiseconcerns about possible improprieties in matters of financial30 unitedutilities.com