Audit Independence Policy 1
Purpose
This policy provides guidance on the provision of external audit services by any person engaged to perform external audit services in relation to the Mercury Group (the external auditor). This policy applies to all entities within the Mercury NZ Group, including subsidiaries and joint venture entities. It shall also apply to representatives of the Group who can appoint or influence the appointment of the auditor of entities related to Mercury. The objective of this policy is to provide guidance on the provision of external audit services to ensure that the independence of the external auditor is maintained in both fact and appearance. Mercury will ensure external auditor independence is maintained in line with this policy in order that its reputation for reliable and credible financial reporting is protected. Responsibility for administering this policy rests with the Risk Assurance and Audit Committee (the Committee).
2
Independence of the Auditor
The external auditor will confirm to the Committee annually that he/she and his/her firm follow professional standards and ethical guidelines as determined by the Auditor-General (for engagements where the Auditor-General is the auditor), and the Institute of Chartered Accountants Australia and New Zealand. Reference shall be made to the Code of Ethics for Assurance Practitioners as issued by the New Zealand Auditing and Assurance Standards Board. Mercury also expects compliance with independence requirements set out by the New Zealand Stock Exchange, Financial Markets Authority, and the auditor’s own internal policies. Rotation of the signing audit partner is required every five years with a mandatory minimum five year stand down period before that partner’s next engagement with Mercury. Rotation of the engagement quality review partner is required every seven years with a mandatory minimum three year stand down period before that partner’s next engagement with Mercury. Former Mercury employees will not be engaged by the auditor in an assurance engagement role for Mercury within two years of leaving Mercury. The auditor will ensure that its partners hold no interests in Mercury. Such interests may include (but are not limited to) equity and/or debt instruments. This shall also apply to staff members who are members of engagement teams providing services to Mercury. Where partners or employees have family members who are staff at Mercury working in roles sensitive to financial reporting, or where an employee has interests in Mercury, the auditor shall ensure the relevant staff member is not involved in any Mercury engagements. The auditor shall ensure that the fees received from Mercury engagements do not form a material component of total fees received by the auditor from such engagements to prevent undue influence being exercised or perceived. The external auditor will monitor his/her firm’s independence and confirm to the Committee annually that it has remained independent during the previous twelve months.
Audit Independence Policy | For Consideration by Board of Directors | 10 December 2018 | Page 1 of 2
3
Independence of Mercury
Former audit partners or audit managers from the firm of the external auditor will not be appointed by Mercury to a management or governance position without prior approval of the Committee. Such approval will not be given where the person in question served on a Mercury assurance engagement role within two years of seeking employment with Mercury. Where such employment is permitted, the Committee will ensure that the employment is subject to sufficient oversight and does not constitute a role which is sensitive to the financial reporting function, or management of such a role. Mercury will not accept fees which are based on predetermined outcomes, usually referred to as “success fees” which could reasonably be concluded to obstruct or unduly influence the external auditor in the performance of their duties. Mercury will not unreasonably withhold payment for fees which have been invoiced in accordance with the accepted terms of engagement to prevent the perception of payment being contingent on a particular outcome.
4
Non-audit services
Mercury may engage with the external auditor from time to time to provide non-audit services where the Committee considers that the knowledge and experience held by the auditor means that appointment of a different service provider would not be in the interests of cost & time efficiency or effective advice. Examples of services considered appropriate may include:
advising on accounting policy, appropriate accounting standards and their interpretation; advising on the interpretation and application of taxation policies; reviewing compliance with taxation requirements; providing due diligence services; and providing generic accounting and technical training.
The prior approval of the Chief Financial Officer is required before any non-audit services are provided by the external auditor’s firm. The fees for such services should not exceed 20% of the fees for core audit services in any financial year, unless approved by the Chair of the Risk Assurance and Audit Committee. Independence in appearance will be considered by the Committee including the desire to avoid perception of disproportionate non-audit fees. Mercury will disclose all audit and nonaudit services in the financial statements on an accrual basis.
Non-audit services which cannot be performed by the External Auditors The external auditor’s firm will not be used for any purpose which could reasonably be regarded as compromising the independence of the external auditor, such as services which are prohibited by the Auditor-General. Such services may include but are not restricted to the following:
5
performing any function of management, or being responsible for making management decisions; staffing of temporary roles; producing or preparing financial information or financial statements such that the firm could be perceived as auditing its own work; providing valuation services where such valuation is included in audited financial information; providing actuarial services; advising on taxation planning and strategy matters; providing broker, dealer, investment advisory or investment banking services; designing or implementing financial information systems and processes within the Company; and involvement in Mercury’s Internal Audit Programme.
Review and breaches of Policy
This policy has been approved by the Committee and the Board and will be reviewed every three years to ensure that it remains consistent with the Committee’s objectives and responsibilities. Any breach of the above policy must be reported to the Chief Financial Officer and Committee as soon as practical or in accordance with Mercury’s Whistleblowing Policy. The Committee may consider such breaches to constitute serious misconduct and will take such action as is required to preserve the integrity of Mercury’s financial reporting.
Audit Independence Policy | For Consideration by Board of Directors | 10 December 2018 | Page 2 of 2