Committed to quality - Transparency report 2009
Legal structure and governance
Our structure
Nexia Smith & Williamson Audit Limited (registered trading name Nexia Smith & Williamson) and its subsidiary Nexia Smith & Williamson Audit (Bristol) LLP (registered trading name Nexia Smith & Williamson LLP) provides audit and related compliance services. Both entities are incorporated in the United Kingdom. The two entities are separately owned but work alongside Smith & Williamson Limited which provides a range of other accounting services including taxation and financial advice.
The majority of voting shares in Nexia Smith & Williamson Audit Limited are owned by qualified individuals. Nexia Smith & Williamson Audit Limited directly owns the controlling membership in Nexia Smith & Williamson Audit (Bristol) LLP.
Both Nexia Smith & Williamson and Nexia Smith & Williamson LLP (hereafter referred to jointly as Nexia Smith & Williamson) are Registered Auditors and are regulated by the Institute of Chartered Accountants in England & Wales (ICAEW). Nexia Smith & Williamson Audit Limited is also registered with the US Public Company Accounting Oversight Board (PCAOB).
Smith & Williamson Freaney Audit Company is a separate partnership, based in Dublin, regulated by the Institute of Chartered Accountants in Ireland.
As at 30 April 2009 Nexia Smith & Williamson had 35 directors, of which all but one had responsible individual status granted by the ICAEW.
Nexia Smith & Williamson operates from 5 principal offices serving clients throughout the United Kingdom.
Governance
Management of Nexia Smith & Williamson is delegated to an Executive Committee. At 30 April 2009 the membership of the Executive Committee, together with details of other responsibilities the members have within the firm, was:
Chris Appleton (Chairman of the Executive Committee)
Andrew Bond (also member of the Smith & Williamson Technical Committee)
Ian Cooper (also head of Assurance and Business services in the Bristol office and a member of the Smith & Williamson Quality Monitoring Committee)
Andrew Edmonds
Giles Murphy (also Head of Assurance and Business Services for the UK and Ireland)
Jonathan Pryor (also Chairman of the Smith & Williamson Technical Committee)
Election to membership of the Executive Committee is subject to approval by a majority of directors of Nexia Smith & Williamson.
The Executive Committee meets regularly and its terms of reference includes reviewing the management and statutory accounts of Nexia Smith & Williamson, regulatory compliance and considering the actions required to maintain quality of audit, operational performance and other assurance work performed.
Directors and staff of Nexia Smith & Williamson also participate in certain working groups with membership drawn from the Smith & Williamson Holdings Limited Group. These cover the following areas:
Finance
Responsibilities include monitoring of work volumes, recoveries, the level of costs incurred and the amount of working capital utilised within the business.
Human resources
The Human Resources Committee reviews and proposes changes, where appropriate, to the key policies affecting the relationship between the business and the employee, as well as dealing with day to day operational aspects.
Quality monitoring
The responsibilities of the Quality Monitoring Committee are considered below.
Technical
The Technical Committee’s responsibilities include reviewing and developing the processes and procedures applied in the Assurance and Business Services departments including the development of the firm’s audit methodology and documentation. The committee also considers developments in audit, ethical and financial reporting standards and the extent of guidance that needs to be provided to staff.
Learning and development (L&D)
The L&D Committee is responsible for the monitoring of the professional exam training of students studying for either ACA or ACCA qualifications as well as training them for their professional lives, both technically and through a range of ‘soft skills’. The L&D Committee are also responsible for the provision of post-qualification training for all other employees.
Nexia Smith & Williamson has access to the Legal and Compliance department of the Smith & Williamson Holdings group and they provide guidance to audit staff in a number of important areas including agreeing terms of engagement and potential conflicts of interest.
In addition, the National Assurance Technical Group (NATG) provides support to the firm’s assurance and business services department in respect of audit, financial reporting and certain ethical matters. None of the members of NATG have audit client portfolios and they are therefore a committed research and advisory team who are available to all audit staff. NATG reports to the Technical Committee and the Head of Assurance and Business Services.
NATG is responsible for liaison with the monitoring teams of our regulators. In addition, NATG together with the Legal and Compliance department of Smith & Williamson Holdings Limited will be involved in the rare circumstances where a matter is being investigated by one of our regulators or where claims have been made or are threatened.
Members of NATG and other senior staff are actively involved in the development of the accountancy profession through their involvement in a number of external committees.
Nexia International
Nexia Smith & Williamson is a member of Nexia International, a worldwide network of independent accounting and consulting firms. In 2008 worldwide turnover exceeded US$2.4 billion. Nexia International currently ranks 10th in the world and has 520 offices in over 100 countries with 18,000 staff.
Nexia International Limited, which is registered in the Channel Islands co-ordinates the activities of the international network. Nexia International Limited does not provide any professional services; these are provided only by the individual, independent member firms. Neither Nexia International Limited nor any of the individual member firms are responsible for each others’ acts or omissions.
Nexia International is governed by a council in which all member firms are represented. The council elects the Board of Directors. The Board of Directors approves the membership of the operating committees which include the Audit Committee.
The current Board comprises:
Norbert Neu (Chairman) (Germany)
Clive Nicholson (Deputy Chairman) (UK)
Ricardo Rodil (Brazil)
Francois Mahe (France)
Markus Emmrich (Germany)
Usamah Ali Tabbarah (Saudi Arabia)
Henry Tan (Singapore)
Jeremy Boadle (UK)
Lawrence Chastang (USA)
Tom Marino (USA)
The Board meets four times a year.
Nexia International operates through five regional areas: Asia Pacific, Europe, Middle East and Africa, North and Central America and South America. Nexia Smith & Williamson is a member of the European region.
Nexia International Audit Committee
The Audit Committee reports to the Board and its responsibilities include:
- Helping to develop and enhance the standards of audit and related assurance services offered by members.
- Monitoring the quality of the audit work performed by member firms through an international quality control programme.
- Providing guidance to members on emerging issues.
The current membership of the Committee includes two Nexia Smith & Williamson responsible individuals one of whom is also the National Technical Director.
The Audit Committee meets formally twice a year but maintains a regular dialogue on emerging issues throughout the year.
All new members of Nexia International are required to be subject to a quality control review before they are admitted to membership and existing members are subject to review every three years. The outcome of quality control reviews are reported to the Board who determine the suitability of the reviewed member or prospective member for membership.
Maintaining quality
International Standard on Quality Control 1 (ISQC 1) is the standard setting out the ‘whole firm’ quality requirements for firms performing audits and similar engagements. Nexia Smith & Williamson has in place policies and procedures to ensure all of the requirements of ISQC 1 are met throughout the audit practice. In addition, in formulating its policies and procedures, Nexia Smith & Williamson has considered the Audit Quality Framework issued by the Financial Reporting Council.
Leadership responsibilities for quality
The Executive Committee has overall leadership responsibility for audit quality. Operational responsibility for the development of appropriate policies and procedures has been delegated to the Technical Committee; and for the monitoring of compliance with those policies and procedures to the Quality Monitoring Committee. Both committees report to the Executive Committee.
Ethical requirements
Nexia Smith & Williamson has an Ethics Guidance Manual which is available to all staff on the firm’s intranet. Where circumstances deem it necessary, or in those cases required by the Ethical Standards issued by the Auditing Practices Board, guidance on client specific matters is provided by the Ethics Director.
Consideration of compliance with ethical standards is required at the commencement of each audit assignment as well as at completion and on signing the audit report. In addition, staff are trained to be constantly alert to factors that might indicate a conflict with a specific requirement in Ethical Standards both whilst carrying out audit assignments and at other times in their professional activities.
All directors and employees are required to confirm in writing on an annual basis their independence from any financial interest in audit clients and whether or not they are subject to any criminal, civil or disciplinary action.
There is a policy of rotation of responsible individuals from audit assignments based on the requirements contained within Ethical Standards. Responsible individuals on listed clients are rotated after 5 years and consideration of the need to rotate on other high risk clients is made through discussion with the head of the relevant department. Compliance with the rotation policy is monitored on an annual basis through the reporting of proposed actions on specific clients to the Technical Committee.
Acceptance and continuance of client relationships and specific assignments
Before accepting any new audit appointment, a number of procedures are undertaken to ensure we will be able to provide the client with a high quality service based on our assessment of the risks associated with that client. These considerations include:
- Assessing the client’s business including the industry sector within which it operates and the countries where those operations are carried out.
- Obtaining evidence as to the identity of the owners and officers of the business as well as considering other information about them.
- Assessing any potential risks in relation to independence or conflicts of interest.
- Inquiring of the previous auditors as to the circumstances surrounding the change in auditors.
- Assessing the skills and resources within the firm are able to provide the required services to the client.
- Assessing the level of credit risk associated with the underlying client.
Our systems of internal control do not permit any new client to be set up on our time and billing systems without evidence that certain of these procedures have been performed. Where there are significant concerns about the risks associated with a particular potential client, consultation is required. Dependent on the exact circumstances this consultation will be with one or more of the head of the department for the office concerned, the Head of Assurance and Business Services or two or more senior, experienced and independent responsible individuals.
The appropriateness of continuing to act for existing clients is considered at the end of each audit assignment taking into account matters that have come to our attention during the audit. These decisions are also updated at the time we plan the subsequent year’s audit. Where necessary, similar consultation procedures as for prospective new clients are followed.
Human resources
We recognise that the quality of the audit services we provide are dependent on the quality of the people we employ. We have therefore put in place policies and procedures to ensure we recruit and retain competent and committed staff and directors.
All responsible individuals and the majority of employees working on audit engagements are either qualified accountants with the ICAEW, Institute of Chartered Accountants of Scotland or the Association of Chartered Certified Accountants, or are training for qualifications with one of those bodies. The company also uses some staff with equivalent qualifications from overseas accountancy bodies or who have a number of years experience working on audit assignments.
Our recruitment processes are designed to ensure we employ individuals with the skills and personal characteristics that will ensure the high quality of our services. All potential employees have at least two interviews with senior members of staff and members of our Human Resources department. References, including confirmation of relevant qualifications, are obtained for all potential staff members before they are offered employment.
The sufficiency of our staff resourcing to meet the requirements of our audit client base is monitored on a regular basis. This includes consideration of the client portfolios of individual managers and responsible individuals. Factors that we take into account include the complexity of the client, the need for specialist sector knowledge and timing of audit work.
Certain grades of staff are subject to evaluation on individual assignments whereby objectives are set at the outset of the assignment and subsequent performance is considered in the light of those objectives.
All staff and directors have an Annual Development Review (ADR), with an interim review after six-months to assess progress on specific objectives set at the ADR. For all staff and directors the quality of audit work is a specific matter considered as part of the ADR.
Detailed job descriptions are in place for all grades of staff and responsible individuals. These job descriptions outline not only the roles and responsibilities associated with the specific grade, but also the skills and competencies expected from that level. Promotion decisions are made based on whether or not an individual has attained the skills and competencies of the grade to which they will be promoted. For promotions to and within the management grades and to responsible individual the business needs of Nexia Smith & Williamson are also taken into account.
Assessment and remuneration of responsible individuals
As a consequence of the importance placed on responsible individual’s overall responsibility for audit quality additional procedures are in place with respect to their ADRs. Information in respect of audit quality is obtained from a number of sources including both the internal quality control programme and the reviews of external regulators and records of attendance at mandatory training events. Specific audit quality related actions are then agreed with the responsible individual. The Quality Monitoring Committee are made aware of these objectives in order that they may be specifically considered in future quality control reviews.
Responsible individuals receive a salary, the level of which is determined by a number of factors including experience, skills and contribution to the development of the firm. Salaries are reviewed annually and audit quality is a factor specifically taken into account when determining the remuneration of responsible individuals. Bonuses are awarded based on overall performance in the year, but no responsible individual is rewarded specifically, either by bonus or salary increase, as a result of their having identified an opportunity for the firm to provide non-audit services to an audit client.
Engagement performance
Our audit methodology and documentation is designed to ensure compliance with International Standards on Auditing (UK and Ireland) (ISA) and all other relevant requirements. Fundamental to our audit approach is the requirement to understand the client’s business, consider the specific risks associated with that client and to tailor the audit work to address those risks.
The documentation is updated at least annually to take account of any changes in standards, recommendations from our internal quality monitoring reviews and those of our external regulators, together with suggestions from users to enhance operational efficiency. Specific training is provided to all staff and responsible individuals on any amendments.
The documentation is supported by a detailed audit manual containing additional guidance which is readily accessible by all audit staff. Additional guidance is also provided by NATG on emerging issues that may affect our audit teams, for example the implications of the financial crisis and continuing economic downturn.
Clarified and revised ISA will apply for audits of periods ending on or after 15 December 2010 and will require a number of changes to our methodology and documentation. A working party has been formed to consider the implications and a detailed implementation plan formulated. The working party comprises both members of NATG and audit field staff from across a number of senior grades.
Responsible individuals take ultimate responsibility for the quality of individual audit assignments. All audit work is required to be carried out by a suitably experienced person and reviewed by someone who is more senior. Through these procedures we are able to ensure that work is being performed in accordance with the applicable standards and matters of significance are identified and properly addressed. In addition, the review procedure ensures that the documentation that is on the audit file is sufficient that an experienced auditor with no prior knowledge of the audit would be able to understand the work done and the conclusions reached.
All public interest clients are required to have an independent director assigned, who is selected on the basis of his or her experience and knowledge of the client’s business sector. The independent director is required to be involved at key stages during the audit including planning, consideration of significant audit issues as they arise and completion.
In addition, a number of further criteria based on specific risks have been identified where a second director is required to be assigned to non-public interest clients. Consultation with a second director is also required for all modified audit reports.
Both independent and second directors are selected by the head of department or another senior director with no involvement with the audit client.
The financial statements of all listed companies are also required to be subject to a technical review by a senior member of NATG. Modified audit reports are also subject to review by a member of NATG.
Consultation between responsible individuals is encouraged and the requirements of internal procedures result in the involvement of a second responsible individual on a number of assignments.
Monitoring
The Quality Monitoring Committee is chaired by a senior audit director and is responsible for planning and co-ordinating the annual quality monitoring review of audit work. The reviews are carried out by teams of experienced staff and responsible individuals with no previous connection to the assignments subject to review. The reviews cover, in any one year, completed audit assignments for 50% of responsible individuals. Typically two assignments for each responsible individual will be subject to review. All responsible individuals are therefore subject to review at least once every other year.
The review is designed to establish whether we are complying with our own internal procedures. The findings from the reviews together with an action plan are communicated to the individual directors, the Nexia Smith & Williamson Executive Committee, the Technical Committee and the Operations Committee of Smith & Williamson Holdings Limited. Recommendations are also included within the training programmes for all grades of staff and responsible individuals.
In addition to the Annual Quality Monitoring review there is also a programme of more focussed reviews considering specific aspects of our procedures or documentation. The subject matter for these reviews is determined by the Quality Monitoring Committee in conjunction with NATG and the Head of Assurance and Business Services. The reviews typically focus either on a specific recommendation from the annual review programme or a current ‘hot topic’. The findings from the reviews are reported to the Quality Monitoring Committee and Head of Assurance and Business Services.
Consideration of effectiveness
The Executive Committee considers the appropriateness and effectiveness of the procedures in place based on information provided to it including the findings from quality monitoring reviews and external reviews. As Nexia Smith & Williamson has a commitment to continuous improvement, in any one year, some albeit relatively minor, changes in procedures are inevitable, but in the current year none of the findings from reviews have required any major change in our procedures.
Commitment to competence
There is a comprehensive training programme which ensures that all staff receive training in Nexia Smith & Williamson’s audit procedures as well as developments in financial reporting and other technical areas. Attendance at certain key training courses, including the twice yearly Technical Training Days, is mandatory for all qualified staff. Attendance is monitored and those who were unable to attend are required to study the material and take a test to confirm their understanding.
A range of ‘personal development’ training is also provided to all staff and directors based on the development needs of the individual. Those directors and staff working in specialist areas such as pension schemes, registered social landlords, professional practices and financial services attend both specialist in house training and, where appropriate, courses run by third parties.
On the job training is considered to be an important aspect of the development of our audit staff and more senior members of audit teams receive training in coaching and appraisal skills to enable them to play their role in maintaining quality.
NATG produce regular Technical Alerts which are available to all staff on the firm’s intranet.
External monitoring
The last audit review visit by the Quality Assurance Directorate of the ICAEW took place in November 2008 and the last Audit Inspection Unit’s review took place in September 2008.
Financial information
The combined turnover for Nexia Smith & Williamson Audit Limited and its subsidiary Nexia Smith & Williamson Audit (Bristol) LLP, which provide the statutory audit and related compliance services for the Smith & Williamson group, and the statutory audit-related turnover of Smith & Williamson Freaney Audit Company was £17.4m for the year ended 30 April 2009. This compares to a Smith & Williamson Group turnover of £196.0m for the year ended 30 April 2009.
Public interest audit clients
As at 30 April 2009 Nexia Smith & Williamson and its subsidiary Nexia Smith & Williamson LLP had the following audit clients with either debt or equity listed on either the full list of the London Stock Exchange, the Alternative Investment Market or traded on PLUS.
Addworth plc
Adili plc
Alba Minerals plc
Albemarle & Bond Holdings plc
Alexandra plc
Andes Energia plc
Applied Intellectual Capital Limited
Asset Management Investment Co plc
Bulgarian Property Developments plc
Catalyst Media Group plc
Christie Group plc
Clipper Ventures plc
Consolidated Africa Mining plc
Egdon Resources plc
Europa Oil & Gas (Holdings) plc
Evergreen Securities plc
Fletcher King plc
FuturaGene plc
Guinness Trust
HML Holdings plc
Immupharma plc
Knowledge Technology Solutions plc
Livewave Media plc
Maghreb Minerals plc
Matica plc
MediaZest plc
Metal Exploration plc
Michelmersh Brick (Holdings) plc
Nighthawk Energy plc
Northern Counties
Panther Securities plc
Portland Gas plc
Rivington Street Holdings plc
Sirius Exploration plc
Software Radio Technology plc
Sportswinbet plc
Stanley Gibbons Group plc
Stockcube plc
TG21 plc
The Core Business plc
Turf Trax plc
Ultrasis plc
The Transparency Report has been prepared in accordance with the provisions of the Statutory Auditors (Transparency) Instrument 2008, made by the Professional Oversight Board of the Financial Reporting Council.