BP 2013 Annual Report Download - page 80

BP Annual Report and Form 20-F 201376
partners or senior staff associated with the BP audit may transfer to the
group. The current lead partner has been in place since the start of 2013.
Audit tendering
During the year the committee considered the group’s position on its audit
services contract following changes to the UK Corporate Governance Code
and proposed European Union regulations concerning the audit market.
The committee examined a number of options regarding the timing of
tendering for BP’s external audit, including the mandatory rotation of the
group’s audit firm envisaged by proposed European regulations.
In view of the uncertainty regarding the form and impact of these
regulations, the committee concluded that the best interests of the group
and its shareholders would be served by utilizing the transition
arrangements outlined by the FRC and retaining BP’s existing audit firm
until the conclusion of the term of its current lead partner. Accordingly the
committee intends that the audit contract will be put out to tender in 2016,
in order that a decision can be taken and communicated to shareholders at
BP’s AGM in 2017; the new audit services contract would then be
effective from 2018.
Non-audit services
Audit objectivity and independence is safeguarded through the limitation of
non-audit services to tax and audit-related work which falls within defined
categories. BP’s policy on non-audit services states that the auditors may
not perform non-audit services that are prohibited by the SEC, Public
Company Accounting Oversight Board (PCAOB) and UK Auditing Practices
Board (APB). The categories of approved and prohibited services are
outlined below.
The audit committee approves the terms of all audit services as well as
permitted audit-related and non-audit services in advance. The external
The audit committee annually reviews the fee structure, resourcing and
terms of engagement for the external auditor. Fees paid to the external
auditor for the year were $53 million, of which 9% was for non-assurance
work (see Financial statements – Note 37). Non-audit or non-audit related
assurance fees were $5 million (2012 $7 million). The $2-million reduction
in non-audit fees relates primarily to reduced corporate finance
transactions and lower tax advisory services. Non-audit or non-audit
related assurance services consisted of tax compliance services, tax
advisory services and services relating to corporate finance transactions.
The audit committee is satisfied that this level of fee is appropriate in
respect of the audit services provided and that an effective audit can be
conducted for this fee.
The effectiveness of the audit process was evaluated through a committee
review and a survey of employees in the group’s finance function. The
2013 evaluations concluded that there was a good quality audit process
and that the external auditors were regarded as knowledgeable and
capable, with an ability to challenge the BP team constructively and to
ensure balanced reporting. There was also support for the independence
of the external auditors and feedback that they should continue sharing
good industry practice.
The committee held private meetings with the external auditors during the
year and the committee chair met privately with the external auditor before
each meeting.
Auditor appointment and independence
The committee considers the reappointment of the external auditor each
year before making a recommendation to the board and shareholders. The
committee assesses the independence of the external auditor on an
ongoing basis and the external auditor is required to rotate the lead audit
partner every five years and other senior audit staff every seven years. No
Permitted and non-permitted audit services
Permitted services
Audit related
Advice on accounting, auditing and financial reporting.
Internal accounting and risk management control reviews.
Non-statutory audit.
Project assurance/advice on business and accounting process improvement.
Due diligence (acquisition, disposals, joint arrangements).
Tax services
Tax compliance.
Direct and indirect tax advisory services.
Transaction tax advisory services.
Assistance with tax audits and appeals.
Tax compliance/advisory relating to human capital and performance/reward.
Transfer pricing advisory services.
Tax legislative monitoring.
Tax performance advisory.
Other services
Workshops, seminars and training on an arm’s length basis.
Assistance on non-financial regulatory requirements.
Provision of independent third-party audit on BP’s Conflict Minerals Report.
Prohibited services
SEC principles of auditor independence
Book keeping/other services related to financial records.
Financial information systems design and implementation.
Appraisal, valuation, fairness opinions, contribution in-kind.
Actuarial services.
Internal audit outsourcing.
Management functions.
HR functions.
Broker-dealer, investment advisor, banking services.
Legal services.
Expert services unrelated to audit.
PCAOB ethics and independence rules
Contingent fees.
Confidential or aggressive tax position transactions.
Tax services for persons in financial reporting oversight roles.