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Non-Audit Services Policy

The Audit Committee’s objective is to ensure that the provision of non-audit services across the Meggitt Group does not impair the external auditor’s independence or objectivity. In the context of non-audit services that are not prohibited by law, the Audit Committee will apply judgement concerning the provision of such services, including assessing:

  • threats to independence and objectivity resulting from the provision of such services and any safeguards in place to eliminate or reduce these threats to a level where they would not compromise the auditor’s independence and objectivity;
  • the nature of the non-audit services;
  • whether the skills and experience of the audit firm make it the most suitable supplier of the non-audit service;
  • the fees incurred, or to be incurred, for non-audit services both for individual services and in aggregate, relative to the audit fee, including special terms and conditions (for example contingent fee arrangements); and
  • the criteria which govern the compensation of the individuals performing the audit.

1. Non-audit services which may be provided

The following non-audit services may be provided by the Group’s external auditor subject to approval of the Audit Committee:

  • Assurance on the interpretation and implementation of accounting standards, financial reporting matters, tax standards and governance regulations;
  • Services related to potential acquisitions or reorganisations such as working capital reports and due diligence procedures;
  • Internal accounting and risk management control reviews and reviews of policy and procedure compliance; and
  • Attestation and other reports as required by third parties where the information derives principally from the audited financial statements.

The Audit Committee has delegated their authority to approve non-audit services in certain limited circumstances as set out in Section 3).

2. Non-audit services which are generally prohibited

Except where indicated by an asterisk, performance by the Group’s external auditor of the following non-audit services is prohibited:

  • Executive management of Group operations and activities, including acting temporarily or permanently as a director, officer or employee of the Group;
  • Internal audit services;
  • Tax services, including (a) the preparation of tax forms*; (b) payroll tax; (c) customs duties; (d) identification of public subsidies and tax incentives* (unless support from the auditor is required by law); (e) support regarding tax inspections by tax authorities* (unless support from the auditor is required by law); (f) calculation of direct, indirect and deferred tax*; and (f) provision of tax advice*;
  • Bookkeeping and preparing accounting records and financial statements;
  • Payroll services;
  • Services related 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.
  • Design and implementation of internal control or risk management procedures related to the preparation and/or control of financial information, or the design and implementation of financial information technology systems. This provision is subject to a cooling-off period which means that these services cannot be performed by the audit firm during the financial year of the audit nor during the financial year prior to the year subject to the audit.
  • Actuarial consulting services;
  • Valuation services, including valuations performed in connection with actuarial services or litigation support services*;
  • Legal services in relation to (a) the provision of general counsel; (b) negotiating on behalf of the audit entity; or (c) acting in an advocacy role in the resolution of litigation;
  • Human resources services where they relate to (a) management in a position to exert significant influence over the preparation of the accounting records or financial statements that are the subject of the audit, where such services involve (i) searching for or seeking out candidates for such positions; or (ii) undertaking reference checks of candidates for such positions; (b) structuring the organisation design; or (c) cost control.
  • Broker, investment adviser or investment banking services, including promoting, dealing in or underwriting shares in the audited entity; and
  • General consulting work, where this could impair the external auditors’ independence or objectivity.

* These services may still be provided, subject to Committee approval and after an assessment of whether each of the following requirements is complied with:

  • either (i) there is no direct effect on the audited financial statements, or (ii) in the view of an objective, reasonable and informed third party, provision of the services would have an inconsequential effect, separately or in aggregate, on the audited financial statements;
  • the effect on the audited financial statements is documented and explained in the report to the Audit Committee;
  • the basic principles of independence are complied with; and
  • the audit firm would not place significant reliance on these services for the purpose of the statutory audit.

3. Procedures

(a) Approvals

The Audit Committee must approve all non-audit services work which is not deemed “trivial”. Whether or not a matter is trivial is a matter of judgement and the fee payable is not an indicator of triviality.

(b) Fees

(i) Fees for non-audit services must be approved as follows:

One-off fee: <£100,000 £100,000 – £250,000 >£250,000
Cumulative annual limit: £250,000 £500,000 70% of 3 year average*
Approval by: Chief Financial Officer Audit Committee Chairman Audit Committee

* Permitted non-audit services provided by the auditor are subject to a cap of 70% of the average of the fees paid in the last three financial years. If a non-audit service is required by law or regulation, then the fee for that service can be excluded from non-audit fees for the purpose of the cap calculation.

(ii) Details of all non-audit services approved by the Chief Financial Officer and Audit Committee Chairman must be reported to the Audit Committee.

(iii) The amount of fees paid for non-audit services will be disclosed in the Annual Report.

As approved by the Audit Committee on 28 July 2016.

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