Strategic Report | Governance | Financial Statements | 95
The Committee considered the quality and effectiveness of the external audit process. Its effectiveness is dependent on appropriate audit risk identification at the start of the audit cycle. The Committee received a detailed audit plan from PwC, identifying its assessment of the key risks. For the 2023 reporting period the significant risks identified were broadly in line with those in 2022. The key risks identified were: Valuation of insurance liabilities (mortality assumptions, expense assumptions, credit default assumptions, and judgements and models relating to the implementation of IFRS 17), valuation of level 3 investments, recoverability of investments in subsidiaries by the Company, calculation of the Solvency II matching adjustment, management override of controls and fraud in revenue recognition. The significant judgements made in connection with these risks are set out in the table on pages 92 and 93. The Committee challenged the work conducted by the external auditor to test management’s assumptions and estimates around these areas. The Committee assesses the effectiveness of the audit process in addressing these matters through the reporting received from PwC at the interim and year end. In addition, the Committee seeks feedback from management on the effectiveness of the audit process. For the 2023 reporting period, management were satisfied that there had been appropriate focus and challenge on the primary areas of audit risk and assessed the quality of the audit process to be good and delivered effectively. The Committee concluded that PwC had demonstrated a depth of knowledge, as well as an appreciation of complex issues, whilst providing constructive, independent and objective challenge to management. Safeguarding independence and non-audit services The independence of the external auditor is essential to the provision of an objective opinion on the true and fair view presented in the financial statements. Auditor independence and objectivity are safeguarded by various control measures, including limiting the nature and value of non-audit services performed by the external auditor and partner rotation at least every five years. The Group has a policy in relation to the provision of non-audit services by our external auditor. All non-audit services provided by the external auditor are subject to review and approval by the Committee. The policy ensures that the Group benefits from the cumulative knowledge and experience of its external auditor while also ensuring that it maintains the same degree of objectivity and independence. During the year, the value of audit services to the Group was £3.2m (2022: £3.7m). The value of non-audit services during the year amounted to £0.74m (2022: £0.7m), comprising:
As part of the evaluation of the objectivity and independence of the external auditor, the Committee received and reviewed written confirmation that PwC had performed their own assessment of independence within the meaning of all UK regulatory and professional requirements and of the objectivity of the audit engagement partner and audit staff, and had also concluded that the independence was not impaired by the nature of the non-audit engagements undertaken during the year, the level of non-audit fees charged, or any other facts or circumstances. The level of non-audit services offered reflects the external auditor’s knowledge and understanding of the Group. The Group also appointed other accountancy firms to provide certain non-audit services in connection with internal audit, controls, governance, tax and regulatory advice, and with regard to the implementation of IFRS 17. An analysis of auditor remuneration is shown in note 3 to the consolidated financial statements. The Committee approved PwC’s remuneration and terms of engagement for 2023 and remained satisfied with the audit quality and that PwC continued to remain independent and objective. RISK MANAGEMENT AND INTERNAL CONTROL The Committee has responsibility to keep under review the system of internal financial controls that identify, assess, manage and monitor financial risks and other internal controls. In doing so the Group operates a three lines of defence model. The first line of defence is line management who devise and operate the controls over the business. The second line functions are Risk Management, Compliance and Actuarial Assurance, which oversee the first line, ensuring that the systems of internal controls are sufficient and are operated appropriately, and measure and report on risk to the GRCC. The third line is Group Internal Audit, who provide independent assurance to the Board and its Committees that the first and second lines are operating appropriately. The Group’s internal control systems comprise the following key features: • clear and detailed matters reserved for the Board and terms of reference for each of its committees; • a clear organisational structure, with documented delegation of authority from the Board to senior management; • a Group policy framework, which sets out risk management and control standards for the Group’s operations; • defined procedures for the approval of major transactions and capital allocation that are overseen by the appropriate Management Committees; and • a Group Internal Audit function that provides independent and objective assurance on the effectiveness of the Group’s risk management, governance and internal control processes. The Group has specific internal mechanisms that govern the financial reporting process and the disclosure controls and procedures around the approval of the Group’s financial statements. The results of the financial disclosure process are reported to the Committee to provide assurance that the Annual Report and Accounts is fair, balanced, and understandable, including the opportunity to challenge members of management and the external auditor on the robustness of those processes. It is the view of the Committee that the Group’s system of risk management and internal controls is currently appropriate to the Group’s needs.
£m
Audit-related assurance services (interim review & Subscription to PwC Viewpoint accounting manual) Audit of the Solvency Financial Condition report (“SFCR”)
0.2
0.54
The ratio of non-audit services to audit services fees was 1:5.3. Non-audit services of £0.54m were provided during 2023 in relation to the audit of the SFCR. A further £0.2m of non-audit services were provided in relation to the review of the Group’s interim report and Just subscription to PwC’s Viewpoint accounting manual. Non-audit services for 2023 were similar to the previous year. The non-audit services were considered to be closely related to the work performed by the external auditor of the Group, and the Committee determined that the services provided would not impact the independence of the external auditor.
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