Disclosure of remuneration for non-audit services
All companies in the UK are required to disclose in the notes to their annual accounts the amount of remuneration receivable by the company’s auditor for the auditing of the accounts.
The requirement applicable to companies of all sizes is included in the Disclosure of Auditor Remuneration Regulations (SI2008/489) and specifically refers to the fee receivable by the auditors (including any benefits in kind) for the audit itself. The requirement applies for both individual and group accounts. Small and medium sized companies are not required to disclose the fees received by auditors in respect of non-audit services.
Sometimes a single fee may be agreed and a single letter of engagement may be in place for the audit and the provision of other services. If that is the case the auditor should provide the directors of the company with a breakdown of the total fee into different services, so that the precise amount of fees relating to the auditing of the accounts can be disclosed. The disclosure of the audit fee is not required in the abbreviated accounts of a small company filed with the Registrar of Companies.
Companies not qualifying as small or medium sized under Companies Act 2006 (because of size, or by virtue of being a plc or a member of an ineligible group etc.) are additionally required by the 2008 regulations to disclose the remuneration for non-audit services received by the company’s auditors and by any person who was, at any time during the reporting period, an associate of the auditors.
The regulations define the associates of the auditors in a way that catches a wide range of individuals and organisations connected with the auditors. In particular, associates will include entities controlled by auditors or able to exert control over the auditors or entities associated through the use of a common name or the sharing of significant professional resources, regardless of the fact that they may be based outside the UK.
The disclosure in respect of remuneration for non-audit services applies to services provided to the company and to any of its associates. The associates of a company are defined in the regulations as any subsidiary of the company, except those subject to severe long term restrictions over control of their assets and management, and any pension scheme associated with the company. In the context of the 2008 regulations, associates are therefore not those so defined under the accounting standards and fees paid for such entities or joint ventures need not be disclosed.
Fees for non-audit services need to be disclosed separately for each type of service specified in Schedule 2A of the 2008 regulations. The schedule is reproduced below showing the various groups of services. It has to be noted that there is no need to disclose fees for each service falling within a group.
Schedule 2A of the 2008 regulations is effectively a new schedule which replaces the old Schedule 2 for financial years beginning on or after 1 October 2011. Schedule 2A was introduced to align the classification of non-audit services under the 2008 regulations with the classification of non-audit services under the Auditing Practice Board’s Ethical Standard 1, which requires disclosure of non-audit services for listed entities.
Type of service in respect of which disclosure is to be made:
- the auditing of accounts of any associate of the company;
- audit-related assurance services;
- taxation compliance services;
- all taxation advisory services not falling within paragraph 3;
- internal audit services;
- all assurance services not falling within paragraphs 1 to 5;
- all services relating to corporate finance transactions entered into, or proposed to be entered into, by or on behalf of the company or any of its associates not falling within paragraphs 1 to 6;
- all non-audit services not falling within paragraphs 2 to 7.