Deloitte LLP who undertook the external audit have stood down as Auditors following the Annual General Meeting on 12 May 2016, in which shareholders approved the appointment of PricewaterhouseCoopers LLP ("PwC") as Auditors. As in previous years, the Committee maintained regular contact with the Auditorss throughout the year. The Committee regularly reviews the work of the external Auditors and undertook an assessment of the Auditors’ performance and independence and in doing so examined the following issues during the year:
Audit quality and technical capabilities
The Committee evaluation process includes an assessment of the work of the auditors. The Committee formally reviewed the quality of the 2015 audit conducted by Deloitte and concluded that the team conducted an effective audit, with appropriately skilled staff.
The Committee feeds back its comments on the auditors’ performance as part of the regular meetings it has with them without management present, and believes that there is a strong, appropriate and open relationship between the audit team leadership, the Audit Committee and management. The FRC’s corporate reporting review team reviewed the tax disclosures in Hikma’s 2015 financial statements and did not raise any concerns or observations.
The Committee’s policy is that the external auditors should not undertake any work outside the scope of their annual audit in order to maintain auditor independence. The Committee has discretion to grant exceptions to this policy where it considers that exceptional circumstances exist and that independence can be maintained. The Committee regularly reviews the independence safeguards of the auditors and remains satisfied that auditor independence has not been compromised.
During 2015 and early 2016 the Company’s previous auditors, Deloitte LLP, undertook certain assurance work related to the production of a shareholder circular and prospectus for the Class 1 acquisition of Roxane Laboratories. In advance of any instruction, the Committee reviewed the scope of this work and was satisfied that it was assurance related in its nature, required an in-depth knowledge of the Company and its financial procedures, had to be conducted relatively quickly and that the independence of the auditors could be assured. The Committee approved the use of Deloitte LLP for this work.
PwC provided tax advisory and remuneration services to the Group prior to their appointment as auditors in May 2016 and have now ceased providing these services. PwC completed their work and assisting with certain tax projects by July 2016.
Fees paid in respect of audit, audit-related and non-audit services provided by the previous and current auditors are outlined in Note 6 to the consolidated financial statements and in the chart below. Audit-related services are services carried out by the external audit team by virtue of the role and principally include assurance-related work.
External auditor transition
The appointment of PricewaterhouseCoopers LLP (“PwC”) was approved by shareholders at the 2016 Annual General Meeting following a rigorous tender selection process. The proposed change in auditor was first communicated to shareholders in September 2015. The intervening period was used to ensure a smooth handover process from Deloitte LLP, the previous auditors. The Committee has overseen the transition of the external audit work to PwC through a number of activities.
The Committee reviewed the policies and procedures in place to safeguard PwC’s independence and objectivity prior to the commencement of their audit. The Committee also implemented a new policy to prohibit any non-audit services to ensure that there was no impact on the audit service or PwC’s independence.
PwC shadowed Deloitte through areas of the 2015 year-end audit to support their understanding of the process and procedures involved. This allowed PwC to carefully observe and establish roles during this phase.
PwC underwent a thorough induction process to enhance their understanding of the business and become more familiarised with Hikma. This included meetings with Directors and management across the business with a number of site visits to international operations including Portugal, US and Jordan.
PwC shared a detailed audit plan as part of the tender process, setting out the scope and objectives of the audit together with an overview of the planned approach, an assessment of the Group’s risk and controls, and proposed areas of audit focus. This detailed planning allowed for a seamless issue-free transition.
Workshops were held in a number of jurisdictions between the PwC audit team and departments throughout the Hikma Group to assist with the development of the audit plan and outline key milestones and objectives for the transition process.
PwC rolled out an extensive training programme and assessment for their global audit team. This was to ensure that their team was provided with relevant pharma training, were well equipped for the audit and had a deep understanding of Hikma’s business, risks and policies.
Following the transition activities, the Committee considered that PwC was well-positioned and appropriately informed in undertaking their first full-year audit for 2016. The Committee considered that PwC’s efforts and Deloitte’s assistance had been invaluable for achieving an efficient and effective handover.