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EY UK 2022 Transparency Report

Welcome to the EY UK 2022 Transparency Report (TR) (PDF, 4MB). Ever since regulations were introduced requiring large firms to publish TRs, our approach has reflected an unwavering focus on both the spirit and letter of the requirement. This is why we were one of the first firms to start publishing a complementary annual Audit Quality Report (PDF, 1.4MB) and, starting from 2021, an annual Impact Report (PDF, 8.7MB).    
 
We hope that our transparency – aided by these reports – leaves you in no doubt about our strategic priorities, structure, governance and performance. Of course, as well as our highlights, we cover areas where we know we can make further improvements to deliver high audit quality across our portfolio.  It also means being open and honest about challenges and how we respond to them, such as the audit risks arising from the COVID-19 pandemic and the war in Ukraine, as well as our audit teams’ increased focus on goodwill impairment, going concern and expected credit losses. 

As you might expect from a firm like ours, we also have to keep a clear line of sight on our long-term sustainability, in the interests of our people and the organisations we audit. This is why we are taking a close look at the structure of our business at a global level, with proposals to separate it into two distinct multidisciplinary and financially resilient organisations. Information on the potential implications for our stakeholders can be found in the reports above.   

Summary

The objective of these reports is to make us more transparent, in what we say and do, but only you can decide whether we have achieved this. You will have your own ideas and expectations of what we should be reporting and whether we have reported enough. So please tell us, have we met your expectations? Contact details are provided at the bottom of this page. 

For your reference, the Transparency Report is compliant with the Audit Firm Governance Code 2016, Local Auditors (Transparency) Regulations 2020 and Article 13 of the EU Audit Regulation (537/2014). Other documents available from this page, in addition to the ones mentioned above, include: EY UK 2022 Terms of Reference, EY Global Code of Conduct, and EY Whistleblowing Policy. 

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Independent Non-Executives (INEs), Audit Non-Executives (ANEs), and EY UK governance related matters

In compliance with the Audit Firm Governance Code 2016 (AFGC) and Local Auditors (Transparency) Regulations 2020, certain disclosures (and links to specific EY documents) are required on our website. This section includes, amongst other things, information on our governance e.g., INEs, ANEs, stakeholder engagement and support for the AFGC. 

  • Duties of the INEs and ANEs, and EY support

    The duties of the INEs and ANEs within the governance structure of EY UK meet the requirements of the Audit Firm Governance Code (AFGC) and Operational Separation Principles. The majority of members sitting on the firm’s Public Interest Board (PIB) are INEs. The firm’s UK Audit Board (UKAB) mostly consists of ANEs.

    PIB’s principal objectives are to promote audit quality, to help EY UK secure its reputation more broadly, including its non-audit business, and to reduce the risk of firm failure. In connection with the AFGC purpose, the PIB is responsible for the independent oversight of EY UK policies and procedures in relation to financial resilience, governance and leadership, values and culture, and risk management and resilience. Review of people management policies and procedures, to help ensure the public interest is protected, is a standing item on the PIB’s agenda. The PIB is chaired by an INE.

    The role of the UKAB is to provide independent oversight of our pursuit of audit quality improvement, by ensuring that people in the EY UK audit practice are focussed above all on the delivery of high-quality audits in the public interest. The UKAB achieves this task by having regard to the FRC’s objective that audit remains an attractive and reputable profession, increasing deserved confidence in audit. The UKAB (and its Audit Remuneration Committee, AB RemCo) are both chaired by an ANE, with the majority of UKAB members comprising ANEs. All of AB RemCo’s members are ANEs. 

    The role of the INE stems from the AFGC, while the ANE role was introduced as a result of the FRC’s operational separation principles. In each case, the role of an EY UK NE differs materially from that of a Non-Executive Director (NED) of a corporate entity. The non-executives have full access to EY UK management and the chairs of the UKAB and PIB attend the EY UK Board. They bring constructive challenge to the EY UK leadership and oversee policies and procedures across the entire EY UK, but they do not participate in the decision-making process. 

    EY UK provides INEs and ANEs with full administrative support in performing their duties, including assistance from the Company Secretary, Director of Regulatory and Public Policy (stakeholder engagement) and an EY Executive Assistant (administration and expenses). INEs and ANEs are entitled to request all relevant information about EY UK’-s affairs, including access to relevant partners, as is reasonably necessary to discharge their duties. All such information is provided in a timely manner and in an appropriate form and quality. 

    We also provide access to professional advisers at EY UK expense (subject to consultation with the EY UK Board Chair to establish and approve the appropriate means of obtaining this professional advice).

  • Appointment and termination of INEs and ANEs

    Prior to appointment, INEs and ANEs are interviewed and briefed on the ongoing independence requirements and any firm issues. The INEs and ANEs are required to confirm their independence from EY UK and the entities we audit in accordance with the AFGC and the FRC’s Ethical Standard. Independence from EY UK requires, among other things, that: 

    • The appointment of the INEs and ANEs by the Board is limited to an initial term of three years that may only be extended by a maximum of two additional three-year terms. 

    • Members of the INE’s and ANE’s immediate family are not partners or employees of EY. 

    • The INEs and ANEs may not have a joint investment with EY. 

    Independence from the entities the firm audits:   

    • Generally, there are no restrictions on the types of relationships INEs and ANEs may have with entities audited by EY as they are not considered in the EY UK Chain of Command, and the FRC’s Ethical Standard specifically excludes them from these requirements. 

    • However, EY prohibits the INEs and ANEs from holding an officer, director or employee role at an entity audited by EY. 

    • The INEs and ANEs confirm their independence in accordance with the EY requirements, both on appointment and annually thereafter. 

    Rights and responsibilities of the INEs and ANEs are set out in a Letter of Appointment and Service. An appointment may be terminated by either the INE, ANE or EY UK giving six months’ written notice. In the event of a fundamental disagreement that cannot be resolved, the appointment may be terminated immediately under the dispute resolution provisions (see further detail below). In addition, immediate termination may be required where a conflict occurs with other roles that the INE and ANE holds, an example being where an entity we audit acquires an entity in which the INE and ANE also holds an appointment.  

    PIB Members  

    Title      

    		 Time served on the PIB to the nearest year
    Non-executive members (including period on the IOC)

    Tonia Lovell (Chair)

    Independent Non-Executive

    3 Years

    David Thorburn

    Independent Non-Executive

    5 Years

    Mridul Hegde

    Independent Non-Executive

    1 Year
    Sir Peter Westmacott Independent Non-Executive 5 Years
    Roles-based appointments
    Anna Anthony  Managing Partner, UK FSO  1 Year
    Hywel Ball UK Managing Partner  1 Year
    Jane Goldsmith  Managing Partner, Risk Management, UK 1 Year

    UKAB Members

    Title      

    		 Time served on the UKAB to the nearest year
    Non-executive members (including period on the IOC)
    David Thorburn (Chair)  Independent and Audit Non-Executive 1 Year
    Mridul Hegde  Independent and Audit Non-Executive 1 Year
    Philip Tew Independent and Audit Non-Executive 1 Year
    Tonia Lovell Independent and Audit Non-Executive 1 Year
    Roles-based appointments
    Andrew Walton UK Head of Audit 1 Year
    Javier Faiz UK FSO Head of Audit 1 Year
    Justine Belton  UK Country Professional Practice Director and UK Audit Compliance Principal 1 Year

    AB RemCo Members 

    Title      

    		 Time served on the ABRemCo to the nearest year
    Non-executive members (including period on the IOC)
    Philip Tew (Chair) Doubly independent Audit Non-Executive  1 Year
    David Thorburn  Independent and Audit Non-Executive 1 Year
    Mridul Hegde  Independent and Audit Non-Executive 1 Year
    Tonia Lovell Independent and Audit Non-Executive 1 Year

  • Remuneration of INEs and ANEs

    EY UK INEs and ANEs are paid a fixed annual income, based on an agreed number of days’ service per annum, which has been benchmarked with FTSE 100 NED roles. The annual salaries of the INEs and ANEs in respect of their UK roles are: 

    • David Thorburn: £140,000 (as Audit Board Chair) 
    • Tonia Lovell: £140,000 (as PIB Chair)
    • Mridul Hegde: £100,000
    • Sir Peter Westmacott: £100,000
    • Philip Tew: £100,000 

    David Thorburn also received an additional £100,000 for his INE role on the GGC. He was first appointed as an INE to the GGC in May 2016 and stepped down from this role on 31 May 2022 at the end of his second term.

  • Procedures for dealing with fundamental disagreements between INEs/ANEs and the EY UK management team

    In the event that there is a fundamental disagreement between an INE/ANE and members of the EY UK Board and/or its governance structures, the INE/ANE shall set out the nature and status of the disagreement, in writing, to the Chair of the EY UK Board (copied to the members, including the other party in disagreement), together with any other details such as a need for further information, the respective positions of the parties and any preferred criteria for resolving the disagreement. 

    The Chair shall respond to the INE/ANE in writing by setting out any proposed timescale and method for resolving the disagreement. At the conclusion of the proposed time, the INE/ANE and the other party in disagreement shall indicate to the Chair whether or not the disagreement has been resolved. In the event that the disagreement has not been resolved, both the INE/ANE and the other party in disagreement must indicate whether a further intercession by the Chair is desired. In the event that no such indication is made and the disagreement persists or, if the nature of the disagreement relates directly to the Chair, the INE/ANE or EY UK may terminate the INE/ANE appointment. 

  • Examples of how EY supports the principles of the Audit Firm Governance Code 2016 (AFGC)

    EY UK could not have a resilient business without the knowledge, skills, experience and professionalism of all of its people in the UK. The determination and fortitude they have shown, by upholding the firm’s values and serving the public interest through their work – especially during the COVID-19 pandemic demonstrates the impact of EY’s culture. The firm continues to create an open and inclusive culture in which anyone can succeed irrespective of race, gender or social background. 

    • Openness

      The EY culture strongly supports collaboration and places special emphasis on the importance of reviews and consultation when dealing with complex or subjective matters. In developing the firm’s people with the right mindset, EY UK needs to have suitable resources aligned to the right reward, with the best systems and support structures in place to empower its people to get it ‘right first time’. EY UK encourages a culture of openness and ensures its people can consult and share problems with experienced colleagues. 

    • Risk management principles

      The Board of EY UK (the Board) has overall responsibility for risk management and internal control over the entire business of EY UK. In discharging this responsibility, the Board periodically – and at least annually – conducts a review of the effectiveness of the firm’s system of internal control.

       

      The Board is supported in the task of managing risk by the Risk Oversight Committee (ROC). It meets regularly with a standing agenda covering both risk and assurance activity. As in every year, the ROC has continued to drive ongoing enhancements to our internal governance, processes and controls.

       

       ROC’s monitoring, oversight and review of EY UK activity has included:

      • Monitoring the response to the Ukraine crisis and risks arising, including the implementation of revised sanctions. 
      • Oversight of the ongoing development and strengthening of the firm’s Three Lines of Defence. 
      • Reviewing the implementation of ISQM 1. 
      • Oversight of the Internal Audit function, including the FY22 audit plan and the results of audits executed during the year. 
      • Reviewing the identification and management of the firm and service-line specific risks. 
      • Monitoring regulatory requests and developments relevant to the management of the above risks. 
      • Reviewing the process for assessing the impact of selected principal risks on the viability of the EY UK performance, solvency and liquidity. 

    • Recruitment, professional development, remuneration and retention

      Recruitment

      Competition for talented people with the relevant skills has never been higher and finding the next generation of high-quality auditors is a top priority. EY UK puts a great deal of effort into keeping its network of recruiters around the world up to speed with current trends and hot topics in audit so that they are armed with the information to talk to candidates. We are also exploring several innovations in recruitment that have the potential to make us more attractive to diverse audiences and improve the candidate experience.

      In order to recruit people who fit with the organisation’s culture, it is important to consider not just technical excellence, but also other attributes – communication skills, high ethical standards and the ability to collaborate in high-performing teams. All joiners are expected to live up to high standards of integrity, and to have strong business acumen and leadership potential.

      Professional development

      During a period of unparalleled disruption, EY UK has continued to invest time and resources, so it can draw out the very best in its people. The changing working environment has accelerated the need for auditors to make greater use of available technology, to have an agile mindset that embraces change and disruption, and to communicate and operate effectively in teams.

      Our auditors receive world-class and globally consistent core learning. Whether that involves focusing on changes in regulation, mastering emerging technologies or embedding data analytics into existing audit practices, resources are in place to support every need. Moreover, the firm’s Audit Academy encourages and empowers individuals to apply professional scepticism, and to think critically to deliver high quality audits.

      To encourage the building of new skills, the EY Badges programme enables professionals to gain future-focussed skills in three distinct pillars: technology, leadership and business. Subjects covered in the programme include analytics, transformative leadership, sustainability, artificial intelligence, blockchain, robotic process automation, innovation, cybersecurity and digital skills, as well as certain sector capabilities that are in high demand. New badges are added regularly as the programme evolves.

      Remuneration and retention

      EY UK partners are evaluated and compensated based on criteria that includes specific quality and risk management indicators. Equally, when EY UK partners do not adhere to quality standards, remedial actions are taken. These may include performance monitoring, compensation adjustment, additional training, additional supervision or reassignment — or, in instances of repeated or particularly serious non-compliance, separation from EY.

      EY policies prohibit evaluating and compensating lead audit engagement partners and other key audit partners on an engagement based on the sale of non-assurance services to companies they audit. This reinforces to EY partners their professional obligation to maintain independence and objectivity. 

      Retention can vary based on external drivers, such as market conditions. However, there is one factor that is globally consistent: employee expectations.

      Achieving a work-life balance, between professional and personal lives, is important for EY people. Therefore, an increasingly important priority for the Talent team is promoting wellbeing and improving the day-to-day experience of our people. 

      The recently-launched EY Global Wellbeing Strategy has, as its overarching goal, an aim to embed a wellbeing culture through the commitment of leadership and the provision of appropriate resources and opportunities to achieve optimal health and performance. The aim is to increase job satisfaction and help people to become more effective in managing their wellbeing.

      Processes and procedures are in operation at service line level to manage the retention and management of staff. These include:

      Personal development support:

      • Individual counselling and 'buddying' programmes to develop the right talent.

      • Implementation of a harmonised learning and development strategy.

      • Multi-year talent programmes, including diversity and inclusiveness initiatives.

      • Strengthened induction and post-induction programmes at staff and partner level.

      Involvement of senior management to foster talent:

      • Implementation of ‘Market Learning Sponsors’ to ensure senior management buy-in and to embed learning and development into individual service line strategy.

      • Regular leadership communications covering strategy and performance.

      • Annual employee survey with formulation of action plans. 

      Better performance Management:

      • Simplified annual performance management processes.

      • Annual benchmarking of total reward by grade, location and competency groups.

    • Leadership Evaluation and Development (LEAD)

      LEAD is a framework that connects EY people’s career, development and performance. Through ongoing feedback, development, counsellor excellence and career conversations, LEAD aligns individuals with the NextWave strategy and enables a focus on the future. It supports the growth and development of EY people at all stages of their careers. 

      An individual’s dashboard provides a snapshot of performance against the Transformative Leadership dimensions, including quality, risk management and technical excellence, and assesses performance against peers. Feedback received during an annual cycle is aggregated and used as an input to compensation and reward programmes. For levels above manager, any inspection review results are considered when determining an individual’s dashboard.

      Regular discussions with a counsellor, on topics such as diverse career journeys, applying emerging technology, experiencing new teams and learning, help identify opportunities for further development and to build future-focussed skills.

  • Whistleblowing policies and procedures – INEs’ and ANEs’ consideration of issues raised

    At EY UK, we have various avenues in place for our people to make a whistleblowing report in confidence and anonymously. The UK whistleblowing guidance has been drafted to be fully accessible and user-friendly for everyone in EY UK. It explains clearly and directly: 

    • The types of behaviour that should be reported. 
    • How to make these reports. 
    • What EY UK does to protect whistleblowers from any retaliation or adverse treatment which may result from speaking up.

    We have robust procedures in place for the investigation and handling of whistleblowing reports, to ensure consistency of process and record-keeping.  For example, the firm has put an increased emphasis on our “Speak Up” campaign. A reminder that our people can raise concerns about any unethical behaviour or treatment they have faced or witnessed is circulated on regular internal Leadership emails and other firm wide communications. These communications remind all partners and staff that they have a personal responsibility to report all instances of non-compliant and unethical behaviour without fear of reprisal.

    The EY Ethics Hotline provides EY people, clients and others outside of the organisation with a means to confidentially report activity that may involve unethical or improper behaviour, and that may be in violation of professional standards or otherwise inconsistent with the EY shared values or Global Code of Conduct. Globally, the hotline is operated by an external organisation that provides confidential and, if desired, anonymous hotline reporting.

    When a report comes into the EY Ethics Hotline, either by phone or internet, it receives prompt attention. Depending on the content of the report, appropriate individuals from Risk management, Talent, Legal or other functions are involved in addressing the report. The same procedures are followed for matters that are reported outside of the EY Ethics Hotline.

    One of the areas of focus for the non-executives this year has included monitoring the processes related to the Ethics Code of Conduct and the staff whistleblowing hotline, receiving reports on cases from the hotline and partner disciplinary matters, and reviewing the actions taken by EY UK in response to these cases. Also, by chairing the Public Interest Board and UK Audit, the INEs and ANEs have visibility of the whistleblowing process and are able to satisfy themselves that the process is effective.

  • EY UK Audit Committee (UKAC)

    The UKAC reviews and monitors the external auditor’s independence and objectivity and the effectiveness of the audit process, taking into consideration relevant UK professional and regulatory requirements. It is also responsible for making recommendations in relation to the appointment of the external auditor and for approving the remuneration and terms of engagement of the external auditor. The UKAC monitors the integrity of the financial statements of the firm, reviews significant financial reporting judgements and recommends the approval of the financial statements to the Board. The membership of the UKAC as of 1 July 2022 was as follows: 

    UKAC Members 

    Title      

    		 Time served on the UKAC 
    to the nearest year 
    Alison Duncan (Chair) Audit Partner 1 Year
    Chris Voogd Audit Partner 4 Years
    Jane Goldsmith Managing Partner, Risk Management, UK 1 Year
    Lloyd Brown Audit Partner  4 Years
    Sarah Williams Audit Partner 3 Years
    Stuart Wilson Audit Partner  4 Years

    The EY UK Board selects UKAC members based on their roles and expertise, with their period of appointment reflecting this. As a UKI Partner Forum representative Board member, Alison Duncan took on the Chair responsibilities from Chris Voogd in April 2022. Jane Goldsmith also joined the UKAC as a non-audit partner and Board member. 

    Representatives from the firm’s management teams attend certain UKAC meetings, including the Chief Operating Officer, Finance Director and UK Head of Audit. In addition, the Head of Internal Audit and the external auditors regularly attend the UKAC’s meetings, and the Chair has regular informal meetings with the external audit partner.  

    The topics covered throughout the annual cycle of meetings were considered necessary for the UKAC to be in a position to fulfil its responsibilities on behalf of the EY UK Board in relation to the external audit process and the UK LLP financial statements. The UKAC meets at least twice annually, and, in FY22, the Committee met eight times and undertook the activities set out below.  With respect to the external auditor, BDO LLP, the UKAC:

    • Approved the appointment and fees of the external auditor.

    • Challenged and approved the audit plan, considering the risks identified by the external auditor.

    • Read and discussed the audit results as reported by the external auditor.

    • Monitored the effectiveness and independence of the external auditor and considered the need and timing of an audit tender process. 

    With respect to other matters the UKAC: 

    • Reviewed the FY22 Internal Audit Plan, received reports and discussed with the Head of Internal Audit the findings arising from its work, the status of agreed action plans and considered the impact, if any, on the firm’s financial reporting processes and controls.

    • Received and considered reports and presentations on a number of finance related projects and the implications for the FY 22 year-end financial close process and reporting.

    • Considered the emerging risks and reporting developments in relation to Climate and agreed with both management and the external auditor the approach to be adopted in respect of the 2022 financial statements.

    • Reviewed with the UK Head of Audit an overview of the main policies that the firm has developed in relation to operational separation and the future reporting of the audit business’ financial performance to the FRC.

    • Specifically, as it pertained to the integrity of the EY LLP 2022 financial statements, the UKAC reviewed analyses and/or reports provided by management and the external auditors, specifically focusing on areas of significant estimation and judgement, including: 

    • Revenue recognition and valuation of unbilled receivables.

    • Completeness and valuation of provisions for professional liability claims and regulatory matters.

    • Valuation of defined benefit pension liabilities.

    • Acquisition accounting.

    • Annual impairment test for the carrying value of goodwill; and

    • Appropriateness of the going concern basis of preparation of the financial statements.

    The UKAC reported to the EY UK Board at its meeting on 11 October 2022 and recommended the approval of the 2022 financial statements. 

  • Contacts, policies and procedures for dialogue

    The contact details for dialogue with listed company shareholders and listed companies about matters covered by the AFGC are:

    • Christabel Cowling, Audit Partner, EY UK Head of Regulatory and Public Policy.

The EY Global Code of Conduct

Our Global Code of Conduct is a clear set of standards for our business conduct. It provides the ethical and behavioural framework on which we base our decisions every day. 

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The EY Whistleblowing Policy

The EY/Ethics Hotline is a method for reporting conduct that may be unethical, illegal, in violation of professional standards, or otherwise inconsistent with the EY Global Code of Conduct.

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