Quality

Within the audit business, the internal quality control systems include our dedicated Professional Standards Review team (PSR) which provides a ‘hot’ review before any audit or other opinion is signed, together with engagement quality assurance reviews and annual practice reviews of a selection of completed engagements.

These systems allow us to deliver technical excellence, underpinned by objectivity and integrity, at all stages of the client engagement. We review regularly the effectiveness of our internal quality control systems and believe them to be robust and operating effectively. We guard against complacency and continually seek to improve all aspects of our business, aiming to be the standard of excellence.

To measure our performance against the high standards we set ourselves, our client service assessment process undertakes independent and formal evaluations of the level of satisfaction of our clients. The latest results show a very high level of satisfaction among our clients.

Our quality and risk management framework is embedded in all parts of our business. The framework brings a rigorous approach across all of our service offerings in areas such as client and engagement acceptance, partner portfolios, engagement risk, and assessment of existing and new service offerings. Its primary purpose is to underpin our commitment to quality, integrity and ethical behaviour throughout our business, whilst establishing that the responsibility for quality sits with those who deliver service to our clients.

Our audit process and methodology encourage and foster professional scepticism and a robust challenge, recognising this as a valuable component of the audit process for our clients. Our audit technology and tools, AuditSystem/2 (AS/2) provide a comprehensive framework for the planning, performance, documentation and review of our work in accordance with auditing standards and applicable professional, regulatory and legal obligations.

AS/2 has a particular focus on gaining a deep understanding of our clients’ businesses and key transaction flows. AS/2 includes DTT’s International Audit Approach, (IAA) common documentation, and enabling software technology. The IAA is the methodology Deloitte member firms apply in providing professional services relating to the audit of financial statements. The common documentation and the enabling software technology are tools that enhance the consistent implementation of the IAA on a worldwide basis and promote effectiveness and efficiency. The IAA provides the flexibility to serve the unique circumstances and complexities of our clients. This audit approach goes beyond testing transactions and balances, to providing insights to directors and audit committees.

We operate on the basis of a strong culture of adaptability; this and the way in which AS/2 has been developed, allow us to introduce rapid but considered changes and enhancements to methodology and documentation within 24 hours. As a result, we were able to roll out new requirements in rapid response to the credit crunch and related challenges to the markets and to our clients. Given the huge volume of audit, accounting, legal and regulatory material generated each year, we consider our flexibility and supporting technology to be a great benefit to our clients and to our people.

Engagement partners remain fully responsible for the services they provide and for understanding their clients’ businesses. Their involvement is required from the very outset of any client relationship and engagement, with partner-led audit planning key to our audit approach.

Where the professional services we provide are subject to external regulation, they are led by practitioners who are individually authorised by the appropriate regulatory body. For example, all partners and senior employees who act as engagement partner for statutory audits have been granted Responsible Individual status by the Institute of Chartered Accountants in England & Wales (ICAEW) under the ICAEW’s Audit Regulations.

Our audit business is structured into specialist industry groups, led by senior partners with great depth of experience and expertise. These groups collaborate in order to share their understanding of market developments, risk assessments and emerging trends. This is particularly important at times of market turbulence and change. Our partners and people are continuously building their understanding of their clients’ businesses, helping us better to conduct our audits in a way most beneficial to all stakeholders.

Our approach to continuing education is based around targeted learning programmes, including regular audit and industry specific training that keeps our people at the forefront of new developments and regulations. These processes and systems are designed so that all our work is of the highest quality, that we comply with regulations, and that we do not accept any assignments that would compromise our integrity or independence.

All of our partners and people are supported in their quality, compliance, risk management and anti-money laundering obligations by appropriate technical and other learning programmes as well as supervision by more senior team members and our partner-led audit process. Over and above a comprehensive mandatory audit learning and development syllabus for all grades of staff, we run monthly technical briefings and updates which are presented live and are also available online for subsequent download. In addition, the firm provides annual accounting and auditing technical training during the summer months, as well as specific learning modules where new developments require additional understanding.

Our approach allows us to develop our people not only through structured learning but also by appropriate on-the-job training, appraisal, mentoring and other support activities. Partner leadership of these programmes is an important aspect of their value and success. Individual appraisals set considerable store by feedback provided on specific engagements. Our increasing use of web-enabled technology to capture 360 degree feedback from peers as well as team members and partners allows us to obtain a rounded view of individuals’ performance and development needs.

We have in place rigorous processes, systems and tools to promote high quality standards throughout an engagement. These include PSR, Engagement Quality Assurance Reviews (EQAR) and annual practice reviews of completed engagements.

The EQAR role is separate from that of the Independent Review Partner (IRP) required under auditing standards, with the former providing second partner review, consultation and client service support and the IRP acting as a third partner review, including an objective evaluation of the significant judgements made and conclusions reached.

The practice review is subject to oversight by an independent partner from elsewhere within the DTT network. This partner is responsible for the completion of this annual review, which covers each of our audit partners in a three year cycle. Engagements are selected across our audit business portfolio, with the files then subject to independent inspection by other members of our professional staff from separate offices or groups. The practice review determines whether we have complied, in all material respects, with the professional standards and the policies contained in the Deloitte Policies Manual and the IAA Manual, the applicable professional standards and applicable regulatory and legal requirements. Our overall risk management procedures are also evaluated. The results of the practice review are communicated to the Managing Director, Audit and to the Senior Partner and Chief Executive, as well as to DTT. The practice review is an objective and robust exercise with an investment of well over 500 man days of time and significant senior partner resource and leadership.

The Audit Inspection Unit (AIU) of the Financial Reporting Council’s Professional Oversight Board conducts an annual review of our whole-firm procedures and our audits of public interest entities. The most recently completed review concluded on 10 July 2008. The AIU has advised us that it will issue a public report on the firm in December 2008.

Audit partners are supported by the Audit Quality & Risk Management team (AQRM), led by a senior audit partner reporting jointly to the Managing Director, Audit as well as to the Managing Partner, Practice Protection, who in turn reports to the Senior Partner and Chief Executive. The partner in charge of AQRM leads a group of professionals, who have also retained client-facing responsibilities in the following core activities:

• Quality control: the firm’s PSR professionals report to AQRM and are operationally independent of the business units they are reviewing. In conjunction with independent oversight from DTT, AQRM also conducts the practice review and other monitoring at the engagement, partner and business unit level. The AQRM partner meets with every audit partner annually to conduct a full review of that partner’s portfolio through a series of Client Risk Assessment Meetings (CRAMs). The CRAMs process covers the agreement of the quality and risk management considerations, audit risks identified and overall risk assessment of the audit, and the continuance decision as auditor for each of the clients.
• Regulators: AQRM is responsible for the firm’s liaison with the regulators’ monitoring teams throughout their extensive visits. During the year, the firm was subject to monitoring visits from the AIU, the Quality Assurance Directorate of the ICAEW and the US Public Company Accounting Oversight Board. AQRM also handles those very few instances where matters are being investigated by regulators in relation to complaints, or where claims have been made or threatened. We are proud of our reputation and the fact that such claims, complaints and disputes are rare.
• Engagement support: AQRM works with a team of over 30 client-serving professionals who are fully integrated and embedded within our audit business’s groups, offices and industry teams. These Quality Leaders provide first-line support to our engagement partners and teams, whilst also gathering feedback and questions for AQRM and promulgating key messages within their parts of the business. This allows our communication strategy to reflect the needs of the differing parts of our audit service line.
• Learning and guidance: AQRM produces guidance and learning materials in order to help embed quality and risk management skills, values and knowledge in all of our practitioners. An outsourced approach to quality is neither responsive nor effective; our engagement partners are responsible for all aspects of service delivery.
• Internal strategic contribution: the AQRM partner is a member of the Audit Executive and contributes actively to the firm’s strategic and commercial direction. This influence allows quality and risk management considerations to be addressed as an integrated part of our business strategy. During the year, AQRM contributed to initiatives covering not just quality and risk management considerations, but also operational effectiveness, efficiency and talent management.
• External influence: members of AQRM, our National Accounting and Audit group (NAA) and our client-facing population contribute actively to the regulatory, legislative and professional agenda. This allows us to make a valuable contribution to the environment within which our business operates, reflecting the needs of our clients and other market participants.

Engagement partners benefit from expert and strong technical support on accounting, auditing and regulatory matters as they affect our audit clients and the audit work itself. Our technical expertise is leading edge and our approach responsive and consultative, both externally and internally. In NAA we have dedicated teams to support on UK auditing and accounting matters, International Financial Reporting Standards (IFRS) and our audit methodology. Expertise is also available from DTT and other member firms; our audit policies and methodology are developed and implemented globally to help deliver consistency and quality within the international network. On US accounting and auditing issues, the expertise of the Global IFRS & Offerings Services (GIOS) network is available to support our client-facing professionals. Both NAA and GIOS are key components of our client service proposition, comprising highly respected partners and staff with outstanding reputations within the profession as well as internally.

NAA develops and maintains numerous publications and databases to support quality and adherence to relevant requirements. The partners within NAA contribute to regulatory and professional developments. During the year this included, for example, membership of the UK Accounting Standards Board, the International Financial Reporting Interpretations Committee, and the International Committee of the Auditing Practices Board, chairmanship of the Financial Reporting faculty of the ICAEW and of the Consultative Committee of Accountancy Bodies Ethics Group and Presidency of the Institute of Chartered Accountants of Scotland.

Our clients and people need swift, consistent and borderless responses to IFRS technical queries. Deloitte has established a network of eight IFRS Centres of Excellence around the globe (including one in the UK) manned by experts with day-to-day, first-hand experience of the issues of practical application of IFRS in different regulatory, legal and local accounting environments around the world. Designated experts drawn from this network are available to assist engagement partners and their clients with complex or contentious accounting issues. The leaders of these centres comprise the Deloitte Global IFRS Leadership Team and consult with each other regarding views reached on any technical accounting matters.

Members of NAA also support the Deloitte Academy and engage with bodies representing the corporate sector and investors to respond to their needs. The Academy is a response to the increasing demands on directors of UK public companies and provides access to a comprehensive programme of technical training, support and guidance across a wide range of management and governance issues relevant to business leaders. The Academy curriculum is customised to the specific needs of directors based on their role and company profile and is delivered in a dedicated purpose-built facility.

We recognise that there is considerable value to our clients and to our wider stakeholders in providing reports of the highest quality. Our audit reports comply with auditing standards and legislation and, within that prescribed format, convey our opinion clearly. Our communications with audit committees and our clients’ boards of directors cover the scope of our audit, our independence considerations, our risk assessment and the judgements made as well as providing value-added commentary around more qualitative aspects of financial reporting and management of clients’ businesses.

In setting our fee structures, we acknowledge the importance of our role and the need to demonstrate a high-quality and value-added service that is efficient, fair and competitively priced.

Supporting our client-serving professionals is the firm’s Practice Protection Group, (PPG) which is responsible for the oversight of the firm’s ethics, compliance and risk management processes. PPG comprises regulatory compliance, risk management, anti-money laundering, information security and internal audit specialists providing an all-round function to support the management of quality and risk.

PPG provides practical support and advice to client serving professionals, particularly in connection with clients or engagements which span more than one service line. In addition, it establishes and promulgates firm wide quality, risk management and compliance strategy and policy; manages claims and insurance; and drives compliance with regulatory requirements in relation to all of the firm’s business activities.

PPG also leads our approach to information security, a topical issue and one that we have been alert to for many years. The importance of maintaining confidentiality around client and other confidential information is continually emphasised, and our approach to encryption, ethical walls, clear desk policy and secure storage devices underpins this commitment. Our policies require all confidential information held on the firm’s laptops to be encrypted, and our people are expected to take the utmost care with such information, whether in hard copy or electronic form. We have supported this by significant investment in a new document management system to refine our working practices.

The business environment remains complex and regular evaluation of emerging, existing and changing risks is essential. We have a process in place to manage challenges through our business risk framework. This focuses on the key risks which could have a material impact on the realisation of our strategy and these are evaluated in the light of their potential impact on our people, our infrastructure and our markets. Each identified risk is owned by a senior partner responsible for co-ordinating mitigating activities and monitoring warning indicators.