Flybe Group plc
Policy on the use of professional
financial services providers
1.
Introduction
Under Corporate Governance and Combined Code requirements the Audit Committee of
Flybe Group plc (the “Group”) is responsible for monitoring the provision of, and manner in
which, non-audit work and services are provided by the external auditors responsible for
auditing the financial statements. The following policy has therefore been developed to
provide a framework regarding the provision of professional financial services in relation to
audit, tax, corporate finance and consulting work, with specific emphasis on the
circumstances in which the external auditors may provide such services. This policy applies
to all subsidiaries that are consolidated into the Group’s results.
2.
Objective
The external auditors must remain independent and objective throughout the provision of
their external audit services and when formulating their audit opinion.
The provision of additional non-audit related services by the external auditor has the
potential to impinge upon their independence and objectivity. This can also give rise to an
external perception that the external auditors’ independence and objectivity is compromised.
This policy therefore sets relevant criteria which need to be met prior to the appointment of
professional financial advisors for non-audit services to safeguard the independence and
objectivity of the external auditors.
2.1. Auditor objectivity and independence
APB Ethical Standards for Auditors explain that threats to auditor objectivity and
independence may arise from:

Self-interest threats which arise when the auditor has financial or other interests
which might cause it to be reluctant to take actions that would be adverse to the
interests of the audit firm or any individual in a position to influence the conduct and
outcome of the audit;

Self-review threats which arise when the results of a non-audit service performed by
the auditor or others within the firm are reflected in the amounts included or disclosed
in the financial statements of the audited entity;

Management threats which arise where partners and employees of the audit firm
make judgments or take decisions on behalf of the management of the audited entity;

Advocacy threats which arise when the audit firm undertakes work that involves
acting as an advocate for an audited entity and supporting a position taken by
management in an adversarial context;

Familiarity threats which arise when the auditor is predisposed to accept or is
insufficiently questioning of the audited entity’s point of view; and

Intimidation threats which arise when the auditor’s conduct is influenced by fear or
threats.
Flybe Group plc
3.
Professional financial services policy
Additional services
When considering the appointment of the external auditors for non-audit work, the following
factors need to be taken into account:
1.
The quality of work provided by the external auditors;
2.
Representations provided by the external auditors regarding their independence and
objectivity and internal controls implemented by them when providing non-audit
services;
3.
The level of understanding of the Group by the external auditors;
4.
The nature of the work being performed; and
5.
The commercial and practical circumstances of particular types of work required.
In order to retain the option of utilising the external auditors to provide non-audit services,
the following criteria also have to be met. These are that the external auditors do not:
1.
Audit their own work;
2.
Make management decisions for the Group;
3.
Create a conflict of interest; or
4.
Find themselves in the role of advocate for the company. This is defined by ICAEW
guidance as “promoting or being perceived to promote an audit client’s position or
opinion to the point where objectivity may be compromised”.
In addition, before appointing the external auditors to undertake a particular non-audit
service, consideration should be given to whether this would create a general threat to their
independence. The external auditors should not be appointed if the threat is anything other
than clearly insignificant, unless appropriate safeguards can be applied to eliminate or
reduce the threat to an acceptable level. In this regard, the use of the auditors to provide
other services will be limited under their own professional guidance established by the Audit
Practices Board – see APB's Ethical Standard 5 - December 2010.
In relation to specific services the following needs to be considered:
3.1. Audit-related services
Audit-related services are those non-audit services specified as such in APB Ethical
Standards for Auditors as including:

Reporting required by law or regulation to be provided by the auditor;

Reviews of interim financial information;

Reporting on regulatory returns;

Reporting to a regulator on client assets:

Reporting on government grants;

Reporting on internal financial controls when required by law or regulation;

Extended work that is authorised by those charged with governance on financial
information and/or financial controls performed where this work is integrated with the
audit work and is performed on the same principal terms and conditions.
The appointment of any professional financial service providers for audit-related services
must be approved by the Chief Financial Officer or the Group Financial Controller.
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Flybe Group plc
Professional financial services policy
3.2. Tax consulting and advice
It is the policy of the Group to select the advisor for each specific piece of tax consulting or
advisory work who has the most appropriate skills and experience for the work required.
The Group may choose to use a range of advisors for tax consulting and advice, including
the external auditors where they are best suited to the work being undertaken.
For the avoidance of doubt, tax compliance work will form part of the pre-approved services
authorised by the Audit Committee.
The appointment of any professional financial service providers for tax consulting and advice
must be approved by the Chief Financial Officer or the Group Financial Controller.
3.3. General consulting and assurance services
General consulting includes services in relation to acquisitions, disposals, pensions, special
projects, strategic planning, legal matters, remuneration and other management consulting
services. The Group will select an advisor after taking account of the skills and experience
required, and the expected cost. For the avoidance of doubt, transaction support services
may be provided by the auditor to the extent that they comply with the ASB’s ethical
guidelines referred to above.
The appointment of any professional financial service providers for general consulting and
assurance services must be approved in the first instance by the Chief Financial Officer or
the Group Financial Controller. The external auditors will only be considered if they are best
suited to perform the work and meet the criteria set out above.
4.
Prohibited services
In general, any work that threatens the auditors’ independence should not be undertaken. In
addition, the Group’s auditor will not be allowed to provide the following services:

Accounting services (including calculation of the current or deferred tax positions and
the design of their presentation in the financial statements);

Restructuring services provided in any context which may involve a management role
within the Group (e.g. as part of a troubled debt restructuring);

Internal audit;

Financial systems design and implementation;

Valuation services (including actuarial valuations);

Underwriting; and

Any management role in relation to any Group entity.
Restructuring services are any non-audit services provided to the Group in connection with
the Group’s development or implementation of a transaction or package of transactions (a
‘restructuring plan’) designed to change its equity or debt financing structure, corporate
structure or operating structure.
5.
Prohibited fee structures
The Group will not enter into any arrangement with its external auditor where the level of fee
for a non-audit service is contingent on the outcome and where the fee is material to the
firm. In addition, the Group will not enter into an arrangement where the outcome of the
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Flybe Group plc
Professional financial services policy
service (and therefore the fee) is dependent on a future or contemporary audit judgment
relating to a material matter in the financial statements of the Group or on a new or uncertain
tax law interpretation.
6.
Approval process for services to be provided by the
auditors
Where the auditors are selected to provide a service other than audit, prior approval from the
Audit Committee is required where the fee (excluding expenses and VAT) is likely to exceed
£10,000. Services should not be broken down into sub-projects in order to avoid this limit
being breached.
The project sponsor (defined as the Executive responsible for commissioning the service)
should seek initial approval to use the auditors to provide non-audit services from the Chief
Financial Officer or the Group Financial Controller. Once this has been obtained, the Chief
Financial Officer or the Group Financial Controller will be responsible for seeking the
approval of the Audit Committee. Work on the project may not commence until the Audit
Committee has given its approval.
Where the fee exceeds £50,000 (excluding tax compliance fees) cumulatively in any one
financial year, the Audit Committee must be informed and their prior approval to exceed that
limit is required irrespective of whether or not the fee for that project would exceed the
£10,000 level.
7.
Reporting to shareholders
The annual report should:

describe the work of the committee in discharging its responsibilities;

set out the audit committee’s policy on the engagement of the external auditor to
supply non-audit services in sufficient detail to describe each of the elements
described in paragraph 4.30 of the FRC’s Guidance to Audit Committees published in
December 2010, or cross-refer to where this information can be found on the Group’s
website;

set out, or cross refer to, the fees paid to the auditor for audit services, audit-related
services and other non-audit services, including disclosing pre-approved non audit
services and those requiring specific approval. Where necessary, fees for prohibited
services should also be disclosed); and

if the auditor provides non-audit services, other than audit-related services, explain
for each significant engagement, or category of engagements, what the services are,
why the audit committee concluded that it was in the interests of the Group to
purchase them from the external auditor (rather than another supplier) and how
auditor objectivity and independence has been safeguarded.
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