Audit Partner Remuneration and Admissions Committee Terms of Reference

Preface

The Audit Partner Remuneration and Admissions Committee (APRAC or the Committee) is a committee of the Audit Oversight Body (AOB) of PricewaterhouseCoopers LLP (the UK firm).

Purpose

The purpose of the Committee is to support the AOB in the oversight of specific obligations with respect to the pursuit of the FRC’s objectives, outcomes and principles for operational separation (the principles) (as updated from time to time) and certain responsibilities as set out in the Audit Firm Governance Code¹.

Duties

The APRAC enables the AOB to fulfil certain responsibilities (as set out in the principles) in relation to the oversight of the remuneration and admissions process for audit partners in accordance with Principle 8, and with consideration for Principle 18 and Outcome 3 and as set out in the Audit Firm Governance Code in relation to reviewing remuneration and incentive structures so far as they relate to the audit practice.

Appointment and membership

The APRAC is comprised of up to three Audit Non Executives (ANEs) (at least one of whom will have appropriate audit experience either as a former auditor or consumer of audit services).

The Chair of the APRAC shall be nominated by the UK Senior Partner from amongst the ANE population and approved by the AOB. No person shall be Chair for more than six years in aggregate.

In order to perform their role effectively, each member of the Committee should obtain an understanding of the detailed responsibilities of Committee membership. The members of the APRAC (as at 15 August 2023) are:

Caroline Gardner, ANE, APRAC Chair, AOB Chair
Suzanne Baxter, ANE, AOB member
Victoria Raffe, ANE, AOB member

The secretary to the Committee is Lucy Jones.

Attendance of non-members at meetings

The ANEs may invite the Head of Audit, or an alternative member of management, to present information and respond to questions. Where appropriate, other members of the UK firm’s governing bodies or management may be invited to attend subject to agreement in advance of the meeting with the Chair of the AOB.

Meetings

The Chair of the APRAC determines a rolling programme of ordinary meetings of the Committee which must provide for at least two ordinary meetings in each calendar year. Additional meetings can be called at the request of the Chair, or as necessary to deliver the responsibilities of the APRAC.

The quorum shall be two ANEs at any meeting of the APRAC. The Committee keeps minutes of its proceedings.

Responsibilities of the APRAC

The primary responsibilities of the APRAC are twofold: (1) to oversee the audit partner remuneration process to ensure individual audit partner remuneration is determined above all by contribution to audit quality; and (2) to oversee the process by which candidates are selected for admission to the partnership to practice as audit partners. Other responsibilities of the Committee include:

Audit partner remuneration

Review and challenge the audit partner remuneration policy and processes prior to audit partner moderation to ensure (i) sufficient consideration is given to rewarding primarily high quality work and positive leadership behaviours when determining overall performance rating, (ii) that measures are in place to reduce reward in cases of poor quality work, and (iii) that audit partners are not incentivised for sales passed to other parts of the firm
Review and challenge the anonymised outcome of audit partner moderation to understand if the agreed process has been followed as intended.

Audit partner admissions

Review and challenge the candidate evaluation policy and processes for internal and direct audit partner admissions to the partnership to ensure sufficient consideration is given to audit quality in the selection process.
Review and challenge the outcome of the candidate evaluation process for internal and direct audit partner admissions to the partnership to understand if the agreed processes in relation to audit quality have been followed as intended.

In discharging its responsibilities the APRAC shall be mindful of the UK firm’s commitment to improving the diversity of the workforce and shall review and challenge the impact of the outcomes of the audit partner remuneration and audit partner admissions processes on the diversity profile of the audit partners.

The Committee shall be entitled to refer issues relating to audit partner remuneration or admission directly to the firm’s Partner Affairs Committee (PAC) for consideration, being the governance body with responsibility for oversight of the firmwide partner income system and partner admissions. The PAC shall be obliged to take account of the views of the APRAC and where a resolution cannot be reached, the procedure for dealing with a fundamental disagreement may be invoked (see Section 8 and Annex 1).

The APRAC is not responsible for oversight of the remuneration process of any audit partner captured within the Supervisory Board (SB) Talent & Remuneration Committee (T&RC) population. The T&RC population is defined as the UK Senior Partner, members of the Management Board (MB) and any UK partners on the Global Leadership Team or EMEA Leadership Team.

The T&RC which includes an Independent Non-Executive amongst its members, will consider the views of the APRAC when overseeing the remuneration of the Head of Audit. The outcome of the T&RC discussion in relation to the Head of Audit will be communicated to the APRAC in a timely manner. The APRAC shall be entitled to make recommendations directly to management and, following that, to the SB in the execution of the SB’s oversight duties and in respect of the remuneration process overseen by the T&RC for the Head of Audit.

The APRAC shall not be responsible for reviewing or making recommendations in relation to individual audit partners remuneration or admission which will remain subject to the governance of the UK firm as set out in the Members’ Agreement. Consequently, and in accordance with the Audit Firm Governance Code² and Ethical Standards, no member of the APRAC will be required to be a Covered Person.

Procedure for Dealing with any Fundamental Disagreement

The procedure for dealing with any fundamental disagreement which arises with respect to the matters over which the APRAC has oversight in accordance with these Terms of Reference and that cannot otherwise be resolved between the ANEs and members of the UK firm’s management team is set out in Annex 1. The APRAC shall consult with the PIB in respect of any such disagreement before invoking such procedure.

Audit Partner Remuneration and Admissions Committee contact details

Email UK secretariat

Approved by the Audit Oversight Body on 5 December 2023

¹ Audit Firm Governance Code 2022
² FRC’s Audit Firm Governance Code (2022), Appendix A

Annex 1

Procedure for Dealing with any Fundamental Disagreement (relevant extract from Members’ Agreement dated 1 January 2021) - Schedule 6 - paragraphs 25 and 26

The Non-Executives have the right to report to the Members a fundamental disagreement (“Fundamental Disagreement”) between them and:
1. the Senior Partner; or
2. the Management Board; or
3. the Supervisory Board
  
  that cannot otherwise be resolved in accordance with the following provisions of this paragraph 25. This right applies to any Non-Executive, whether or not they are also a member of the Public Interest Body.
The majority of the Non-Executives on the Public Interest Body must first agree that there is a Fundamental Disagreement or, where the Non-Executives are on a committee or subcommittee of the Public Interest Body, the majority of the Non-Executives on that committee or subcommittee, having consulted with the Non-Executives on the Public Interest Body, must first agree that there is a Fundamental Disagreement.
The Non-Executives must raise the Fundamental Disagreement with the person or board with whom they fundamentally disagree.
The Non-Executives and the person or board with whom they disagree must meet as soon as reasonably practical and in any event within 15 Working Days of a written request from the Non-Executives to them and must discuss the disagreement and seek to resolve the same.
If the Fundamental Disagreement is not resolved as a result of such meeting, the Non-Executives and the other relevant person or board (unless it is the Senior Partner) must, within five Working Days following such meeting, notify the Senior Partner of the Fundamental Disagreement and of their views on such disagreement. The Non-Executives and the Senior Partner must reasonably co-operate to seek a resolution of the Fundamental Disagreement. The Senior Partner may take such action as in their opinion is reasonably necessary to seek to resolve the Fundamental Disagreement. Any Member must take such steps as the Senior Partner requires to give effect to such action.
If the Fundamental Disagreement is not resolved under paragraph 25.5 above within 15 Working Days of the Senior Partner’s receipt of the notification of the Fundamental Disagreement, the Non-Executives and the other relevant person or board (unless it is the Supervisory Board) must, within five Working Days, notify the Supervisory Board of the Fundamental Disagreement and of their views on such disagreement. The Supervisory Board must meet as soon as reasonably practical, and in any event within 15 Working Days of receipt of the notification, with the parties to the Fundamental Disagreement either separately or together or both or by itself in accordance with arrangements which the Supervisory Board determines.
If the Fundamental Disagreement is not resolved as a result of such meeting or the Fundamental Disagreement is with the Supervisory Board, the Non-Executives or the other relevant person or board may, within 15 Working Days following such meeting, propose to the others in writing that the matter be referred to non-binding mediation and, if such proposal is accepted, the mediator (if not appointed by agreement between the parties) will be nominated by CEDR (or any body that may succeed to, or replace, CEDR from time to time). The fees and expenses of the mediator are borne by the LLP.
If the Fundamental Disagreement is not resolved as a result of such discussion or mediation, the Non-Executives, or those of them who have the Fundamental Disagreement, may, within five Working Days, report the same to the Members together with such recommendations or advice as they reasonably consider appropriate.
Where the Senior Partner, Management Board, Supervisory Board or Members do not within 20 Working Days after the report referred to in paragraph 25.8 above take action which is reasonably likely to resolve the Fundamental Disagreement, or the Fundamental Disagreement is not otherwise resolved within such period, the relevant Non-Executives may resign and may report their resignation publicly in such form as such Non-Executives and the LLP may agree or, in default of agreement within a reasonable time after the expiry of such period of 20 Working Days, not exceeding five Working Days, in such form as such Non-Executives reasonably consider appropriate.

Once a majority of the Non-Executives on the Public Interest Body has agreed that there is a Fundamental Disagreement, or where the Non-Executives are on a committee or subcommittee of the Public Interest Body, and the majority of the Non-Executives on that committee or subcommittee, having consulted with the Non-Executives on the Public Interest Body, has agreed that there is a Fundamental Disagreement in accordance with paragraph 25.2 above:

the LLP must not remove any Non-Executive under the agreement between them and the LLP before the end of their term of office save for serious breach of their obligations or other grounds to terminate that agreement without the need to give notice; and
where the term of office of a Non-Executive expires (and the Non-Executive is not reappointed as a Non-Executive) in the course of the process set out in paragraph 25 above, such process shall nevertheless continue as if, solely for these purposes, the Non-Executive had continued as a Non-Executive.

Explanatory note: The procedure for dealing with any fundamental disagreement is set out in the Members’ Agreement (extract above). In addition to that procedure, the Supervisory Board has powers to take action in response to proposals by senior management of the UK firm. These powers include:

power to initiate a process for removal of the Senior Partner;
power to suspend any action proposed by the Management Board which the Supervisory Board considers to be materially prejudicial to partners and to initiate processes to refer the proposed action to the firm’s partners where, following the suspension, the Supervisory Board is unable to approve it within a specific period;
power to refer to a partner vote any matter which in the Supervisory Board’s view involves a significant change in form or direction of the UK firm (with approval by a special majority of partners required); and
an additional protection is that proposals for transactions which are outside the UK firm’s ordinary course of business require Supervisory Board approval before the Management Board is able to proceed with them.