transparency report 2014 - building a better working world ... · sycip gorres velayo & co. (ey...

Transparency report 2014 — SyCip Gorres Velayo & Co. (EY Philippines)

Transparencyreport 2014

SyCip Gorres Velayo & Co.(EY Philippines)

Transparency report 2014 — SyCip Gorres Velayo & Co. (EY Philippines)

Contents

Country managing partner’s letter ............................................................................... 1

Message from the Philippines Assurance leader............................................................ 2

About us ...................................................................................................................... 4

Legal structure, ownership and governance .............................................................. 4

Network arrangements ............................................................................................. 5

Independent non-executive representatives .............................................................. 7

Commitment to quality ................................................................................................ 8

Internal quality-control system ............................................................................... 11

Client acceptance and continuance ......................................................................... 12

Performing audits ................................................................................................... 13

Review and consultation ......................................................................................... 15

Audit partner rotation ............................................................................................ 17

Audit quality reviews .............................................................................................. 18

External quality-assurance review .......................................................................... 19

Compliance with legal requirements ........................................................................ 20

Independence practices ............................................................................................. 21

Creating high-performing teams ................................................................................. 23

Continuing education of statutory auditors ............................................................. 24

Knowledge and internal communications ................................................................. 25

Revenue and remuneration ........................................................................................ 26

Financial information .............................................................................................. 26

Partner remuneration ............................................................................................. 27

Working with our stakeholders and communities......................................................... 28

Stakeholder dialogue .............................................................................................. 28

Commitment to our communities ............................................................................ 30

Appendix: EY Philippines public interest entity audit clients ....................................... 31

More information about SyCip Gorres Velayo & Co. can be found at sgv.ph

More information about EY can be found at ey.com

Transparency report 2014 — SyCip Gorres Velayo & Co. (EY Philippines) 1

Country managing partner’s letter

Welcome to SyCip Gorres Velayo & Co. (EY Philippines)’s 2014 Transparency Report. We are pleased to provideyou with information about the significant investments we have made in audit quality this year and the qualityinitiatives we have launched. We appreciate that our stakeholders want to understand what we do to advanceaudit quality, manage risk and uphold our independence as auditors.

Executing audits in a high-quality manner continues to be our number one priority and is at the heart of ourability to serve the public interest and grow EY successfully, consistent with Vision 2020, which sets out EY’sambitions for the future and global strategy and the purpose we have articulated: building a better workingworld. Auditors play a vital role in the efficient functioning of our capital markets through promotingtransparency and supporting investor confidence. Companies, regulators and other stakeholders count on us todeliver quality and excellence in every engagement. EY is investing in tools to improve audits performed by itsmember firms, creating the highest-performing teams, and focusing on building trust and confidence in theaudits we perform.

Regular dialogue with our stakeholders remains a priority for us. During the past year, I have spoken to manyof our people and our stakeholders about the investments we are making as part of our new strategy. Mycolleagues and I in the Philippines are very excited about our renewed sense of purpose, as are many of ourclients and other stakeholders — who have responded positively to our plans for the future. Thank you to all ofyou who have taken the time to share your views with us in 2014.

I look forward to continuing to work with you and share our progress over the coming year. I encourageinvestors, audit committee members, companies, regulators and all our stakeholders to continue to engagewith us on our strategy as well as any of the matters covered in this report. We hope you will read it withinterest.

Cirilo P. NoelChairman and Managing PartnerSyCip Gorres Velayo & Co. (EY Philippines)

Our purpose: Building a better working world

EY is committed to doing its part in building a better working world.

The insights and quality services we deliver help build trust and confidence in the capitalmarkets and in economies the world over. We develop outstanding leaders who team to deliveron our promises to stakeholders. In so doing, we play a critical role in building a better workingworld for our people, for our clients and for our communities.


Message from the Philippines Assurance leader

SyCip Gorres Velayo & Co. (EY Philippines) provides an important public interest role as an auditor of publicinterest companies. This role is central to our purpose, values, management and processes. Our reputation isbased on providing high-quality, professional audit services objectively and ethically to each and everycompany we audit.

Ernst & Young (EY) is making significant investments in its Assurance business, as part of Vision 2020,consistent with its goal to have the leading audit practice in our profession by 2020. As part of these plans, EYwill spend US$400m on improving audit methodologies and tools to continue to enhance audit quality. At thesame time, a major investment in technology and services, of US$1.2b, will deliver transformationaltechnologies to help EY member firms better connect with their clients.

We embrace the transparency objectives of the European Union’s 8th Company Law Directive, which requirestatutory auditors of public interest entities to publish annual transparency reports. This Transparency Report2014 complies with the Directive and covers the fiscal year ended 30 June 2014.

This year we embarked on several initiatives to further enhance our audit quality, informed by internal andexternal inspection findings. Continuous improvement in audit quality can require challenging previousapproaches to audit execution, and we focus on continuous improvement by evaluating all inspection findingsand taking responsive actions.

Our initiatives to further improve audit quality in FY 2014 included:

• Alignment of EY Philippines’s objectives with EY’s Vision 2020 at the country level, involving all partnersand cascaded to all employees

• Enhanced training programs and delivery infrastructure to support the dissemination of new accounting,auditing and regulatory requirements to a significantly expanded personnel base

• A review of client portfolios and partners’ workload, including considering the risks and complexity of theaudits due to industry, regulatory, or other external factors, to identify adjustments needed

• Appointment of additional specialists and mandatory consultations to ensure compliance with newaccounting, auditing and regulatory requirements, and continuation of institutionalized accreditationrequirements for Philippine and International Financial Reporting Standards, and industry- or sector-specificregulations, as required by the clients involved

• More frequent internal quality assurance reviews to allow faster identification and implementation of anyimprovements needed

• Continued proactive engagement with legislators and regulators to positively influence contemplated laws,rules and policies

• Continued involvement of partners and professional staff in technical committees such as the Auditing andAssurance Standards Council, the Financial Reporting Standards Council, and the Philippine InterpretationsCommittee

• Continued technical briefings to professional and other external organizations to discuss financial reporting,tax, and other regulatory requirements and updates, to enhance company officers’ knowledge andawareness of these requirements.


In this report, you can read more about our internal quality-control system: how we instill professional values,how we perform an audit, our review and consultation process, and our process for audit quality reviews.

We welcome any comments or feedback regarding the contents of this report.

Wilson P. TanHead of AssuranceSyCip Gorres Velayo & Co. (EY Philippines)


About usLegal structure, ownership and governance

In the Philippines, SyCip Gorres Velayo & Co. is apartnership organized in Makati City and is amember firm of Ernst & Young Global Limited, a UKcompany limited by guarantee (EYG). In this reportwe refer to ourselves as EY Philippines, “we,” “us,”or “our.” EY refers collectively to the globalorganization of member firms of EYG.

The powers and responsibilities relating to themanagement of EY Philippines are exercised by theChairman and Managing Partner (“CMP”). In theperformance of his duties and the exercise of hispowers, the CMP is assisted by the Vice Chairmanand Deputy Managing Partner and by aManagement Committee consisting of theChairman and Managing Partner, the ViceChairman and Deputy Managing Partner, theService Line leaders, the Chief Financial Officer andHead of Core Business Services, the ProfessionalPractice Director and Head of Risk Management,the Market Group leaders, and the General Counsel.

EY Philippines has eight offices across the country.As of 30 June 2014, it had 83 partners andprincipals, and a total personnel count of over3,500.

EY member firms are grouped into four geographicAreas: Americas, Asia-Pacific, EMEIA (Europe,Middle East, India and Africa) and Japan. The Areascomprise a number of Regions, which consist ofmember firms or sections of those firms.

EY Philippines is part of the Asia-Pacific Area,which comprises member firms in 22 countries,and is a member of Ernst & Young Asia-PacificLimited (Asia-Pacific Limited). Within the Asia-Pacific Area, there are five Regions. EY Philippinesis part of the ASEAN Region.

Asia-Pacific Limited, a Hong Kong company limitedby guarantee, is the principal governance entity forthe EYG member firms in the Asia-Pacific Area.Asia-Pacific Limited facilitates the coordination ofthese firms and cooperation between them, but itdoes not control them. Asia-Pacific Limited is amember firm of EYG and has no financialoperations and does not provide any professionalservices.

The principal governing bodies of the Asia-PacificArea are:

Area Operating Executive

The Area Operating Executive has authority foroverseeing the execution of the global EY strategyin the Asia-Pacific Area under four globaldimensions: people, quality, growth andoperational excellence. It comprises the AreaManaging Partner, the Deputy Area ManagingPartner, the leaders for Talent, Risk and Accounts,the service line leaders for Assurance, Advisory,Transaction Advisory Services and Tax and theRegional Managing Partners of the five Regions inthe Asia-Pacific Area.

Area Advisory Council

The Asia-Pacific Area has an elected Area AdvisoryCouncil, which consists of a number of partners ofthe EYG member firms in the Asia-Pacific Area. Itserves in an advisory role to the Area OperatingExecutive on policies, strategies and other mattersand its approval is required for a number ofsignificant matters, e.g., appointment of the AreaManaging Partner.


Network arrangements

EY is a global leader in assurance, tax, transactionand advisory services. Worldwide, 190,000 peoplein member firms in more than 150 countries sharea commitment to building a better working worldand are united by shared values and an unwaveringcommitment to quality, integrity and professionalskepticism. In today’s global market, EY’sintegrated approach is particularly important in thedelivery of high-quality multinational audits, whichcan span multiple jurisdictions.

EY’s central entity, EYG, coordinates the memberfirms and promotes cooperation among them. EYGdoes not provide services, but its objectives includepromoting the provision of exceptional, high-qualityclient service by its member firms worldwide. Eachmember firm is a legally distinct entity. Themember firms’ obligations and responsibilities aregoverned by the regulations of EYG and variousother agreements.

The structure and principal bodies of the globalorganization during the year ended 30 June 2014are described below. They reflect the principle thatEY, as a global organization, has one sharedstrategy.

In July 2013, EY streamlined its operating modelby creating the Executive and the Regions. TheExecutive includes the Global Executive (GE), itscommittees and teams, and the leadership of thefour Areas. This streamlined structure allows

EY to further enhance its global scale and thedelivery of consistent exceptional client serviceworldwide, with the Executive responsible for oneglobal approach to strategy, quality, riskmanagement, business planning, investments andpriorities. At the same time, this new operatingmodel allows for greater stakeholder focus in the29 Regions, permitting member firms to buildstronger relationships with clients and others ineach country and be more responsive to localneeds.

Global Advisory Council

The Global Advisory Council (GAC) is the mainadvisory body of EYG. It comprises a number ofmember firm partners drawn from across the fourAreas and includes independent non-executiverepresentatives (INEs). The partners, whootherwise do not hold senior management roles,are elected by their peers for a three-year term,with provisions for one successive re-appointment.The GAC advises EYG on policies, strategies andthe public interest aspects of its decision-making.The approval of the GAC is required for a numberof significant matters that could affect EY.

Independent non-executive representatives

INEs are appointed from outside of EY and bringthe global organization, and the GAC, thesignificant benefit of their varied perspectives andviews. The INEs are nominated by a dedicated

EMEIA

Regions 12Countries 99Americas

Regions 11Countries 30

Japan

Region 1Country 1

Asia-Pacific

Regions 5Countries 22


committee. More information on EY’s INEs can befound in the next section.

Global Executive

The Global Executive (GE) brings together EY’sleadership functions, services and geographies. It ischaired by the Chairman and Chief ExecutiveOfficer of EYG and includes its Chief OperatingOfficer; the Global Managing Partners of ClientService and Business Enablement; the AreaManaging Partners; the global functional leadersfor Talent, Risk Management, and Finance andCorporate Development; the leaders of the globalservice lines — Assurance, Advisory, Tax andTransaction Advisory Services; and the Globalleader for Public Policy. The GE also includes theChair of the Global Accounts Committee and theChair of the Emerging Markets Committee as wellas a representative from the emerging marketspractices.

The GE and the GAC approve nominations for theChairman, Chief Executive Officer and the ChiefOperating Officer of EYG and ratify appointmentsof the Global Managing Partners. The GE alsoratifies appointments of Global Vice Chairs. TheGAC ratifies the appointments of any Global ViceChair who serves as a member of the GE.Furthermore, the Global Executive approvesappointments of Area Managing Partners. Suchappointments are subject to ratification by theGAC.

The GE’s responsibilities include the promotion ofglobal objectives and the development, approvaland, where relevant, implementation of:

• Global strategies and plans

• Common standards, methodologies and policiesto be promoted within member firms

• People initiatives, including criteria andprocesses for admission, evaluation,development, reward and retirement ofpartners

• Quality improvement and protection programs

• Proposals regarding regulatory matters andpublic policy

• Policies and guidance relating to member firms’service of international clients, businessdevelopment, markets and branding

• EY’s business plans, development funds andinvestment priorities

• EYG’s annual financial reports and budgets

• GAC recommendations

• Any other proposal that supports the globalobjectives

It also has the power to mediate and adjudicatedisputes between member firms.

GE committees

Chaired by members of the GE and bringingtogether representatives from the four Areas, theGE committees are responsible for makingrecommendations to the GE. There are committeesfor Global Markets and Investments, Talent, RiskManagement, Assurance, Advisory, Tax, andTransaction Advisory Services.

Global Practice Group

This group brings together the members of the GE,GE Committees and Regional leaders. The GlobalPractice Group seeks to promote commonunderstanding across member firms of EY’sstrategic objectives and consistency of executionacross the organization.

EYG member firms

Under the regulations of EYG, member firmscommit themselves to pursue EY’s objectives, suchas the provision of high-quality service, worldwide.To that end, the member firms undertake toimplement the global strategies and plans and tomaintain the prescribed scope of service capability.They are required to comply with commonstandards, methodologies and policies, includingthose regarding audit methodology, quality and riskmanagement, independence, knowledge sharing,human resources and technology.

Above all, EYG member firms commit themselvesto conducting their professional practices inaccordance with applicable professional and ethicalstandards and all applicable requirements of law.This commitment to integrity and doing the rightthing is underpinned by EY’s Global Code ofConduct and EY’s values (see page 10).

Besides adopting the regulations of EYG, memberfirms enter into several other agreements coveringaspects of their membership in the EY organizationsuch as the right and obligation to use the EY nameand the sharing of knowledge.

Member firms are subject to reviews that evaluatetheir adherence to EYG requirements and policiesgoverning issues such as independence, quality andrisk management, audit methodology, and humanresources. As necessary, special focus reviews areperformed to address situations or concerns asthey arise. Member firms unable to meet thequality commitments and other EYG membershiprequirements are subject to separation from the EYorganization.


Independent non-executiverepresentatives

EY has invited world-class leaders in related fieldsto serve as INEs on the GAC. They provide anindependent voice to the highest levels ofmanagement and offer insight into the interests ofEY’s key stakeholders. EY follows the UK Audit FirmGovernance Code model for INEs by selectingindividuals who command respect and collectivelyenhance shareholder confidence by virtue of theirindependence, stature, experience and expertise.

Appointment

The INEs are nominated by the INE NominatingCommittee comprising the Chairman/CEO of EYG,the presiding partner of the GAC, and otherpersons as the Chairman/CEO and the presidingpartner in their discretion deem appropriate. Thenominations require approval by the GE andratification by the GAC.

Support

INEs are entitled to receive information aboutglobal affairs. To facilitate their effectiveness, theyreceive administrative support and anyindependent professional advice that may berequired.

Term

The term of an INE is three years with provision forone re-appointment at the request of the INENominating Committee and the GE.

Disagreements

Any disagreement between an INE and others onthe GAC would be resolved by mediation by theChairman/CEO of EYG through a defined process ofnotification and consultation.

Independence

EYG has considered the auditor independencestandards as they apply to INEs in their role asmembers of the GAC, and EYG is satisfied thesestandards have been met.

EY’s INEs

Shyamala Gopinath

Shyamala Gopinath is the former deputy governorof the Reserve Bank of India (RBI), a post she heldfrom September 2004 to June 2011. She joinedthe RBI in 1972 and worked in different capacities,including as Executive Director from June 2003until her elevation to deputy governor. She alsoserved for two years on deputation to theInternational Monetary Fund.

Sir Richard Lambert

Sir Richard Lambert is the Chancellor of theUniversity of Warwick, a member of theSupervisory Board for the Foreign andCommonwealth Office (UK), a former Director-General of the Confederation of British Industryand a former editor of the Financial Times. SirRichard was knighted for services to business in the2011 New Year Honours.

Klaus Mangold

Klaus Mangold serves as a director at manycompanies, including Alstom S.A., Continental AG,TUI AG, Metro AG and Rothschild GmbH. His formerdirectorships include DaimlerChrysler Services AG,and he has been the Chairman of the East-WestCommittee of German Industry. He is Commanderof the Legion of Honor (France) and Professor ofthe European Business School.

Mark Olson

Mark Olson’s former positions include FederalReserve Board Governor; Chairman of the USPublic Company Accounting Oversight Board; StaffDirector of the US Senate Securities Subcommitteeof the Banking, Housing, and Urban AffairsCommittee; Chairman of the American BankersAssociation; bank president and CEO of SecurityState Bank. He was a partner at Ernst & Young LLPfrom 1988 to 1999.


Commitment to qualityInfrastructure supporting quality

Quality in our service lines

Vision 2020, which sets out EY’s purpose, ambitionand strategy, calls for EY member firms to provideexceptional client service, worldwide. This is madepossible by an unwavering commitment to qualityand service that is professionally and globallyconsistent and means service that is based onobjectivity, professional skepticism, and adherenceto EY and professional standards.

Our service lines are accountable for deliveringquality engagements, including managing qualityreviews and real-time quality assurance ofengagements, which measures compliance withprofessional standards and all of our policies.

Vision 2020 has reinforced the ownership ofquality within all our service lines, including audit.It has also resulted in increased clarity around therole of Risk Management in the policies andpractices that support and improve quality audit.

The Global Vice Chair — Assurance coordinatesmember firms’ compliance with andimplementation of EY’s policies and procedures forassurance services.

Professional Practice function

The Global Vice Chair — Professional Practice,referred to as the Professional Practice Director(PPD), is overseen by the Global Vice Chair —Assurance and works directly with the Area PPDsto establish global audit quality control policies andprocedures. The Area PPDs are overseen by theGlobal PPD and the Area Assurance Leader. Thishelps provide greater assurance as to theobjectivity of audit quality and consultationprocesses.

The Global PPD and Area PPDs also lead andoversee the Professional Practice group. This is aGlobal and Area network of technical subjectmatter specialists in accounting and auditingstandards who consult on accounting, auditing andfinancial reporting matters and perform variouspractice monitoring and risk managementactivities.

The Global PPD oversees development of the EYGlobal Audit Methodology (EY GAM) and relatedtechnologies to be consistent with relevantprofessional standards and regulatoryrequirements. The Professional Practice group alsooversees development of the guidance, training,and monitoring programs and processes used bymember firm professionals to execute auditsconsistently and effectively. The PPDs, togetherwith other professionals who work with them ineach member firm, are knowledgeable about EYpeople, clients and processes and are readilyaccessible for consultation with audit engagementteams.

Additional resources are often brought in toaugment the Professional Practice group, includingnetworks of professionals focused on:

• Internal- control reporting and related aspectsof our audit methodology

• Accounting, auditing and risk issues for specificindustries and sectors

• Event-specific issues such as the financial crisis;areas of civil and political unrest; and sovereigndebt and related accounting, auditing, andfinancial reporting and disclosure implications

• General engagement issues and how to workeffectively with audit committees

Risk Management

The Global Vice Chair – Risk Management (GVC-RM)is responsible for enterprise-wide riskmanagement, including overseeing organization-wide quality initiatives across EY’s four service linefunctions in Assurance, Advisory, Tax andTransaction Advisory Services.

The GVC-RM is overseen by the Global ManagingPartner – Business Enablement and is a member ofthe Global Executive. Member firm partners areappointed to lead Risk Management initiatives inthe service lines and member firms, supported byother staff and professionals. The GVC-RM is alsoresponsible for establishing globally consistent riskmanagement execution priorities and enterprise-wide risk management. These priorities cascade tomember firms, and their execution is monitored


through a formal Enterprise Risk Managementprogram.

In EY Philippines, the Service Line Quality Leadersare responsible for oversight of quality initiatives intheir service line. The country Professional PracticeDirector acts as the Service Line Quality Leader forAssurance. He is also the Head of RiskManagement for EY Philippines.

Given the volume and complexity of accounting,reporting, and regulatory matters that our auditengagement teams and our clients need to dealwith quickly and appropriately, the PPD is stronglysupported by a Professional Standards Groupcomposed of highly-qualified partners andmanagers. They look after the consistent executionof quality and risk management policies,procedures and methodologies throughout theAssurance practice. They also provideconsultations on Philippine, international and USaccounting and financial reporting standards.

In addition, EY Philippines has access to the toolsand enablers as well as the network of partners and

professionals in the EY Area and Globalorganizations focused on various aspects of ouraudit methodology, accounting, auditing, and riskissues for specific industries and sectors.

Contents of this section

In the following sections, we describe the principalcomponents of our audit quality-control program:

• Instilling professional values

• Internal quality-control system

• Client acceptance and continuance

• Performing audits

• Review and consultation

• Audit partner rotation

• Audit quality reviews

• External quality-assurance reviews

• Compliance with legal requirements


Instilling professional values

Tone at the top

Senior EY leadership is responsible for setting theright tone at the top and demonstrating EY’scommitment to building a better working worldthrough its behavior and actions. While tone at thetop is vital, our people also understand that qualityand professional responsibility start with them. Ourshared values, which inspire our people and guidethem to do the right thing, and our commitment toquality are embedded in who we are and ineverything we do.

Our approach to business ethics and integrity isembedded in our culture of consultation, ourtraining programs and our internalcommunications. Senior management regularlyreinforces the importance of performing qualitywork, complying with professional standards andadhering to our policies, leading by example andthrough various communications. Also, our qualityreview programs assess the quality of professionalservice as a key metric in evaluating and rewardingall professionals.

Our culture strongly supports collaboration andplaces special emphasis on the importance ofconsultation in dealing with complex or subjectiveaccounting, auditing, reporting, regulatory andindependence matters. We believe it is important todetermine that engagement teams and clientscorrectly follow consultation advice, and weemphasize this when necessary.

Our stance consistently has been that no singleclient is more important than professionalreputation — the reputation of EY Philippinesand the reputation of each of our professionals.

Code of conduct

We promote a culture of integrity among ourprofessionals. The Global Code of Conduct providesa clear set of the standards that guide our actionsand our business conduct. It is organized into fivecategories containing principles that are to befollowed by everyone at EY Philippines to guidebehavior across all areas of activity:

• Working with one another

• Working with clients and others

• Acting with professional integrity

• Maintaining our objectivity and independence

• Respecting intellectual capital

Through our procedures to monitor compliancewith the Global Code of Conduct, and through

frequent communications, we strive to create anenvironment that encourages all personnel to actresponsibly, including reporting misconductwithout fear of retaliation.

The EY/Ethics Hotline provides our people, clientsand others outside of the organization with ameans to confidentially report activity that mayinvolve unethical or improper behavior and thatmay be in violation of professional standards orotherwise inconsistent with the Global Code ofConduct. The hotline is operated by an externalorganization that provides confidential and, ifdesired, anonymous hotline reporting services forcompanies worldwide.

When a report comes into the EY/Ethics Hotline,either by phone or internet, it receives immediateattention. Depending on the content of the report,appropriate individuals from Risk Management,Talent, Legal or other functions are involved toaddress the report. All matters are handled byexperienced individuals, with oversight from theglobal Risk Management function. For thosematters that are reported outside of the EY/EthicsHotline, the same procedures are followed.

Our valuesWho we are

People who demonstrate integrity, respectand teaming

People with energy, enthusiasm and thecourage to lead

People who build relationships based ondoing the right thing


Internal quality-control system

EY Philippines’s reputation for providing high-quality professional audit services independently, objectively andethically is fundamental to our success as independent auditors. We continue to invest in initiatives to promoteenhanced objectivity, independence and professional skepticism. These are fundamental attributes of a high-quality audit.

At EY Philippines, our role as auditors is to provide assurance on the fair presentation of the financial reports ofthe companies we audit. We bring together qualified teams to provide our services, drawing on our expertiseacross industry sectors and services. We strive continually to improve our quality and risk managementprocesses, so that the quality of our service is at a consistently high level.

We recognize that in today’s environment — characterized by continuing globalization and the rapid movementof capital — the quality of our audit services has never been more important. As part of Vision 2020, EYcontinues to invest heavily in developing the audit methodology, tools and other resources needed to supportquality service delivery — consistent with EY’s goal to have the leading audit practice in our profession by 2020.This reflects the strength of our commitment to building a better working world and specifically to building trustand confidence in the capital markets and in economies world over.

While the market and stakeholders continue to demand high-quality audits, they also demand increasinglyefficient and effective delivery of audit services. In addition to the investment mentioned, EY continues to seekways to improve the effectiveness and the efficiency of the audit methodology and processes, while maintainingaudit quality. We work to understand where our audit quality may not be up to our own expectations and thoseof stakeholders, including external audit firm regulators. We seek to learn from external and internal inspectionactivities and to identify root causes of quality occurrences for continuous improvement in audit quality, and webelieve that an important part of the audit inspections process is to take effective and appropriate action toimprove quality.

Effectiveness of quality control system

EY has designed and implemented a comprehensive set of global audit quality control policies and practices.These meet the requirements of the International Standards on Quality Control issued by the InternationalAuditing and Assurance Standards Board (IAASB). EY Philippines has adopted these global policies andprocedures and has supplemented them as necessary to comply with local laws and professional guidelines andto address specific business needs.

We also execute the EY Audit Quality Review (AQR) program in order to evaluate whether our system of auditquality control has operated effectively in a manner so as to provide reasonable assurance that EY Philippinesand our people comply with applicable professional and internal standards and regulatory requirements.

The results of the AQR program and external inspections are evaluated and communicated within EY Philippinesto provide the basis for continuous improvement in audit quality, consistent with the highest standards in theprofession.

The GE is responsible for implementing quality improvement and protection programs. As such, it reviews theresults of our internal AQR program and external regulatory reviews, as well as any key actions designed toaddress areas for improvement.

The recent results of such monitoring, together with the recent feedback from independent regulatoryinspection visits, provide EY Philippines with a basis to conclude that our internal control systems are designedappropriately and are operating effectively.


Client acceptance and continuance

EY policy

The Client Acceptance and Continuance Policy setsout principles for member firms to determinewhether to accept a new client or a newengagement or to continue an existing client orengagement. These principles are fundamental tomaintaining quality, managing risk, protecting ourpeople and meeting regulatory requirements. Theobjectives of the policy are to:

• Establish a rigorous process for evaluating riskand making decisions to accept/continue clientsor engagements

• Meet applicable independence requirements

• Identify and deal appropriately with anyconflicts of interest

• Identify and decline clients that pose excessiverisk

• Require consultation with designatedprofessionals to identify additional riskmanagement procedures for specific high-riskfactors

• Comply with legal, regulatory and professionalrequirements

In addition, the Conflicts of Interest Global Policydefines global standards for addressing categoriesof potential conflicts of interest and a process foridentifying them. It also includes provisions formanaging potential conflicts of interest as quicklyand efficiently as possible through the use ofappropriate safeguards. Such safeguards rangefrom obtaining a client’s consent for EY memberfirms to act for two or more clients to declining anengagement in order to avoid an identified conflict.

Putting policy into practice

We use the Global Tool for Acceptance andContinuance (GTAC), an intranet-based system, forefficiently coordinating client and engagementacceptance and continuance activities in line withglobal, service line and member firm policies. GTAC

takes users through the acceptance andcontinuance requirements and identifies thepolicies and references to professional standardsneeded to assess both business opportunities andassociated risks.

As part of this process, we carefully consider therisk characteristics of a prospective client andseveral due diligence procedures. Before we takeon a new engagement or client, we determine if wecan commit sufficient resources to deliver qualityservice, especially in highly technical areas, and ifthe services the client wants are appropriate for usto provide. The approval process is rigorous, and nonew audit engagement may be accepted withoutthe approval of our PPD.

In our annual client continuance process, we reviewour service delivery and ability to continue toprovide quality service and confirm that clientsshare EY Philippines’s commitment to quality andtransparency in financial reporting. The partner incharge of each audit, together with our Assuranceleadership, annually reviews our relationship withthe audit client to determine whether continuanceis appropriate.

Close monitoring

As a result of this review, certain auditengagements are identified as requiring, and arethen subjected to, additional oversight proceduresduring the audit, and some audit clients arediscontinued. As with the client acceptanceprocess, our PPD is involved in the clientcontinuance process and must agree with thecontinuance decisions.

Both client acceptance and client continuancedecisions consider the engagement team’sassessment of whether the company’smanagement could pressure us to acceptinappropriate accounting, auditing and reportingconclusions to undermine quality. Considerationsand conclusions on the integrity of managementare essential to acceptance and continuancedecisions.


Performing audits

As part of Vision 2020, EY will spend US$400m onimproving audit methodologies and tools tocontinue to enhance audit quality. At the same timea major investment in technology and services, ofUS$1.2b, will deliver transformational technologiesto help EY member firms better connect with theirclients. This investment is consistent with EY’s goalto have the leading audit practice in its professionby 2020 and reflects our commitment to building abetter working world and specifically to buildingtrust and confidence in the capital markets and ineconomies the world over.

Audit methodology

EY’s Global Audit Methodology (EY GAM) provides aglobal framework for delivering high-quality auditservices through the consistent application ofthought processes, judgments and procedures in allaudit engagements. Making risk assessments,reconsidering and modifying them as appropriate,and using these assessments to determine thenature, timing and extent of audit procedures arefundamental to EY GAM. EY GAM also emphasizesapplying appropriate professional skepticism in theexecution of audit procedures. EY GAM is based onInternational Standards on Auditing (ISAs) and issupplemented in the Philippines to comply withlocal Philippine auditing standards and regulatoryor statutory requirements.

EY GAM is organized into interdependent phasesdesigned to focus on the client’s business andfinancial statement risks and on how those risksaffect our audit of the financial statements.EY GAM consists of three key components:requirements; supplemental guidance; andsupporting forms, templates and examples. Therequirements reflect the typical flow of howEY Philippines executes an audit. The supplementsprovide the requirements and guidance for specificsituations and circumstances that may arise duringan audit. The forms, templates and examplesinclude leading practice illustrations and assist inperforming and documenting audit procedures.

Enhancements to the audit methodology are maderegularly as a result of new standards, emergingauditing issues and matters, implementationexperiences, and external and internal inspectionresults. For example, EY GAM has been updated forthe new requirements of ISA 610, Using the Workof Internal Auditors, relating to using internalauditors to provide direct assistance on the audit.

In addition, we monitor current and emergingdevelopments continually and issue timely auditplanning and other reminders. These remindersemphasize areas noted during inspections as wellas key topics of interest to the International Forumof Independent Audit Regulators (IFIAR). Theseinclude professional skepticism, group audits,

revenue recognition and engagement qualityreviews.

EY GAM requires compliance with relevant ethicalrequirements, including independence from thecompany we audit.

Technology

Our audit engagement teams use technology toassist in executing and documenting the workperformed in accordance with EY GAM. Ourprimary audit support tool, GAMx, drives uniformexecution of EY GAM and appropriate auditdocumentation, strengthening our ability to deliverconsistent, high-quality audits. It provides linkedaccess to knowledge databases (audit guidance andinterpretations), professional standards,documentation templates and other toolsnecessary to execute and document a risk-basedaudit effectively. GAMx facilitates engagementteam collaboration through the sharing ofinformation and the documentation of proceduresand conclusions. GAMx also enables secure peer-to-peer communications, so our people can worktogether as if they were in the same physicallocation. Audit engagement teams use othersoftware applications, forms and templates duringvarious phases of an audit to assist in making anddocumenting audit considerations, sourcing dataand analysis.

EY has a number of data analysis tools for use inaudits. These help our engagement teams analyzea client’s data, enhancing our risk assessmentprocesses and enabling the investigation of higher-risk transactions for further investigation.

Formation of audit engagement teams

EY Philippines policies require an annual review ofpartner assignments by our Assurance leadershipand PPD to make sure that the professionalsleading listed-company audits possess theappropriate competencies (i.e., the knowledge,skills and abilities) to fulfill their engagementresponsibilities and are in compliance withapplicable auditor rotation regulations.

The assignment of professionals to an auditengagement is also made under the direction ofour Assurance leadership. Factors considered whenassigning people to audit teams includecompetence, engagement size and complexity,specialized industry knowledge and experience,timing of work, continuity, and opportunities foron-the-job training. For more complexengagements, consideration is given to whetherspecialized or additional expertise is needed tosupplement or enhance the audit engagementteam.


In many situations, internal experts are assigned aspart of the audit engagement team to assist inperforming audit procedures and obtainingappropriate audit evidence. These professionals areused in situations requiring special skills orknowledge, such as information systems and assetvaluation.


Review and consultation

Reviews of audit work

Our policies describe the requirements for timelyand direct senior professional participation as wellas the level of review required for the workperformed. Supervisory members of the auditengagement team perform a detailed review of theaudit documentation for accuracy andcompleteness. Engagement partners perform asecond-level review to determine adequacy of theaudit work as a whole and the related accountingand financial statement presentation. A taxrepresentative reviews the significant tax and otherrelevant working papers. For listed and certainother companies, an engagement quality reviewer(described below) reviews important areas ofaccounting, financial reporting and audit execution,as well as the financial statements of the companywe audit and our audit report. The nature, timingand extent of the reviews of audit work depend onmany factors, including:

• The risk, materiality, subjectivity andcomplexity of the subject matter

• The ability and experience of the audit teammembers preparing the audit documentation

• The level of the reviewer’s direct participation inthe audit work

• The extent of consultation employed

Our policies also describe the roles andresponsibilities of each audit engagement teammember for managing, directing and supervisingthe audit, as well as the requirements fordocumenting their work and conclusions.

Consultation requirements

Our consultation policies are built upon a culture ofcollaboration, whereby audit professionals areencouraged to share perspectives on complexaccounting, auditing and reporting issues.Consultation requirements and related policies aredesigned to involve the right resources, so thataudit teams reach appropriate conclusions.

Consultation is built into the decision-makingprocess; it is not just a process to provideadvice.

For complex and sensitive matters, we have aformal process requiring consultation outside ofthe audit engagement team with other personnelwho have more experience or specializedknowledge, primarily Professional Practice andIndependence personnel. In the interests ofobjectivity and professional skepticism, our policies

require members of Professional Practice,Independence and certain others to withdraw froma consultation if they currently serve, or haveserved, within a specified period of time, the clientto which the consultation relates.

Our policies also require that we document allconsultations, including written concurrence fromthe person or persons consulted, in order todemonstrate their understanding of the matter andits resolution.

Engagement quality reviews

Engagement quality reviews are performed byaudit partners in compliance with professionalstandards for audits of all listed companies andthose considered higher risk. Engagement qualityreviewers are experienced professionals withsignificant subject matter knowledge. They areindependent of the engagement team and able toprovide objective evaluation of significantaccounting, auditing and reporting matters. In nocircumstances may the responsibility of theengagement quality reviewer be delegated toanother individual. The engagement quality reviewspans the entire engagement cycle, includingplanning, risk assessment, audit strategy andexecution. Policies and procedures for theperformance and documentation of engagementquality reviews provide specific guidelines on thenature, timing and extent of the procedures to beperformed and the required documentationevidencing their completion. Our PPD approves allengagement quality review assignments for listedcompanies and those considered higher risk.

Audit engagement team resolution process fordifferences of professional opinion

EY has a collaborative culture that encourages andexpects people to speak up, without fear ofreprisal, if a difference of professional opinionarises or if they are uncomfortable about a matterrelating to a client engagement. Policies andprocedures are designed to empower members ofan audit engagement team by requiring them toraise any disagreements relating to significantaccounting, auditing or reporting matters.

These policies are made clear to people as they joinEY, and we continue to promote a culture thatreinforces a person’s responsibility and authority tomake their own views heard and canvas the viewsof others.

Differences of professional opinion that ariseduring an audit generally are resolved at the auditengagement team level. However, if any personinvolved in the discussion of an issue is notsatisfied with the decision, he or she has both the


right and the obligation to see that the issue isreferred to the next level of authority untilagreement is reached or a final decision is made.Until such time, the parties to the discussion do notwithdraw, step aside or otherwise extractthemselves from the process. Furthermore, if theengagement quality reviewer makesrecommendations that the engagement partnerdoes not accept or the matter is not resolved to thereviewer’s satisfaction, the audit report is not

issued until the matter is resolved by followingconsultation processes for resolving differences ofprofessional opinion. Our documentationrequirements for disagreements and theirresolution are the same as for other consultations.Anyone involved in the process may separatelydocument his or her personal position in anattachment to the documentation of the finaldecision.


Audit partner rotation

EY supports mandatory audit partner rotation tohelp strengthen auditor independence. We complywith the audit partner rotation requirements of thecode of the International Ethics Standards Boardfor Accountants (IESBA), the Code of Ethics forProfessional Accountants in the Philippines, thePhilippine SEC Code of Corporate Governance, theInsurance Commission of the Philippines, theBangko Sentral ng Pilipinas (Central Bank of thePhilippines), as well as the US Securities andExchange Commission (SEC), where required. Wefollow the most stringent partner rotation policyapplicable to each situation. EY Philippinessupports audit partner rotation because it providesa fresh perspective and promotes independencefrom company management while retainingexpertise and knowledge of the business. Auditpartner rotation, combined with independencerequirements, enhanced systems of internal qualitycontrols and independent audit oversight, helpsstrengthen independence and objectivity and is animportant safeguard of audit quality.

For public interest entities where rotation of theaudit partner is not mandated by localindependence regulation or is less restrictive thanthe IESBA requirements, the EY GlobalIndependence Policy requires the lead engagementpartner and the engagement quality reviewer to berotated after seven years. For a newly publicinterest entity (including a newly listed company)client, the lead engagement partner and theengagement quality reviewer may remain in placefor an additional two years before rotating off theteam, regardless of the time they served prior tothe listing. Following rotation, the partner may notresume the lead or engagement quality review roleuntil at least two years have elapsed.

We have tools to track partner rotation that enableeffective monitoring of compliance withrequirements. We have also implemented a processfor partner rotation planning and decision-makingthat involves consultation with, and approvals by,our Professional Practice and Independenceprofessionals.


Audit quality reviews

The Global Audit Quality Review (AQR) program isthe cornerstone of our process to monitor auditquality. EY Philippines executes the Global AQRprogram, reports results and develops responsiveactions plans. The primary goal of the program isto determine whether systems of quality controls,including those of EY Philippines, are appropriatelydesigned and followed in the execution of auditengagements to provide reasonable assurance ofcompliance with policies and procedures,professional standards, and regulatoryrequirements. The Global AQR program complieswith guidelines in the International Standard onQuality Control No. 1, as amended (ISQC No. 1),and is supplemented where necessary to complywith Philippine professional standards andregulatory requirements. It also aids EYPhilippines’s continual efforts to identify areaswhere we can improve our performance orenhance our policies and procedures.

The Global AQR program is implemented annuallyand is coordinated and monitored byrepresentatives of the PPD network, with oversightby the Assurance Leadership.

The engagements reviewed each year are selectedon a risk-based approach emphasizing audit clientsthat are large, complex or of significant publicinterest. The Global AQR program includesdetailed, risk-focused file reviews covering a largesample of listed and non-listed audit engagementsto measure compliance with internal policies andprocedures, EY GAM requirements, and relevantlocal professional standards and regulatoryrequirements. It also includes reviews of a sampleof non-audit engagements. These measurecompliance with the relevant professionalstandards and internal policies and procedures thatshould be applied in executing non-audit services.In addition, practice-level reviews are performed to

assess compliance with quality control policies andprocedures in the functional areas set out inISQC No. 1. The Global AQR program complementsexternal practice monitoring and inspectionactivities, such as regulatory inspection programsand external peer reviews.

In 2013, EY Philippines‘s AQR resulted in theinspection of 12 audit engagements. In 2013, 83%of the engagements inspected internally by EYPhilippines were rated as having no materialfindings or deficiencies. Whether there arematerial or minor findings or deficiencies, EYPhilippines looks at the findings from internal andexternal inspections to identify root causes,develop action plans and improve audit quality.

AQR reviewers and team leaders are selected fortheir skills and professional competence inaccounting and auditing, as well as their industryspecialization; they often work in the Global AQRprogram for a number of years and are highlyskilled in the execution of the program. Teamleaders and reviewers are assigned to inspectionsoutside of their home location and are independentof the audit teams reviewed.

The results of the Global AQR program andexternal practice-monitoring and inspectionactivities are evaluated and communicated toimprove quality. Any quality improvement plansdescribe the follow-up actions to be taken, thepeople responsible, the timetable and deadlines,and sign-off on completed actions. Measures toresolve audit quality issues noted from the GlobalAQR program, regulatory inspections and peerreviews are addressed by our Assurance leadershipand our PPD with input from Risk Managementgroups. The actions are monitored by our PPD andAssurance leadership. These programs provideimportant practice monitoring feedback for ourcontinuing quality improvement efforts.


External quality-assurance review

EY Philippines’s audit practice is subject to periodicinspection by the US Public Company AccountingOversight Board (PCAOB). As part of itsinspections, the PCAOB evaluates quality controlsystems and reviews selected engagements.

The last quality assurance inspection by the PCAOBtook place in 2012. The final report on theinspection was issued on 30 November 2012.

As stated in the 2012 Inspection Report, the 2012review of audit engagements “did not identify anyaudit performance issues that, in the inspectionteam’s view, resulted in the Firm failing to obtainsufficient appropriate audit evidence to support itsaudit opinion on the financial statements or ICFR ofthe issuer audit client or to fulfill the objectives ofits role in the other engagement.” The inspectionteam’s review of EY Philippines’s quality control

system “did not identify anything that it consideredto be a quality control defect that warrantsdiscussion in a Board inspection report.”

We respect and benefit from the PCAOB’sinspection process. We thoroughly evaluate pointsraised during the inspection in order to identifyareas where we can improve audit quality. Togetherwith our AQR process, external inspections aid usin making our audits and related control processesof the highest quality in the interests of investorsand other stakeholders.

Information on the above-mentioned regulatoralong with publicly available inspection reports canbe found on its website, pcaob.org.


Compliance with legal requirements

The EY Global Code of Conduct provides a clear setof standards that guide our actions and businessconduct. EY Philippines complies with applicablelaws and regulations, and EY’s values underpin ourcommitment to doing the right thing. Thisimportant commitment is supported by a numberof policies and procedures, including:

Anti-bribery

The Anti-bribery Global Policy provides our peoplewith direction around certain unethical and illegalactivities. It emphasizes the obligation of ourpeople to comply with anti-bribery laws andprovides greater definition of what constitutesbribery. It also identifies reporting responsibilitieswhen bribery is discovered. In recognition of thegrowing global impact of bribery and corruption,efforts have been increased to embed anti-briberymeasures across EY, and training is mandated forall our people.

Insider trading

The Insider Trading Global Policy reaffirms theobligation of our people not to trade in securitieswith insider information, provides detail on whatconstitutes insider information and identifies withwhom our people should consult if they havequestions regarding their responsibilities.

Trade sanctions

Given the level of EY’s global integration, it isimportant that we are aware of the ever-changing

situation in respect of international tradesanctions. EY monitors sanctions issued in multiplegeographies and provides guidance to our peopleon impacted activities.

Data privacy

The Global Personal Data Privacy Policy sets outthe principles to be applied to the use andprotection of personal data, including that relatingto current, past and prospective personnel, clients,suppliers and business associates. This policy isconsistent with applicable laws and regulationsconcerning data protection and privacy whenprocessing personal data. It provides a foundationfor maintaining the privacy of all personal dataused by EY Philippines. Furthermore, we have apolicy to address our specific Philippine dataprivacy requirements and business needs.

Document retention

EY Philippines’s record retention policy applies toall engagements and personnel. This policyemphasizes that all documents must be preservedwhenever any person becomes aware of any actualor reasonably anticipated claim, litigation,investigation, subpoena or other governmentproceeding involving us or one of our clients thatmay relate to our work. It also addresses Philippinelegal requirements applicable to the creation andmaintenance of working papers relevant to thework performed.

\


Independence practicesEY Independence policies require EY Philippinesand our people to comply with the independencestandards applicable to specific engagements,including, for example, the independence standardsof the International Ethics Standards Board forAccountants (IESBA) of the InternationalFederation of Accountants (IFAC) and the Code ofEthics for Professional Accountants in thePhilippines.

We consider and evaluate independence fromseveral perspectives, including: our financialrelationships and those of our people; employmentrelationships; business relationships; thepermissibility of non-audit services we provide toaudit clients; partner rotation; fee arrangements;audit committee preapproval, where applicable;and partner remuneration and compensation.

Failure to comply with applicable professionalindependence requirements will factor into aperson’s promotion and compensation decisionsand may lead to other disciplinary measures.

We have implemented EY’s global applications,tools and processes to support us, ourprofessionals and other employees in complyingwith independence policies.

EY Global Independence Policy

The EYG Independence Policy contains theindependence requirements for member firms,professionals and other personnel. It is a robustpolicy predicated on the IESBA Code of Ethics, withmore stringent requirements where prescribed by agiven regulator. The policy also contains guidanceto help people apply the independence rules. TheEYG Independence Policy is readily accessible andeasily searchable through EY’s intranet.

Global Independence System

The Global Independence System (GIS) is anintranet-based tool that helps determine the listedentities from which independence is required andthe independence restrictions that apply to each.Most often these are listed audit clients and theiraffiliates, but they can be other types of attest orassurance clients. The tool includes family-tree

data relating to affiliates of listed audit clients andis updated by client-serving engagement teams.The entity data includes notations that indicate theindependence rules that apply to each entity,helping our people determine the type of servicesthat can be provided.

Global Monitoring System

The Global Monitoring System (GMS) is anotherimportant global tool that assists in identifyingproscribed securities and other impermissiblefinancial interests. People ranked as manager andabove are required to enter any securities theyhold, or those held by their immediate family, intothe GMS. When a person enters a proscribedsecurity, they receive a notice and are required todispose of the security. Identified exceptions arereported through the Global Independence IncidentReporting System (GIIRS) for regulatory matters.

GMS also facilitates annual and quarterlyconfirmation of compliance with independencepolicies, as described below.

Independence compliance

EY has established a number of processes andprograms aimed at monitoring the compliance withindependence requirements of EY member firmsand their people. These include the followingactivities, programs and processes:

Independence confirmations

Timely and accurate completion of annual andquarterly independence confirmations is a highpriority for the responsible leadership teams.

Annually, EY Philippines is included in an Area-wideprocess to confirm compliance with the GlobalIndependence Policy and requirements and toreport identified exceptions, if any.

All EY professionals, and certain others based ontheir role or function, are required to confirmcompliance with independence policies andprocedures at least once a year. All partners arerequired to confirm compliance quarterly.


Global Independence Compliance Reviews

EY conducts a number of testing and member firmvisits to assess compliance with independencematters. These include reviewing for non-auditservices, business relationships with the companieswe audit and financial relationships of memberfirms.

Each year, EY’s global Independence teamestablishes a program for testing compliance withpersonal independence confirmation requirementsand with reporting of information into GMS.

For the 2013 testing cycle, EY Philippines tested33 partners and other personnel.

EY Philippines confirms that the GlobalIndependence Compliance Review last occurredduring 2012.

Non-audit services

We monitor compliance with professional standardsgoverning the provision of non-audit services toaudit clients through a variety of mechanisms.These include the use of tools (e.g., GTAC — seepage 12 and Service Offering Reference Tool(SORT) — see below), training and requiredprocedures completed during the performance ofaudits and internal inspection processes.

Global independence learning

EY develops and deploys a variety of independencelearning programs. All professionals and certainother personnel are required to participate inannual independence learning to help maintain ourindependence from the companies we audit.

The goal is to help our people understand theirresponsibility and to enable each of them, andEY, to be free from interests that might beregarded as being incompatible with objectivity,integrity and impartiality in serving an auditclient.

The annual independence learning program coversindependence requirements focusing on recentchanges to policy, as well as recurring themes and

topics of importance. Timely completion of annualindependence learning is required and is monitoredclosely.

In addition to the annual learning program,independence awareness is promoted through anumber of events and materials, including the new-hire program, milestone programs and core serviceline curricula.

Service Offering Reference Tool (SORT)

We assess and monitor our portfolio of services onan ongoing basis, confirming that they arepermitted by law and professional standards, andto make sure that we have the right methodologies,procedures and processes in place as new serviceofferings are developed. When appropriate, we exitor restrict services that could present undueindependence or other risks. SORT provides ourpeople with information about our serviceofferings. SORT includes guidance around whichservices can be delivered to audit and non-auditclients, as well as independence and other riskmanagement issues.

Business Relationship Evaluation Tool (BRET)

BRET helps to support our business relationships’compliance with independence requirements. Ourpeople are required to use BRET in manycircumstances to evaluate and obtain advanceapproval of any potential business relationship withan audit client.

Audit committees and corporate governance

We recognize the important role audit committeesand similar corporate governance bodies play in theoversight of auditor independence. Empowered andindependent audit committees play a vital role onbehalf of shareholders in protecting independenceand preventing conflicts of interest. We arecommitted to robust and regular communicationwith audit committees or those charged withgovernance. Through our quality review programs,we monitor and test compliance with our standardsfor audit committee communications, as well as thepre-approval of services, where applicable.


Creating high-performing teamsEY member firms are building a better workingworld for their people by developing outstandingleaders and creating a culture of high-performanceteaming. Our people are encouraged to build theirskills and experiences, learn from each other, anddeliver exceptional client service. This culture ofhigh performance is supported by EY memberfirms’ commitment to recruiting, managing andretaining top talent; learning and development; andEY member firms’ inclusive culture.

This is why one of our strategic objectives is toattract and build lifelong relationships with adiverse group of talented assurance professionals.

We are proud of our inclusive people culture, andwe are committed to doing even more toadvance our people’s development.

Recruitment and hiring

Recruiting for our audit practice is performedprimarily on university campuses andsupplemented, when necessary, by hiring peoplewith prior work experience. Candidates areevaluated based on the following competencies:

• Intellectual competence

• Leadership skills

• Team/personal skills

• Motivation

• Communication skills

EY aspires to have a leading people cultureeverywhere in the world. We believe that creating aculture that attracts, retains and developsoutstanding people leads to higher quality service.

Valuing diversity and inclusiveness

The global workforce is becoming more diverse as aresult of an increasingly mobile internationalworkforce and demographic and social shifts. Forglobal organizations such as EY, an importantaspect of creating the right working environment isa focus on inclusiveness.

Inclusiveness is essential to making the diverse mixwork. It is about equity and opportunity — makingsure that differences are celebrated so thattalented people from any background can rise tothe top and ensuring that opportunities to developand advance are available for all from day one.

It is a source of pride for us that EY member firmsare regularly cited by external organizations asbeing leaders in diversity practices and forproviding an excellent working environment.


Continuing education of statutory auditors

Professional development

The EY career development framework, EYU,provides our people with opportunities for the rightexperiences, learning and coaching to help themgrow and achieve their potential.

The learning component of EYU is based on anextensive and globally consistent learningcurriculum that helps all of our people develop theright technical and personal leadership skills,wherever they are located around the world. Coreaudit training courses are supplemented bylearning programs that are developed in responseto changes in accounting and reporting standards,independence and professional standards, andemerging practice issues. We require our auditprofessionals to obtain at least 20 hours ofcontinuing professional education each year and atleast 120 hours over a three-year period. Of thesehours, 40% (8 hours each year and 48 hours over athree-year period) must cover technical subjectsrelated to accounting and auditing.

In addition to formal learning, professionaldevelopment occurs through coaching andexperiences our professionals receive on the job.Coaching helps to transform knowledge andexperience into practice. Experienced professionals

are expected to coach and develop lessexperienced personnel to create a continuallearning environment. We also manage theassignment of our people to particularengagements in a systematic way that ensures theyhave exposure to a range of experiences as part oftheir own development.

Performance management

A comprehensive performance managementprocess requires our people to set goals, have clearwork expectations, receive feedback and talk abouttheir performance. The Performance Managementand Development Process (PMDP) is designed tohelp our people grow and succeed in their careers.Under the PMDP, periodic job performance reviewsare combined with annual self-appraisal and annualreviews. As part of the annual review process, eachprofessional, in conjunction with his or hercounselor (an assigned, more experiencedprofessional), identifies opportunities for furtherdevelopment. Professionals and their counselorsare guided by a set of expectations that articulatethe knowledge, skills and behaviors that should bemaintained and developed for their respective rank.These expectations derive from, and align with,EY’s global strategy and values.


Knowledge and internal communications

We understand the importance of providing clientengagement teams with up-to-date information tohelp them perform their professionalresponsibilities.

EY has made significant investments in knowledgeand communication networks to enable the rapiddissemination of information and to help peoplecollaborate and share best practice. Examplesinclude:

• Global Accounting & Auditing Information Tool(GAAIT), EY’s standard accounting and auditingresearch tool, includes local and internationalaccounting and auditing standards andinterpretative guidance.

• Publications that keep practitioners and clientsinformed of the latest reporting regulations andguidance, such as International GAAP, IFRSdevelopments and illustrative financialstatements, are produced by IFRS Services inGlobal Professional Practice.

• Global Accounting and Auditing News is aweekly newsletter that covers global Assuranceand Independence policies and procedures,news from the International AccountingStandards Board (IASB) and InternationalFederation of Accountants (IFAC), and internalcommentary and guidance regardinginternational accounting, auditing andindependence developments.

• EY’s Point of view and Overviews arepublications that provide importantperspectives on current public policy andregulatory developments to our profession,stakeholders and capital markets.

• Practice alerts and webcasts include a range ofglobal and country-specific practice alerts andspecific webcasts within the Assurance practice,including those highlighting inspection findingsas an opportunity for practice improvement.

• Your EY Daily News is an email that alertscolleagues to new content on the intranet,including news about EY’s services, clients andpeople.

• An internal social network, private to EY, is usedby colleagues to share information, workcollaboratively, find resources and buildrelationships. It is fully mobile and can beaccessed via the internet on any device ornetwork.

• Industry-specific insights and learning areprovided by each of EY’s 16 industry sectors,supported by a dedicated Sector KnowledgeLeader and knowledge managers. Accountteams also have access to research and analysisprofessionals. Sector-specific insights andlearning are shared via an intranet space, whichalso highlights sector-specific news, thoughtleadership, learning modules and key contacts.

• Client publications address key business issues,such as the biennial global fraud survey,quarterly economic forecasts and insights intoissues for businesses considering cross-borderinvestment. Client teams are provided withsupport materials to take the relevant insightsto each client.

Quality-control policy and practice manuals andother guidance materials are included on ourintranet. These promote consistency, accuracy,quality and accessibility in our internal and externalcommunications, and they function as a riskmanagement tool. This information, along withguidance materials from outside organizations, isupdated regularly and maintained in anelectronically searchable format.

Internal surveys and continuous improvement

We regularly gather data from various qualitycontrol processes, such as Audit Quality Reviews,consultation processes and other methods, tofurther improve policies, practices and training. Wesupplement this data with surveys of our peopleevery year. The Global People Survey gauges whatpeople think about EY’s culture and how memberfirms conduct business, one of the best indicatorsof their focus on quality. Results from these andother feedback tools help identify where memberfirms are doing well and where improvements canbe made. The results also guide us in establishingaction plans and initiatives.


Revenue and remunerationFinancial information

The financial information presented below forEY Philippines represents combined, notconsolidated, revenues and includes expensesbilled to clients and revenues related to billings toother EYG member firms. Also, revenueinformation disclosed in this report includesrevenues from both audit and non-audit clients.

‘Other assurance services’ revenue includesaccounting and financing services; certain duediligence services; and risk-related servicesincluding internal controls, internal audits,technology and security, Sarbanes-Oxley (SOX)compliance, fraud and forensics, and otherattestation services. ‘Other non-audit services’revenue includes transaction, valuation,performance improvement, restructuring and otheradvisory-related services.

Financial information for the period ended30 June 2014

Service Percent

Statutory audit 64%

Other assurance services 2%

Tax advisory 22%

Other non-audit services 12%

Total 100%

Financial information for the period ended30 June 2013

Service Percent

Statutory audit 67%

Other assurance services 1%

Tax advisory 22%

Other non-audit services 11%

Total 100%*

*Items do not total 100% due to rounding off.


Partner remuneration

Quality is at the center of our business strategy anda key component of our performance managementsystems. Our partners and other professionals areevaluated and compensated based on criteria thatinclude specific quality and risk managementindicators, covering both actions and results.

The Global Partner Performance Management(GPPM) process is a globally consistent evaluationprocess for all partners in EY’s member firmsaround the world. It reinforces the global businessagenda by linking their performance to wider goalsand values. GPPM is an ongoing, cyclical processthat includes goal setting, personal developmentplanning, performance review, and recognition andreward. It is the cornerstone of the evaluationprocess to document partners’ goals andperformance. A partner’s goals are required toreflect various global priorities, one of which isquality.

We prohibit evaluating and compensating leadaudit engagement partners and other key auditpartners on an engagement based on the sale ofnon-assurance services to their audit clients.This reinforces to our partners their professionalobligation to maintain our independence andobjectivity.

Specific quality and risk management performancemeasures have been developed to account for:

• Technical excellence

• Living the EY values as demonstrated bybehaviors and attitude

• Demonstrating knowledge of, and leadership in,quality and risk management

• Compliance with policies and procedures

• Compliance with laws, regulations andprofessional duties

• Contributing to protecting and enhancing theEY brand

Our partner compensation philosophy calls formeaningfully differentiated rewards based on apartner’s level of performance, as measured by theGPPM process. Partners are assessed annually ontheir performance in delivering quality, exceptionalclient service and people engagement alongsideour financial and market metrics.

We operate a cap system so that a partner’soverall year-end rating is always aligned with thepartner’s quality rating.

To recognize different market values for differentskills and roles, and to attract and retain high-performing individuals, the following factors arealso considered when calculating total reward:

• Seniority

• Role and responsibility

• Long-term potential

• Mobility

Instances of non-compliance with quality standardsresult in remedial actions, which may includecompensation adjustment, additional training,additional supervision or reassignment. A patternof non-compliance or particularly serious non-compliance may result in actions that includeseparation from EY Philippines.


Working with our stakeholders and communitiesStakeholder dialogue

As an auditor of listed companies and other publicinterest entities, EY Philippines is acutely aware ofthe important public interest role we play inpromoting trust and confidence in business, capitalmarkets and economies.

We take our public interest responsibilitiesseriously, and we work hard to maintain an openand frank dialogue with our stakeholders as part ofour broader commitment to building a betterworking world. When meeting with ourstakeholders, we seek to better understand theirpoints of view and provide our perspective. Wesupport improvements in corporate governance,financial reporting and other matters that affectour capital markets more broadly.

Our environment is shaped by a wide range ofpolicy makers, including governments, regulators,standard setters and international organizations.EY is engaging increasingly with globalorganizations like the Financial Stability Board, theInternational Forum of Independent AuditRegulators, the Basel Committee on BankingSupervision, the Organisation for Economic Co-operation and Development (OECD) and theInternational Organization of SecuritiesCommissions. EY also participates in globalforums, such as those held by the World EconomicForum in Davos and elsewhere, that bring togetherthought leaders on issues important to us and ourstakeholders.

Selected stakeholder engagement globally in2014

During the past year, international organizationsand policy makers around the world have focusedon a number of issues affecting our profession,including audit quality, the role and relevance ofaudit, and developments in corporate and auditorreporting. Policy options such as enhanced auditorreporting, more meaningful corporate disclosure,mandatory audit firm rotation or tendering, andincreased transparency of audit committee auditoroversight continue to be debated in a number ofjurisdictions.

Notably, in 2014 the European Union adoptedaudit legislation that will have a significant effect in

the EU and beyond. Among other provisions, thelegislation imposes mandatory audit firm rotationfor the statutory audits of public interest entitiesacross the EU. The legislation will also apply to EUpublic interest entity subsidiaries of companiesheadquartered outside the EU. Therefore, whilethe impacts of the legislation will be greatest in theEU, it will affect many companies and theirinvestors outside the EU.

EY has met regularly with investors, regulators,legislators and other stakeholders in 2014 todiscuss all these issues. These conversations havehighlighted the importance of strong corporategovernance, with active and engaged auditcommittees that are transparent with shareholdersabout their oversight of the external auditor.

Due to the importance of sound corporategovernance to effective financial reporting, EY hasalso enhanced our engagement with the OECD as itworks to revise its Corporate GovernancePrinciples. Significant changes have occurred incorporate governance frameworks in the 10 yearssince the Principles were last updated, includingthe growth of independent audit committees inmany countries. The Principles serve as guidancefor corporate governance frameworks injurisdictions around the world and therefore have aglobal impact.

Investors are among EY member firms’ keystakeholders. This past year EY has continued toincrease our investor engagement around theworld to make sure we understand investorperspectives on auditing, financial reporting,corporate governance and other capital marketissues. The aim is to bring together the keyparticipants in the reporting community fordialogue on issues that are of mutual interest. EYhas engaged with investors in several differentways, including co-hosting a conference with theHungarian Ministry for National Economy inBudapest on corporate governance, attended byinvestors, companies and academics from severalcentral and eastern European countries.


EY members of the EY Network also held aworkshop with investors in the UK to discussaspects of EY’s audit methodology, governanceand other key topics. EY members of the EYNetwork also continued to hold private dialoguedinners with investors and other stakeholders fromaround the globe to foster discussion about waysto improve corporate governance. These dinnersare independently moderated and held on aChatham House or off-the-record basis toencourage frank discussion.

EY continues to participate in the Global AuditorInvestor Dialogue, an informal network of leadingglobal institutional investors, and major global

auditing networks to exchange views on currentfinancial reporting and auditing issues. EY alsocontinues to be a member of the Asian CorporateGovernance Association and a frequent sponsor ofInternational Corporate Governance Networkconferences. Engagement with these organizationsenhances EY’s perspectives on a wide variety ofpolicy matters. We value the opportunity to betterunderstand the views of investors and others.

For more about our views

A selection of recent thought leadership isavailable on the EY Insights application for mobileand tablet devices.


Commitment to our communities

Our commitment to building a better working worldbegins with our people and extends to the work wedo with clients and other stakeholders in themarketplace. The net effect is the benefit thisgenerates for communities around the world. Themost significant impact we have on society is byour support of global and local economic stabilityand growth, which addresses some of the majorissues that the world is facing.

EY supports organizations and activities thatcontribute to building a better working world at theglobal, regional and local level. EY is proud to bepart of the UN Global Compact and has pledged touphold its ten universally accepted principles in theareas of human rights, labor, the environment andanti-corruption. EY reports its progress every year.

Supporting communities though time andresources

We contribute both through the giving of ourpeople’s time and our financial resources to not-for-profit organizations that are aligned with ourcorporate responsibility strategy, as we believethat this is where we make the biggest impact andaddress the most pressing needs of thecommunities in which we live and work.

Demonstrating environmental stewardship

We believe that we have an important role to playin building an environmentally sustainable world.As such, we’re challenging ourselves to work in anenvironmentally responsible manner and to findnew ways to reduce our carbon footprint, whichcomes mainly from business travel and energyconsumption.

EY continues to build out its greenhouse gasmeasurement and reporting. Working with ClimateChange and Sustainability Services professionals inEY member firms, we have established a globalmethodology for calculating environmentalimpacts. EY is looking for ways to evolve andemploy leading practices to make sure we have acredible global footprint.

The UN Global Compact’s ten principles

Human rights

1. Businesses should support and respect theprotection of internationally proclaimed humanrights; and

2. Make sure that they are not complicit inhuman rights abuses.

Labor

3. Businesses should uphold the freedom ofassociation and the effective recognition of the

right to collective bargaining;

4. The elimination of all forms of forced andcompulsory labor;

5. The effective abolition of child labor; and

6. The elimination of discrimination in respect ofemployment and occupation.

Environment

7. Businesses should support a precautionaryapproach to environmental challenges;

8. Undertake initiatives to promote greaterenvironmental responsibility; and

9. Encourage the development and diffusion ofenvironmentally friendly technologies.

Anti-Corruption

10. Businesses should work against all forms ofcorruption, including extortion and bribery.


Appendix: EY Philippines public interest entity audit clientsIn the financial year ended on 30 June 2014, EYPhilippines performed statutory audits of thefollowing public interest entities whose transferablesecurities have been admitted to trading inLuxembourg:

· First Philippine Holdings Corporation

· Lopez Holdings Corporation

· Philippine Long Distance TelephoneCompany

EY | Assurance | Tax | Transactions | Advisory

About EY

EY is a global leader in assurance, tax, transactionand advisory services. The insights and qualityservices we deliver help build trust and confidencein the capital markets and in economies the worldover. We develop outstanding leaders who team todeliver on our promises to all of our stakeholders.In so doing, we play a critical role in building abetter working world for our people, for our clientsand for our communities.

EY refers to the global organization, and may referto one or more, of the member firms ofErnst & Young Global Limited, each of which is aseparate legal entity. Ernst & Young GlobalLimited, a UK company limited by guarantee, doesnot provide services to clients. For moreinformation about our organization, please visitey.com.

© 2014 SyCip Gorres Velayo & Co.All Rights Reserved.APAC no. 10000034ED None.

This material has been prepared for general informationalpurposes only and is not intended to be relied upon asaccounting, tax, or other professional advice. Please refer to youradvisors for specific advice.

ey.com

transparency report 2014 - building a better working world ... · sycip gorres velayo & co. (ey...

Documents