Own-initiative investigation into Royal Mail Group Limited (“Royal Mail”) concerning compliance with USP Accounting Conditions 1.3.4, 1.4.4 and 1.5.5 and the Regulatory Accounting Guidelines regarding the provision of Audit Opinions

06 January 2016

Complainant: Ofcom own-initiative investigation
Investigation against: Royal Mail
Case Opened: 4 November 2015
Case closed: 6 January 2016
Issue: Whether Royal Mail has complied with its obligations under USP Accounting Condition (“USPAC”) 1.3.4, 1.4.4 and 1.5.5 and the Regulatory Accounting Guidelines (“RAG”) to secure an appropriate audit opinion in respect of the relevant regulatory financial statements for the years 2013/14 and 2014/15.
Relevant Instrument: USPAC 1.3.4, 1.4.4 and 1.5.5 and the RAG

On 16 December 2015, Royal Mail wrote to Ofcom confirming that it had re-issued its 2013/14 and 2014/15 regulatory financial statements having secured and included an appropriate audit opinion in accordance with the requirements of USPAC 1.3.4, 1.4.4 and 1.5.5 and Section 10 of the RAG. Royal Mail’s re-issued 2013/14 and 2014/15 regulatory financial statements are publicly available on Royal Mail’s website at the following link: http://www.royalmailgroup.com/about-us/regulation/regulatory-financial-statements.

Having reviewed the re-issued regulatory financial statements for the purposes of our investigation, Ofcom is now satisfied that Royal Mail has taken the appropriate steps to comply with the requirements of USPAC 1.3.4, 1.4.4 and 1.5.5 and Section 10 of the RAG, as set out in Ofcom’s Notification to Royal Mail under paragraph 2 of Schedule 7 to the Postal Services Act 2011 of 17 November 2015, and no further action will be taken. The investigation has therefore now been closed.

Update note: 17 November 2015

Following an investigation, Ofcom has determined that there are reasonable grounds for believing that Royal Mail has contravened its obligations under USPAC 1.3.4, 1.4.4 and 1.5.5 and the RAG in respect of the audit opinions it provided for the years 2013/14 and 2014/15, as they were not in the required form.

Specifically, Royal Mail was required to secure audit opinions for its 2013/14 and 2014/15 regulatory financial statements that provide reasonable assurance that those statements have been Properly Prepared In Accordance with the Regulatory Accounting Guidelines and the Guiding Principles set out under USPAC 1.7.2. However, the audit opinions for the 2013/14 and 2014/15 regulatory financial statements do not make reference to the relevant financial statements having been prepared in accordance with the Guiding Principles. As a result, they do not provide reasonable assurance that those statements were properly prepared in accordance with the Guiding Principles set out under USPAC 1.7.2.

On 17 November 2015 Ofcom therefore issued a Notification to Royal Mail under paragraph 2 of Schedule 7 to the Postal Services Act 2011 which outlined the steps that Royal Mail should take to comply with the requirements in the USPAC.  Royal Mail may make representations to Ofcom on the matters contained in the Notification by 18 December 2015.

We note that our update of 5 November 2015 referred to an investigation into Royal Mail plc. This update clarifies that our investigation is into Royal Mail Group Limited, which is the designated universal service provider to whom the relevant regulatory requirements apply.

End of update note

Ofcom has opened this investigation following assessment of evidence regarding whether Royal Mail has provided audit opinions in the required form for the years 2013/14 and 2014/15.

USPAC 1.3.4, 1.4.4 and 1.5.5 require Royal Mail to secure an appropriate audit opinion by a Qualified Independent Auditor in respect of certain regulatory financial statements and information on the basis directed by Ofcom from time to time. The nature of the assurance required for the purposes of these audit opinions is set out in Section 10 of the RAG.

On 27 January 2014 we published a statutory notification entitled ‘Updating the Regulatory Reporting Framework – Statutory Notification – USP accounting condition’ (the “Notification”) which changed the form required for the relevant audit opinions, as described in the RAG. Specifically, the definition of ‘PPIA’ as set out in the RAG was updated to clarify that the audit opinion has to be “Properly Prepared in Accordance with these Guidelines and the Guiding Principles set out under USPAC 1.7.2<” (the underlined text highlights the amendment made to the wording).

Ofcom’s investigation will examine whether there are reasonable grounds for believing that Royal Mail has failed to comply with its obligations under USPAC 1.3.4, 1.4.4 and 1.5.5 and the RAG in respect of the audit opinions it provided for the years 2013/14 and 2014/15 following the changes introduced when the Notification came into effect.

Case Leader: Kathryn Searle
Case Reference: CW/01169/11/15