External Audit Independence Policy

The entity must disclose the name of any officer who is a former partner or director of the audit firm or audit company who conducted the Group's audit during the financial year and who was a partner or director at a time when the audit firm or the audit company conducted an audit of the Group.

Non audit services:

• The Directors’ Report must disclose details of the amount paid or payable to the auditor for each category of non audit service provided by the auditor to a member of the Group during the financial year.
• The Directors’ Report must also contain a statement outlining whether the directors’ are satisfied, together with their reasons, that the provision of non audit services by the auditor during the year was compatible with the general standard of independence for auditors imposed by the Corporations Act (discussed below). This statement must be consistent with formal advice obtained from the Audit Committee. The Audit Committee’s advice must be provided to the Board and be in the form of an endorsed resolution passed by the members of the Audit Committee, supported by written advice signed by a member of the Audit Committee on behalf of the Audit Committee. The procedure for assessing the provision of non-audit services is set out in Section 6 below.

Auditor’s independence declaration:

The Directors’ report must include a copy of the auditor’s independence declaration.

Note: The Company Secretary is responsible for collecting and, as required, verifying the above disclosures as part of the financial accounts due diligence process.

Note: Section 3 and 4 contain a summary of the auditor’s main compliance obligations under the Corporations Act (with respect to its independence). It is an overview only of some complex provisions.

Auditor’s independence declaration:

If an auditor conducts an audit for a financial year or half year, then the auditor must give the directors a written declaration that to the best of the auditor’s knowledge and belief:

1. there have been no contraventions of:
   
   • the auditor independence requirements (both general and specific) of the Corporations Act in relation to the audit; and
   • any applicable code of professional conduct in relation to the audit review;
   or
2. the only contraventions of the above are those contraventions which are set out in the declaration.

General auditor independence requirements:

Conflict of interest is the main issue to be considered by the auditor in satisfying the general auditor independence requirements.

It is a contravention of Section 324CA(1) if an individual auditor or audit company engages in audit activity, if at the time the individual auditor or audit company is aware that a "conflict of interest situation" exists in relation to the audited body and reasonable steps are not taken to ensure that the conflict of interest situation ceases to exist as soon as possible after the auditor becomes aware of the situation.

ASIC must be notified by the individual auditor or audit company if the conflict of interest situation continues to exist 7 days after the auditor becomes aware of it. A copy of the notification must be provided to the audited body. Similar obligations to rectify or notify ASIC apply in relation to the specific independence requirements discussed in Section 4 below.

ASIC must be notified by the individual auditor or audit company if the conflict of interest situation continues to exist 7 days after the auditor becomes aware of it. A copy of the notification must be provided to the audited body. Similar obligations to rectify or notify ASIC apply in relation to the specific independence requirements discussed in Section 4 below.

An individual auditor or audit company does not commit an offence because of a contravention of Section 324CA(2) in relation to audit activity engaged in at a particular time if they have reasonable grounds to believe they had had in place at that time a quality control system that provided reasonable assurance that the auditor (and its employees) complied with the general requirements for auditor independence.

Similar provisions apply to members of audit firms and to directors of audit companies.

Section 324CD provides that a conflict of interest situation exists if at any time:

• the auditor, or a professional member of the audit team, is not capable of exercising objective and impartial judgement in relation to the conduct of the audit; or
• a reasonable person, with full knowledge of the facts and circumstances, would conclude that the auditor, or professional member of the audit team, is not capable of exercising objective and impartial judgement in relation to the conduct of the audit.

In assessing the above, the Corporations Act states that regard should be given to the circumstances arising from past, current or likely relationships:

• the individual auditor, audit firm (and any current or former member of that firm) or audit company (and any current or former director of that company); and
• the audited body or a current or former director or manager of the audited body.

The following is a general summary of a range of complex specific relationship issues which may contravene the specific auditor independence requirements set out in Section 324CH, in particular, if such a relationship is in existence at the time that an audit firm or audit company engages in audit activity with respect to the audited body. (The obligations to rectify or notify ASIC are discussed in Section 3 above)

• Current or former officer or audit critical employee:

The individual auditor, or a professional member of the audit team conducting the audit, is related to the audited body by being:

1. an audit critical employee (ie. with significant influence over the audit) of the audited body; or
2. an officer of the audited body or a related body corporate, during the period to which the audit relates, the 12 months immediately preceding that period or while the audit is being conducted or audit report prepared.

• Non audit service provider who exceeds the maximum hours test:

A conflict of interest may arise where a director or senior manager of an audit company or member or senior manager of an audit firm, who is not a professional member of the audit team, has provided in excess of 10 hours of non audit services during each of the period to which the audit relates and the 12 month period immediately before that and has investments in the audited body.

• Restrictions on auditors being employed by audit clients: (Sections 324 CI & CJ).

A former member of an audit firm, or director of an audit company, who was a professional member of the audit team (including lead and review partners) in the conduct of an audit at any time before their departure from the audit firm or company, cannot become an officer (director, company secretary or senior manager) of an audit client (including any related body corporate) until 2 years from the date of the last audit report in which they were involved in preparing.

• Restrictions on auditors holding investments in audit clients

A conflict of interest may arise where the auditor, a director or senior manager of an audit company or member of an audit firm, or any professional member of the audit team (or an immediate family member) holds an investment in the audited body.

• Multiple former audit firm partners or audit company directors: (Section 324CK)

A person will contravene section 324CK if they were at any time a member of an audit firm, or a director of an audit company, which is the auditor of the audited body, the person becomes an officer of the audited body or related body corporate of the audited body within five years after the person ceased being a member of the audit firm or director of the audit company and at that time another person who is or who has at any time been a member of the audit firm or a director of the audit company at a time when it undertook an audit of the audited body, is also an officer of the audited body or related body corporate of the audited body.

• Auditor rotation: (Section 324DA).

A person who plays a significant role in an audit must rotate if they have acted in that role for 5 successive financial years or, if they were to act, they would have played a significant role for more than 5 out of 7 successive financial years. In such cases, the person must not play a significant role in the audit for at least 2 successive financial years.

A person plays a significant role in the audit if the person is the lead or review auditor.

Compliance with the following Bendigo and Adelaide Bank specific requirements must be confirmed by the auditor in the auditor’s independence section of its Closing Report for each reporting period.

Financial relationships:

• The audit firm, any member of the audit engagement team, or any of his or her immediate family must not have a direct or indirect investment in the Bank’s securities.
• The audit firm or engagement partner must not have effective control over superannuation fund investments in Bank securities.
• The audit firm must not have a material financial interest in an entity that has a material interest in the Bank.
• Any audit partners, member of the engagement audit team and managerial employees who provide non-audit services to the Bank, as well as members of their immediate families, must not have a direct or indirect investment in the Bank’s securities.
• The audit firm, or any member of the audit engagement team, or associate of the audit engagement team, must not have a business relationship with the Bank or any of its officers.

Banking products and services:

The audit firm, any partner of the audit firm, members of the audit engagement team, or any of their immediate family, must not hold any account, investment or debt with the Group, other than accounts, investments or debts acquired or provided in the ordinary course of the Group’s business and on terms and conditions that normally apply.

Confirmation that:

• The Bank has not withheld payment of external audit fees at any time;
• No portion of fees paid by the Bank to the auditor is paid on a contingency basis;
• There is no litigation between the Bank and the auditor;
• The compensation of the audit engagement team members is not linked to the provision of non audit services; and
• The auditor has not accepted or provided gifts or hospitality to Bank employees and directors other than what is commensurate with social and professional courtesies.

All External Audit non audit engagements are prohibited unless approved by the Audit Committee. The management submission for Audit Committee approval must include a full assessment of the proposed non audit services’ actual and potential impact upon the auditor’s independence.

Note:
The Group Audit Committee has approved the following standing exemption from the above individual engagement Audit Committee approval requirement on the basis that the exemption does not conflict with the independence of the External Auditor (source: December 2003 meeting minutes):

Management is authorised to utilise the services of the external auditor to provide advice on taxation issues, particularly income tax, Fringe Benefits Tax and Goods & Services Tax. This advice is restricted to high level or technical advice, which in many cases is relevant to audit disclosures such as tax consolidations and tax sharing agreements.

Any taxation advice proposed to be sought from the external auditor, which is outside of these normal operational requirements (such as large taxation based projects), will be submitted to the Board Audit Committee for approval.

Other permitted services such as those required by APRA, EMTN, VSCL (prospectus) are detailed in the External Audit Plan to be approved annually by the Board Audit Committee. Only if the nature of the work or the fee materially differs from the approved plan is a separate submission required.

For the purpose of fee materiality a variance greater than 10% of the quoted fee is to be referred to the Board Audit Committee.

a) Requests to engage external audit to perform non audit services by Group
The attached template is to be completed for requesting services of the External Auditor (Ernst and Young), and submitted to the Board Audit Committee via the GM Group Assurance or Senior Manager Internal Audit. Group Assurance is available to assist in the completion of the submission.

b) The auditor must submit its Auditor Independence Declaration to the directors of the Company. The declaration is given by the auditor in respect of the audit/review it undertakes of the full-year and half-year financial reports of the Company.

c) Having regard to the matters raised in this policy and any other matters considered relevant, the Audit Committee is to undertake a review of the non-audit services that have been provided by the Group's auditor for the relevant period by (to the extent considered necessary):

• considering the Auditor Independence Declaration;
  
• discussion with the auditor;
  
• receiving details of all non-audit services provided by the auditor from the Chief Financial Officer together with any other relevant information;
  
• receiving confirmation that the external auditor has complied with the Group’s external audit independence policy requirements;
  
• receiving advice from the CEO, CFO, Company Secretary and GM Group Assurance as to whether they are aware of any issue of concern, which is not disclosed in the Auditor Independence Declaration; and
  
• internal discussion amongst the Committee, having regard to the auditor independence requirements of the Corporations Act.
  

d) The outcome of the Audit Committee’s assessment of the non-audit services that have been provided by the auditor during the relevant period is to be recorded in written advice to the Board, which is endorsed by a resolution of the Committee and signed by the Committee's chairperson.

a) The Board is to formally consider:

• the written advice provided by the Audit Committee; and
  
• the Auditor’s Independence Declaration.

b) For each reporting period, the Board should then consider and, if thought appropriate, approve the Directors’ Report disclosure relating to the provision of non-audit services during the year.