A principal responsibility of the Committee is to monitor the integrity of the Group’s financial statements. As part of this, the Committee reviewed the areas requiring judgement as part of the preparation of the Group’s financial statements during 2010. These areas change over time. With input from the Group’s external auditors, including their assessment of the Group’s financial reporting and control risks, the Committee reviewed the significant financial reporting issues and judgements as well as the key disclosures to be included in the financial statements published during the course of 2010. The market announcements which accompanied the financial statements were also reviewed to ensure consistency with the contents of the financial statements.
A sound system of internal control is essential for reliable financial reporting and for the effective management of the Group. To assess the quality of the control environment of the Group, the Committee received regular reports during the year from the external auditors, as well as from the Internal Audit department, following their work in reviewing and auditing the Group’s control environment. The Committee also invited senior managers from business areas across the Group to report to the Committee on the quality of the controls in their business area. This was usually linked to a report from the Group’s external auditors or the Internal Audit department on their findings on the control framework in that business area. In this way, the Committee obtains the fullest picture possible to enable it to be satisfied with the effectiveness of the Group’s internal control environment.
The Committee is responsible for monitoring the Group’s relationship with its external auditors including their effectiveness and independence. The Committee reviewed and agreed the audit plan for 2010, and any variations to this that were proposed during the year; it also valuated the quality of input, perceptiveness and robustness of representatives of the external auditors through their reports to the Committee and their participation in discussion at Committee meetings. The Committee also reviewed and agreed the fees payable to the auditors for their audit work. On the basis of this review, the Committee has recommended to the Board that it recommend that shareholders support the reappointment of PricewaterhouseCoopers LLP as the Group’s external auditors at this year’s AGM.
The Committee regularly reviews the amount and nature of non-audit work undertaken by the auditors and the associated fees, and did so in 2010. The Group has adopted a policy setting out the types of non-audit work that may and may not be provided to the Group by the auditors. This policy requires the Committee to approve the engagement of the auditors to undertake non-audit work. Non-audit work in excess of £250,000 must be subject to competitive tender. If the auditors are selected, the Committee is responsible for agreeing the fees for the work. The policy also restricts the employment by the Group of former staff of the external auditors, and precludes the employment of any audit partner if that partner was involved in providing audit services to the Group in the last three years.
The Group’s Internal Audit function makes an important contribution to the Committee in the discharge of its responsibilities. The Committee reviewed and agreed the internal audit plan for 2010 and evaluated the function’s performance through the quality of reports provided to the Committee, management response to audit findings and the timeliness of the implementation of recommendations. The level of skills and expertise of the individuals in the Internal Audit function and the resources available to the Internal Audit department, including staff numbers, were also reviewed.
