REPORT OF THE AUDIT COMMITTEE
James Newman chairs the Audit Committee and its other members are Stuart Doughty and Christopher Kemball. Pelham Allen was a member of the Committee until his resignation as a Director on 1 January 2009. All of the members of the Committee are independent Non-Executive Directors. James Newman and Pelham Allen are finance professionals with current and relevant financial experience. Both are Chartered Accountants. Christopher Kemball has finance experience as well as previous audit committee experience, having chaired the audit committee of a public quoted company from 2002 until 2004. The external auditors, the Executive Directors and members of management, including the Head of Internal Audit, may be invited to attend all or part of any meeting. The external auditors have unrestricted access to the Committee and its Chairman. At least once a year the Committee meets with the external auditors without an Executive Director or other member of management being present. In accordance with its meeting schedule the Committee met three times during the year. It has an agenda linked to the Group’s financial calendar. The terms of reference of the Committee were reviewed during the year and revisions made. The revised terms of reference have been published on the Group website and are available on request from the Company Secretary.
The Audit Committee is responsible for the integrity of the Financial Statements and any formal announcements relating to the Group’s financial performance. During the year the Committee reviewed and agreed the scope of the audit work to be undertaken by the external auditor, received direct reports from the external auditors and reviewed the half yearly and annual Financial Statements before they were presented to the Board, focusing in particular on accounting policies and compliance, areas of management judgement, other key audit risks and the effectiveness of internal control procedures. The Committee also considered and adopted detailed guidance to Divisions on the application of the Group’s revenue recognition policy.
In addition to its work on the Financial Statements, the Committee considered reports on progress with the Group risk management programme and gave consideration to the risks and controls around the subject of fraud.
A Head of Internal Audit to lead a newly constituted internal audit function was appointed in the second quarter of the financial year and he attended two of the three Audit Committee meetings. The Interim Internal Audit Report was considered by the Committee and the key activities for the function and a framework for the internal audit programme was agreed.
The Committee considers any matter brought to its attention by the internal or external auditors.
The Committee reviews the type of work, effectiveness of and level of fees charged by the external auditors and recommends to the Board the appointment, remuneration and terms of engagement. A policy in relation to non-audit services was adopted by the Committee during the year under which it was agreed that the external auditors would not provide services in any area that might create a conflict of interest, the policy going on to list a number of specific services for which under normal circumstances the external auditors would not be invited to provide. Other than in respect of these services a threshold of £25,000 per assignment, £75,000 in aggregate was agreed, below which the Finance Director is authorised to engage non-audit services. Any proposed appointment above this amount requires prior approval by the Committee. Apart from the review of the Corporate Governance disclosures in the Annual Report Deloitte has worked on five non-audit assignments during the year the total fees in respect of which were £38,000. Two of these assignments were assurance assignments in their role as Group auditors. The Committee was satisfied that none of these assignments in any way compromised audit independence. In addition to monitoring the nature and cost of non-audit services, the Committee reviews the reports from the auditors detailing their independence policies and their arrangements to identify, report and manage any conflicts of interest. In this way the Committee seeks to safeguard auditor objectivity and independence.
As a consequence of its satisfaction with the results of the activities outlined above, the Audit Committee has recommended to the Board that the external auditors are re-appointed.
As required by the Combined Code, the Committee is responsible for the reviewing the arrangements by which staff may, in confidence, raise concerns about possible improprieties. During the year the Committee reviewed the arrangements in place and is satisfied that they remain appropriate. The Group whistleblowing policy, which is titled Dealing with a Concern was reviewed during the year. It is one of the policies contained in the Group publication The way we do business and is also published on the Group website and intranet. No reports through the whistleblowing process were made during the year.
A performance evaluation of the Committee was carried out during the year using the same questionnaire format adopted in 2007, thereby enabling comparison to be made. This recorded a year on year improvement.
This report was approved by the Audit Committee and signed on its behalf by:
JAMES NEWMAN
CHAIRMAN OF THE AUDIT COMMITTEE
30 JUNE 2009