BP 2011 Annual Report Download - page 128

126 BP Annual Report and Form 20-F 2011
Corporate governance
Committee reports
Audit committee
Chairman’s introduction
In the first quarter of the year the committee, under Douglas Flint’s
chairmanship, continued to spend considerable time reviewing and
challenging BP’s assessment of its financial responsibilities relating to the
tragic incident in the Gulf of Mexico in April 2010. This task has remained a
key area of focus under my chairmanship during the remainder of the year.
We have continued to seek assurance that where liabilities are estimable,
they are fully provided for, and where uncertainty is too great to support
a provision that appropriate disclosure is made. Some greater clarity
developed during the year as experience was gained about the operation
of the Deepwater Horizon Oil Spill Trust fund, and as settlements were
reached with two of the partners in the Macondo well and two of the
contractors involved. However, as reported elsewhere in this document,
major uncertainty remains in respect of litigation, potential fines and
penalties and other matters which will require significant attention from the
audit committee for the foreseeable future. The committee has therefore
taken care to preserve its regular agenda content so as to continue fulfilling
its remit to the board with respect to monitoring risk management systems
and internal controls and financial reporting.
Amongst other topics, we have reviewed controls in trading, debt
and liquidity management and the company’s response to the UK Bribery
Act. During the course of the year, I have also participated in the group
chief executive’s audit forum and the group financial risk committee
(GFRC). In preparation for audit committee meetings, I have met regularly
with the chief financial officer, general auditor and the lead partner of the
external auditors. I also spent time with the leadership team of the internal
audit function.
I valued the time I took to visit one of the company’s largest data
centres in London, its European business service centre in Budapest, and
the trading floors in Houston and London. Such visits and interaction with
staff at all levels of the organization enhance both our understanding of
the company’s activities and our assurance over the way they are being
managed.
Although we lost Douglas Flint from the committee when he
stepped down from the board, I am delighted that Andrew Shilston has
now joined us. Andrew’s experience as the CFO at Rolls Royce, and his
previous background in the energy business, complements the skills
already present in the committee’s membership. I believe we have a
very good mix of commercial, financial and audit expertise to address
the complex accounting, audit and risk issues which the committee
monitors. I would also like to thank Ian Davis for his contribution to the
audit committee over the last two years. Ian is now stepping down from
the committee in anticipation of a period of heavier workload related to the
Gulf of Mexico committee.
Our report below seeks to highlight the key activities undertaken
in 2011 and provide some insight into the outcomes of the committee’s
work. I believe 2012 will be equally intense but the committee is well
equipped to address the tasks it faces.
Brendan Nelson
Chairman of the audit committee
Committee members
Brendan Nelson – committee chair (from 14 April 2011)
George David
Ian Davis (retired from the committee on 3 February 2012)
Phuthuma Nhleko (appointed 1 February 2011)
Andrew Shilston (appointed 3 February 2012)
Members who left during the year:
Douglas Flint – previously chair of the committee (retired 14 April 2011)
The audit committee is composed of independent, non-executive directors
selected to provide a wide range of financial, international and commercial
expertise appropriate to fulfil the committee’s duties.
Brendan Nelson became chair of the audit committee upon the retirement
of Douglas Flint from the board in April 2011. Mr Nelson, who was formerly
vice chairman of KPMG, is chairman of the Group Audit Committee of The
Royal Bank of Scotland Group plc, a member of the Financial Reporting
Review Panel, Vice President of the Institute of Chartered Accountants
of Scotland and a director of the Financial Skills Partnership. The board is
satisfied that Mr Nelson, in succession to Mr Flint, is the audit committee
member with recent and relevant financial experience as outlined in the
UK Corporate Governance Code. It considers that the committee as a
whole has an appropriate and experienced blend of commercial, financial
and audit expertise to assess the issues it is required to address. The board
also determined that the audit committee meets the independence criteria
provisions of Rule 10A-3 of the US Securities Exchange Act of 1934 and
that Mr Nelson may be regarded as an audit committee financial expert as
defined in Item 16A of Form 20-F.
Committee role and structure
The role and responsibilities of the audit committee are set out in the
appendix of BP’s board governance principles which is available on our
website. We keep these under review and test their effectiveness in
our annual evaluation of the audit committee. In addition, the chairs and
secretaries of the audit and safety, ethics and environment assurance
committees have worked together to ensure their respective agendas
neither duplicate nor omit coverage of key risk areas.
The committee met 11 times over the past year including one joint
meeting with the safety, ethics and environment assurance committee
(SEEAC). This joint meeting reviews the general auditor’s report on internal
control and risk management systems for the year in preparation for the
board’s report to shareholders in the annual report. It also reviews the
general auditor’s audit programme for the year ahead to ensure both
committees endorse the coverage.
Each audit committee meeting is attended by the group chief
financial officer, the group controller, the general auditor (head of internal
audit) and the chief accounting officer. The lead partner of our external
auditors (Ernst & Young) is also present.
The committee also holds separate private sessions during the
year with the external auditor and the general auditor – these sessions are
without the presence of executive management.
The board is kept updated and informed of the audit committee’s
activities and any issues arising through verbal reports at its meetings from
the committee chair and the circulation of the committee’s minutes.
Audit committee processes
Information and advice
Information and reports for the committee are received directly from
accountable functional and business managers and from relevant external
sources. In addition, like our board and other committees, the audit
committee can access independent advice and counsel when needed
on an unrestricted basis. During 2011, external specialist legal advice in
relation to corporate reporting was provided to the committee by Sullivan &
Cromwell LLP. As part of its annual evaluation, the committee reviews the
adequacy of reliable and timely information from management that enables
it to fulfil its responsibilities. The 2011 evaluation indicated that members
recognized the openness and transparent nature of the materials and
presentations provided by management.
Training and visits
In continuing to respond to the consequences of the Gulf of Mexico oil
spill, the committee placed emphasis on receiving appropriate briefings on
the relevant applications of accounting policy, particularly provisioning and
related disclosure. The committee received regular technical updates from
the chief accounting officer on developments in financial reporting and an
annual briefing on oil and gas reserves disclosures. In addition the external
auditors provided insight and commentary on international accounting
policy developments.
Induction programmes are provided for new members and are
tailored around their roles on the audit committee. During 2011 Brendan
Nelson and Phuthuma Nhleko completed their audit committee induction
programmes. This included sessions on tax, trading operations, accounting,