BP 2014 Annual Report Download - page 70

The effectiveness of the audit process was evaluated through a survey of
the committee and those impacted by the audit. It used a set of criteria to
measure the auditors’ performance against the quality commitment set
out in their annual audit plan. This related to both the quality of opinion
and of service. This included the robustness of the audit process,
independence and objectivity, quality of delivery, quality of people and
service and value added advice. The 2014 evaluation concluded that there
was a good quality audit process and that the external auditors were
regarded as technically knowledgeable and unafraid to challenge and
intervene where necessary. Areas of suggested focus for the auditors
included audit team turnover and the identification of risk areas for audit
focus. There was also support for the independence of the external
auditors and feedback that they should continue sharing good industry
practice.
The committee held private meetings with the external auditors during the
year and its chair met privately with the external auditor before each
meeting.
Auditor appointment and independence
The committee considers the reappointment of the external auditor each
year before making a recommendation to the board and shareholders. It
assesses the independence of the external auditor on an ongoing basis
and the external auditor is required to rotate the lead audit partner every
five years and other senior audit staff every seven years. No partners or
senior staff associated with the BP audit may transfer to the group. The
current lead partner has been in place since the start of 2013.
Audit tendering
During the year the committee considered the group’s position on its audit
services contract taking into account the UK Corporate Governance Code,
the EU Audit Regulation 2014 and the Statutory Audit Service Order 2014,
order issued by the UK Competitions and Markets Authority. Having
considered the impact of these regimes, the committee concluded that
the best interests of the group and its shareholders would be served by
utilizing the transition arrangements outlined by the Financial Reporting
Council in relation to the governance code and retaining BP’s existing audit
firm until the conclusion of the term of its current lead partner. Accordingly
the committee intends that the audit contract will be put out to tender in
2016, in order that a decision can be taken and communicated to
shareholders at BP’s AGM in 2017; the new audit services contract would
then be effective from 2018.
Risk reviews
The group risks allocated to the audit committee for monitoring in 2014
included those associated with trading activities, compliance with applicable
laws and regulations and security threats against BP’s digital infrastructure.
The committee held in-depth reviews of these group risks over the year. It
also examined the group’s governance of the tax function and its approach
to tax planning and reviewed how risk is assessed and considered when
evaluating BP’s capital investment projects.
Internal control and risk management
The committee reviewed the group’s system of internal control and risk
management over the year, holding a joint meeting with the SEEAC to
discuss key audit findings and management’s actions to remedy significant
issues. The committee reviewed the scope, activity and effectiveness of
the group audit function and met privately with the general auditor and his
segment and functional heads during the year.
The committee received quarterly reports on the findings of group audit,
on significant allegations and investigations and on key ethics and
compliance issues. Further joint meetings were held with the SEEAC to
discuss the annual certification report of compliance with the BP code of
conduct and the role and remit of the newly formed business integrity
function. The two committees also met to discuss the group audit and
ethics and compliance programmes for 2014. The committee held a private
meeting with the group ethics and compliance officer during the year.
External audit
The external auditors started the annual cycle with their audit strategy
which identified key risks to be monitored during the year – including the
provisions and contingencies related to the Gulf of Mexico oil spill, the
impact of the estimation of the quantity of oil and gas reserves and
resources on impairment testing, depreciation, depletion and amortization
and decommissioning provisions, unauthorized trading activity and BP’s
ability to maintain significant influence over Rosneft and consequently our
ability to recognize our share of Rosneft’s income, production and
reserves. The committee received updates during the year on the audit
process, including how the auditors had challenged the group’s
assumptions on these issues.
The audit committee reviews the fee structure, resourcing and terms of
engagement for the external auditor annually. Fees paid to the external
auditor for the year were $53 million, of which 8% was for non-assurance
work (see Financial statements – Note 34). Non-audit or non-audit related
assurance fees were $5 million (2013 $5 million). Non-audit or non-audit
related assurance services consisted of tax compliance services, tax
advisory services and services relating to corporate finance transactions.
The audit committee is satisfied that this level of fee is appropriate in
respect of the audit services provided and that an effective audit can be
conducted for this fee.
* Undertaken jointly with the SEEAC.
Audit committee focus in 2014




and accounting.



independence.



-end audit.


, compliance and control.
.





of internal control and risk management.*




Financial
disclosure
External
audit
Risk
reviews
System of internal
control and risk
management
BP Annual Report and Form 20-F 201466