BT 2006 Annual Report Download - page 50

The Audit Committee is chaired by Sir Anthony Greener, the
Deputy Chairman and senior independent director. The other
members are Maarten van den Bergh, Clay Brendish, Phil
Hodkinson, John Nelson and Carl Symon. They are all
independent non-executive directors. They were members of
the Committee throughout the 2006 financial year with the
exception of Phil Hodkinson who was appointed on 1 February
2006. Lou Hughes stepped down on 31 March 2006 when he
stepped down from the Board. The Board considers that the
Committee’s members have broad commercial knowledge and
extensive business leadership experience, having held various
roles in accountancy, financial management and supervision,
treasury and corporate finance and that there is a broad and
suitable mix of business, financial and IT experience on the
Committee. The Board has reviewed membership of the
Committee and is satisfied that several of the Committee’s
members have the recent and relevant financial experience
required for the provisions of the Combined Code and, with the
appointment of Phil Hodkinson, it is the opinion of the Board
that the Audit Committee includes a member who is an ‘audit
committee financial expert’ for purposes of the Sarbanes-Oxley
Act of 2002.
COMMITTEE ROLE
The Committee recommends the appointment and
reappointment of the company’s external auditors and
considers their resignation or dismissal, recommending to the
Board appropriate action to appoint new auditors. It ensures
that key partners are rotated at appropriate intervals. It
discusses with the auditors the scope of their audits before they
commence, reviews the results and considers the formal reports
of the auditors and reports the results of those reviews to the
Board. It reviews the auditors’ performance, including the scope
of the audit, and recommends to the Board appropriate
remuneration.
As a result of regulatory or similar requirements, it may be
necessary to employ the company’s external auditors for certain
non-audit work. In order to safeguard the independence and
objectivity of the external auditors, the Board has determined
policies as to what non-audit services can be provided by the
company’s external auditors and the approval processes related
to them. Under those policies work of a consultancy nature will
not be offered to the external auditors unless there are clear
efficiencies and value added benefits to the company. The
overall policies and the processes to implement them were
reviewed and appropriately modified in the light of the
provisions of the US Sarbanes-Oxley Act of 2002 relating to
non-audit services that external auditors may not perform. The
Audit Committee monitors the extent of non-audit work being
performed by the company’s auditors and approves such work
before it is undertaken. It also monitors the level of non-audit
fees paid to the external auditors.
The Audit Committee reviews the company’s published
financial results, the Annual Report and Form 20-F and other
published information for statutory and regulatory compliance.
It reports its views to the Board to assist it in its approval of the
results’ announcements and the Annual Report and Form 20-F.
The Committee also reviews the disclosure made by the Chief
Executive and Group Finance Director during the certification
process for the annual report about the design or operation of
internal controls or material weaknesses in the controls,
including any fraud involving management or other employees
who have a significant role in the company’s financial controls.
The Board, as required by UK law, takes responsibility for all
disclosures in the annual report.
COMMITTEE ACTIVITIES
During the year, the Audit Committee monitored and reviewed
the standards of risk management and internal control, the
effectiveness of internal control, financial reporting, accounting
policies and procedures, and the company’s statements on
internal controls before they are agreed by the Board for each
year’s annual report. It also reviewed the company’s internal
audit function and its relationship with the external auditors,
including internal audit’s plans and performance. It reviewed
the arrangements for dealing, in confidence, with complaints
from employees about accounting or financial management
impropriety, fraud, poor business practices and other matters.
At each of its meetings it reviewed with the group chief internal
auditor and appropriate executives the implementation and
effectiveness of key operational and functional change and
remedial programmes including major contracts and IT
programmes. The Committee also set aside time at every
meeting to seek the views of the company’s internal and
external auditors in the absence of executives.
In addition to carrying out those regular tasks described
above under the Committee’s terms of reference, which are
posted on the company’s website at www.bt.com/committees,
the Committee also carried out its annual consideration of the
group’s risk register process, and reviewed the company’s
system of internal control, its accounting systems, IT security
and fraud and related matters. It also considered the effect on
the company’s results of the introduction of international
financial reporting standards, which have applied to the
company’s results for the 2006 financial year. Additionally, the
Committee has reviewed at each of its meetings during the
2006 financial year the steps being taken within the group with
regard to the application of the Sarbanes-Oxley Act dealing with
the internal control over financial reporting. It also specifically
evaluated its performance and processes by again inviting
Committee members and several executives and the external
auditors to complete questionnaires. This process formed part
of the annual Board and Committee evaluation. Committee
members, and those others consulted, regard the Committee as
effective on both behaviours and processes. There is a similar
view too of the external audit process, which is regarded as
effective. The evaluation highlighted the need for the
Committee to consider action both to reduce paperwork and to
increase the length of the quarterly meetings to give more
discussion time, if at all possible. The Committee also reviewed
the experience, skills and succession planning within the
Group’s finance function.
The Group Finance Director, the Secretary, the group’s chief
internal auditor and the company’s external auditors attend the
Committee’s meetings. The Committee met four times during
the 2006 financial year. The minutes of Audit Committee
meetings are sent, at their request, to directors who are not
members of the Committee.
REPORT OF THE AUDIT COMMITTEE
BT Group plc Annual Report and Form 20-F 2006 Report of the Audit Committee48