Barclays 2010 Annual Report Download - page 163

Board Audit Committee Chairman’s report continued
– The Group’s investment in BlackRock, Inc declined in value during
2010. As it is held as an Available For Sale (AFS) investment, the
decline in value is recorded in the AFS reserve and deducted from
capital and is not recognised in the income statement. We discussed
whether the decline in value should be recognised in the income
statement. We concluded that the decline in value was not significant
or prolonged in the light of the increase in share price through the
second half of the year and the continuing price volatility. Our
judgement, therefore, was that the decline in value did not need
to be recognised in the income statement.
– We reviewed outstanding litigation matters, including the litigation
with the Lehman trustee in bankruptcy. The Committee discussed
the court opinion in respect of the Lehman acquisition that was issued
in February 2011. It concluded, having carefully considered the matter
and reviewed independent advice, that the valuation of the asset
remains appropriate.
In reviewing the financial statements, we receive input from the
Disclosure Committee and PwC. The former is chaired by the Group
Finance Director and considers the content, accuracy and tone of the
financial statements and other public disclosures prior to their release
and reports to us on its conclusions. PwC reported to the Committee
on their review of the half-year interim results and on their audit of the
year-end financial statements.
Internal Control
2010 saw some restructuring/re-segmentation of our businesses and
our focus was on ensuring that there was no impact on controls during
and after the reorganisation. In October, we held an additional meeting
specifically to review the overall control environment and the trends
in key control indicators. During the year, we reviewed the control
environment in each of Absa, Barclays Capital, Barclays Corporate,
Barclays Wealth, Barclays Africa, UK Retail Banking and Western Europe
Retail Banking in detail, with the Chief Executives of those businesses
presenting to the Committee.
The Committee also spent time this year reviewing the control
environment at Barclays Capital, given the increased size of the business
following the Lehman acquisition. In particular, we reviewed controls in
the areas of product valuation, the trading businesses and client assets
segregation. In terms of product valuation, a significant amount of
activity has taken place to strengthen further the valuation framework
and control and governance processes. A specific project was also
initiated in 2010, at Management’s behest, to review Barclays Capital’s
controls following the Lehman acquisition and taking into account the
new regulatory environment to ensure they are best in class. We received
reports on the progress of the project, its findings and the actions that
are being taken.
Technology controls and governance was also an area of focus in 2010
and we received several reports on the control environment in this area,
where we had previously identified the potential to enhance controls.
Much progress has been made in improving the control environment
and we will continue to monitor progress into 2011.
We received regular reports during 2010 on the Group’s arrangements
whereby employees can raise concerns and details of any action being
taken to follow up specific reports.
Looking ahead to 2011, a programme is under way to ensure the Group
is in compliance with the UK Bribery Act which was due to become
effective in April 2011, but which has been delayed. We will receive further
progress reports in 2011. During 2011, we will also track the Group’s
compliance with the Deferred Prosecution Agreements entered into
as part of the settlement reached with US authorities following an
investigation into the Group’s compliance with US sanctions and US
Dollar payment practices.
In reviewing internal controls, we are supported by the Group Governance
and Control Committee, chaired by the Group General Counsel, which
considers control environment reports in advance of their presentation
to the Committee.
Further details of the Group Internal Control Framework, including the
main features of our internal control and risk management systems in
relation to the financial reporting process, can be found in the Directors’
Report on pages 147 and 148.
Oversight of Internal Audit and External Audit
We are responsible for overseeing the work of the internal audit function
and also for managing the relationship with the Group’s external auditors.
We review the performance of the internal and external auditors annually
to ensure that they are effective and recommend to the Board whether
the external auditors should be reappointed.
Internal Audit
At each meeting we receive a report from the Chief Internal Auditor on
the control environment and the key trends and indicators, including the
key control environment areas identified for attention and monitoring.
We also review and, if appropriate, approve any adjustments to be made
to the audit plan.
We received the results of the internal audit function’s self-assessment
of performance in late 2010, along with an update on the actions being
taken following the external assessment carried out in 2009: the majority
of those actions are complete and all will be closed out by June 2011.
The internal audit function generally conforms to the standards set by
the Institute of Internal Auditors.
We have again been particularly keen to ensure that the internal audit
function is properly resourced to enable it to fulfil the audit plan. We
closely monitored resources during the year. Furthermore, this year we
have had greater visibility of the senior management in the internal audit
function in addition to the Chief Internal Auditor.
External Audit
To safeguard the objectivity and independence of the external auditor,
we have in place a policy that governs the type of services they may
provide. I describe the policy in more detail below. We also have
in place a policy that sets out guidelines for the employment of
ex-employees of the external auditor and receive a report twice-yearly
on any such appointments. In addition, we seek specific assurance
from the external auditor on the arrangements they have in place to
safeguard their independence.
We discussed and agreed with PwC the audit plan for 2010 to ensure
that key areas of judgement in the Group’s financial statements were
appropriately covered.
To evaluate the performance and effectiveness of the external auditor,
we sought feedback from key stakeholders across the Group via a
questionnaire. The responses were analysed and presented to the
Committee for review and discussion in early 2011. The Committee is
fully satisfied with the performance of PwC and has recommended to
the Board and to shareholders that PwC should be re-appointed as the
Group’s auditors at the AGM on 27th April 2011.
Go online
The Board Audit Committee terms of reference are
available from the corporate governance section of our
website at: www.barclays.com/corporategovernance
Barclays PLC Annual Report 2010 www.barclays.com/annualreport10 161
Strategy Performance Financial statements Shareholder informationRisk management and governanceAbout Barclays