Unilever 2006 Annual Report Download - page 66

Unilever Annual Report and Accounts 2006 63
Report of the Directors (continued)
Report of the Audit Committee
The role of the Audit Committee is to assist the Unilever Boards in
fulfilling their oversight responsibilities regarding the integrity of
Unilever’s financial statements, risk management and internal
control, compliance with legal and regulatory requirements, the
external auditors’ performance, qualifications and independence,
and the performance of the internal audit function. During the
year ended 31 December 2006 the principal activities of the
Committee were as follows:
Financial statements
The Committee considered reports from the Chief Financial
Officer on the quarterly and annual financial statements and
reviewed the Annual Report and Accounts prior to publication.
Audit of the Annual Accounts
PricewaterhouseCoopers, Unilever’s external auditors, reported in
depth to the Committee on the scope and outcome of the annual
audit. Their reports included accounting matters, governance and
control, and accounting developments.
Risk management and internal control arrangements
The Committee reviewed Unilever's overall approach to risk
management and control, and its processes, outcomes and
disclosure, including specifically:
• review of level of disclosure in quarterly financial results
announcements;
• review of accounting principles and judgements with respect
to financial statements;
• review of management’srisk assessments in relation to the NV
preference shares issued in 1999;
• Corporate Audit’s interim and year-end reports on the Status of
Risk Management and Control, and management’s response;
•annual report from the Chief Financial Officer on business risks and
positive assurance on operating controls and corporate policies; and
aquarterly review of business risks and safeguards;
• the interim and year-end reports from the Code of Business
Principles Compliance Committee;
• monitoring the resolution of complaints received through the
global Ethics hotline which included a procedure for handling
complaints and concerns relating to accounting, internal control
and auditing matters;
• quarterly review of progress of the implementation of the
requirements under Section 404 of the Sarbanes-Oxley Act of
2002 with respect to internal controls over financial reporting;
• review of the application of information and communication
technology;
• a review of the annual pension report and pensions related
accounting and proposals;
• annual review of anti-fraud arrangements;
• a review of tax planning policy; and
• review of treasury policies and consideration of proposals
relating to capital injection, debt issuance, investment hedge
and dividends.
External auditors
The Audit Committee conducted a formal evaluation of the
effectiveness of the external audit process and carried out a formal
review of the appointment of external auditors in October 2006.
The Committee has approved the extension of the current external
audit contract by one year, and recommended to the Boards the
reappointment of the external auditors. On the recommendation
of the Audit Committee, the Directors will be proposing the
reappointment of PricewaterhouseCoopers at the AGMs in
May 2007(see pages 135and 140).
Both Unilever and the auditors have for many years had safeguards
in place to avoid the possibility that the auditors’ objectivity
and independence could be compromised. The Committee
reviewed the report from PricewaterhouseCoopers on the actions
they take to comply with the professional and regulatory
requirements and best practice designed to ensure their
independence from Unilever. The UK lead partner in charge of the
audit, who was appointed in 2001, rotated off at the 2006 AGM
and a new lead partner was appointed in May 2006, and assumed
responsibility for the audit of the 2006 accounts.
The committee also reviewed the statutory audit, other audit,
tax and other services provided by PricewaterhouseCoopers, and
compliance with Unilever’s policy, which prescribes in detail the
types of engagements for which the external auditors can and
cannot be used:
• statutory audit services – as detailed above, including audit of
subsidiaries;
• other audit services – work which regulations or agreements
with third parties require the auditors to undertake e.g. in
connection with borrowings and shareholder services;
• other services – statutory auditors may carry out work that they
are best placed to undertake, including internal control reviews;
• acquisition and disposal services – where the auditors are best
placed to do this work;
• tax services – all significant tax consulting work is put to tender,
except where the auditors are best placed to do this; and
• general consulting – external auditors may not tender for
general consulting work.
All engagements over €100,000 require specific advance approval
of the Audit Committee Chairman. The overall policy is regularly
reviewed and updated in the light of internal developments,
external developments and best practice.
The Committee held independent meetings with the external
auditors during the year.
Internal audit function
The Committee engaged in discussion and review of the
Corporate Audit Department’s audit plan for the year, and
approved its budget and resource requirements.
The Committee carried out a formal evaluation of the
performance of the internal audit function and confirmed that
they were satisfied with their relationship with the Chief Auditor.
The Committee held independent meetings with the Chief Auditor
during the year.
Audit Committee terms of reference
The Audit Committee’s terms of reference can be viewed on
Unilever’s website at www.unilever.com or supplied on request.
In February 2006, the terms of reference were updated to reflect
requirements under the Dutch Corporate Governance Code that
the Audit Committee has oversight of the policy of the Group on
tax planning, the financing of the Group, and the applications of
information and communication technology.
The Audit Committee carried out a self-assessment of its own
performance.
Kees Storm Chairman of the Audit Committee
Wim Dik
Charles Golden
Byron Grote