BP 2009 Annual Report Download - page 78

Financial reporting
During the year, the committee reviewed the group’s quarterly financial
reports, the annual report and accounts, the annual review and the 20-F
before recommending their publication to the board. The committee also
discussed with management the critical accounting policies and
judgements applied in the preparation of those financial reports. This
included key assumptions regarding significant provisions, including
those for decommissioning and environmental remediation and those
used for impairment testing. (See Financial statements – Note 3 on page
124.)
Monitoring business risk
The committee reviewed reports on the inherent risks within selected
areas of BP’s businesses and supporting functions. This together with
the related controls and assurance processes is designed to manage and
mitigate such risks. On top of reviewing the major business areas and
functions within BP, this year specific focus was additionally given to
Treasury activities, including debt and liquidity management, to
information technology and to the group’s oil and gas trading activities.
The committee also reviewed risk management and investment strategy
related to pensions and other post-retirement benefits, the management
of taxation and litigation exposures and the management of BP’s
approach to insurance.
The work and scope of the executive-level Group Financial Risk
Committee (which provides assurance to the executive on the
management of BP’s financial risk) was reported to the committee
during the year by the chief financial officer.
Internal control and audit
The committee holds an annual joint meeting at the start of each year
with the safety, ethics and environment assurance committee to review
the general auditor’s report on internal controls and risk management for
the previous year. This provides important input into the board’s review of
the company’s system of internal control.
The committee’s agenda includes standing items addressing
internal control and these included in 2009 the quarterly internal audit
findings report and the annual assessment of BP’s enterprise level
controls.
Further detail on risk management and internal control in BP is
outlined in the governance section of this board performance report
above.
External auditors
The committee held two private meetings during the year with the
external auditors. These provided additional opportunity for open dialogue
and feedback from both the committee and the auditors without the
presence of BP management. At these meetings, topics covered
included the quality of interaction with executive management, the
strength of the financial team and the effectiveness of the internal audit
function. I also meet on my own with the external auditors prior to each
audit committee to discuss the forthcoming agenda.
The committee undertakes regular reviews of the performance,
effectiveness and viability of the external auditors. As part of its 2009
review, senior partners at Ernst & Young who were independent of the
audit team responsible for BP undertook an evaluation process, which
involved 22 face-to-face interviews with those BP board members and
senior management who have key interactions with the external auditors.
In addition, there was a web-based survey of 185 people representing a
cross section of BP’s global finance organization, covering both group
reporting and statutory locations. The results of the interviews and
surveys were presented to the committee by the independent senior
partners in July and the auditors were asked to develop an action plan to
address a small number of areas identified for improvement.
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BP Annual Report and Accounts 2009
Board performance and biographies
The external auditor followed up these findings with a report to the
committee in November which outlined its responses to these areas.
The external auditors will perform an assessment of service quality in
2010 to review the progress against the development areas outlined in
the feedback.
Fees paid to the external auditor for the year (see Financial
statements – Note 14 on page 136) were $54 million, of which 15% was
for non-audit work. The fees and services provided by Ernst & Young for
both audit and non-audit work have decreased in comparison to previous
years reflecting a joint approach to raising efficiency in audit processes as
well as a reduction in tax services and services related to corporate
finance transactions. All non-audit work is subject to the committee’s
advance approval policy and is monitored on a quarterly basis.
The audit committee has considered the proposed fee structure
and audit engagement terms for 2010 and has recommended to the
board that the reappointment of the external auditors be proposed to
shareholders at the 2010 AGM.
Internal audit
The general auditor attends all committee meetings but also meets
regularly on a one-to-one basis with myself as committee chairman.
In July the general auditor met privately with the committee without the
presence of executive management or the external auditors. In reviewing
the effectiveness and quality of the internal audit, the committee also
sought input from external auditors.
The committee receives a quarterly update on the progress of
internal audit against its schedule of audits, is notified of their key
findings and tracks any material actions that are overdue or have been
rescheduled. The proposed internal audit work programme for the year
was agreed by the committee in January. The committee was satisfied
that it appropriately responded to the key risks facing the company and
that the function had sufficient staff and resources to complete its work.
Other activities
The committee receives quarterly reports from the group compliance and
ethics function which examine areas of potential non-compliance with
the company’s Code of Conduct and remedial actions that are being
undertaken. The committee also receives an annual certification report
which is signed by the group chief executive. The committee reviews
quarterly reports on financial issues and concerns that have been
raised through the group-wide employee concerns programme, OpenTalk
and quarterly updates from internal audit on instances of actual or
potential fraud.
Committee evaluation
The committee conducts an annual review of its performance and
effectiveness. For 2009, this review was facilitated externally as part of
the wider review of the board and its committees. The external facilitator
undertook one-to-one interviews with each committee member, plus
those who provide support to the committee and the external auditor.
The review concluded that the audit committee was effective in carrying
out its duties.
On behalf of the audit committee,
Sir Ian Prosser
Audit committee chairman