BT 2007 Annual Report Download - page 55

REPORT OF THE AUDIT COMMITTEE
Introduction
The Audit Committee is chaired by Phil Hodkinson. The other
members are Maarten van den Bergh, Clay Brendish, John
Nelson and Carl Symon. They are all independent non-executive
directors. They were members of the Committee throughout the
2007 financial year. Sir Anthony Greener stepped down as
chairman and a member of the Committee on 30 September
2006 when he retired from the Board, and Phil Hodkinson was
appointed chairman of the Committee on 1 October 2006. 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. It
is the opinion of the Board that the Audit Committee includes a
member in the person of Phil Hodkinson who is an ‘audit
committee financial expert’ for the purposes of the US
Sarbanes-Oxley Act.
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 Sarbanes-Oxley Act 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 any
substantive 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 & 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 & 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 and 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, including
the processes and procedures for ensuring that material business
risks, including risks relating to IT security, fraud and related
matters, are properly identified and managed, the effectiveness
of internal control, financial reporting, accounting policies and
procedures, and the company’s statements on internal controls
before they were agreed by the Board for the 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 and
others about accounting or financial management impropriety,
fraud, poor business practices and other matters, ensuring that
arrangements are in place for the proportionate and
independent investigation and appropriate follow up action. 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. Additionally, the Committee has reviewed at
each of its meetings during the 2007 financial year the steps
being taken within the group with regard to the application of
the Sarbanes-Oxley Act dealing with 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 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
2007 financial year. The papers and minutes of Audit Committee
meetings are sent to directors who are not members of the
Committee.
Report of the Directors Corporate governance
54 BT Group plc Annual Report & Form 20-F