BT 2011 Annual Report Download - page 68

65BT GROUP PLC ANNUAL REPORT & FORM 20-F 2011
REPORT OF THE DIRECTORS
REPORT OF THE DIRECTORS
REPORT OF THE AUDIT & RISK COMMITTEE
Introduction
During the year the Committee undertook the annual review of its
terms of reference. The review focused primarily on extending the
Committee’s role in relation to assurance and oversight of risk
management within the group. Following this review the
Committee was re-named the
Audit & Risk Committee to
emphasise its strengthened role in relation to risk.
The
Audit & Risk Committee is chaired by Phil Hodkinson. The other
members are Clay Brendish, Patricia Hewitt, Nick Rose and Carl
Symon. They are all independent non-executive directors. With the
exception of Nick Rose who joined the Committee on 14 April 2011,
they were all members of the Committee throughout the 2011
financial year. The Board considers that the Committee’s members
have broad commercial knowledge and extensive business
leadership experience, having held between them various prior
roles in major business, Government, financial management,
treasury and financial function supervision and that this constitutes
a broad and suitable mix of business and financial experience. The
Board has reviewed membership of the Committee and is satisfied
that it includes members, Phil Hodkinson and Nick Rose, who have
recent and relevant financial experience as required for the
provisions of the Code and that they constitute ‘audit committee
financial experts’ for the purposes of the US Sarbanes-Oxley Act.
The Committee met six times during the financial year: in April,
May, July, September, November and January and the Chairman of
the Committee reported on the discussions at the next Board
meeting.
The Group Finance Director, Company Secretary, Director Internal
Audit and Director Group Financial Control although not members
of the
Audit & Risk Committee , attend meetings with the
agreement of the Chairman of the Committee. The external
auditors normally attend meetings, although they are not present
when the Committee discusses their performance and/or
remuneration. The Committee members meet regularly with the
external and internal auditors without management being present.
The papers and minutes of the
Audit & Risk Committee meetings
are also sent to directors who are not members of the Committee.
Committee role
The Committee’s terms of reference are available from the Company
Secretary and are posted on our website at
www.bt.com/committees. The Committee recommends the
appointment and reappointment of the external auditors and
considers their resignation or dismissal, recommending to the
Board appropriate action to appoint new auditors.
PricewaterhouseCoopers LLP have been the company’s auditors for
many years. Having reviewed the independence and effectiveness
of the external auditors, the Committee has not considered it
necessary to date to require them to tender for the audit. The
external auditors are required to rotate the lead partner every five
years, and other partners that are responsible for the group and
subsidiary audits every seven years. The lead partner currently
responsible for BT’s audit is completing his second year. The
Committee 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. The Committee reviews the auditors’
performance each year by gathering feedback from Committee
members and senior management, and by considering reports on
the audit firm’s own internal quality control procedures and
assessment of independence. No contractual obligations exist that
restrict the group’s choice of external audit firm.
As a result of regulatory or similar requirements, it may be
necessary to employ the external auditors for certain non-audit
services. 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 external auditors and the
approval processes related to them. Under those policies, work of a
consultancy nature is not to be offered to the external auditors
unless there are clear efficiencies and value-added benefits to the
company. The overall policies and 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 & Risk
Committee
monitors the extent of non-audit services being
performed by the external auditors and approves any services not
included on the list of services the Committee has pre-approved
before the work is undertaken. It also monitors the level of non-
audit fees paid to the auditors. Details of non-audit services carried
out by the external auditors are in note 7 in the Notes to the
consolidated financial statements on page 114.
The
Audit & Risk Committee reviews BT’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 disclosures 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 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.
The
Audit & Risk Committee reviews internal audit and its
relationship with the external auditors, including plans and
performance; and monitors, reviews and reports on risk
management processes and 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. Additionally the Committee reviews on behalf of the
Board the group’s risk profile, endorses a programme of testing of
the risk mitigations and controls that underpin the group’s
assessment of residual risk and reviews the group’s current risk
exposure and capability to identify new risks.
The Committee reviews promptly all material reports on the
company from the internal auditors and ensures that appropriate
action is taken on issues arising from such reports, including
monitoring management’s responsiveness to the findings and
recommendations of the internal auditors.
The
Audit & Risk Committee reviews the processes for dealing with
complaints received by the company regarding accounting, internal
accounting controls or auditing matters and the confidential,
anonymous submission by employees of concerns regarding
questionable accounting or auditing matters (‘whistleblowing’
procedures), ensuring arrangements are in place for the
proportionate, independent investigation and appropriate follow
up of such matters. The effectiveness of the ‘whistleblowing
process’ as a whole and oversight of any complaints relating to
governance matters is now reviewed by the
Nominating &
Governance Committee
in line with its extended terms of reference.
During the 2011 financial year, the Committee placed particular
emphasis on reviewing major contract management and
accounting, and the management of risk.
Following the review of the Committee’s terms of reference, each
Line of Business and internal service unit Chief Executive will attend
meetings to discuss the key risks in their part of the business and
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