BT 2012 Annual Report Download - page 94

Governance
Based on this assessment, management has concluded that at 31March
2012, BT’s internal control over financial reporting was effective.
There were no changes in BT’s internal control over financial reporting
that occurred during 2012 that have materially affected, or are
reasonably likely to have materially affected, the group’s internal
control over financial reporting. Any significant deficiency, as defined
by the US Public Company Accounting Oversight Board (PCAOB), in
internal control over financial reporting, is reported to the
Audit &
Risk Committee
. PricewaterhouseCoopers LLP, which has audited
the consolidated financial statements for 2012, has also audited the
effectiveness of the group’s internal control over financial reporting
under Auditing Standard No.5 of the PCAOB. Their report is on page97.
Internal control and risk management
The Board is responsible for the group’s systems of internal control
and risk management and for reviewing each year the effectiveness
of those systems. Such systems are designed to manage, rather than
eliminate, the risk of failure to achieve business objectives; any system
can provide only reasonable, and not absolute, assurance against
material misstatement or loss. The process in place for reviewing BT’s
systems of internal control includes procedures designed to identify and
evaluate failings and weaknesses, and, in the case of any categorised as
significant, procedures exist to ensure that necessary action is taken to
remedy the failings.
The Board also takes account of significant social, environmental and
ethical matters that relate to BT’s businesses and reviews annually BT’s
corporate responsibility policy. The company’s workplace practices,
specific environmental, social and ethical risks and opportunities
and details of underlying governance processes are dealt with in the
Strategy section – A responsible and sustainable business leader and
Our resources on pages 26 to 31.
We have enterprise-wide risk management processes for identifying,
evaluating and managing the significant risks faced by the group. These
processes have been in place during 2012 and have continued up to
the date on which this document was approved. The processes are in
accordance with the Turnbull Guidance.
Risk assessment and evaluation takes place as an integral part of BT’s
annual strategic planning cycle. We have a detailed risk management
process, culminating in a Board review, which identifies the key risks
facing the group and each business unit. This information is reviewed by
senior management as part of the strategic review. Our current key risks
are summarised in the Strategy section – Our risks on pages 32 to 37.
The key features of the enterprise-wide risk management and internal
control process comprise the following procedures:
 senior executives collectively review the group’s key risks and have
created a Group Risk Register describing the risks, owners and
mitigation strategies. This is reviewed by the Group Risk Panel and
the
Operating Committee before being reviewed and approved
bythe Board
 the lines of business and internal service units carry out risk
assessments of their operations, create risk registers relating to those
operations, and ensure that the key risks are addressed
 senior executives with responsibilities for major group operations
report quarterly with their opinion on the effectiveness of the
operation of internal controls in their area of responsibility
 the group’s internal auditors carry out continuing assessments of the
quality of risk management and control, report to management and
the
Audit & Risk Committee on the status of specific areas identified
for improvement and promote effective risk management in the lines
of business and internal service units operations
 the
Audit & Risk Committee , on behalf of the Board, considers the
effectiveness of the operation of internal control procedures in the
group during the financial year. It reviews reports from the internal
and external auditors and reports its conclusions to the Board. The
Audit & Risk Committee has carried out these actions for 2012.
Joint ventures and associates, which BT does not control, have not
been dealt with as part of the group risk management process and are
responsible for their own internal control assessment.
BT’s significant accounting policies are set out on pages 104 to 109.
The consistent application of those policies is subject to ongoing
verification through management review and by independent
review by internal and external auditors. The processes supporting
the preparation and consolidation of the financial statements have
been documented and are subject to annual verification through the
programme of testing conducted by our internal auditors which serves
to confirm the operation of the internal controls over financial reporting
and compliance with the Sarbanes-Oxley Act. The
Audit & Risk
Committee
reviews BT’s published financial results, related disclosures
and accounting judgments. The Committee’s activities are set out on
pages70 to 71.
The Board has approved the formal statement of matters which
are reserved to it for consideration, approval or oversight. It has
also approved the group’s corporate governance framework, which
sets out the high level principles by which BT is managed and the
responsibilities and powers of the
Operating Committee and the group’s
senior executives. As part of this framework, the development and
implementation of certain powers relating to group-wide policies and
practices are reserved to identified senior executives.
Takeover Directive disclosure
Following the implementation of the European Union (EU) Takeover
Directive by certain provisions of the 2006 Act, we are required to make
additional disclosures. A number of these disclosures can be found
elsewhere in this Report as set out below:
 structure of BT’s share capital (refer to page 162) including the rights
and obligations attaching to the shares (refer to pages 181 to 183)
 restrictions on the transfer of BT shares and voting rights (refer to
pages 181 and 182)
 significant direct or indirect shareholdings (refer to page 93)
 appointment and replacement of directors (refer to pages 81, 82
and 183).
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