Barclays 2008 Annual Report Download - page 166

Corporate governance
Corporate governance report
Activities in 2008
Figure 5 illustrates how the Committee allocated its time in 2008.
During 2008, the Committee:
– considered the information it would require during the coming year
to enable it to discharge its responsibilities;
– considered the significant changes in financial markets and economic
conditions and the impact on the areas of focus for the Committee;
– reviewed the Annual Report and Accounts and half-year Results and
Interim Management Statements;
– reviewed in detail the valuations of Barclays Capital’s credit market
exposures, reviewing mark-to-market valuations and accounting for
derivatives and assessing the overall quality of earnings;
– reviewed the Group’s accounting policies and, in particular, the
accounting for leveraged loans;
– considered control issues of Group level significance for different areas
of the business;
– received reports on the control environment in each of the following
businesses or functions: Barclays Wealth, Barclays Commercial Bank,
Western Europe, Global Retail and Commercial Banking IT, Barclaycard,
Global Payments, Emerging Markets, BGI, Absa and Barclays Capital;
– reviewed the effectiveness and independence of the Group statutory auditor;
164 Barclays PLC Annual Report 2008 |Find out more at www.barclays.com/annualreport08
Fig 5: Board Audit Committee allocation of time
1
2
3
4
5
672008 2007
1Control Issues 99
2Financial Results 36 33
3Internal Audit Matters 11 9
4External Audit Matters 99
5Business Control
Environment 28 25
6Governance and Compliance 614
7Other 11
Board Audit Committee Chairman’s Statement
We held ten meetings in 2008 and an overview of how we used our
meetings is set out below.
Our areas of focus in 2008 were dominated by the continuing disruption
to the credit markets and financial services sector as a whole. In early 2008,
we held a separate session of the Committeeon accounting for and
valuation of derivatives and complex financial instruments and also reviewed
the Group’s valuation methodology for these instruments. The latter
comprises trading desk evaluation supported by independent price testing
and benchmarking, followed by a review by Finance and Riskand by the
external auditor.
WhenconsideringtheGroup’s preliminaryandhalf-yearresultsandinterim
managementstatements,wespent a significantamount oftimereviewing
the disclosuresaroundandthefairvalueofBarclaysCapital’screditmarkets
exposures,includingasset backedsecurities andleveragedcreditpositions.
Aspartoftheapprovalofeachresultsstatement,wereviewedthefairvalueof
the creditmarketexposuresandtheformandcontent ofthedisclosures.The
reviewof the creditmarketexposurevaluationsincludeda reviewofmarksby
keyasset categories,movementsinexposures(including sales/paydowns)and
areviewofunderlyingcollateralbyvintageandrating.TheCommitteereceived
atboththehalf-yearandyear-endandbefore eachInterimManagement
Statementa specificpresentationfromBarclaysCapital’s ChiefOperating
Officer anddiscussedthevaluationswiththeGroupFinanceDirector,Group
RiskDirectorand,importantly,theGroup’s externalauditors.Reassurancewas
sought fromindependent GroupcontrolfunctionssuchasRiskandFinance,
and the externalauditors,that theindividualmarkswere appropriate.The
Committeewasreassuredthatthere wereno significantvariations between
the pricesatwhichassetswere soldandtheunderlying marks. The Committee
wascontent that themarketsandmodelstowhichthevaluationsare marked
aresufficientlyrobust toenablereliableandrelevantvaluationsto
bedetermined.
We also reviewed the controls around Barclays Capital’s complex
financial instruments, as well as reviewing the overall control environment
at Barclays Capital. The Committee has sought to learn lessons from events
at our peers, receiving reports on the circumstances surrounding losses
experienced at Société Générale and UBS. We discussed the overall impact
of market conditions and the challenging financial markets on the remit of
the Committee and this will help shape our agenda for 2009.
In the second half of the year, as the financial crisis started to evolve
into a global economic downturn, the Committee directed increasing
attention at the deepening economic downturn, reviewing the key controls
by which consequent risk can be managed. As a result, impairment
measurement, fraud controls, collections activities and day-to-day credit
controls and security documentation are receiving increased scrutiny from
the Committee. During the year we also received additional presentations
and reports on the impact of the acquisition of the Lehman Brothers North
American businesses in September 2008, including an initial assessment
of the risks and controls in that business and a report on the impact of the
acquisition on financial reporting. In reviewing the Internal Audit Plan for
2009, we also challenged management to make sure that the Internal
Audit function is appropriately resourced for the challenges ahead and
is directing its attention on areas likely to come under pressure in the
expected downturn.
Impairment numbers continue to be closely reviewed by the Committee.
It reviews a paper prepared by the Risk function, which examines impairment
on a business-by-business basis. It examines closely any amendments or
overrides to models, compares trends and impairment levels with peers
and seeks independent reassurance from the external auditor.
Our reviews of the control environment in each of our businesses
in 2008 continued to focus on those areas where the Group’s business
is expanding or which are deemed to be higher risk, including Emerging
Markets. We also reviewed the controls around our key regulatory
programmes, in particular, Sarbanes-Oxley and Basel II, and received
regular reports on Sanctions compliance and Know Your Customer and
Anti-Money Laundering controls.
The internal and external auditors are evaluated annually. Feedback
on both is sought from key stakeholders in the Group via questionnaires
with the results being presented to and discussed by the Committee. The
Committee is satisfied with the performance of both auditors. During 2009,
an external assessment of the internal audit function will be undertaken.
The Committee has recommended to the Board and to shareholders that
PwC should be re-appointed as the Group’s auditors at the AGM on 23rd
April 2009. We are fully satisfied that PwC provides effective, independent
challenge to management, which has been crucial in the current difficult
environment, and has provided valued support to the Committee in the
advice given and the clarity of their briefings and reports. The feedback
received from other stakeholders through the annual evaluation exercise
has been positive.
As Chairman of the Committee, I have liaised as appropriate with the
Chairman of the Board HR and Remuneration Committee, particularly to
draw attention to any specific aspects of the Group’s results which I feel he
ought to be aware of when determining appropriate levels of compensation.
The Committeecanconfirmthat itreceivedsufficient,reliableandtimely
informationfrommanagementtoenableit tofulfilitsresponsibilities.
Stephen Russell
Chairman of the Board Audit Committee
5th March 2009
– approved the re-appointment, remuneration and engagement letter
of the Group statutory auditor;
– considered the provision of non-audit services by the Group statutory
auditor – more details can be found in the box on page 165;
– received reports from the external and internal auditors;
– monitored the performance of the Internal Audit function;
– reviewed the Global Internal Audit Plan;
– reviewed the internal control and risk management systems;