Barclays 2009 Annual Report Download - page 162

160 Barclays PLC Annual Report 2009 www.barclays.com/annualreport09
Corporate governance
Corporate governance report
continued
Board Audit Committee Chairman’s Statement
I took over from Stephen Russell as Chairman of the Board Audit Committee
at the end of March. I would like to thank Stephen for his hard work and
diligence as Chairman of the Committee and for the support provided to
me during the handover period.
Since becoming Chairman, I have focused the work of the
Committee on the following key areas:
– Capital;
– Liquidity;
– Impairment;
– Credit Market Exposures and Mark to Market valuations; and
– Key Control Issues.
In terms of capital and liquidity, the Committee receives quarterly reports
setting out current and forecast capital ratios, the size of the buffer above
minimum capital requirements and the potential impact on capital ratios
of stress scenarios. The liquidity section of the report reviews the Group’s
liquidity risk profile, including movements in retail and commercial
deposits, the wholesale funding maturity profile and the potential impact
on the Group’s liquidity position of stress scenarios. The Committee’s
regular review of these reports is one of the key processes enabling it to
recommend to the Board, on a bi-annual basis, the going concern
statement in the published annual and interim financial statements.
The Committee receives regular reports on current and forecast
impairment. The report reviews trends in both retail and wholesale credit
risk, in each case by business unit. The report also reviews the level of
potential credit risk loans and the level of impairment held against them.
A specific report on impairment methodology was commissioned by the
Committee to ensure that it was satisfied with the methodologies in use
across the Group. The impairment charge included in the interim and
preliminary results announcements is specifically reviewed to ensure that
the Committee is satisfied that the charge is appropriate. In arriving at this
decision, a variety of factors are considered including:
– actual performance versus forecast;
– underlying portfolio trends;
– the business environment;
– compliance with Group impairment policy;
– any adjustments to impairment model outputs;
– Barclays position relative to peer banks; and
– input from the Group’s external auditor.
The Committee continues to review closely the fair value of the Barclays
Capital credit market exposures (including asset backed securities,
commercial property exposure and leveraged credit positions) and the
form and content of disclosures of these exposures. The review of the
credit market exposure valuations includes a review of marks by key asset
categories, movements in exposures (including sales/paydowns) and a
review of underlying collateral by vintage and rating. The Committee
receives at both the half-year and year-end and before each Interim
Management Statement, a specific presentation from Barclays Capital’s
Chief Operating Officer and discusses the valuations with the Group
Finance Director, the Chief Risk Officer and, importantly, the Group’s
external auditors. Confirmation is sought from independent Group control
functions such as Risk and Finance, and the external auditors, that the
individual marks are appropriate. The Committee continues to be reassured
that there were no significant variations between the prices at which
assets were sold and the underlying marks.
A specific focus was the sale of US$12.3bn of credit market assets to
Protium Finance LP in September. I discussed the accounting treatment
relating to the asset sale with both the Group Finance Director and the
Group’s external auditor to ensure I was satisfied that it was appropriate.
The Committee also reviewed the reclassification of certain financial assets
originally classified as held for trading, and now considered as loans and
receivables, again to ensure the accounting treatment was appropriate.
The Committee receives a quarterly report on Control Issues of Group
Level Significance. This report identifies control weaknesses which could
have a significant financial or non-financial impact. The Committee satisfies
itself that the remediation programmes are appropriate and, in particular,
sufficiently timely. It also monitors the ongoing remediation programme
through to satisfactory resolution. The Committee also reviews the key
risks and controls in each of the Group’s major business units, focusing in
particular on those areas where the Group’s business is expanding or is
deemed to be higher risk. It also undertakes more in-depth reviews of
specific areas which it believes warrant close attention, including in 2009:
– Know Your Customer and Anti-Money Laundering Controls;
– Sanctions Compliance;
– the use of direct sales agents, particularly in the Emerging Markets
business; and
– the Lehman Brothers North American business integration programme.
In addition to the five areas of focus outlined above, the Committee has
been anxious to ensure that the downward pressure on costs in the current
environment does not weaken the control environment. We have particularly
monitored staffing levels in Internal Audit to ensure that it has the necessary
resources to fulfil the agreed Audit Plan.
The Committee reviews the performance of the internal and external
auditors annually. During 2009, a comprehensive external assessment
of Internal Audit was undertaken. The review compared their practices to
relevant standards, including those published by the Institute of Internal
Auditors as well as regulatory standards and expectations in various
jurisdictions and included peer group benchmarking. The review
concluded that the Internal Audit function complies with the Institute of
Internal Auditors’ Standards, is fit for purpose and provides independent
assurance on which the Board may rely, with many examples of leading
practice. Where suggestions for improvement were made, the Committee
will monitor progress.
Feedback on the performance of the external auditors was again
sought from key stakeholders in the Group via questionnaires with the
results being presented to, and discussed by, the Committee. The Committee
is fully satisfied with the performance of the Group’s external auditor and
has recommended to the Board and to shareholders that the Group’s
external auditor should be re-appointed as the Group’s auditors at the
AGM on 30th April 2010. We are satisfied that the Group’s external auditor
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.
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. I have also liaised with the Chairman of the Board Risk
Committee to ensure our agendas are co-ordinated where necessary and
to avoid any overlap/underlap in coverage. I am also a member of the
Board Risk Committee, which helps to ensure close co-ordination between
the two committees.
I also have a programme of visiting key businesses overseas, including
attending meetings of local governance and control committees and the
audit committees of key subsidiaries. During the year, I visited New York,
Dubai and Johannesburg.
The Committee can confirm that it received sufficient, reliable and
timely information from management to enable it to fulfil its responsibilities.
Sir Michael Rake
Chairman of the Board Audit Committee
9th March 2010
Go online
The Board Audit Committee terms of reference
are available from the corporate governance
section of our website at:
www.barclays.com/corporategovernance