Barclays 2013 Annual Report Download - page 65

Role and responsibilities
The Committee is responsible for:
 assessing the integrity of the Group’s financial reporting and
satisfying itself that any significant financial judgments made by
management are sound;
 evaluating the effectiveness of the Group’s internal controls,
including internal financial controls; and
 scrutinising the activities and performance of the internal and
external auditors, including monitoring their independence and
objectivity.
Committee composition
There were a number of changes to Committee composition in 2013.
Tim Breedon, Mike Ashley and Diane de Saint Victor joined the
Committee and Sir Andrew Likierman left the Committee on retiring
from the Board. Sir Michael Rake retired from the Committee on
31 December 2013 and was succeeded as Chairman by Mike Ashley with
effect from 1 January 2014. Fulvio Conti and Simon Fraser will retire from
the Committee on 24 April 2014, when they retire from the Board. During
2013, Sir Michael Rake and, until his retirement, Sir Andrew Likierman,
were the designated financial experts on the Committee for the purposes
of the US Sarbanes-Oxley Act and have been succeeded in this by Mike
Ashley, although each member of the Committee has financial and/or
financial services experience. You can find more details of the experience
of Committee members in their biographies on pages 83 to 85.
The Committee’s work
The Committee met 13 times in 2013, including a separate meeting
specifically in February 2013 on PPI provisions and two additional
meetings to consider restated financial statements, reflecting the
introduction of new accounting standards, prior to their publication.
The chart opposite shows how the Committee allocated its time during
2013. Committee meetings were attended by management, including
the Group Chief Executive, Group Finance Director, Chief Internal
Auditor, Chief Risk Officer and General Counsel, as well as
representatives from the businesses and other functions. The lead
audit partner of the external auditor attended each meeting and the
Committee held regular private sessions with the Chief Internal Auditor
and the lead auditor partner, which were not attended by management.
Significant financial statement reporting issues
With support and input from the external auditor, the Committee
assessed the financial reporting processes, whether suitable
accounting policies had been adopted, whether management had
made appropriate estimates and judgments and whether disclosures in
published financial reports were balanced and fair.
The integrity of the financial statements is underpinned by the control
environment pertaining to the production of the financial reports. In
this regard, the Committee considered the results of the Group’s
Turnbull assessments, its Sarbanes-Oxley s404 internal control process
and the absence of any indications of fraud relating to financial
reporting matters. The Committee also satisfied itself that there were
appropriate verification standards and processes by which senior
management attested to the accuracy of the factual content and a
process to support the representations made by the Board to the
external auditors. It did this by debating the outputs from the
Disclosure Committee’s review of the financial statements, including an
assessment of disclosure controls and procedures, and by asking
management to explain and evidence the basis on which the
representations to the auditors were made. The Disclosure Committee
is a management committee, chaired by the Group Finance Director,
which considers the content, accuracy and tone of the disclosures,
reporting its conclusions to the Group Executive Committee and the
Board Audit Committee. The Committee also considered reports from
the internal and external auditor relating to these aspects. In addition,
the Committee discussed control issues in the IT environment, which
are subject to remediation plans. Additional measures have been taken,
including compensating controls, to ensure that the controls over the
systems supporting the financial reporting processes can be relied
upon. The Committee was satisfied, given the results of the testing of
the compensating controls, that the integrity of the financial control
environment was appropriate.
Another major component of the financial reporting process concerns
the key assumptions and estimates or judgments that inevitably have
to be made. Ahead of publication of the half-year and full-year results,
the Committee examined in detail the main judgments and
assumptions made by management. It also considered whether, in
those areas where accounting policy choices might be made,
appropriate policies had been selected. The Committee focused on the
following areas at the full-year, having covered similar matters at the
half-year, including seeking the views of the external auditor on the
judgments made:
 Customer redress provisions, in particular PPI and interest rate
hedging products redress provisions, were an area of focus for the
Committee in 2013 and you can read more below about the
Committee’s role in evaluating and challenging the assumptions
underlying the provisions for PPI redress. Full details of the provisions
taken in 2013 can be found on page 332;
 Another significant area of judgment for the financial statements
arises in the valuation and disclosure of financial instruments held by
the Corporate and Investment Bank, in particular, derivative assets
and certain Exit Quadrant portfolios. The Committee was especially
interested in assets where there is a lack of an active secondary
market and limited trade activity, as the lack of observability results in
valuation uncertainty. Consequently, the Committee examined the
internal price verification processes, whereby methodologies are
benchmarked against any observable traded prices, practices
adopted by peers and other relevant pricing information. In particular,
owing to the lack of any secondary market and limited, if any, recent
origination experience, the Committee scrutinised the valuation of
the Education, Social Housing and Local Authority (ESHLA) loan
portfolio, which is held at fair value based on internal assessments of
credit spreads. After due challenge and debate, the Committee
satisfied itself as to the governance underpinning the valuation
process and that the assumptions made were appropriate. In view of
the absence of recent trading and the sensitivity of the valuation to
alternative plausible assumptions, the Committee fully supported the
transfer of this portfolio to level 3 categorisation and the associated
disclosures. Full details of financial instruments held can be found on
page 304;
 The Committee scrutinised credit impairment charges on loans and
advances. The main judgments arose around the timing of the
recognition of any impairment and estimating the size, particularly
where forbearance has been granted. The Committee examined the
underlying drivers of impairment in each business and any post-
model adjustments, including the process by which the Risk function
had identified areas where adjustments needed to be made in order
to satisfy itself that the credit impairment provisions were
appropriate. As part of its assessment, the Committee was also
briefed on impairment methodologies. Full details of credit
impairment charges for 2013 can be found on page 291;
 The Committee examined the significant judgmental items in the
calculation of the tax rate. The judgments covered the adequacy of tax
provisions for matters that remain outstanding with the relevant tax
authorities with regard to transactions from prior periods and deferred
tax assets (DTA) in Spain and the US. In relation to the former, the
Committee had regard to the status of negotiations with key tax
authorities and assessed the drivers underlying the tax risk and the
associated provisions, to satisfy itself that the coverage levels of the
provisions were appropriate given the range of possible outcomes.
In relation to DTA, the Committee noted that management’s business
forecasts supported the recovery other than in relation to Spain. The
Committee therefore agreed with management’s recommendation
to write down the DTA in Spain. Full details of the tax rate and tax
provision for 2013 can be found on page 294;
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