Unilever 2010 Annual Report Download - page 59

56 Unilever Annual Report and Accounts 2010
Report of the Directors Governance
Report of the Audit Committee
The role and terms of reference of the Audit Committee are to
assist the Boards in fulfilling their oversight responsibilities
regarding the integrity of Unilever’s financial statements, risk
management and internal control, compliance with legal and
regulatory requirements, the external auditors’ performance,
qualifications and independence, and the performance of the
internal audit function. During the year, principal activities were
as follows:
Financial statements
The Committee considered reports from the Chief Financial
Officer on the quarterly and annual financial statements,
including other financial statements and disclosures prior to their
publication and issues reviewed by the Disclosure Committee.
They also reviewed the Annual Report and Accounts and Annual
Report on Form 20-F, the quarterly results and accompanying
press releases prior to publication. These reviews incorporated the
accounting policies and key judgements and estimates
underpinning the financial statements including:
• goodwill and intangible assets
• provisions
• business combinations
• financial instruments
• pensions
• taxation; and
• going concern assessment
The Committee was satisfied with the accounting treatment
adopted.
Risk management and internal control arrangements
The Committee reviewed Unilever’s overall approach to risk
management and control, and its processes, outcomes and
disclosure. It reviewed:
• the Controller’s Quarterly Risk & Control Status Report (which
includes matters arising from the Global Code and Policy
Committee), including Code cases relating to frauds, and
significant complaints received through the global Ethics
Hotline;
• Corporate Risks, including the 2011 Focus Risks identified by
the Unilever Executive;
• Management’s work to introduce a simplified policy
framework that directly underpins the Code of Business
Principles;
• the application of information and communication
technology;
• tax planning and related risk management;
• treasury policies, including debt issuance and hedging;
• commodity risk management, governance and derivatives
hedging; and
• litigation and regulatory investigations presented by the Chief
Legal Officer.
The Committee reviewed the application of the requirements
under Section 404 of the US Sarbanes-Oxley Act of 2002 with
respect to internal controls over financial reporting.
In addition, the Committee reviewed the annual financial plan and
Unilever’s dividend policy and dividend proposals.
In fulfilling its oversight responsibilities in relation to risk
management, internal control and the financial statements, the
Committee met regularly with senior members of management
and are fully satisfied with the key judgements taken.
Internal audit function
The Committee reviewed Corporate Audit’s audit plan for the year
and agreed its budget and resource requirements. It reviewed
interim and year-end summary reports and management’s
response. The Committee carried out a formal evaluation of the
performance of the internal audit function and were satisfied with
the effectiveness of the function. The Committee met
independently with the Chief Auditor during the year and
discussed the results of the audits performed during the year. The
Committee approved the appointment of the new Chief Auditor.
Audit of the Annual Accounts
PricewaterhouseCoopers, Unilever’s external auditors, reported in
depth to the Committee on the scope and outcome of the annual
audit, including their audit of internal controls over financial
reporting as required by Section 404 of the US Sarbanes-Oxley Act
of 2002. Their reports included accounting matters, governance
and control, and accounting developments.
The Committee held independent meetings with the external
auditors during the year and discussed and challenged their audit
plan, including their assessment of the financial reporting risk
profile of the Group. The Committee discussed the views and
conclusions of PricewaterhouseCoopers regarding management’s
treatment of significant transactions and areas of judgement
during the year and PricewaterhouseCoopers confirmed they were
satisfied that these had been treated appropriately in the financial
statements.
External auditors
The Audit Committee conducted a formal evaluation of the
effectiveness of the external audit process. The Committee has
considered the tenure, quality and fees of the auditors and
determined that a tender for the audit work is not necessary. As a
result, the Committee has approved the extension of the current
external audit contract by one year, and recommended to the
Boards the re-appointment of the external auditors. On the
recommendation of the Audit Committee, the Directors will be
proposing the re-appointment of PricewaterhouseCoopers at the
AGMs in May 2011 (see pages 132 and 137).
Both Unilever and the auditors have for many years had safeguards
in place to avoid the possibility that the auditors’ objectivity and
independence could be compromised. The Committee reviewed
the report from PricewaterhouseCoopers on the actions they take
to comply with the professional and regulatory requirements and
best practice designed to ensure their independence from Unilever.
The Committee also reviewed the statutory audit, other audit, tax
and other services provided by PricewaterhouseCoopers, and
compliance with Unilever’s documented approach, which
prescribes in detail the types of engagements for which the
external auditors can and cannot be used:
• statutory audit services – including audit of subsidiaries;
• other audit services – work which regulations or agreements
with third parties require the auditors to undertake;