BP 2008 Annual Report Download - page 73

BP Annual Report and Accounts 2008
BP board performance report
Attendance
The audit committee met 13 times during 2008.
Audit Audit
committee committee
meetings eligible meetings
to attend attended
Sir Ian Prosser (chairman) 13 13
E B Davis, Jr 13 10
D J Flint 13 13
G David 6 6
Sir William Castell (former member) 7 7
In addition to the above members, the committee invites the lead partner
of the external auditors (Ernst & Young), the group chief financial officer,
the general auditor (head of internal audit), the chief accounting officer
and the deputy chief financial officer to attend each meeting. Other
senior management attend on request to enable the committee to
discharge its duties. The committee also holds private sessions during
the year without the presence of executive management.
Role and authority of the audit committee
The audit committee assists the board in carrying out its responsibilities
in relation to financial risk, internal controls, financial and regulatory
reporting requirements and the broader observance of the ‘executive
limitations’ relating to financial matters.
The main tasks and requirements for the audit committee are
set out in the principles. The audit committee believes that these meet
each of the tasks and activities outlined by the Combined Code as falling
within the remit of an audit committee.
Information
The committee receives information and reports from internal and
external sources, including a wide cross-section of BP’s business and
financial control management, with the attendance of additional Ernst &
Young staff if appropriate to a particular business or functional review.
The audit committee is able to access independent advice and
counsel when needed, on an unrestricted basis. Further support is
provided to the committee by the company secretary’s office and during
2008 external specialist legal and regulatory advice was provided by
Sullivan & Cromwell LLP.
The wider board is kept informed of the activities of the
committee, and any issues that have arisen, through the regular update
given by the audit committee chair after each meeting.
Training and induction
BP provides an induction programme for new committee members and
ongoing training to assist them in carrying out their duties. Elements of
the induction programme include familiarization with the tasks and
requirements of the audit committee, an overview of the key financial
and operational aspects of the businesses and an introduction to the
group’s system of internal control. During the year, George David
participated in the audit committee induction, including private sessions
with the lead external audit partner and the general auditor.
In 2008, the training programme for the audit committee included
briefings on developments in financial reporting and financial standards, a
site visit to BP’s UK trading operations and an externally facilitated
session on tax risk management.
Committee activities in 2008
The chart at the end of this section shows how the audit committee
allocated its agenda time in 2008.
Financial reporting
During the year, the committee reviewed all financial reports, including
the Annual Report and Accounts and Annual Report on Form 20-F, before
recommending their publication to the board.
Monitoring risk in the business
In 2008, the audit committee reviewed reports on risks, controls and
assurance for the BP business segments (Exploration and Production,
Refining and Marketing), together with alternative energy, information
technology and services, the proposed reorganization of the group
finance function and BP’s trading function. The committee also reviewed
BP’s long-term contractual commitments and the provisions made for
environmental remediation and decommissioning.
Internal controls
A joint meeting with the safety, ethics and environment assurance
committee was held to review the general auditor’s report on internal
controls and risk management. A further joint meeting was held in early
2009 to assist the board in its assessment of the effectiveness of internal
controls and risk management in 2008.
The committee discussed key regulatory issues during the year as
part of its standing agenda items, including the quarterly internal audit
findings report and a review of the company’s evaluation of its internal
controls systems as part of the requirement of Section 404 of the
Sarbanes-Oxley Act. The effectiveness of BP’s enterprise level controls
was examined through the annual assessment undertaken by the internal
audit function.
External auditors
The lead audit partner from Ernst & Young attends all meetings of the
audit committee at the request of the committee chairman. Other
external audit staff are invited to attend meetings where their
expertise is relevant to the agenda item, for example during business
or technical reviews.
The committee held two private meetings during the year with
the external auditors without the presence of BP management, in order
to discuss issues or concerns from either the committee or the auditors.
Performance of the external auditors is evaluated by the audit
committee each year, with particular scrutiny of their independence,
objectivity and viability. Independence is maintained through the limiting
of non-audit services to tax and audit-related work that fall within defined
categories. This work is pre-approved by the audit committee and all
non-audit services are monitored quarterly.
Fees paid to the external auditors for the year (see Financial
statements – Note 18 on page 134) were $67 million, of which 14% was
for non-audit work. The fees and services provided by Ernst & Young for
both audit and non-audit work have decreased in comparison to the
previous year due to improved audit efficiency, ongoing systems
improvements and BP’s new business structure.
During the year, a new lead partner from Ernst & Young replaced
the existing partner who had completed five years’ service on the BP
audit in early 2008. Under BP policy and pursuant to external regulation,
a new lead audit partner is appointed every five years and other senior
audit staff are rotated every seven years. No partners or senior staff
from Ernst & Young who are connected with the BP audit may transfer
to the group.
The audit committee has considered both the proposed fee
structure and the audit engagement terms for 2009 and has
recommended to the board that the reappointment of the external
auditors be proposed to shareholders at the 2009 AGM.
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