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Corporategovernance
Corporate governance
Thecompany’sinternalcontrolovernancialreportingincludespolicies
andproceduresthatpertaintothemaintenanceofrecordsthat,in
reasonabledetail,accuratelyandfairlyreecttransactionsanddispositions
ofassets;providereasonableassurancesthattransactionsarerecorded
asnecessarytopermitpreparationofnancialstatementsinaccordance
withIFRSandthatreceiptsandexpendituresarebeingmadeonlyin
accordancewithauthorizationsofmanagementandthedirectorsofBP;
andprovidereasonableassuranceregardingpreventionortimelydetection
ofunauthorizedacquisition,useordispositionofBP’sassetsthatcould
haveamaterialeffectonournancialstatements.BP’sinternalcontrol
overnancialreportingasof31December2010hasbeenauditedby
Ernst&YoungLLP,anindependentregisteredpublicaccountingrm,as
statedintheirreportappearingonpage143ofthisAnnual Report and
Form 20-F 2010.
Changes in internal control over nancial reporting
ThematerialimpactoftheGulfofMexicooilspillonthenancialresultsof
thecompanypresentedchallengesforthecompany’sinternalcontrolover
nancialreporting.AsdiscussedintheBusinessReviewsection,response
operationsfollowingtheincidentweremanagedbytheUniedArea
Command(UAC)using,insomecases,processesandsystemsthatthe
companydidnotdetermineorcontrol.Aspartiesoutsideofthecompany
hadnaldecision-makingauthorityonresponse-relatedactions,the
activitiesundertakenbythecompanyanditssub-contractors,andthe
associatedcosts,werenotwhollywithinthecompany’scontrol.Ahigh
levelofactivityandexpenditurewasgeneratedinaveryshorttimewith
limiteddocumentationaroundsourcingandcommitments.Inaddition,the
potentialforbreakdownsinprocessandcontrolsisincreasedwhen
companyemployeesarefocusedonimmediateresponseactionsinan
emergencysituationandworkinginuncertainconditions.
Asaresultofthemagnitudeofthisunprecedentedevent,andin
ordertoseparatelydisclosethenancialimpacts,newprocessesand
relatedcontrolswereestablishedtoidentifyandsegregatecosts,calculate
accrualsandestimateprovisionsforfuturecosts.Theseincluded:
• Establishinguniqueinvoice-processingproceduresandrelatedcontrols
toensureappropriateaccountingforcosts.
• D evelopingmethodologiesforestimatingthevariouselementsof
accrualsandprovisionsandinstitutingrelatedcontrolstovalidate
assumptionsandensureadequatemanagementreview.
• Creatingperiod-endnancialreportingprocessesandrelatedcontrols,
includingmanagementandanalyticalreview.
• Hiringadditionalresourcestoprocessandaccountforthesignicant
levelofexpenditure.
Althoughthenewcontrolsareconsistentwiththecompany’sestablished
framework,theyrepresentchangesthathavemateriallyaffected,orare
reasonablylikelytomateriallyaffect,thecompany’sinternalcontrolover
nancialreporting.Despitetheimpactofthisevent,asstatedabove,
managementhasconcludedthatthecompany’sdisclosurecontrolsand
proceduresandinternalcontrolovernancialreportingwereeffectiveasof
31December2010.
Principalaccountants’fees
andservices
Theauditcommitteehasestablishedpoliciesandproceduresforthe
engagementoftheindependentregisteredpublicaccountingrm,
Ernst&YoungLLP,torenderauditandcertainassuranceandtaxservices.
Thepoliciesprovideforpre-approvalbytheauditcommitteeofspecically
denedaudit,audit-related,taxandotherservicesthatarenotprohibited
byregulatoryorotherprofessionalrequirements.Ernst&Youngisengaged
fortheseserviceswhenitsexpertiseandexperienceofBPareimportant.
Mostofthisworkisofanauditnature.Taxserviceswereawardedeither
throughafullcompetitivetenderprocessorfollowinganassessmentof
theexpertiseofErnst&Youngrelativetothatofotherpotentialservice
providers.Theseservicesareforaxedterm.
Underthepolicy,pre-approvalisgivenforspecicserviceswithin
thefollowingcategories:adviceonaccounting,auditingandnancial
reportingmatters;internalaccountingandriskmanagementcontrol
reviews(excludinganyservicesrelatingtoinformationsystemsdesignand
implementation);non-statutoryaudit;projectassuranceandadviceon
businessandaccountingprocessimprovement(excludinganyservices
relatingtoinformationsystemsdesignandimplementationrelatingtoBP’s
nancialstatementsoraccountingrecords);duediligenceinconnection
withacquisitions,disposalsandjointventures(excludingvaluationor
involvementinprospectivenancialinformation);incometaxandindirect
taxcomplianceandadvisoryservices;andemployeetaxservices
(excludingtaxservicesthatcouldimpairindependence);provisionof,or
accessto,Ernst&Youngpublications,workshops,seminarsandother
trainingmaterials;provisionofreportsfromdatagatheredonnon-nancial
policiesandinformation;andassistancewithunderstandingnon-nancial
regulatoryrequirements.Additionally,anyproposedservicenotincludedin
thepre-approvedservices,mustbeapprovedinadvancepriorto
commencementoftheengagement.Theauditcommitteehasdelegated
tothechairmanoftheauditcommitteeauthoritytoapprovepermitted
servicesprovidedthatthechairmanreportsanydecisionstothecommittee
atitsnextscheduledmeeting.
Theauditcommitteeevaluatestheperformanceoftheauditors
eachyear.TheauditfeespayabletoErnst&Youngarereviewedbythe
committeeinthecontextofotherglobalcompaniesforcosteffectiveness.
Thecommitteekeepsunderreviewthescopeandresultsofauditwork
andtheindependenceandobjectivityoftheauditors.Externalregulation
andBPpolicyrequirestheauditorstorotatetheirleadauditpartnerevery
veyears.(See Financial statements – Note 17 on page 176 and Audit
committee report on page 98 for details of audit fees.)
BPAnnualReportandForm20-F2010 107