BP 2010 Annual Report Download - page 99

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Corporategovernance
Corporate governance
CommitteeReports
Audit committee report
Theauditcommittee’sagendain2010,likethatoftheboard,was
signicantlyshapedbythetragiceventsintheGulfofMexico.These
requiredthecommitteetofocusadditionalattentionandgoingreaterdepth
intomattersconcerningBP’sresponsetotheincident,inparticularinthis
committeeregardingthenancialconsequences.Considerabletimeand
effortwasspentreviewingandchallengingBP’sassessmentofthelikely
costofitsimmediateandlonger-termnancialresponsibilitiesandthe
adequacyofdisclosurebotharoundthesenancialconsequencesandthe
relatedcontingencieswhichwereunabletobeexpressednanciallyateach
reportingdate.Wealsocriticallyreviewedthecontrolaspectssurrounding
thedeploymentofBP’snancialandphysicalresourcesinrespondingtothe
incidentand,attheheightofthecrisis,criticallyexaminedthegroup’s
liquidityandfundingposition.
Whileallofthesematterswerealsocoveredbytheboardinfull
session,andmanywereindependentlycoveredfromadifferentperspective
bythenewlyformedGulfofMexicocommittee,theauditcommitteewas
extensivelyengagedinthedetailedreviewofthenancialreportingaspects
oftheincidentandthecompany’sresponse.Itwasalsoimportantthatthe
committeemaintaineditsregularoversightwithrespecttointernalcontrols
andnancialintegrityacrosstheremainderofthecompany’sactivitiesand
consequentially,asreportedbelow,weheldanumberofextrameetingsto
ensureouroriginallyplannedagendacouldbefullledinadditiontothe
heightenedworkloadarisingfromtheGulfofMexicoincident.
Iregretthatthiswillbebothmyrstandlastauditcommittee
report,asIamsteppingdownfromtheboardfollowingmyappointmentas
chairmanofHSBCHoldingsplc.ThishasbeenaverychallengingyearandI
wanttoexpressmysincerethankstothemembersoftheauditcommittee
andthosewhohavecontributedtosatisfyingourenquiriesforhaving
workedtogethersoeffectively.Iamcertainthiswillcontinueunder
BrendanNelson’sleadership.
Douglas Flint
ChairoftheAuditCommittee
Committee members
DouglasFlint–committeechair(from15April2010)
GeorgeDavid
IanDavis(appointed2April2010)
BrendanNelson(appointed8November2010)
PhuthumaNhleko(appointed1February2011)
Memberswholeftduringtheyear:
SirIanProsser–previouslychairofthecommittee(retired15April2010)
ErrollDavis,Jr(retired15April2010)
Theauditcommitteeiscomposedofindependent,non-executivedirectors
selectedtoprovideawiderangeofnancial,internationalandcommercial
expertiseappropriatetofullthecommittee’sduties.
DouglasFlintisgroupchairman(formerlychiefnancialofcerand
executivedirector,riskandregulation)ofHSBCHoldingsplcandaformer
memberoftheAccountingStandardsBoardandtheStandardsAdvisory
CounciloftheInternationalAccountingStandardsBoard.Theboardis
satisedthatheistheauditcommitteememberwithrecentandrelevant
nancialexperienceasoutlinedintheUKCorporateGovernanceCodeand
theJune2008CombinedCode.
Theboardalsodeterminedthattheauditcommitteemeetsthe
independencecriteriaprovisionsofRule10A-3oftheUSSecurities
ExchangeActof1934andthatMrFlintmayberegardedasanaudit
committeenancialexpertasdenedinItem16AofForm20-F.
DouglasFlintbecamechairoftheauditcommitteeuponthe
retirementofSirIanProsserfromtheboardinApril2010.Asnotedabove,
followinghisappointmentaschairmanofHSBCHoldingsplc,hewillretire
fromtheBPboardattheAGMinApril2011.BrendanNelsonwillbecome
chairoftheauditcommitteefromthistime.UponMrFlint’sretirement,
MrNelsonwillbecometheauditcommitteenancialexpertasdenedin
Item16AofForm20-F.
TheboardconsideredMrNelson’sextensiveskillsandexperiencemade
himtheidealcandidatetosucceedDouglasFlint.MrNelsonservedasa
memberoftheUKBoardofKPMGfrom2000to2006followingwhichhe
wasappointedvicechairmanuntilhisretirementin2010.InKPMG
Internationalheheldanumberofseniorpositionsincludingglobal
chairman,bankingandglobalchairman,nancialservices.Subsequentto
retiringfromKPMGhewasappointedanon-executivedirectorofTheRoyal
BankofScotlandGroupplcwhereheischairmanoftheGroupAudit
Committee.
Committee role and structure
Theroleandresponsibilitiesoftheauditcommitteearesetoutinthe
AppendixofBP’sboardgovernanceprinciplesandavailableonourwebsite.
Wekeeptheseunderreviewandtesttheireffectivenessinourannual
evaluationoftheauditcommittee.
Thecommitteemet15timesin2010:thiswasasignicant
increaseoverthepreviousyearwithadditionaltimebeingneededtocover
thenancialandcontrolaspectsoftheincidentintheGulfofMexico.Asit
doeseachyear,thecommitteeheldajointmeetingwiththesafety,ethics
andenvironmentassurancecommittee(SEEAC)inJanuarytoreviewthe
generalauditor’sreportoninternalcontrolandriskmanagementsystems
for2010.
Eachmeetingofthecommitteeisattendedbythegroupchief
nancialofcer,thedeputychiefnancialofcer,thegroupcontroller,the
generalauditor(headofinternalaudit)andthechiefaccountingofcer.The
leadpartnerofourexternalauditors(Ernst&Young)isalsopresent.
Thecommitteealsoholdsseparateprivatesessionsduringtheyear
withtheexternalauditorandthegeneralauditor–thesesessionsare
withoutthepresenceofexecutivemanagement.
Theboardiskeptupdatedandinformedoftheauditcommittee’s
activitiesandanyissuesarisingthroughverbalreportsatitsmeetingsfrom
thecommitteechairandthecirculationofthecommittee’sminutes.
Committee processes
Informationandadvice
Informationandreportsforthecommitteearereceiveddirectlyfrom
accountablefunctionalandbusinessmanagersandfromrelevantexternal
sources.Inaddition,likeourboardandothercommittees,theaudit
committeecanaccessindependentadviceandcounselwhenneededon
anunrestrictedbasis.During2010,externalspecialistlegaladvicewas
providedtothecommitteebySullivan&CromwellLLP,Freshelds
BruckhausDeringerLLPandKirklandandEllisLLPandnancialadvicewas
providedbyKPMGandMorganStanley.Aspartofitsannualevaluation,the
committeereviewstheadequacyofreliableandtimelyinformationfrom
managementthatenablesittofullitsresponsibilities.The2010evaluation
indicatedthatmembersrecognizedtheopennessandtransparentnatureof
thematerialsandpresentationsprovidedbymanagement.
Trainingandvisits
RespondingtoeventsintheGulfofMexico,therewasincreasedfocuson
accountingpolicyapplicabletothecircumstancesarisingfromtheincident
andthecommitteereceivedbriengsontherelevantaccountingpolicy
applications,particularlyprovisioningandrelateddisclosure.Other
technicalupdatesthecommitteereceivedincludeddevelopmentsin
nancialreporting,inoilandgasreservesdisclosureandinrelationto
taxationchanges.
Inductionprogrammestailoredaroundtheirrolesontheaudit
committeewerepreparedforthetwonewmemberswhojoinedduring
theyear.Theseincludedsessionsontax,treasury,ourtradingoperations,
accounting,nancialauthoritiesandthestructureofBP’snancefunction.
Bothhadseparate,privatesessionswiththeexternalandinternalauditors.
During2011,wewillundertakeanauditcommitteeinductionprogramme
forPhuthumaNhleko.
TheauditcommitteeheldoneofitsregularmeetingsatBP’sUK
tradingoperationsandcombinedthiswithavisittothetradingoorswhich
providedtheopportunitytomeetandputquestionstoemployees.
MembersofthecommitteealsovisitedtheGulfofMexico.
BPAnnualReportandForm20-F2010 97