RBS 2005 Annual Report Download - page 121

section
02
Governance
119
Corporate governance
Annual Report and Accounts 2005
Audit Committee Report
The members of the Audit Committee are Archie Hunter
(Chairman), Colin Buchan, Joe MacHale, Eileen Mackay, until
her retirement on 31 December 2005, and Sir Steve Robson.
All members of the Audit Committee are independent non-
executive directors. The Audit Committee holds at least five
meetings each year, two of which are held immediately prior
to submission of the interim and annual financial statements
to the Group Board. This core agenda is supplemented by
additional meetings as required, four being added in 2005.
Audit Committee meetings are attended by relevant executive
directors, the internal and external auditors and risk management
executives. At least twice per annum the Committee meets
privately with the external auditors. The Audit Committee also
visits business divisions and certain Group functions under
a programme set at the beginning of each year.
The Board is satisfied that all the Audit Committee members
have recent and relevant financial experience. Although the
Board has determined that each Member of the Audit
Committee is an ‘Audit Committee Financial Expert’ and is
independent, each as defined in the SEC rules under the US
Securities Exchange Act of 1934 and related guidance, the
members of the Audit Committee are selected with a view to
the expertise and experience of the Audit Committee as a
whole, and the Audit Committee reports to the Board as a
single entity. The designation of a director or directors as an
‘Audit Committee Financial Expert’ does not impose on any
such director any duties, obligations or liability that are greater
than the duties, obligations and liability imposed on such
director as a member of the Audit Committee and Board in the
absence of such a designation. Nor does the designation of a
director as an ‘Audit Committee Financial Expert’ affect the
duties, obligations or liability of any other member of the Board.
The Audit Committee is responsible for:
•assisting the Board in discharging its responsibilities and in
making all relevant disclosures in relation to the financial
affairs of the Group;
•reviewing accounting and financial reporting and regulatory
compliance;
•reviewing the Group’s systems of internal control; and
•monitoring the Group’s processes for internal audit, risk
management and external audit.
Full details of the responsibilities of the Audit Committee are
available at www.rbs.com/content/corporate_responsibility
/corporate_governance/downloads/group_audit.pdf.
The Audit Committee has adopted a policy on the engagement
of the external auditors to supply audit and non-audit services,
which takes into account relevant legislation regarding the
provision of such services by an external audit firm. The Audit
Committee reviews the policy annually and prospectively
approves the provision of audit services and certain non-audit
services by the external auditors.
Annual audit services include all services detailed in the
annual engagement letter including the annual audit and
interim reviews (including US reporting requirements), periodic
profit verifications and reports to regulators including skilled
persons reports commissioned by the Financial Services
Authority (e.g. Reporting Accountants Reports).
Annual audit services also include statutory or non-statutory
audits required by any Group companies that are not
incorporated in the United Kingdom. Terms of engagement for
these audits are agreed separately with management, and are
consistent with those set out in the audit engagement letter,
as local regulations permit.
The prospectively approved non-audit services include the
following classes of service:
•capital raising, including consents, comfort letters and
relevant reviews of registration statements;
•provision of accounting opinions relating to the financial
statements of the Group;
•provision of reports that, according to law or regulation,
must be rendered by the external auditors;
•tax compliance services;
•corporate finance services relative to companies that will
remain outside the Group; and
•insolvency work relating to the Group’s customers.
The Audit Committee approves all other permitted non-audit
services on a case by case basis. The relevant submissions by
management outline the service required and confirm that the
external auditor’s independence will not be compromised. In
addition, the Audit Committee reviews and monitors the
independence and objectivity of the external auditors when it
approves non-audit work to be carried out by them, taking into
consideration relevant legislation and ethical guidance.
Information on the audit and non-audit services carried out by
the external auditors is detailed in Note 4 to the Group’s
accounts.
The Audit Committee undertakes an annual evaluation to
assess the independence and objectivity of the external
auditors and the effectiveness of the audit process, taking
into consideration relevant professional and regulatory
requirements. The results of this evaluation are reported
to the Board.
The Audit Committee makes recommendations to the Board in
relation to the remuneration and terms of engagement of the
external auditors and the re-appointment by the shareholders
at the Annual General Meeting in April 2006 of Deloitte &
Touche LLP as the external auditors.