RBS 2007 Annual Report Download - page 104

RBS Group • Annual Report and Accounts 2007
102
Corporate governance continued
Governance
The Chairman, Group Chief Executive, Group Finance Director
and, if appropriate, the senior independent director
communicate shareholder views to the Board as a whole.
The Board commissions a survey of investor perceptions
periodically. The survey is undertaken on behalf of the Board
by independent consultants and the outcomes of the study are
considered by the Board.
Internal control
The Board of directors is responsible for the Group’s system
of internal control that is designed to facilitate effective and
efficient operations and to ensure the quality of internal and
external reporting and compliance with applicable laws and
regulations. In devising internal controls, the Group has regard
to the nature and extent of the risk, the likelihood of it
crystallising and the cost of controls. A system of internal
control is designed to manage, but not eliminate, the risk of
failure to achieve business objectives and can only provide
reasonable, and not absolute, assurance against the risk of
material misstatement, fraud or losses.
The Board has established a process for the identification,
evaluation and management of the significant risks faced
by the Group, which operated throughout the year ended
31 December 2007 and to 27 February 2008, the date the
directors approved the Report and Accounts. This process
is regularly reviewed by the Board and meets the
requirements of the guidance ‘Internal Control: Revised
Guidance for Directors on the Combined Code’ issued by
the Financial Reporting Council in October 2005.
The effectiveness of the Group’s internal control system is
reviewed regularly by the Board and the Audit Committee.
Executive management committees or boards of directors in
each of the Group’s businesses receive regular reports on
significant risks facing their business and how they are being
controlled. In addition, the Group Board receives monthly risk
management reporting. Additional details of the Group’s
approach to risk management are given in the ‘Risk
management’ section of the ‘Business review’ on pages 70 to
90. The Audit Committee also receives regular reports from
RBS Risk Management and Group Internal Audit. In addition,
the Group’s independent auditors present to the Audit
Committee reports that include details of any significant
internal control matters which they have identified. The system
of internal controls of the authorised institutions and other
regulated entities in the Group is also subject to regulatory
oversight in the UK and overseas. Additional details of the
Group’s regulatory oversight are given in the ‘Supervision and
regulation’ section on pages 231 to 233.
Internal Control over Financial Reporting
The Group is required to comply with Section 404 of the US
Sarbanes-Oxley Act of 2002 and assess the effectiveness of
internal control over financial reporting as of 31 December
2007.
The Group assessed the effectiveness of its internal control
over financial reporting as of 31 December 2007 based on the
criteria set forth by the Committee of Sponsoring Organizations
of the Treadway Commission in ‘Internal Control – Integrated
Framework’.
Management has excluded from its assessment the internal
control over financial reporting of ABN AMRO Holdings N.V.,
which was acquired on 17 October 2007. ABN AMRO
Holdings N.V. represented 40.7% of the Group’s total assets, a
negligible proportion of the shareholders’ total equity, 7.7% of
the Group’s total income and 0.2% of the Group’s profit after
tax as of and for the year ended 31 December 2007.
Based on its assessment, management has concluded that, as
of 31 December 2007, the Group’s internal control over
financial reporting is effective.
The Group’s auditors have audited the effectiveness of the
Group’s internal control over financial reporting and have given
an unqualified opinion.
Management’s report on the Group’s internal control over
financial reporting will be filed with the SEC at the same time
as the Annual Report on Form 20-F.
Disclosure controls and procedures
As required by US regulations, the effectiveness of the
company’s disclosure controls and procedures (as defined in
the rules under the US Securities Exchange Act of 1934) have
been evaluated. This evaluation has been considered and
approved by the Board which has instructed the Group Chief
Executive and the Group Finance Director to certify that, as at
31 December 2007, the company’s disclosure controls and
procedures were adequate and effective and designed to
ensure that material information relating to the company and its
consolidated subsidiaries would be made known to them by
others within those entities.
Changes in internal controls
There was no change in the company’s internal control over
financial reporting that occurred during the period covered by
this report that has materially affected, or is reasonably likely
to materially affect, the company’s internal control over
financial reporting.