RBS 2009 Annual Report Download - page 222

RBS Group Annual Report and Accounts 2009220
Corporate governance continued
For all other permitted non-audit services, Audit Committee approval
must be sought, on a case by case basis, before the provision of the
service commences. 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, ethical guidance and the level of non-
audit services relative to audit services. The approval process is
rigorously applied to prevent the auditors from functioning in the role of
management, auditing their own work, or serving in an advocacy role.
Information on the audit and non-audit services carried out by the
external auditors is detailed in Note 5 to the Group’s accounts.
The Group Audit Committee was pleased to note progress towards
meeting the Group’s strategic plan in 2009. However, ongoing economic
uncertainty continued to affect the Group throughout the period and it
has recorded significant asset write-downs in its 2009 financial
statements.
In these circumstances, particular attention of the Audit Committee was
focused on a number of salient judgments involved in the preparation of
the accounts:
•valuation methodologies and assumptions for financial instruments
carried at fair value including the Group’s credit market exposures
and the disclosures provided;
•claims reserves in the Group’s general insurance business;
•the accounting treatment of bonus tax;
•accounting issues relating to the Asset Protection Scheme;
•actuarial assumptions for the Group Pension Fund;
•impairment losses in the Group’s portfolio of loans and advances
and available-for-sale securities;
•carrying value of the deferred tax asset; and
•impairment of goodwill and other purchased intangible assets.
In its consideration of each of these issues, the aims of the Audit
Committee have been to:
•understand and challenge the valuation and other accounting
judgments made by management;
•review the conclusions of the external auditors and, where
applicable, other experts and to understand how they came to their
conclusions; and
•satisfy itself that the disclosures in the financial statements about
these estimates and valuations are transparent and appropriate.
Also addressed by the Audit Committee, given the current economic
environment, was management's going concern assessment. In
particular, the Committee reviewed the evidence to demonstrate that the
Group had access to sufficient funding and capital over the next 12
months. The Committee reviewed and challenged the assumptions
underlying the analysis and discussed with the external auditors its
review of management's analysis and conclusions.
The Committee also dedicated a significant proportion of time and
attention during 2009 to the consideration and approval of the Group’s
accession to the Asset Protection Scheme (“the Scheme”). A specific
meeting, which was attended by the majority of the Group Board, was
held to consider the Scheme and its impact on the Group.
In response to the economic crisis the Group Audit Committee formally
commissioned an independent report on risk reporting within the
organisation. As a result, the format and content of risk reporting has
undergone significant development during 2009.
As far as it can determine, the Group Audit Committee received all the
information and material it required to allow it to meet its obligations in
respect of the 2009 financial statements.
During 2009, the Group Audit Committee regularly reviewed the work of
the Group’s risk management and internal audit functions. Additional
sessions of the Group Audit Committee were held in 2009 that focused
solely on risk and audit issues.
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 outcomes of this
evaluation are considered by the Board together with the Group Audit
Committee’s recommendation on the re-appointment of the external
auditors or whether to commence an audit tender process. The annual
evaluation is carried out following completion of the annual accounts
and audit.
Deloitte LLP have been the company’s auditors since March 2000. The
external auditors are required to rotate the lead audit partner
responsible for the audit every five years. The current lead audit partner
has completed his fifth year and accordingly, a new audit partner will
lead the audits for the year ending 31 December 2010. There are no
contractual obligations restricting the company’s choice of external
auditor.