RBS 2010 Annual Report Download - page 244

External auditors
Deloitte LLP has been the company’s auditors since March 2000.
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 annual evaluation is
carried out following completion of the annual accounts and audit.
In assessing the effectiveness of the Group’s external auditors the Audit
Committee has regard to:
xthe experience and expertise of the senior members of the
engagement team;
xthe proposed scope of the audit work planned and executed;
xthe quality of the dialogue between the external auditors, the
Committee and senior management;
xthe clarity, quality and robustness of written reports presented to the
Committee setting out the external auditor’s findings arising from the
audit;
xthe quality of the observations provided to the company by the
external auditor on the Group’s systems of internal control; and
xthe views of management on the performance of the external
auditors.
The outcomes of the evaluation were considered by the Audit Committee
and Board.
In addition to the annual evaluation performed by the Audit Committee,
the external auditors conduct their own annual review of audit quality.
Twelve service criteria for the audit have been defined by the external
auditors to measure their performance against the quality commitments
set out in their annual audit plan, under the headings of “quality of audit
approach and conduct”, “independence and objectivity”, “quality of the
team” and “value added”. A questionnaire is completed by each
Divisional CFO and each Divisional Risk and Audit Committee chairman
after the completion of the annual audit and by relevant members of
Group management and the Audit Committee. A follow up interview is
held with each of them by senior partners independent of their immediate
service teams. The results of this exercise will be presented to the Audit
Committee, with actions defined and agreed to address any areas where
performance has fallen below expected standards.
The external auditors are required to rotate the lead audit partner
responsible for the audit every five years and, in 2010, a new audit
partner was appointed to lead the audit for the year ending 31 December
2010. There are no contractual obligations restricting the company's
choice of external auditor.
The Audit Committee is responsible for making recommendations to the
Board in relation to the appointment, re-appointment and removal of the
external auditors. In order to make a recommendation to the Board, the
Audit Committee consider and discuss the performance of the external
auditor in the previous year, taking account of the outcomes of the annual
evaluation carried out. The Board submits the Audit Committee's
recommendations to shareholders for their approval at the Annual
General Meeting. The Board has endorsed the Audit Committee's
recommendation that shareholders be requested to approve the
reappointment of Deloitte LLP as external auditors at the Annual General
Meeting in April 2011.
The Audit Committee approves the terms of engagement of the external
auditors. The Audit Committee also fixes the remuneration of the external
auditors as authorised by shareholders at the Annual General Meeting.
Audit and non-audit services
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.
In particular, the Group may not engage the external auditors to provide
any of the non-audit services described below:
xbookkeeping or other services related to the accounting records or
financial statements;
xfinancial information systems design and implementation;
xappraisal or valuation services, fairness opinions or contribution-in-
kind reports;
xactuarial services;
xinternal audit outsourcing services;
xmanagement functions or human resources;
xbroker or dealer, investment adviser, or investment banking services;
xlegal services and expert services unrelated to the audit; or
xother services determined to be impermissible by the US Public
Company Accounting Oversight Board.
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) and periodic profit verifications.
Annual audit services also include statutory or non-statutory audits
required by any Group companies that are not incorporated in the UK.
Terms of engagement for these audits are agreed separately with
management, and are consistent with those set out in the audit
engagement letter insofar as local regulations permit.
RBS Group 2010242
Corporate governance continued