RBS 2010 Annual Report Download - page 245

Prospectively approved non-audit services include the following classes
of service:
xcapital raising, including consents, comfort letters and relevant
reviews of registration statements;
xprovision of accounting opinions relating to the financial statements
of the Group;
xprovision of reports that, according to law or regulation, must be
rendered by the external auditors;
xtax compliance services;
xpermissible services relating to companies that will remain outside
the Group;
xrestructuring services relating to the Group's customers; and
xreports providing assurance to third parties over certain of the
Group's internal controls prepared under US Statement of Auditing
Standards 70 or similar auditing standards in other jurisdictions.
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 August 2010, the Audit Committee approved
changes to the existing non-audit services policy. The new streamlined
process allows for the Chairman of the Audit Committee (or, in his
absence, a designated delegate) to approve any non-audit services
request with a value under £100,000. Any request with a value above this
amount must be approved by the full Audit Committee. To ensure good
governance all requests, regardless of financial limits, have to be
approved by the Group Chief Accountant and Group Sourcing and
Vendor Management. At each Audit Committee meeting, any non-audit
services requests which have been approved since the previous meeting
are considered for ratification.
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.
Performance evaluation
An external review of the effectiveness of the Audit Committee takes
place every three to five years, with internal reviews by the Board
continuing in the intervening years. An internal review of the effectiveness
of the Audit Committee during 2010 was conducted. The evaluation used
detailed questionnaires and individual meetings were held with each
member. Amongst the areas reviewed were the role of the Committee,
composition, meetings and processes, performance and reporting, policy
and procedures, divisional committees, induction and continuing
professional development and communication.
The evaluation concluded that the Audit Committee operated effectively
throughout 2010. The Committee was seen as effective in meeting its
objectives, with members willing to spend the time necessary to do a
good job. It was agreed that the new Chairman was a strong addition to
the Committee, in particular given his strong financial background. The
evaluation concluded that, whilst the Committee was of the appropriate
size to discharge its responsibilities and the members had the
appropriate skills and experience, Committee composition should be kept
under review to ensure that the correct balance of skills and experience is
maintained. The training and specific sessions on individual businesses
and divisions were highly rated.
The Committee has considered and discussed the report on the
outcomes of the evaluation and is satisfied with the way in which the
evaluation has been conducted, the conclusions and the
recommendations for action. The outcomes of the evaluation have been
reported to the Board and the actions are being progressed.
An external review of the effectiveness of Group Internal Audit takes
place every three to five years, in line with best practice, with internal
reviews continuing in the intervening years. In 2010, an external review
was conducted by Ernst & Young. In May 2010, the Audit Committee was
presented with the final report by Ernst & Young. The report found that
Group Internal Audit was compliant with all relevant professional
standards.
In January 2011 the Audit Committee undertook an internal evaluation of
Group Internal Audit. The Committee sought views from members and
attendees of the Committee, the external auditor, Divisional Chief
Executive Officers and Finance Directors, Divisional Risk and Audit
Committee and subsidiary audit committee Chairmen. The evaluation
concluded that Group Internal Audit had operated effectively throughout
2010.
Divisional Risk and Audit Committees
Since 2005, Divisional Audit Committees have been responsible for
reviewing each division's business. Following the creation of the Board
Risk Committee in January 2010, the Group’s Divisional Audit
Committees became Divisional Risk and Audit Committees and their
terms of reference were revised to ensure full alignment with the Audit
Committee and Board Risk Committee. With input from the Audit
Committee, Board Risk Committee, Group Finance and Group Risk, a
new framework was approved by the Audit Committee and Board Risk
Committee in December 2010 and implemented in January 2011.
Brendan Nelson
Chairman of the Audit Committee
23 February 2011
243RBS Group 2010
Governance