RBS 2011 Annual Report Download - page 268

266 RBS Group 2011
In addition to the annual evaluation performed by the Group Audit
Committee, the External Auditors also 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’. Feedback will be obtained and
discussed with the relevant internal stakeholders. The results of this
exercise will be presented to the Group Audit Committee, with actions
defined and agreed to address any areas where performance has fallen
below expected standards.
The Group 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 Group Audit Committee considers and discusses 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 Group Audit Committee's recommendations to shareholders for their
approval at the Annual General Meeting. The Board has endorsed the
Group Audit Committee's recommendation that shareholders be
requested to approve the reappointment of Deloitte LLP as External
Auditors at the Annual General Meeting in 2012. The Group Audit
Committee has considered the proposals for reform of the audit market
as published by the EU Commission. It will continue to monitor
developments in this regard including the potential implications for
External Auditor appointment in the UK.
The Group Audit Committee approves the terms of engagement of the
External Auditors. The Group 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 Group 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 Group 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. During 2011,
prospectively approved non-audit services included 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, Group Audit Committee
approval must be sought, on a case by case basis, before the provision
of the service commences. The Group Audit Committee reviews and
monitors the independence and objectivity of the External Auditors when
it approves non-audit work, 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
External Auditors from functioning in the role of management, auditing
their own work, or serving in an advocacy role.
Report of the Group Audit Committee continued