RBS 2012 Annual Report Download - page 311

RBS GROUP 2012
309
Letter from Brendan Nelson,
Chairman of the Group Audit Committee
Dear Shareholder,
External market conditions have continued to be difficult and managing
the intensity of the regulatory agenda while remediating existing and
certain new issues has inevitably determined the focus of the Group Audit
Committee during 2012. However, I am pleased to report that against this
challenging backdrop, the Committee continued to meet its key objectives
in the period in accordance with its terms of reference.
The Group Audit Committee exercised oversight of the Group’s financial
reporting and policy. It monitored the integrity of the financial statements
of the Group and reviewed significant financial and accounting
judgements. The Committee sought to understand and to challenge
management’s accounting judgements and satisfied itself that disclosures
in the financial statements about these judgements and estimates were
transparent and appropriate. The Group Audit Committee also met the
External Auditors in private in advance of key meetings in order to obtain
an independent view on the key disclosure issues and risks in relation to
the financial statements.
In particular, the Committee has considered:
x the directors’ going concern disclosure including the Group’s capital,
liquidity and funding position;
x the adequacy of the Group’s loan impairment provisions, focusing
particularly on the Ulster Bank loan portfolio and commercial real
estate exposures;
x the impact of the Group’s forbearance policies on provisioning;
x the Group’s valuation methodologies and assumptions for financial
instruments measured at fair value;
x the adequacy of the Group’s general insurance reserves;
x valuation of the Group’s defined benefits pension schemes;
x carrying value of the Group’s goodwill and other intangible assets;
x the recoverability of the Group’s deferred tax assets;
x the methodology and assumptions underlying the Group’s provisions
for payment protection insurance and interest rate hedging products
redress;
x the Group’s provisions for outstanding litigation and regulatory
investigations; and
x the impact of the announcement that Santander would not complete
its planned purchase of certain UK branch-based businesses.
The Group Audit Committee continued to encourage enhancements to
the disclosures in the Group’s external financial reports. Revised versions
of the UK Corporate Governance Code and related Guidance for Audit
Committees were issued by the Financial Reporting Council in
September 2012. The Committee considered the new requirements and
has endeavoured to comply early, where appropriate to do so. The
Committee also considered the recommendations of the Enhanced
Disclosure Task Force of the Financial Stability Board and the Group’s
plans to meet the recommendations. I am pleased to report that several
of the Group’s disclosures were highlighted within the report as examples
of best practice.
A key responsibility of the Committee is to monitor and review the scope,
nature and effectiveness of Internal Audit. As in previous years, I met
regularly with the Head of Group Internal Audit. The Committee also held
two in depth sessions with Group Internal Audit. These additional
meetings enabled the members of the Committee to be briefed on Group
Internal Audit’s strategy under the leadership of Nicholas Crapp, who
joined the Group at the start of the year, and to meet the senior
management team. The Committee ensured that the Head of Group
Internal Audit has appropriate independence and authority; that the scope
of Internal Audit is unrestricted; that planning is appropriately risk based;
and that the function has the requisite budget and resource strategy. The
Head of Group Internal Audit has a direct reporting line to me and I will
continue to work closely with him as we seek to strengthen further the
function during 2013.
Report of the Group Audit Committee