RBS 2013 Annual Report Download - page 56
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Report of the Group Audit Committee
54
Financial reporting and policy
The Group Audit Committee focused on a number of salient judgements
and reporting issues in the preparation of the 2013 accounts. In
particular, the Committee considered:
• the evidence (including in relation to the Group’s capital, liquidity
and funding position) to support the directors’ going concern
conclusion. Further information is set out on page 96;
• the adequacy of loan impairment provisions, with special emphasis
on exposures in Global Restructuring Group (GRG) and Ulster Bank
in light of the creation of RCR which resulted in increased
impairment provisions being recognised in the fourth quarter of
2013. The Committee was satisfied that the Group loan impairment
provisions and underlying assumptions and methodologies are
robust;
• the level of provisions held for outstanding litigation and regulatory
investigations, including Payment Protection Insurance redress,
LIBOR, Interest Rate Hedging Products and US RMBS litigation.
Following review, the Committee was satisfied that overall the level
of provision held is appropriate and that disclosure is sufficiently
transparent. However, these issues will be kept under close review
by the Committee in 2014, as matters develop;
• valuation methodologies and assumptions for financial instruments
carried at fair value including the Group’s credit market exposures;
• the appropriateness of the carrying value of goodwill and other
intangible assets, placing particular focus on International Banking
and RBS Citizens Financial Group, Inc. Following an impairment
review at year end, goodwill allocated to International Banking of
£1.1 billion was impaired in full;
• the judgements that had been made by management in assessing
the recoverability of the Group’s deferred tax assets The deferred
tax asset relating to tax losses recognised in The Royal Bank of
Scotland plc has been written down by £0.7 billion;
• valuation of the Group’s main defined benefit pension scheme. The
Committee considered the assumptions that had been set in valuing
the fund and the sensitivities of those assumptions;
• the accounting treatment of businesses that the Group has
committed to sell, in particular the classification of Direct Line
Insurance Group plc in light of the sale of tranches of shares in 2013
and the loss of control by the Group;
• the assessment by management of the adequacy and effectiveness
of internal controls over financial reporting which had identified
weaknesses in the Group’s privileged access and user entitlement
controls within Technology Services. The Committee considered the
potential impact of those issues upon financial reporting systems
and requested assurance directly from management regarding
prioritisation of remediation and compensating controls. The
Committee will continue to monitor delivery of the required
remediation programme in 2014;
• the form and content of the newly introduced Strategic Report
contained within the Annual Report and Accounts. As part of its
overall assessment of the Annual Report and Accounts, the
Committee assisted the Board in determining that the Annual Report
and Accounts taken as a whole was fair, balanced and
understandable, providing the information necessary for
shareholders to assess the company’s performance, business
model and strategy. A comprehensive review process supports both
the Group Audit Committee and ultimately the Board in reaching
their conclusion:-
° the production of the Annual Report and Accounts is co-
ordinated centrally by the Group Chief Accountant with guidance
on requirements being provided to individual contributors;
° The Annual Report and Accounts are reviewed by the Group
Disclosure Committee prior to consideration by the Group Audit
Committee;
° A management certification process requires members of the
Executive Committee and other senior executives to provide
confirmation following their review of the Annual Report and
Accounts that they consider them to be fair, balanced and
understandable; and
° Directors are given sufficient time to consider the Annual Report
and Accounts.
This process is also undertaken in respect of quarterly results
announcements. In addition, the External Auditor considers the Board’s
statement as part of its audit requirements.