RBS 2013 Annual Report Download - page 58
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Report of the Group Audit Committee
56
Oversight of the Group’s relationship with its regulators
The Group Audit Committee has a responsibility to monitor the Group’s
relationship with the Prudential Regulatory Authority (PRA), Financial
Conduct Authority (FCA) and other regulators. During 2013, it received
regular reports on the Group’s relationship with all its regulators
highlighting significant developments. It received reports on regulatory
actions and investigations. Over the course of the year the Chairmen of
the Group’s senior Board committees met with the PRA and the FCA on
an individual basis and also participated in Regulatory College meetings
with the Group’s primary regulators. The Chairman of the Group Audit
Committee also met with the PRA and with the External Auditor on a
trilateral basis.
The Committee closely monitored the Group’s relationship with its
international regulators and significant time was dedicated in particular to
understanding the regulatory requirements in the US and their
implications for the Group’s US operations and structure. The Committee
Chairman also met with the Japanese Financial Services Authority, the
Central Bank of Ireland and the Federal Reserve Bank of Boston during
local visits.
External audit
During 2013, the External Auditor provided the Group Audit Committee
with reports summarising their main observations and conclusions arising
from their year end audit, half year review and work in connection with
the first and third quarters’ financial results and their recommendations
for enhancements to the Group’s reporting and controls. The External
A
uditor also presented for approval to the Committee their audit plan and
audit fee proposal and engagement letter, as well as confirmation of their
independence and a comprehensive report of all non-audit fees.
The Group Audit Committee undertakes an annual evaluation to assess
the independence and objectivity of the External Auditor and the
effectiveness of the audit process, taking into consideration relevant
professional and regulatory requirements. The annual evaluation is
carried out in two stages. An initial review was carried out in early 2014.
In assessing the effectiveness of the Group’s External Auditor, the Group
A
udit Committee had regard to:
• the experience and expertise of the senior members of the
engagement team;
• the proposed scope of the audit work planned and executed;
• the quality of dialogue between the External Auditor, the Committee
and senior management;
• the clarity, quality and robustness of written reports presented to the
Committee setting out the External Auditor’ findings arising from the
audit;
• the quality of observations provided by the External Auditor on the
Group’s systems of internal control;
• the views of management on the performance of the External
Auditor; and
• the findings of any reviews of the work of the External Auditor by
relevant regulators and the actions taken, where appropriate, to
address any matters raised.
The second phase of the review will be conducted following completion
of the 2013 audit and will involve targeted interviews with individuals
based on outputs from the initial phase and their level of interaction with
the External Auditor.
In addition to the annual evaluation performed by the Group Audit
Committee, the External Auditor will also conduct their own annual
review of audit quality. Twelve service criteria for the audit have been
defined by them to measure their performance against the quality
commitments set out in their annual audit plan. Feedback will be
obtained and discussed with 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 Auditor. In order to make a recommendation to the Board,
the Group Audit Committee considers and discusses the performance of
the External Auditor, 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.
Deloitte LLP has been the company’s auditor since March 2000. There
are no contractual obligations restricting the company's choice of
External Auditor. The revised UK Corporate Governance Code, issued by
the Financial Reporting Council in September 2012 provides that
companies should put the external audit contract out to tender at least
every ten years. The Competition Commission following their
investigation into the supply of statutory audit services also concluded
that FTSE 350 companies should tender the audit engagement every ten
years. The Group Audit Committee has considered the requirements and
emerging developments in the EU and currently intends to put the
contract for the 2016 (and future periods) audit of the Group out to tender
later this year. In the interim, the Board has endorsed the Group Audit
Committee's recommendation that shareholders be requested to approve
the reappointment of Deloitte LLP as External Auditor at the Annual
General Meeting in 2014.
The Group Audit Committee approves the terms of engagement of the
External Auditor and also fixes their remuneration 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 Auditor 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 does not engage the External Auditor to provide
any of the following non-audit services:
• bookkeeping or other services related to the accounting records or
financial statements;
• financial information systems design and implementation;
• appraisal or valuation services, fairness opinions or contribution-in-
kind reports;