BP 2013 Annual Report Download - page 78

BP Annual Report and Form 20-F 201374
Members
Name Membership status
Brendan Nelson
(chairman)
Member since November 2010; chairman since
April 2011
George David Member since February 2008
Phuthuma Nhleko Member since February 2011
Andrew Shilston Member since February 2012
Brendan Nelson is chair of the audit committee. He was formerly vice
chairman of KPMG, is chairman of the group audit committee of The Royal
Bank of Scotland Group plc, a member of the Financial Reporting Review
Panel and president of the Institute of Chartered Accountants of Scotland.
The board is satisfied that Mr Nelson is the audit committee member with
recent and relevant financial experience as outlined in the UK Corporate
Governance Code. It considers that the committee as a whole has an
appropriate and experienced blend of commercial, financial and audit
expertise to assess the issues it is required to address. The board also
determined that the audit committee meets the independence criteria
provisions of Rule 10A-3 of the US Securities Exchange Act of 1934 and
that Mr Nelson may be regarded as an audit committee financial expert as
defined in Item 16A of Form 20-F.
Meetings are also attended by the chief financial officer, group controller,
chief accounting officer, group auditor (head of group audit) and external
auditor.
Activities during the year
Training
The committee received technical updates from the chief accounting
officer on developments in financial reporting and accounting policy.
Externally facilitated learning sessions were held on the UK government
programme on cyber-security, global trends in fraud and corruption and
developments in oil and gas accounting.
Financial disclosure
The committee reviewed the quarterly, half-year and annual financial
statements with management, focusing on the integrity and clarity of
disclosure, compliance with relevant legal and financial reporting standards
and the application of critical accounting policies and judgements.
In conjunction with the SEEAC, the committee examined whether the
BP Annual Report 2013 was fair, balanced and understandable and
provided the information necessary for shareholders to assess the group’s
performance, business model and strategy. The process the two
committees and then the full board undertook as part of this examination is
outlined in the introduction from the chairman in the Governance overview
(see page 69).
Accounting judgements and estimates
Areas of significant judgement considered by the committee during the
year and how these were addressed included:
• Oil and natural gas accounting
BP uses judgement and estimations when accounting for oil and gas
exploration, appraisal and development expenditure and determining the
group’s estimated oil and gas reserves. The committee reviewed
judgemental aspects of oil and gas accounting as part of the company’s
quarterly due diligence process. It also examined the governance
framework for the oil and gas reserves process, training for staff and
developments in regulations and controls.
• Recoverability of asset carrying values
Determination as to whether and how much an asset is impaired
involves management judgement and estimates on highly uncertain
matters such as future pricing or discount rates. Judgements are also
required in assessing the recoverability of overdue receivables and
deciding whether a provision is required.
The committee reviewed the discount rates for impairment testing as
part of its annual process and examined the assumptions for long-term
oil and gas prices and refining margins. Following political and economic
developments in Egypt, the committee reviewed at each quarter with
management whether the group’s financial assets were impaired.
Committee reports
Audit committee
Chairman’s introduction
The work of the audit committee in 2013 has been focused on three key
themes. Firstly, financial reporting and accounting judgements, particularly
with respect to assessing BP’s financial responsibilities arising from the
Deepwater Horizon accident. Secondly, reviews of key group-level risks
and BP’s system of controls and risk management. Thirdly, regular reports
which assist the committee in maintaining assurance over the
management of financial risk and in overseeing the performance of the
external auditor. These have been supplemented by private meetings of
the committee with key constituents, including our group audit function,
the group ethics and compliance officer and lead external audit partners.
The monitoring committees of the audit, SEEA and Gulf of Mexico have
continued to operate according to agreed areas of oversight that enable
them to inform the wider board’s view. As chair of the audit committee,
I reported after each meeting to the board on the main matters discussed in
our meeting to ensure all directors were informed of the committee’s work.
I believe the mix of skills and experience amongst the committee’s
members, together with the ability to discuss issues directly with
management has led to an effective performance from the committee over
the year.
Brendan Nelson
Committee chair
Role of the committee
The committee monitors the effectiveness of the group’s financial
reporting and systems of internal control and risk management.
Key responsibilities
• Monitoring and obtaining assurance that the management or mitigation
of financial risks are appropriately addressed by the group chief
executive and that the internal control system is designed and
implemented effectively in support of the limits imposed by the board
(‘Executive Limitations’) as set out in the BP board governance
principles;
• Reviewing financial statements and other financial disclosures and
monitoring compliance with relevant legal and listing requirements;
• Reviewing the effectiveness of the group audit function and BP’s
internal financial controls and systems of internal control and risk
management;
• Overseeing the appointment, remuneration, independence and
performance of the external auditor and the integrity of the audit process
as a whole, including the engagement of the external auditor to supply
non-audit services to BP;
• Reviewing the systems in place to enable those who work for BP to
raise concerns about possible improprieties in financial reporting or other
issues and for those matters to be investigated.