BP 2015 Annual Report Download - page 75

Corporate governance
BP Annual Report and Form 20-F 2015 71
priorities for change. The review concluded that the committee had
performed effectively. Areas of focus arising from the evaluation included
continuing broader segment and business reviews in the committee’s
2016 agenda, examining how areas of overlap between the committee and
the SEEAC in terms of financial and operational risk could be managed and
suggestions for further committee training and committee visits.
Safety, ethics and environment assurance
committee (SEEAC)
Chairman’s introduction
The SEEAC has continued to monitor closely and provide constructive
challenge to management in the drive for safe and reliable operations at
all times. This included the committee receiving individual reports on the
company’s management of highest priority group risks in marine, wells,
pipelines, explosion or release at our facilities, and major security incidents.
The committee also undertook a number of field visits as well as
maintaining its schedule of regular meetings with executive management.
We received final reports from the independent experts we engaged in
Upstream (Carl Sandlin) and Downstream (Duane Wilson). They provided
valuable insights and advice on many aspects of process safety and we are
grateful to them for their work.
We were pleased to welcome Sir John Sawers to the committee in July.
John brings valuable experience and insight from his time in government
service.
Paul Anderson
Committee chair
Role of the committee
The role of the SEEAC is to look at the processes adopted by BP’s
executive management to identify and mitigate significant non-financial
risk. This includes monitoring the management of personal and process
safety and receiving assurance that processes to identify and mitigate such
non-financial risk are appropriate in design and effective in implementation.
Key responsibilities
The committee receives specific reports from the business segments as
well as cross-business information from the functions. These include, but
are not limited to, the safety and operational risk function, group audit, group
ethics and compliance, business integrity and group security. The SEEAC
can access any other independent advice and counsel it requires, on an
unrestricted basis.
At a joint meeting with the audit committee, the SEEAC reviewed the
general auditor’s report on the system of internal control and risk
management for the year in preparation for the board’s report to
shareholders in the annual report – see Risk management and internal
control on page 93. In that meeting the committees also reviewed the group
audit programme for the year ahead to ensure both committees endorsed
the coverage. The committees worked together, through their chairs and
secretaries, to ensure that the agendas did not overlap or omit coverage of
any key risks during the year.
Overall the 2015 evaluation concluded that the external auditor
performance had either improved or remained consistent in key areas with
the previous year. Areas with high scores included independence,
objectivity and the quality of delivery of the audit. Areas of suggested focus
for the auditors included audit team turnover and more liaison between
BP’s own audit function and the external auditors, with the intent that
improved planning could prevent duplication. There was also feedback that
the technical knowledge and experience of the audit team remained strong.
The committee held private meetings with the external auditors during the
year and the chair met privately with the external auditor before each
meeting.
Auditor appointment and independence
The committee considers the reappointment of the external auditor each
year before making a recommendation to the board and shareholders. It
assesses the independence of the external auditor on an ongoing basis
and the external auditor is required to rotate the lead audit partner every
five years and other senior audit staff every seven years. No partners or
senior staff associated with the BP audit may transfer to the group. The
current lead partner has been in place since the start of 2013.
Audit tendering
During the year the committee reviewed the group’s position on its audit
services contract and examined a number of options regarding the timing
of tendering for BP’s external audit, including the mandatory rotation of the
group’s audit firm, taking into account the UK Corporate Governance Code
and the reforms of the audit market by the Competition and Markets
Authority (CMA) and the European Union.
The committee concluded that the best interests of the group and its
shareholders would be served by utilizing the transition arrangements
outlined by the Financial Reporting Council and retaining BP’s existing audit
firm until the conclusion of the term of its current lead partner. The
committee intends that the audit contract will be put out to tender in 2016
so that a decision can be taken and communicated to shareholders at BP’s
AGM in 2017. It is expected that the new audit services contract would be
effective from 2018.
BP has complied throughout 2015 with the provisions of The Statutory
Audit Services Order 2014, issued by the CMA.
Non-audit services
BP’s policy on non-audit services states that the auditors may not perform
non-audit services that are prohibited by the SEC, Public Company
Accounting Oversight Board (PCAOB) and UK Auditing Practices Board
(APB).
The audit committee approves the terms of all audit services as well as
permitted audit-related and non-audit services in advance. The external
auditor is only considered for permitted non-audit services when its
expertise and experience of the company is important. A two-tier system
for approval of audit-related and non-audit work operates. For services
relating to accounting, auditing and financial reporting matters, internal
accounting and risk management control reviews or non-statutory audit,
the committee has agreed to pre-approve these services up to an annual
aggregate level. For all other services which fall under the permitted
services categories, approval above a certain financial amount must be
sought on a case-by-case basis. Any proposed service not included in the
permitted services categories must be approved in advance either by the
audit committee chairman or the audit committee before engagement
commences. The audit committee, chief financial officer and group
controller monitor overall compliance with BP’s policy on audit-related and
non-audit services, including whether the necessary pre-approvals have
been obtained. The categories of permitted and pre-approved services are
outlined in Principal accountants’ fees and services on page 245.
During the year, the committee reviewed the group’s policy on audit-
related and non-audit services and it was determined that transfer-pricing
services should be moved into the category of work requiring approval
from the audit committee chairman or the full committee.
Committee review
The audit committee undertakes an annual evaluation of its performance
and effectiveness. In late 2015 the committee used an online survey and
externally facilitated interviews to examine governance issues such as
committee processes and support, the work of the committee and