BTPLC Annual Report 2006 - Report of the Audit Committee

	The Audit Committee is chaired by Sir Anthony Greener, the Deputy Chairman and senior independent director. The other members are Maarten van den Bergh, Clay Brendish, Phil Hodkinson, John Nelson and Carl Symon. They are all independent non-executive directors. They were members of the Committee throughout the 2006 financial year with the exception of Phil Hodkinson who was appointed on 1 February 2006. Lou Hughes stepped down on 31 March 2006 when he stepped down from the Board. The Board considers that the Committee’s members have broad commercial knowledge and extensive business leadership experience, having held various roles in accountancy, financial management and supervision, treasury and corporate finance and that there is a broad and suitable mix of business, financial and IT experience on the Committee. The Board has reviewed membership of the Committee and is satisfied that several of the Committee’s members have the recent and relevant financial experience required for the provisions of the Combined Code and, with the appointment of Phil Hodkinson, it is the opinion of the Board that the Audit Committee includes a member who is an ‘audit committee financial expert’ for purposes of the Sarbanes-Oxley Act of 2002. COMMITTEE ROLE The Committee recommends the appointment and reappointment of the company’s external auditors and considers their resignation or dismissal, recommending to the Board appropriate action to appoint new auditors. It ensures that key partners are rotated at appropriate intervals. It discusses with the auditors the scope of their audits before they commence, reviews the results and considers the formal reports of the auditors and reports the results of those reviews to the Board. It reviews the auditors’ performance, including the scope of the audit, and recommends to the Board appropriate remuneration. As a result of regulatory or similar requirements, it may be necessary to employ the company’s external auditors for certain non-audit work. In order to safeguard the independence and objectivity of the external auditors, the Board has determined policies as to what non-audit services can be provided by the company’s external auditors and the approval processes related to them. Under those policies work of a consultancy nature will not be offered to the external auditors unless there are clear efficiencies and value added benefits to the company. The overall policies and the processes to implement them were reviewed and appropriately modified in the light of the provisions of the US Sarbanes-Oxley Act of 2002 relating to non-audit services that external auditors may not perform. The Audit Committee monitors the extent of non-audit work being performed by the company’s auditors and approves such work before it is undertaken. It also monitors the level of non-audit fees paid to the external auditors. The Audit Committee reviews the company’s published financial results, the Annual Report and Form 20-F and other published information for statutory and regulatory compliance. It reports its views to the Board to assist it in its approval of the results’ announcements and the Annual Report and Form 20-F. The Committee also reviews the disclosure made by the Chief Executive and Group Finance Director during the certification process for the annual report about the design or operation of internal controls or material weaknesses in the controls, including any fraud involving management or other employees who have a significant role in the company’s financial controls. The Board, as required by UK law, takes responsibility for all disclosures in the annual report. COMMITTEE ACTIVITIES During the year, the Audit Committee monitored and reviewed the standards of risk management and internal control, the effectiveness of internal control, financial reporting, accounting policies and procedures, and the company’s statements on internal controls before they are agreed by the Board for each year’s annual report. It also reviewed the company’s internal audit function and its relationship with the external auditors, including internal audit’s plans and performance. It reviewed the arrangements for dealing, in confidence, with complaints from employees about accounting or financial management impropriety, fraud, poor business practices and other matters. At each of its meetings it reviewed with the group chief internal auditor and appropriate executives the implementation and effectiveness of key operational and functional change and remedial programmes including major contracts and IT programmes. The Committee also set aside time at every meeting to seek the views of the company’s internal and external auditors in the absence of executives. In addition to carrying out those regular tasks described above under the Committee’s terms of reference, which are posted on the company’s website at www.bt.com/committees, the Committee also carried out its annual consideration of the group’s risk register process, and reviewed the company’s system of internal control, its accounting systems, IT security and fraud and related matters. It also considered the effect on the company’s results of the introduction of international financial reporting standards, which have applied to the company’s results for the 2006 financial year. Additionally, the Committee has reviewed at each of its meetings during the 2006 financial year the steps being taken within the group with regard to the application of the Sarbanes-Oxley Act dealing with the internal control over financial reporting. It also specifically evaluated its performance and processes by again inviting Committee members and several executives and the external auditors to complete questionnaires. This process formed part of the annual Board and Committee evaluation. Committee members, and those others consulted, regard the Committee as effective on both behaviours and processes. There is a similar view too of the external audit process, which is regarded as effective. The evaluation highlighted the need for the Committee to consider action both to reduce paperwork and to increase the length of the quarterly meetings to give more discussion time, if at all possible. The Committee also reviewed the experience, skills and succession planning within the Group’s finance function. The Group Finance Director, the Secretary, the group’s chief internal auditor and the company’s external auditors attend the Committee’s meetings. The Committee met four times during the 2006 financial year. The minutes of Audit Committee meetings are sent, at their request, to directors who are not members of the Committee.



	back to top