|Meetings eligible to attend||Meetings attended|
|Ian Strachan (chairman)||5||5|
|John Neill CBE||5||5|
|John Rishton 1||3||3|
|1||John Rishton retired as a member of the audit committee on September 30, 2010 on the announcement of his appointment as the next Chief Executive.|
The audit committee consists exclusively of independent, non-executive directors. Up to September 30, 2010, John Rishton and thereafter Ian Strachan, both of whom have recent and relevant financial experience, chaired the committee. In 2010, its other members were Iain Conn and John Neill CBE. The committee met five times during the year. The Director of Risk, Head of Business Assurance, a representative of the external auditors and the General Counsel and Company Secretary normally attend the meetings. Additionally, the Director of Risk and the Head of Business Assurance have direct access to the committee. The Chairman of the Board, the Chief Executive, the Finance Director and any other Board member or senior executive may attend the meetings as necessary, at the invitation of the audit committee chairman.
The committee has responsibility for recommending the financial statements to the Board and for reviewing the Group’s financial reporting and accounting policies, including formal announcements and trading statements relating to the Company’s financial performance. It is also responsible for the relationship with the external auditors and for assessing the role and effectiveness of the internal audit function, which in Rolls-Royce is termed business assurance. In addition, the committee reviews the Group’s procedures for detecting, monitoring and managing the risk of fraud.
The committee has responsibility for recommending to the Board the appointment of the external auditors and for reviewing the nature, scope and results of the annual external audit. It also approves the audit fee and, on an annual basis, assesses the effectiveness and independence of the external auditors. A resolution to reappoint the auditors, KPMG Audit Plc, and to authorise the directors to determine the auditors’ remuneration, will be proposed at the 2011 AGM. The committee keeps under review the Group’s internal controls and systems for assessing and mitigating financial and non-financial risk. It also reviews and approves the business assurance work programme and ensures that this function is adequately resourced and co-ordinated with the work of the external auditors. Twice a year, the committee receives a written report on the reviews conducted throughout the Group by business assurance and reports from senior executives on the key business risks and risk systems in selected sectors.
In February 2010, the committee reviewed salient features arising out of KPMG Audit Plc’s audit of the 2009 Annual report, reviewed the draft Annual report and after consideration of a paper on going concern agreed to recommend the 2009 Annual report to the Board. Following completion of the 2009 year end process, the meeting assessed the 2009 audit process and the strategy for the 2010 audit and considered the performance of the auditors. The committee also considered and recommended to the Board the Company’s interim management statements and half-yearly report.
During the year, the committee closely monitored and approved KPMG’s non-audit fees. It also reviewed expenses incurred by Board directors and members of the Group Executive. It received reports on the work of the business assurance team and a presentation by the Chief Information Officer on IT and the Process Delivery function and by the President – Defence Aerospace on risk management in the defence business. The committee also considered whistle blowing arrangements for the reporting of fraud. Throughout the year, the committee received technical updates of relevant changes in the governance environment and in accounting standards and other reporting matters.
In order to safeguard auditors’ independence and objectivity, the following policy is applied in relation to services provided by the auditors:
Audit-related services – the auditors undertake these services as it is work that they must, or are best suited to, perform. It includes formalities relating to borrowings, shareholder and other circulars, risk management services, various regulatory reports and work in respect of acquisitions and disposals;
Tax, accounting and mergers and acquisitions – the auditors are used for this work where they are best suited to undertake it. All other significant consulting work in these areas is put out to tender; and
All other advisory services/consulting – the auditors are generally prohibited from providing these services.
Throughout the year, the committee monitored the cost of non-audit work undertaken by the auditors and is, therefore, in a position to take action if at any time it believes that there is a risk of the auditors’ independence being undermined through the award of this work.