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The principal purpose of the committee is to assist the Board in discharging its responsibilities for monitoring the integrity of the Group’s financial statements. In addition, we review the adequacy and effectiveness of the Group’s systems of internal control and monitor the effectiveness, performance and objectivity of the internal and external auditors.
The committee comprises independent Non-Executive Directors only and meets at least five times each year.
- Glyn Barker (chairman) (appointed 08 August 2012)*
- Patricia Cross (appointed 01 December 2013)
- Michael Hawker, AM (appointed 01 September 2011)
- Bob Stein (appointed 14 May 2015)
- Sir Malcolm Williamson (appointed 14 May 2015)
- Keith Williams (appointed 01 August 2016)
* Chairman from 8 May 2013
Membership and Attendance in 2015
|Member||Number of meetings attended||Percentage attendance1|
|Glyn Barker (Chairman)||13||100%|
|Sir Adrian Montague
|Sir Malcolm Williamson||7||100%|
1. This shows the percentage of meetings which the Committee member attended during the year whilst a member of the Committee.
2. Michael Hawker was unable to attend two meetings due to having prior engagements which could not be altered.
The following officers normally attend, by invitation, all meetings of the committee:
- Group chairman
- Group chief executive officer
- Chief financial officer
- Chief audit officer
- Chief accounting officer
- Representatives of external auditor
Other members of senior management are also invited to attend as appropriate, to present reports.
The Board is satisfied that Glyn Barker, Michael Hawker, Bob Stein, Sir Malcolm Williamson and Patricia Cross each meet the US requirements to be an audit committee financial expert. In addition the Board is satisfied that Glyn Barker has recent and relevant financial experience in accordance with the Code and satisfies the requirements for competence in accounting and/or auditing under the Disclosure and Transparency Rules.
Committee role and responsibilities
The committee acts independently of management, to ensure that the interests of shareholders are properly protected in relation to the financial reporting and the effectiveness of the Group’s systems of internal control. The main responsibilities of the committee are to:
- Review the significant issues and judgments of management, and the methodology and assumptions used in relation to the Group's financial statements and formal announcements on the Group's financial performance including the reserving position relating to the Group's life assurance and general insurance operations
- Review the Group's going concern assumptions
- Assess the effectiveness of the Group's system of internal controls, including financial reporting, financial controls and the Internal Audit function
- Consider and review the performance of the Chief Audit Officer, and agree his remuneration
- Consider and make recommendations to the Board on the appointment, reappointment, dismissal or resignation, effectiveness and remuneration of the external auditor
- Assess the independence and objectivity of the external auditor
- Approve and monitor the application of the external auditor business standard
- Approve and monitor the application of the internal audit charter and business standard.
In performing its duties, the committee has access to the services of the Chief Audit Officer, the Group Company Secretary, senior financial management and external professional advisers.
Read the full terms of reference ( for the committee. )
Activities during 2015
A summary of the Committee’s activities during 2015 is shown below, full details can be found in the Committee’s report in the 2015 Annual report and accounts ( . )
- The Committee monitored the impact of the acquisition of Friends Life on the Group’s MCEV and IFRS Consolidated Financial Statements, including the adoption of the Group’s accounting policies and methodologies
- Following the acquisition of Friends Life, the UK Life business now represents a significant proportion of the Group and the Committee has focused on the key issues and judgements applied in UK Life, in particular the key economic and demographic assumptions. These include expenses, longevity, pensions and bond lapses, which were considered at an ad hoc meeting of the Committee in December 2015 and the impact of the revised equity release model adopted in 2014
- The Committee considered the implications of preparing for SII on the Company’s Financial Statements and the suitability of PwC to perform the model validation assurance
- The provisions relating to commercial mortgages, in particular relating to credit default, and corporate bonds were fully reviewed together with the sale of a portfolio of higher risk mortgages in the second half of 2015
- The reserving position relating to the Group’s life assurance and general insurance operations were reviewed
- The Committee reviewed goodwill and other intangible assets
- The Committee reviewed the going concern assumptions for 2015 and the principles underpinning the LTVS
- A formal response was submitted to the regulator in relation to the Prudential Regulatory Authority (PRA) consultation on implementing audit committee requirements under the revised Statutory Audit Directive in the European Union
- The Committee reviewed the effectiveness of the External Auditor and was satisfied that the services provided by the External Auditor remained effective, objective and fit for purpose
- The Committee reviewed PwC’s compliance with the independence criteria and the steps taken by PwC to ensure that it was able to act for the larger Group following the acquisition of Friends Life
- The Committee monitored compliance with the External Auditor Business Standard on a quarterly basis and three minor breaches of our Internal Standard were identified during the year relating to pre-approvals and an employment screening. In each case the processes were reviewed and improved to prevent reoccurrence. These were not breaches of the SEC independence rules and did not impact PwC’s formal independence of the Group
- The Committee reviewed the Group’s External Auditor Business Standard and refreshed it in November 2015 to align the presentation with the requirements of its Group-wide operational risks and control programme
- The Committee reviewed and approved the Internal Audit Charter and Business Standard
- The Committee concluded that the Internal Audit function was performing well, was sufficiently resourced and had demonstrated continued improvement
- The Committee reviewed and agreed that the CAO’s independence had been maintained and was satisfied that his annual performance related bonus was unconnected to the Group’s financial performance
- The Committee received quarterly updates on the effectiveness of the FRCF framework and rectification of controls
- The Committee monitored progress to address the MCITs allocated to the Committee
The Committee reviewed the Internal Audit function report and the Internal Audit Plan for 2015 and 2016 to ensure adequacy of the systems of controlThe Committee undertook a benchmarking exercise of the Group’s IT controls and assessed the impact of the integration of the heritage-Friends Life entities on the overall control environment.