This report provides details of the role of the Audit Committee and the work it has undertaken during the year. The purpose of the Committee is to assist the Board in discharging its responsibilities for the integrity of the Company’s financial statements, the assessment of the effectiveness of the systems of internal financial controls and monitoring the effectiveness and objectivity of the internal and external auditors. The full terms of reference for the Committee can be found on the Company’s website www.aviva.com and are available from the Group Company Secretary.

The following independent non-executive directors, served on the Committee during the year:

Russell Walls succeeded Derek Stevens as the chairman of the Committee on 1 January 2007 and Mary Francis became a member from that date. The Committee met on four occasions in 2006 and each member attended every meeting. The Group Company Secretary acts as the secretary to the Committee.

Russell Walls, a Fellow Chartered Certified Accountant, is a former Group Finance Director of BAA plc, Wellcome plc and Coats Viyella plc. Richard Karl Goeltz is a former Chief Financial Officer of American Express Company, NatWest Group plc and The Seagram Company Ltd. The Board is satisfied that these directors have recent and relevant financial experience.

The Group Chief Executive, Group Finance Director, Group Audit Director and the external auditor normally attend, by invitation, all meetings of the Committee. Other members of senior management are also invited to attend as appropriate to present reports. It is the Committee’s practice at each meeting to meet separately with the Group Audit Director and the external auditor without any members of management being present. In performing its duties, the Committee has access to the services of the Group Audit Director, the Group Company Secretary and external professional advice.

The Committee follows an agreed annual work plan. It reviews, with members of management and the internal and external auditors, the Company’s financial announcements including the annual report and accounts to shareholders and associated documentation. It places particular emphasis on their fair presentation and the reasonableness of the judgemental factors and appropriateness of significant accounting policies used in their preparation. At each meeting, the Committee receives a report from the Group Audit Director concerning the Company’s systems of internal financial control, including any significant new issues and actions taken on previously reported issues. Twice each year, the Committee receives reports on the adequacy of the Group’s life assurance and general insurance reserves. The Committee also reviews the annual work plan for the Group’s internal audit function. The Committee reports to the Board regarding the effectiveness of the Group’s overall systems of internal control. The Committee itself reviews the financial controls and works closely with the Risk and Regulatory Committee which reviews the non-financial controls.

Prior to 2006, the Committee received regular reports on risk management, financial malpractice (including fraud, anti-money laundering and “whistleblowing”), regulatory and compliance matters. The responsibility for overseeing these matters as well as the oversight of the non-financial internal controls was transferred to the Risk and Regulatory Committee following its establishment in January 2006. A separate report from that committee is set out below.

In addition, the Committee reviewed the Group’s capital and risk frameworks against the regulatory reforms incorporated in the Financial Services Authority’s Prudential Sourcebook (PSB) concerning the Group’s individual capital assessments (ICA). The Committee considered the proposed assumptions, methodology and process followed in determining the amount of capital required to support the Group’s business plans and the adequacy of its capital resources.

Each of the Group’s major business units has an audit committee that provides an oversight role for its business. All such committees include members who are independent of the relevant business. The Group Audit Director reviews the papers and minutes from these committees and brings all significant matters to the Committee’s attention.

The Committee receives reports from the external auditor and regularly holds discussions with both the internal and external auditors in the absence of management. The chairman of the Committee reports to the subsequent meeting of the Board on the Committee’s work and the Board receives a copy of the minutes of each meeting of the Committee.

Internal audit

The Group’s internal audit function advises management on the effectiveness of the Company’s internal control systems, the adequacy of these systems to manage business risk and to safeguard the Group’s assets and resources. Through the Group Audit Director, the internal audit function provides objective assurance on risks and controls to the Committee. The plans and level of resources of the internal audit function are reviewed each year by the Committee, which also undertakes an annual review of the effectiveness of the Group’s internal audit function against guidance criteria provided by the Institute of Chartered Accountants in England and Wales. As a result of the restructuring of the Group’s internal audit function during 2006 and 2007, the proposed independent review of the function has been deferred. However, during 2006 the effectiveness of the internal audit peer review was independently evaluated by KPMG.

External auditor

Ernst & Young LLP (Ernst & Young) was appointed auditor of the Company in 2001 having previously been the auditor of Norwich Union plc. Following the 2005 external audit effectiveness review the Committee concluded that the audit was fit for purpose and recommended that a re-tender process should not be undertaken in 2006 but that the relationship and the effectiveness of the auditor be kept under review. The audit signing partner changed as part of a rotation process in 2002 and in line with that process there has been a further rotation in audit partner following the sign-off of the statements for the 2006 financial year. Ernst & Young audits the whole of the Group other than Delta Lloyd (the Group’s subsidiary operating in the Netherlands, Belgium, Luxembourg and Germany), which is audited by PricewaterhouseCoopers LLP (PwC) and part of the RAC group which remains audited by KPMG. To fulfil its Group reporting responsibilities Ernst & Young reviews the work of PwC and KPMG in accordance with standard auditing practices.

The Company has policies aimed at safeguarding and supporting the independence and objectivity of the external auditors. The policies regulate the appointment of former audit employees to senior finance positions in the Group and set out the approach to be taken by the Group when using the services of the auditor. It distinguishes between those matters where an independent view is required, such as audit and assurance work, and other advisory services. In addition to statutory audits, audit and assurance work includes reviewing statutory returns, actuarial assurance, regulatory advice requiring auditor reporting, due diligence on acquisitions and disposals, fraud investigations and control reviews and audit reviews. As a general principle the auditor cannot be engaged by the Company for any other purpose, although the policy recognises that there may be areas of minor significance where, for pragmatic reasons, it may be in the Group’s interests to use the external auditor for this work.

Annually, the Committee reviews a formal letter provided by the external auditor confirming its independence and objectivity within the context of applicable regulatory requirements and professional standards.

The Group paid £9.0 million to Ernst & Young LLP for audit services in 2006, relating to the statutory audit of the Group and Company financial statements and the audit of Group subsidiaries and associates pursuant to legislation (2005: £9.0 million). In addition, the Group engaged Ernst & Young LLP in relation to certain assurance work including verification of its Corporate Social Responsibility Report. The fees for other services which included advice on accounting and regulatory matters, reporting on internal controls, corporate governance matters, and due diligence work were £6.6 million giving a total fee to Ernst & Young LLP of £15.6 million (2005: £13.8 million). Further details are provided in note 11 to the accounts.

During the year, the Committee performed its annual review of the independence, effectiveness and objectivity of the external auditor; assessing the audit firm, the audit partner and audit teams. The process was conducted by means of a questionnaire, completed Group-wide by members of senior management and members of the Group’s finance community. The questionnaire sought opinions on the importance of certain criteria and the performance of the auditor against those criteria. The questionnaires were collated by the Group Company Secretary. Based on this review, the Committee concluded that the audit service of Ernst & Young LLP was fit for purpose and provided a robust overall examination of the Group’s business and the risks involved.

In line with the Combined Code requirement the Board undertook a review of the effectiveness of all its committees during the year, including the Audit Committee.

This report was reviewed and approved by the Board on 28 February 2007.

Russell Walls
Chairman, Audit Committee