Audit committee report

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:

		Period
Member	From	To
Russell Walls (Chairman from 1 January 2007)	1 July 2004	To date
Mary Francis	1 January 2007	To date
Richard Karl Goeltz	1 July 2004	To date
Carole Piwnica	24 September 2003	To date

The Committee met on six occasions in 2007 and each member attended every meeting. In addition, the Committee held separate meetings with members of senior management for the purpose of induction and training. 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, Group Chief Accountant 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.

During the Board’s visit to the Group’s North American operations in September 2007, the Committee held joint meetings with the Risk and Regulatory Committee and members of the local business unit audit committees. The meetings allowed the Committee to gain a deeper understanding of the relevant local issues and assess the effectiveness of the systems of internal financial controls and the effectiveness and objectivity of the internal and external auditors.

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 endorsed the proposed assumptions, methodology and process followed in determining the amount of capital required to support the Group’s business plans and recommended the ICA to the Board for approval.

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. In 2007 the Committee made contact with the chairmen of the local audit committees and some members attended local committee meetings.

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 reports to management on the effectiveness of the Company’s systems of internal controls, 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, the level of resources and the budget of the internal audit function are reviewed at least annually 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. In addition, the Group Audit Committee is consulted in determining the remuneration of the Group Audit Director. This review is complemented with a questionnaire to assess the effectiveness of Group Audit and completed by a sample of the major Business Units, audit committee members and Executive members. As of 1 April 2007, the Group internal audit structure was modified and the reporting line of all internal audit resources from each business unit have been centralised so that they report to the Group Audit Director, rather than to the business unit head.

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 annual 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 2007 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 all significant subsidiaries 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). To fulfil its Group reporting responsibilities Ernst & Young reviews the work of PwC 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.

As part of the Committee's continual drive for improvement, the policy in respect of external auditors underwent a detailed review this year. The policy was updated to reflect current global best practice on auditor independence, which is considered to be full compliance with all UK, US and International Federation of Accountants (IFAC) rules. The revised policy aims to be simpler to interpret, providing greater clarity on what services may and may not be provided by the Group’s auditors. This revised policy became operational from 1 January 2008.

The Group paid £10.2 million to Ernst & Young LLP for audit services in 2007, relating to the statutory audit of the Group and Company financial statements and the audit of Group subsidiaries and associates pursuant to legislation (2006: £9.2 million). 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 £8.9 million giving a total fee to Ernst & Young of £19.1 million (2006: £15.8 million). Further details are provided in note 12 to the accounts. In addition, the Group engaged the SMART Company in relation to certain assurance work including verification of its Corporate Social Responsibility Report.

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 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. In addition, the Committee also carried out a self-evaluation of its effectiveness.

This report was reviewed and approved by the Board on 27 February 2008.

Russell Walls
Chairman, Audit Committee