BAE-annual-report-2014

Governance
We have since assessed the output of the
annual review undertaken at the close of the
2014 year-end audit. This review was based
on a Group-wide evaluation at management
and functional level, and covered areas
such as:
– understanding of the Group’s risks and
opportunities to facilitate the development
of an appropriate audit plan;
– the robustness of audit processes;
– objectivity;
– quality of communications; and
– ability to provide a seamless service
across differing jurisdictions.
We provided feedback to the Auditors from
the evaluation and will assess how the
related actions have been incorporated into
the 2015 audit plan when the latter has
been formulated.
On the basis of the reviews undertaken in
2014, and the review following the 2014
year-end audit, the Committee proposed to
the Board that it recommend that shareholders
support the re-appointment of KPMG LLP at
the 2015 Annual General Meeting.
Internal Audit
Internal Audit plays an important role in
assessing the effectiveness of internal
controls by a programme of reviews based
on a continuing assessment of business
risk across the Group.
The annual internal audit programme is
agreed jointly by the Audit and Corporate
Responsibility committees to ensure that
the over-arching internal audit programme
includes the assessment of the
effectiveness of policies and processes
relating to key areas of ethical and
reputational risk, as well as financial risk.
The Committee considered the output from
the 2014 annual internal audit programme
of assurance work on a six-monthly basis.
Over the past year, the Committee has
benefited from interactive sessions with
the respective heads of Internal Audit for
the UK businesses, the US businesses
and the international businesses. This has
complemented the regular reporting we
receive from, and private meetings we have
with, the Internal Audit Director. As part of
the annual evaluation of the Internal Audit
function that the Committee oversees each
year, we have discussed with the Internal
Audit Director the level of skilling and
resourcing required to deliver the 2015
internal audit programme.
Nick Rose
Chairman of the Audit Committee
AUDITOR INDEPENDENCE – NON-AUDIT SERVICES POLICY
The Committee has a formal policy governing the engagement of the Auditors
to provide non-audit services which we review on an annual basis. The Policy
prohibits certain activities from being undertaken by the Auditors such as
book-keeping and work relating to the preparation of accounting records and
financial statements that will ultimately be subject to external audit; financial
information system design and implementation; internal auditing; and any work
where a mutuality of interest is created that could compromise the independence
of the Auditors. The Policy also places restrictions on the employment of
former employees of the Auditors.
Recognising that the Auditors are best placed to undertake certain work of
a non-audit nature, the Policy permits the provision of Audit-Related Services
and Permitted Non-Audit Services up to limits that are pre-approved by the
Committee, with specific approvals required beyond such limits by the
Committee. A copy of the policy is available on the Company’s website.
Details of fees payable to the Auditors are set out on page 111. In 2014,
non-audit fees represented 30% of the audit fee. The principal non-audit
services provided by the Auditors related to tax compliance and advisory
services, the interim review and equity advisory services.
OTHER KEY AREAS OF WORK UNDERTAKEN BY THE COMMITTEE IN 2014
During the year, the Committee has:
reviewed and challenged the external audit plan to gauge whether it was
appropriately focused;
considered the accounting, financial control and audit issues reported by
the Auditors that flowed from the audit work;
reviewed the confirmation and information received from KPMG on the
arrangements that it has in place to safeguard its independence and
objectivity;
reviewed and agreed the audit fee;
reviewed and discussed on a quarterly basis the nature and level of non-audit
fees, and undertaken an annual review of the Non-Audit Services Policy which
we concluded was still appropriate (see above);
reviewed the effectiveness of the Company’s helpline procedures in respect
of the reporting of possible accounting, financial control or other financial
irregularities, which form part of our wider Ethics Helpline procedures, and
concluded that the procedures continue to work effectively;
reviewed on a twice-yearly basis the procedures for the identification,
assessment and reporting of risk; and
considered corporate governance and accounting developments.
STRATEGIC REPORT GOVERNANCE
FINANCIAL STATEMENTS
BAE Systems
Annual Report 2014
63