Els tallers de prevenció de relacions abusives: objectius

The Board draws on the advice of the Audit Committee to support its effective governance over external financial reporting and internal financial controls and, during 2011the implementation of the Group’s Enterprise Risk Management framework. It reports its findings and recommendations to the Board. I am pleased to present my report on the work and operation of the Committee during the year. David Grigson, Chairman (from 1 January 2012)

The Committee members are David Grigson (appointed Chairman on 1 January 2012), Lord Blackwell, Crawford Gillies, Baroness McDonagh, and Colin Buchan (appointed 1 January 2012). The Board considers them all to be independent non-executive Directors. The Board is satisfied that David Grigson, who is a chartered accountant and served as chief financial officer of Reuters Group, has recent and relevant financial experience. Kent Atkinson was Committee Chairman until his retirement on 31 December 2011.

The Committee’s remit is to consider and to make appropriate recommendations to the Board on:

 Any matter relating to the financial affairs of the Group

 The Group’s internal and external audit arrangements

 The Group’s internal controls over financial reporting

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Until 31 December 2011, the remit also included the Group’s internal control (financial and non-financial), operational risk management and regulatory compliance arrangements, but, following the conclusions of the internal and external reviews of the duties of the Risk and Capital Committee, these responsibilities, other than internal controls over financial reporting, have now been transferred to the Risk and Capital Committee. As a consequence, the Committee has been renamed the Audit Committee. During the year, the Committee met five times to coincide with the Company’s financial reporting cycle. It met regularly with each of the external and internal auditors without management being present. Others invited to attend the Committee meetings on a regular basis include the Chairman, the Chief Executive and the Chief Financial Officer. Other members of senior management are also invited, including the Group Internal Audit Director and the Group Chief Risk Officer, as well as the external auditors.

Financial reporting

During 2011, the Committee reviewed the Group’s draft:

• Preliminary Results 2010

• Annual Report and Accounts 2010 • Summary Financial Report 2010 • Half Year Results 2011

• Interim Management Statements issued in April and November 2011

The Committee recommended to the Board that these should be approved. The Committee’s detailed review included considering:

• The Group’s significant accounting policies and any changes made during the year, including the adoption of operating profit as

the main IFRS performance measure

• Significant accounting issues and areas of judgement, including the acquisition of Focus Solutions Group, matters relevant to

the staff pension scheme and the valuation of property assets

• Actuarial assumptions applied, in particular annuitant mortality, persistency and expenses and any changes made during the

year

• Significant IFRS accounting and reporting issues and EEV methodology and assumption issues identified by management • The clarity of disclosures in the IFRS and EEV financial statements, including the presentation of certain financial instrument

disclosures, and the introduction of new business analysis by fee and spread and risk categories

• The results of management’s assessments of the Group’s going concern and Group solvency position, including recommending

to the Board that the going concern assessment was reasonable

• Relevant external financial reporting developments and guidance, including the FRC’s key questions for Audit Committees to

consider and the FRRP’s questions on the reporting of principal risks and uncertainties

• The views of the external auditors, including actuarial specialists, on all of the above External audit

The Committee monitors the work of the external auditor. This includes reviewing how independent and objective the external audit team is, in the context of regulatory requirements and professional standards. It also assesses the effectiveness of the external audit process. As part of its ongoing review of the effectiveness of the external auditor, the Committee:

• Assesses the team’s qualifications, expertise and resources • Considers the scope and planning of the external audit of the Group • Reviews the audit findings with the external audit team

The Committee is satisfied that the external auditor continues to fulfil the terms of the engagement.

The Committee is also responsible for making a recommendation to the Board each year on the appointment, reappointment or removal of the external auditor. It approves the terms of engagement and remuneration for audit services. The external audit was put out to tender in 2003, following which the present auditor was reappointed. The audit engagement partner rotates every five years in accordance with ethical guidelines and 2011 is the final year for the current partner. The Committee believes that the present auditor’s performance and reappointment should be considered every year. Because of this, there is a standing agenda item to review the performance of the auditor in detail against the relevant duties in the Committee’s terms of reference and taking into account all other relevant factors. The members of the audit team are not present for this. As part of this review, the

Committee considers the performance of the engagement partner and the quality and succession planning of the engagement partner and the senior audit team. It also seeks the views of the senior members of the Group Finance team who work most closely with the audit team. The Committee also considers the quality of the regular reports received from the audit team on the output of audit activities and the updates about independence and audit quality and technical knowledge. Following the 2011 effectiveness review, the Committee concluded that it was appropriate to recommend to the Board that a resolution should be proposed at the 2012 AGM to reappoint the present auditor. The Committee’s recommendation is not restricted by any contractual obligations.

Non-audit services

The Board has approved a policy on the use of external audit for non-audit services and the Committee monitors the

implementation of the policy on behalf of the Board. The aim of the policy, which is reviewed annually, is to support and safeguard the objectivity and independence of the external auditors. It does this by ensuring that the audit services provided are not impaired by the provision of certain non-audit services. The policy prohibits the auditor from carrying out certain types of non-audit services. It also ensures that where fees for approved non-audit services are significant, they are subject to the Committee’s approval. The services prohibited by the policy include:

• Book-keeping or other services related to the accounting records or financial statements • Financial information system design

• Appraisal or valuation services where the results would be material to the financial statements • Internal audit outsourcing

• Actuarial calculations • Management functions • Forensic audit services

• Temporary or permanent services as a director, officer or employee or performance of any decision-making, supervisory or

monitoring function

• Recruitment of senior management

The policy permits non-audit services to be purchased, following approval, when they are closely aligned to the external audit function and when the external audit firm’s skills and experience make it the most suitable supplier. These include:

• Advisory services in connection with acquisitions and disposals • Due diligence related to mergers and acquisitions

• Tax compliance and advisory services • Employee benefit plan audits

• Attesting to services not required by statute or regulation

• Assurance services relating to regulatory developments affecting the Group

• Consultations concerning financial accounting and reporting standards not relating to the audit of the Group’s financial

statements

• Sustainability audits/review

At each meeting, the Committee reviews the schedule of non-audit services authorised and the level of fees paid. The non-audit services policy requires the approval of the Chairman of the Committee before certain services are commissioned. You can find details of the fees paid to the external auditor for audit and non-audit work carried out during the year in Note 7 to the Group financial statements. Non-audit services carried out during 2011 included SICAV tax compliance work and assurance services relating to the ORSA, in preparation for Solvency 2.

Internal audit

The Committee considers the effectiveness of the Group’s internal audit function, monitoring its independence and objectivity in the context of professional standards. It also approves the scope and content of the annual internal audit plan and considers whether the internal audit function is adequately resourced. The Committee receives regular reports on the implementation of the approved internal audit plan, key findings of completed reviews, and updates on the implementation of recommended improvement actions. The Group has an internal audit co-sourcing agreement with Ernst & Young LLP. During the year, an external review of the Internal Audit function was commissioned, benchmarking its activities against the Institute of Internal Audit standards. Group Internal Audit received the highest possible rating.

Risk framework

The Board approves the Group’s Enterprise Risk Management (‘ERM’) framework. Until 31 December 2011, the Committee retained its oversight role in regard to operational risk as part of its duty to oversee the effectiveness of the system of internal controls. This duty has now been passed to the Risk and Capital Committee. You can find out more about the ERM framework at the end of this section.

Financial crime and whistleblowing

The Committee reviews the arrangements for employees of the Group to raise concerns, in confidence, about possible impropriety in financial reporting and other matters. At each meeting it receives reports on all calls to our dedicated Speak-up helpline. Any concerns are independently investigated and the Committee ensures that appropriate follow-up action is taken. The Committee also receives updates at every meeting from the Group Head of Financial Crime who reports on compliance with the Group’s Anti- bribery policy, and any other activities associated with financial crime.

Committee effectiveness

The Committee reviews its remit and effectiveness annually. Members complete an online self-assessment questionnaire and review the Committee’s terms of reference. After analysing the questionnaire responses in late 2011, the Committee concluded that it had:

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• Performed effectively during the year

• Fulfilled its duties under its terms of reference, and kept its terms of reference up-to-date

• Received sufficient, reliable and timely information from management and the external auditor to enable it to fulfil its

responsibilities

As noted previously, the Committee also agreed detailed changes to its terms of reference to reflect the developing role of the Risk and Capital Committee.

Advice and development

In carrying out its duties, the Committee is authorised by the Board to obtain any information it needs from any Director or employee of the Group. It is also authorised to seek, at the expense of the Group, appropriate professional advice inside and outside the Group, whenever it considers this necessary. The Committee’s terms of reference recognise applicable external guidance. They are available from the Group’s website at www.standardlife.com/about/board