Audit committee report
For the year ended 31 December 2004
Role of the audit committee
The Audit Committee is responsible for:
- Monitoring the integrity of the financial statements of the company and any formal announcements relating to the companys financial performance, and reviewing significant financial reporting judgements contained therein;
- Reviewing the companys internal financial controls and, unless expressly addressed by the board itself, the companys internal control and risk management systems;
- Monitoring and reviewing the effectiveness of the companys internal audit function;
- Making recommendations to the board, for a resolution to be put to the shareholders for their approval in general meeting, in relation to the appointment of the external auditors and the approval of the remuneration and terms of engagement of the external auditors;
- Reviewing and monitoring the external auditors independence and objectivity and the effectiveness of the audit process, taking into consideration relevant UK professional and regulatory requirements;
- Developing and implementing a policy on the engagement of the external auditors to supply non-audit services, taking into account relevant guidance regarding the provision of non-audit services by the external audit firm.
The Audit Committee is required to report its findings to the board, identifying any matters in respect of which it considers that action or improvement is needed, and make recommendations as to the steps to be taken.
Composition of the audit committee
Michael Dearden chaired the Audit Committee until 29 April 2004, when he was succeeded as chairman by Chris Bunker who had joined the committee on 12 February 2004. Michael Dearden and Ted Adams were members of the committee throughout the year, and Peter Maydon also served on the committee until 1 March 2004. All members of the committee, with the exception of Ted Adams are considered to be independent. As explained in the Directors and Professional Advisers section, the board believes that shareholders benefit from Ted Adams experience of the builders merchant sector and of the company, and that this applies to his work on the Audit Committee. He is also a chartered accountant.
The group company secretary, Andrew Pike, is appointed secretary to the Audit Committee.
Meetings and attendance
The committee met three times during 2004 to consider inter alia, the annual results, the interim results and the independence, objectivity and re-appointment of the Auditors. Internal financial control systems were also considered at each meeting. The chairman of the committee also invited the group chairman, the group finance director, the group financial controller, the head of internal audit and the external auditors to attend each meeting, and the managing director, operations, also attended one meeting.
During each meeting the external auditors were given the opportunity to talk with the committee without the presence of management. The committee chairman held two meetings with the head of internal audit and two meetings with the external auditors in 2004, without management being present.
Main activities of the committee during the year
At its meeting in March, the committee reviewed the annual financial statements of the company and received reports from the internal auditors on control matters and from the external auditors on the conduct of their audit, their review of accounting policies, areas of judgement and the financial statements and their comments on statements concerning risk and internal control. A similar review was undertaken at its August meeting when the interim statements were considered.
At these meetings, and at its meeting in November, the committee also dealt with the following particular matters:
- It reviewed the role of the internal audit department and recommended to the board new terms of reference for that department;
- It reviewed the processes of the internal audit department and its effectiveness, and made recommendations for training;
- It reviewed the companys risk control processes and made recommendations to the board for refining and strengthening those processes;
- It reviewed the policy on engagement of the external auditors for non-audit work, as referred to below;
- It established policies on the appointment and removal of internal and external auditors, and on the engagement of staff formerly employed by the external auditors;
- It reviewed the plans presented by the external auditors for conduct of the year-end audit;
- It reviewed the companys transition plans and preparations for the introduction of International Accounting Standards together with other emerging new regulations.
The company places great importance on the effectiveness and independence of its external auditors and together with them is careful to ensure their objectivity is not compromised. At its November meeting, the auditors presented to the committee their plans for the forthcoming audit together with details of their proposed fees and how they ensure that their objectivity and independence are not compromised.
It is the role of the committee to ensure compliance with the boards policy in respect of services provided by, and fees paid to, the auditors. Audit fees are negotiated by the finance director and approved by the Audit Committee. For other services that may be provided by the auditors, the companys policy is:
Audit related services
- The auditors are invited by the company to undertake those services that they are required to and are most suited to perform. Such work would include certification in respect of borrowings, stock exchange related reporting and where appropriate, assistance with acquisitions.
- The external auditors assist the group to meet general tax compliance requirements as well as providing advice on acquisitions and tax planning. Should opportunities arise for them to advise on special tax projects, their suitability is assessed at the time to ensure it would not compromise their audit independence, with the work being tendered where appropriate.
- To avoid any possible conflict of interest the groups policy is not to employ its auditors for general consulting work.
Following its November 2004 meeting, the committee recommended to the board that a resolution be put to shareholders at the Annual General Meeting for the re-appointment of the external auditors, and to authorise the directors to fix their remuneration.
As well as its reviews of the internal audit departments role and processes, as described in the Main Activities of the Committee section, during its meetings in 2004, the committee received presentations from the head of internal audit about the results of work undertaken by the department, and its plans for work in 2005.
As a result of its work during the year, the Audit Committee has concluded that it has acted in accordance with its terms of reference and has ensured the independence and objectivity of the external auditors.
The chairman of the Audit Committee will be available at the Annual General Meeting to answer any questions about the work of the committee.
C. J. Bunker Chairman, Audit Committee
4 March 2005