Auditor choice, tenure and tendering
The Committee recommended and the Board approved the
proposal to re-appoint Ernst & Young as the external auditor
at the forthcoming Annual General Meeting. Ernst & Young
was first appointed as auditor in 2009 following a competitive
tendering process after which it replaced the previous auditor,
KPMG. The term of appointment is annual and there are no
contractual restrictions on the Committee’s choice of auditor.
To maintain the objectivity of the audit process, the external
audit partner responsible for the Group is rotated within Ernst
& Young at least every five years and the current Senior
Statutory Auditor has been in place for two years and will
change following completion of the 2017 audit. Succession
planning includes having a second partner in place on the audit
team. New regulations for audit tendering and rotation of audit
firms have been introduced which require mandatory tendering
after ten years (i.e. by 31 December 2019) and a change of
audit firm by 31 December 2029, assuming in each case that
Ernst & Young remains in place as auditor until 2019 and 2029
respectively. The Committee reserves the right to run a tender
for the audit role at any time but, if not conducted earlier, it will
be undertaken in advance of the regulatory deadline at the end
of 2019. Currently, the Committee intends to run the audit
tender in 2017, to coincide with the current lead audit partner’s
rotation and in advance of the regulatory deadline at the end of
2019. We will of course keep the matter under regular review.
Internal audit
The Committee also receives reports from and monitors the
work of the internal audit function, known as Group Assurance.
The appointment of a new Chief Risk Officer, reporting to the
Chief Executive, is intended to accelerate the extension of
internal audit into compliance and other areas of non-financial
audit activity. The separation of internal audit from the finance
function is also seen as a positive move and it now reports
through the Director of Risk to the Chief Executive instead of
to the Finance Director. Group Assurance will retain its reporting
line to the Committee. Assurance work is primarily directed
towards financial control audits but has broadened into other
areas including major business change project planning and
implementation. The principal projects reviewed in 2014 were
major computer systems implementations in Critical Engineering
and Precision Engineering, manufacturing rationalisation
exercises in Germany and significant capital projects in the
US and Italy. Group Assurance reviewed project management,
governance and the ability to achieve the business objectives.
These reviews have identified opportunities for process and
project management improvements, and will help to facilitate
sharing of best practice for future projects.
Compliance hotline
The Committee also reviews the operation of the independent
compliance hotline for reporting concerns, oversees the more
significant reports received and how these are investigated
and followed up. We believe that the hotline process and
investigations are effective and proportionate action is taken
in response.
Independent Committee evaluation
The Committee reviewed its own performance and terms of
reference and received positive feedback from the externally
facilitated evaluation exercise carried out in respect of the Board
and each of its standing committees.
The Committee approved the foregoing report on its work.
Yours faithfully
Ross McInnes
Chairman of the Audit Committee
26 February 2015
Audit Committee Report (cont’d)
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IMI plc
