"The Audit Committee plays a key role in monitoring the integrity of the Group's financial statements, and the effectiveness of the Group's internal and external audit functions. The Committee also assists the Board in assessing the effectiveness of the Group's system of internal controls."
Jeff hewitt, audit committee chairman
Jeff Hewitt (Committee Chairman)
The Audit Committee members are the independent Non-executive Directors. The Audit Committee is chaired by Mr Hewitt, a qualified accountant. The Code requires the Board to be satisfied that at least one member of the Committee has recent and relevant financial experience. The Board considers that Mr Hewitt possesses the requisite financial experience to meet this requirement.
The Audit Committee has only held two meetings since the incorporation of the Company but detailed plans are in place for the structure of meetings for the forthcoming year, and the operation of the Committee.
At the invitation of the Audit Committee Chairman, the Chairman, non-independent Non-executive Director - Christer Gardell, Chief Executive, Chief Financial Officer, Group Financial Controller, Group Head of Internal Audit and the Company's Auditor, KPMG LLP, attend meetings. Other executives are invited to attend as and when appropriate. It is envisaged that the Audit Committee will meet regularly with the Company's Auditor and the Group Head of Internal Audit without any executives being present.
The Company Secretary is Secretary to the Audit Committee.
The Audit Committee operates under formal terms of reference that will be reviewed on a regular basis. These terms of reference authorise the Committee to obtain outside legal or other independent professional advice at the cost of the Company and to secure the attendance at Audit Committee meetings of other parties with relevant experience and expertise should it be considered necessary.
The Chairman of the Audit Committee reports the outcome of the Audit Committee meetings to the Board and all members of the Board receive the agenda, papers and minutes of Audit Committee meetings.
Role and Responsibilities
The primary role and responsibilities of the Audit Committee are:
- monitoring the integrity of the Company's half-year and annual financial statements, the Interim Management Statements and any other formal announcements relating to the Company's financial performance;
- reviewing the process whereby the Board assesses the effectiveness of the Group's internal controls and risk management systems;
- establishing and reviewing procedures for detecting fraud, and systems and controls for the prevention of bribery, along with overseeing the Company's arrangements for employees to raise concerns about possible wrongdoing in financial reporting or other matters;
- monitoring and reviewing the effectiveness of the Company's internal audit function;
- monitoring and reviewing the Auditor's independence, objectivity and effectiveness, taking into account professional and regulatory requirements;
- making recommendations to the Board on the appointment and dismissal of the Auditor and approving the remuneration and terms of engagement of the Auditor; and
- helping to strengthen the independent position of the Auditor by providing a direct channel of communication between it and the Non-executive Directors.
During the period since incorporation, the Audit Committee has met on two occasions. In respect of all matters considered by the Audit Committee, it believes that it received sufficient, reliable and timely information from management and the Auditor, to enable it to fulfil its responsibilities.
During the past year Messrs Hewitt, Oosterveld and Sussens served as members of the Cookson Group plc Audit Committee before the Vesuvius Audit Committee was established. The Cookson Group plc Audit Committee discharged its responsibilities as follows:
- at its meeting in July 2012 the Cookson Audit Committee reviewed the Company's Half-Yearly Report. In doing so, the Committee received reports from management on significant aspects of the Group's financial statements, including matters requiring significant management judgement, asset impairment valuation, amounts reported at fair value, off-balance sheet items and contingent liabilities, and received reports from the Auditor identifying any accounting or judgemental issues thereon requiring its attention;
- at each of its meetings, the Cookson Audit Committee received reports from the Group Head of Internal Audit covering, amongst other things, the work undertaken by the internal audit function and management responses to proposals made in the audit reports issued by the function during the year. In addition, at the July 2012 meeting, the Cookson Audit Committee reviewed the results of the assessments that were undertaken of the performance of the internal audit function and at the October 2012 meeting, the Committee reviewed and approved the 2013 internal audit plans, submitted by the Group Head of Internal Audit;
- the Cookson Audit Committee also reviewed the Auditor's control findings;
- at the July 2012 meeting, the Cookson Audit Committee reviewed the results of the assessment which had been undertaken of the performance of the Auditor, based upon feedback received from the Group's finance management. No significant problems were identified with the relationship and quality of audit by KPMG;
- also at the July meeting, the Cookson Audit Committee reviewed and agreed the audit plan presented by the Auditor, which detailed the approach and scope of the work to be undertaken and the level of fee to be charged; and
- at its meeting in October 2012 the Cookson Audit Committee reviewed the risk management process operated by management designed to identify the key risks facing each business and how those risks have been managed;
- in addition, the Cookson Audit Committee reviewed the financial disclosures in relation to the demerger, including considering relevant matters in relation to the accounting treatment of the demerger and the production of the financial statements for the two new plc's. The Cookson Audit Committee also considered the Audit and Internal Audit requirements for the two new companies and approved the establishment of appropriate systems and procedures for them.
Since its establishment,the Vesuvius Audit Committee has discharged its responsibilities as follows:
- at its meeting in December 2012, the Audit Committee considered the major reporting and accounting matters likely to arise in connection with the production of the year-end financial statements of Vesuvius plc; progress with the Auditor's year-end internal controls review and received an update on internal audit; and
- at its meeting in March 2013, the Audit Committee reviewed the Company's Annual Results Announcement and Annual Report and Accounts. It also reviewed a report from management which addressed the appropriateness of the production of the Group and Company financial statements on a going concern basis; reviewed the Group's procedures for the identification, management and control of specific areas of risk which impact the Company and the Group; was presented with information on significant litigation involving the Group; received an update from Internal Audit and reviewed the independence of the Company's Auditor and considered its re-appointment.
It is envisaged that the Vesuvius Audit Committee will continue to adopt a similar approach to the structuring of meetings as that operated by Cookson, although this will obviously evolve in line with changing best practice. In particular during 2013, in compliance with the revised code, the Committee will review its scope and accountabilities to ensure that, if requested by the Board, it can monitor the effectiveness of the Group's reporting processes and thence provide advice on whether the Annual Report and accounts, taken as a whole, is fair, balanced and understandable.
Appointment of Auditor
The Audit Committee is responsible for making recommendations to the Board in relation to the appointment, reappointment and removal of the Auditor. In undertaking this duty, in relation to the reappointment of the Auditor for 2013, the Committee was cognisant of the need to consider a number of factors concerning the Auditor and the Group's current activity, including:
- the quality of reports provided by the Auditor to the Audit Committee and the Board and of advice given;
- the level of understanding demonstrated of the Group's businesses;
- the independence of the Auditor, in light of the provision of non-audit services;
- the objectivity of the Auditor's views on the controls throughout the Group;
- its ability to coordinate a global audit, working to tight deadlines;
- the cost-competitiveness of the Auditor in relation to the audit costs of comparable UK companies;
- the tenure of the Auditor with the Company's predecessor Cookson Group plc; and
- the ongoing rotation of the lead audit partner assigned to the Group's audit.
In addition, the Audit Committee considered external reviews of the performance and quality of the Auditor, including:
- the annual report issued by the Audit Inspection Unit of the Financial Reporting Council on the work of the Auditor; and
- the Auditor's own annual Transparency Report.
KPMG or its predecessor firms have a long-standing tenure as the Auditor of Cookson Group plc. The services of KPMG were retained by the Company during the demerger of Cookson Group as it represented the most efficient and cost-effective provider to undertake the audit work necessary. The lead audit partner was changed during 2012 in accordance with external partner rotation requirements. KPMG's audit of the Company and Group's 2012 year-end built on the work undertaken in respect of the demerger. KPMG has been the Company's Auditor since the date of incorporation, 17 September 2012. The Audit Committee is cognisant of the Auditor's previous long-standing relationship with Cookson, and is conscious of the transitional arrangements specified in the FRC's guidance on audit tendering. The Audit Committee intends to review the need for a tendering process in due course. In the meantime, given the recency of the lead partner rotation and taking into account the performance of the Auditor during the past year, the Audit Committee is recommending the Auditor for reappointment in 2013.
The terms on which the Auditor is engaged do not include any contractual obligations which would prevent the Directors appointing a different audit firm should this be considered appropriate.
Independence and objectivity of Auditor
The Audit Committee is cognisant of the need to ensure that the independence and objectivity of the Auditor is continually maintained. It has put in place safeguards to ensure that the independence of the external audit is not compromised. These safeguards include:
- seeking ongoing confirmation that the Auditor is independent of the Company in its own professional judgement; and
- considering all the relationships between the Auditor and the Group, including those relating to the provision of non-audit services and whether these impair, or appear to impair, the Auditor's judgement or independence.
The Audit Committee monitors the other services being provided to the Group by the Auditor. The Company has a policy governing the Group-wide conduct of non-audit work by the Auditor to ensure that this does not impair its independence or objectivity. The Auditor is prohibited from performing services where it:
- may be required to audit its own work;
- would participate in activities that would normally be undertaken by management;
- is remunerated through a "success fee" structure; or
- acts in an advocacy role for the Group.
The policy sets out the categories of work that the Auditor is prohibited from undertaking. Other than these, the Company does not impose an automatic prohibition on the Auditor undertaking non-audit work. The Auditor is eligible for selection to provide non-audit services that are not, or are not perceived to be, in conflict with auditor independence, provided it has the skill, competence and integrity to carry out the work in the best interests of the Group.
An annual budget for non-audit related fees which the Group is proposing to pay to the Auditor, is presented for pre-approval to the Audit Committee. Any individual assignment where the fee is likely to be in excess of £50,000 must be pre-approved by the Audit Committee. Where appropriate, services are tendered prior to awarding work to the Auditor.
Details of the amounts paid to the Auditor during the year for audit and other services are set out in note 6 to the consolidated financial statements. The fees analysed in note 6 were all incurred pre-demerger and therefore include amounts related to Alent plc. Of the total non-audit related fees paid to the Auditor in 2012 of £2.9m, £2.3m related to audit and accountancy work associated with the demerger of Cookson Group, for which it was concluded that KPMG was best-placed to support the Company. In addition to the work undertaken by the Auditor in connection with the demerger, considerable work was also undertaken by other accounting firms.
The Group's internal audit function operates on a global basis. The Group Head of Internal Audit is responsible for developing the function, within the framework of common Group policies and standards, and for carrying out assignments in accordance with an annual audit plan approved by the Audit Committee. In 2013, it is proposed that 63 audit assignments be undertaken covering 55 businesses. The Group Head of Internal Audit reports directly to the Audit Committee Chairman. The Audit Committee receives reports from the Group Head of Internal Audit and reports to the Board on the results of its review.
The Audit Committee has established procedures for the receipt, retention and treatment of complaints received by the Company including accounting, internal controls, auditing matters, harassment and confidential communications from employees. This is an independent and confidential service through which employees worldwide may register any concerns about any incorrect or irregular practices they perceive in Vesuvius' workplaces. The helpline is operated 24 hours a day, seven days a week, by an organisation that specialises in the provision of such services. It can be contacted by phone, email or via a designated website. Translation facilities are available for those for whom English is not their first or preferred language.
Approach to anti-bribery and corruption training
The Group's Code of Conduct and its policies on anti-bribery and corruption require that employees and others working on behalf of the Group do not engage in any form of bribery or corruption. An anti-bribery and corruption compliance programme has been established throughout the Group, and is being implemented through a targeted face-to-face training programme. An e-learning module is being rolled out globally. New employees, as relevant, will go through the training as part of their induction process. The compliance programme includes undertaking risk assessments and engaging with others working on behalf of the Group to ensure that their standards comply with the Group's policies. The Company is a member of the corporate supporters forum of Transparency International UK.
On behalf of the Audit Committee
Chairman, Audit Committee
28 March 2013