The Audit Committee

The membership of the Audit Committee is set out within the Audit Committee Report. The Audit Committee report which summarises the terms of reference of the Audit Committee and describes its work in discharging its responsibilities is set out within the Audit Committee Report.

Financial and Business Reporting

The Business Review referenced in the Directors' Report sets out explanations for the basis on which the Group generates or preserves value over the longer term and the strategy for delivering the objectives of the Group.

A statement of the Directors' responsibility for preparing the Annual Report and Accounts is set out within this document and a statement by the Auditor, KPMG LLP about its reporting responsibilities is set out in the Independent Auditor's report to the members of Vesuvius plc. As detailed within the Directors' Report, the Directors consider that the Group and Company have adequate resources to continue in operational existence for the foreseeable future and accordingly, they have adopted a going concern basis in preparing the financial statements of the Group and the Company.

Risk Management and Internal Control

The Board has overall responsibility for the establishment and maintenance of the Group's system of risk management and internal control, and for reviewing its effectiveness. This system is designed to manage, rather than eliminate, the risks facing the Group and safeguard assets. No system of internal control can provide absolute assurance against material misstatement or loss. The Group's system is designed to provide the Directors with reasonable assurance that problems are identified on a timely basis and are dealt with appropriately. In accordance with the provisions of the Code, the Directors confirm that they have reviewed the effectiveness of the Group's system of internal control and that the necessary actions have been taken to remedy and control any control weaknesses identified during the year. Since the date of this review there have been no significant changes in internal controls or other matters which could significantly affect them.

The Audit Committee assists the Board in reviewing the effectiveness of the Group's system of internal control, including financial, operational and compliance controls, and risk management systems. The key features of the Group's system of internal control include:

Strategy and financial reporting

The Group operates a comprehensive strategic planning and forecasting process, with an annual budget approved by the Board. Monthly operating financial information is reported against this budget and key trends and variances analysed. Action is then taken as appropriate.

Group accounting policies and procedures are formulated and disseminated to all Group operations, covering the application of accounting standards and the maintenance of accounting records and key financial control procedures.

Operational controls

Each operating company, including the Corporate offices, maintains internal controls and procedures appropriate to its structure and business environment, whilst complying with Group policies on items such as the authorisation of capital expenditure, treasury transactions and the management of intellectual property.

In addition, the Group's financial reporting process, including the preparation of the Company's consolidated financial statements, incorporates the dissemination and use of common accounting policies and procedures and financial reporting software.

The Board considers significant financing and investment decisions concerning the Group, including the giving of guarantees and indemnities, and monitors policy and control mechanisms for managing treasury risk.

Risk assessment and management

There is a continuous process for identifying, evaluating and managing any significant risks faced by Vesuvius and, previously, Cookson. Group management operates a risk management process designed to identify the key risks facing each business and reports to the Board on how those risks are being managed. As a basis for this report, each of the Group's major business units produces a "risk map" which identifies their key risks and assesses the likelihood of those risks occurring, their impact if they do occur and the actions being taken to manage those risks to a desired level.

The Board reviews the role of insurance and other measures used in managing risks across the Group, receives reports on any major issues that arise and makes an annual assessment of how the risks have changed.

Reviewing the effectiveness of internal controls

The internal control system is monitored and supported by the Group's internal audit function. This function assists management and the Board in the effective discharge of its responsibility for internal control by conducting reviews of Vesuvius' businesses and reporting objectively both on the adequacy and effectiveness of the system of internal control in place and as to whether those businesses are in compliance with applicable Group policies and procedures. The Audit Committee receives reports from the Group Head of Internal Audit and reports to the Board on the results of its review.

As part of the Board's process for reviewing the effectiveness of the system of internal control, it delegates the following matters to the Audit Committee to be carried out during the year:

  • review of external and internal audit work plans;
  • consideration of reports from management, internal audit and external audit on the system of internal control and any significant control weaknesses; and
  • discussions with management on the actions taken on problem areas identified by Board members, in internal audit reports or in external audit management letters.

At the year-end, following the review by the Audit Committee of internal financial controls and of the processes covering other controls, the Board evaluated the results of the internal control and risk management procedures conducted by senior management. This included a self-certification exercise by which senior financial and operational management throughout the Group certified the effectiveness of the system of internal control within the businesses for which they were responsible, together with their compliance throughout the year with the Group's policies and procedures.

Executive compensation and risk

All the independent Non-executive Directors serve on both the Audit and Remuneration Committees. They are therefore able to bring their experience and knowledge of the activities of each committee to bear when considering the critical judgements of the other. This means that the Directors are in a position to consider carefully the impact of incentive arrangements on the Group's risk profile and to ensure the Group's remuneration policy and programme is structured so as to accord with the long-term objectives and risk appetite of the Company.