Audit and Risk Management Committee (“ARMC”) report
The ARMC of NWR was established by the Board at the end of 2007 and started meeting in January 2008.
The ARMC supports and advises the Board in its work by:
- ensuring the integrity of consolidated financial statements and consolidated accounts;
- advising the Board on audit, accounting and financial disclosure matters regarding the Real Estate Division of NWR;
- reviewing with the Board and auditors the integrity of the financial statements and other formal announcements relating to NWR’s financial performance;
- overseeing the process for selecting the external auditor and making recommendations to the Board on the appointment, dismissal, terms of engagement and fees of the external auditor;
- assessing the external auditor’s effectiveness, independence and objectivity, and its provision of non-audit services;
- reviewing the annual audit plan and reports by the external auditor on internal control systems and procedures;
- making recommendations to the Board on appointment and dismissal of the internal auditor of NWR, reviewing the remit of the group internal audit and the annual audit plan, and ensuring that the internal audit function is adequately resourced;
- reviewing the effectiveness of the systems for internal control, compliance, budgeting, forecasting and financial reporting of the NWR Group and procedures for identifying strategic and business risks;
- reviewing compliance issues and advising the Board on conflicts of interests, related party transactions and loans to Directors; and
- observing the effectiveness of the Whistleblower Procedures within the NWR Group.
Composition
The ARMC is presently comprised of: Bessel Kok (Senior Independent Director and Chairman), Hans-Jörg Rudloff, Barry Rourke and Steven Schuit, all of whom are Independent Non-Executive Directors. The Board makes appointments to the ARMC and the Senior Independent Director of the Board acts as the ARMC Chairman. The Board has determined that the ARMC members have the skills and experience necessary to contribute meaningfully to the ARMC’s deliberations. In addition, all members have requisite experience in accounting and financial management.
Activities undertaken during the year
In 2008, the ARMC met four times. The NWR CFO and the external audit partner attended all meetings. On one occasion, the members held a discussion with the external audit partner without management being present. The ARMC Chairman also met with the head of the Audit Committee of the Supervisory Board of OKD and with the external audit partner of the Czech operations. The ARMC receives regular reports from the Real Estate Committee and the Health, Safety and Environment Committee on their activities. In fulfilling its responsibility of monitoring the integrity of financial reports to shareholders and banks, the ARMC reviewed the quarterly and half-yearly financial statements, preliminary announcements and related public reports. The ARMC received external audit reports on the results of audits on the consolidated level. The ARMC reported to the Board on its findings and issues discussed at its meetings, and submitted its recommendations to the Board for approval.
Accounting policies
At NWR (consolidated) level, the financial statements are produced under IFRS whilst the subsidiaries of NWR produce their stand-alone accounts in accordance with the Czech accounting standards. The ARMC recommended unifying the audit standards in the medium term.
External audit
NWR is based in the Netherlands whilst its operations are located in the Czech Republic, and therefore both Dutch and Czech offices of the external auditor must be highly involved in the audit process. The ARMC discussed the level of their general responsibility and the inter-office communication during the review processes.
The ARMC assessed the effectiveness, objectivity and independence of the external auditor in 2008.
The ARMC monitored the provision of non-audit services by the external auditor to NWR and its subsidiaries and the related fees, in order to preserve the independence of the external auditor. In 2008, there were limited non-audit services provided by the external auditor to NWR and/or its subsidiaries.
The ARMC has primary responsibility for making recommendations to the Board on the appointment, reappointment and removal of the external auditors. In addition, the external auditors are required to adhere to a rotation policy based on best practice and professional standards. The period for rotation of the audit engagement partner will follow the applicable regulation.
The ARMC reviewed and approved the terms of engagement of the external auditor, scope of work, the process for the 2008 interim review and the fee levels. Based on submitted reports, the ARMC reviewed, with the external auditor and the NWR CFO, the findings of their work and confirmed that all significant matters had been satisfactorily resolved. The ARMC also reviewed and approved the annual audit plan.
The assessment of the external auditor’s performance and independence underpins the ARMC’s recommendation to the Board to propose to shareholders the re-appointment of KPMG Accountants N.V. Resolution to authorise the Board to re-appoint KPMG Accountants N.V. shall be proposed at the AGM on 28 April 2009.
Internal audit
In November 2008, the ARMC approved the appointment of an outsourced group internal audit function to develop and oversee the implementation of internal auditing policies across the Group, deliver the audit plan and report on risk and internal control. The ARMC also recommended an internal audit function at the NWR level. At operation level, the internal audit function is performed by the internal audit team of qualified employees of OKD that review and provide assurance on the adequacy of the internal control environment within OKD. Based on the recommendation of the ARMC, the internal audit function of OKD was strengthened by engaging a new head of internal audit in October 2008. The head internal auditor is responsible for reporting the findings of the internal audit work to the group internal audit function at NWR, local senior management, the Audit Committee established by the Supervisory Board of OKD, NWR’s CFO and the ARMC’s Chairman. He has all necessary access to management and the right to request information and explanations, and has unfettered access to the ARMC. Internal audit in the Polish operations will be carried out by the group internal audit function.
Risk management, internal control and compliance
The ARMC is responsible for the oversight of risk management and reviews the internal control and risk management system. The ARMC has the authority to engage independent advisors to resolve issues within its terms of reference. The ARMC engaged PricewaterhouseCoopers Advisory N.V. to assess the risk management and internal control practices within the NWR Group. The project has been run throughout the year and is still ongoing. Its outcome shall support the Board in discharging its responsibility for ensuring that the wide range of risks associated with the Group’s operations is effectively managed in support of the creation and preservation of shareholder wealth.
The final list of risks identified by the external advisors and approved by the ARMC consists of the following 18 risk areas:
- health and safety risk
- personnel availability risk
- government licensing risk
- corporate social responsibility risk
- IT strategy risk
- objective setting risk
- dispute risk
- change management risk
- budgeting and controlling
- environment damage risk
- pricing risk
- investor reputational risk
- reporting requirement risk
- internal audit risk
- competency risk
- external communication risk
- machinery availability risk
- growth prospective
The risk assessment and reporting criteria are designed to provide the Board with a consistent, Group-wide perspective of the key risks. There is an ongoing process, which has been operational during the year and, up to the date of approval of this Annual Report, for managing the risks listed above.The ARMC also reviewed the related-party transactions. The ARMC has a crucial role in opining and making proposals to the Board in all matters where a potential conflict of interest exists between NWR, its Directors, its controlling shareholder and other shareholders. The ARMC is not aware of any conflicts of interest.
Whistleblowing procedure
The Code of Ethics and Business Conduct adopted by the Board in 2007 came into effect in May 2008 when the shares of NWR were listed. Appended to the Code is the Whistleblower Procedure that enables the employees, on a confidential basis, to express concerns over the conduct of the Directors, officers, management and other employees. It may include suspicions of criminal offences, violation of law, (intentionally) wrongful behaviour, manipulation of information, misconduct, etc. The whistleblowing rules can be found on the NWR website at www. newworldresources.eu.
The Company Secretary was designated to act as confidential adviser for NWR and its subsidiaries. The programme is monitored by the ARMC through the reports received from the Company Secretary. NWR’s core operations have implemented the whistleblowing programme and designated their own confidential advisers who report to the ARMC via NWR’s Company Secretary. Since the implementation of the Whistleblower Procedure, NWR’s Company Secretary received ten reports that were submitted to the ARMC. Reports received were kept strictly confidential and were referred to appropriate line managers for resolution. Where appropriate, action was taken to address the issues raised.
Self-assessment
The ARMC believes that it carried out all the responsibilities set out in the ARMC’s charter and finds the charter adequate.
The charter of the ARMC is available on NWR’s website at www.newworldresources.eu.