The Audit Committee

The Audit Committee of EuroChem has the following key responsibilities:

  • to oversee the quality of the financial reporting process, including assessing the integrity and reliability of the financial information disclosed about the Company, and to liaise with the external auditor and to assess the effectiveness of the audit process
  • to monitor the status and ensure appropriate development of the risk management and internal control system
  • to guide internal audit work, reviewing audit findings and assessing the effectiveness of the internal audit function

The Audit Committee consists of two Board members: the independent Chairman Richard Sheath and non-executive director Nikolay Pilipenko, who is not formally regarded as independent as he served as the Company’s CFO five years ago. Their combined experience in financial accounting, risk management, internal control and compliance helps the Committee approach standing issues with comprehensive understanding and detailed scrutiny.

The CFO attends all meetings of the Committee, and the Head of Internal Audit attends all joint-presence meetings. The Committee holds discussions with the external auditors, PricewaterhouseCoopers, twice a year without the presence of management. The Committee Chairman has regular meetings with the Internal Audit Department either in preparation for meetings or to discuss audit findings. Between meetings, the Committee is in regular contact with the CFO, the Head of Internal Audit, the Internal Control and Risk Management Department and the Corporate Secretary.

AUDIT COMMITTEE MEETINGS AND ATTENDANCE

In 2013, the Committee held a total of 11 meetings comprised of seven meetings in person and four conference calls. The composition of the Committee changed after the AGM, which took place on 20 June 2013: after spending six years with the Company, Keith Jackson left the Board of Directors.

The 2013 Audit Committee attendance* is presented below:

Audit Committee Meetings in person Conference call meetings
Richard Sheath, Chairman 7/7 4/4
Nikolay Pilipenko 7/7 4/4
Keith Jackson1 3/3 2/2
  • *participated in/could have participated in, given his or her tenure period
  • 1 Keith Jackson stepped down from the Board and the Committee on 20 June 2013

OVERVIEW OF AUDIT COMMITTEE ACTIVITY DURING 2013

External audit
  • Appraised the audit plan, timing, and performance of the external auditor in 2013, reviewed and evaluated audit fees for 2013
  • Verified and confirmed the independent status of PwC as the Company’s auditor
  • Approved fees for non-audit services provided by the external auditor, ensured compliance with the policy on the auditor’s provision of non-audit services
  • Considered with the Russian Statutory Auditors any control issues around statutory reporting and tax filing
  • Reviewed the Auditor’s recommendations on internal controls
  • Held discussions with the external auditor without management
  • Commissioned and oversaw an investigation which was conducted at the request of the external auditor
Financial reporting and budgeting
  • Reviewed quarterly and annual consolidated IFRS financial statements and management reports
  • Considered the continued development and roll-out of the Group-wide IFRS accounting manual
  • Discussed issues pertaining to the preparation of financial statements at the Group’s subsidiaries
  • Reviewed the Group’s consolidated budget for 2014 in the first and second reading to provide additional analysis prior to Board review and approval of the budget
  • Reviewed the integration of acquired European assets (EuroChem Agro and EuroChem Antwerpen) into the Company’s information system and financial accounting and controlling system
Risk management and internal control
  • Exercised oversight over the reorganisation of internal control and risk management functions, including a baseline review of the function, action plan (milestones, objectives, budgets), risk map development, and status updates;
  • Approved the new approach to Internal Control and Risk Management in the Company, based on assigning main responsibility for risk management and internal control to the owners of business processes rather than specificrisk managers
  • Considered specific issues such as
    – Control over the Company’s production risks insurance
    – Transfer pricing tax risk management
    – Control over large projects
    – Investment projects: approach to assurance over process and controls application,including accounting and reporting systems
    – D&O Insurance proposal review
Internal audit
  • Performed regular monitoring of Internal Audit results, including reviewing the results
  • Approved the target status of the Internal Audit function and its development plan, including the personnel structure, recruitment and staff development plan, as well as the audit plan and distribution of the IAS resources in 2014
Information disclosure
  • Monitored the preparation of non-financial reports (2012 Annual Report and 2012 CSR Report), reviewed drafts of these reports and oversaw the results of a tender for CSR Report assurance
Contemplated Reorganisation of the Company
  • Participated in reviewing issues pertaining to the comprehensive project to develop the Company’s management system
  • Reviewed management’s proposals with regard to the architecture of business processes, the new business planning model, the business operations model for 2014-2018, reorganisation of financial functions within the new economic model, the economic model for the Company’s operating divisions, and reorganising company control functions and business processes, amongst others
Company performance review
  • At every joint-presence meeting the Committee reviewed the management accounts and flash reports for the period

PRIORITIES FOR 2014

As well as covering its overall and primary responsibilities in relation to financial reporting, audit and internal control, the Audit Committee will give particular focus during 2014 to questions connected with the reorganisation of the Company and its new economic model:

Internal monitoring management reports, budgeting process:
  • Pricing, cost centres and capital allocation within the new economic model
  • Transfer pricing implementation review
  • Strategic planning process: link with economic model
  • Target budget format and new budgeting process with revised economic model
  • Change in internal accounting principles resulting from new budgeting processes
  • Proposed approach to risk management system development as part of the reorganisation