Audit Committee

Mr. Grote has been Chairman of the Audit Committee since his appointment in 2015. The other members of the Audit Committee in 2018 were Mrs. Bruzelius, Mr. Hughes1, Mr. Jaski2, Mr. Sluimers and Mr. Thomas2. All members of the Audit Committee have extensive accounting and financial management expertise. The Audit Committee held nine meetings during 2018. The attendance record of the members can be seen in the attendance chart in Supervisory Board activities. Issues discussed in Audit Committee meetings were reported back to the full Supervisory Board in subsequent meetings.

1 Until April 2018.

2 Appointed to the Audit Committee as of June 2018.

McLaren’s 2018 F1 car (photo)

The striking livery for McLaren’s 2018 F1 car saw it voted the season’s best looking car in a BBC online poll. The Papaya Spark color scheme was developed by our Sikkens brand, which has been the official supplier of paint solutions to McLaren Racing for a decade.

Audit Committee main activities 2018

Q1 activities 2018

  • Review Q4 2017 financial statements and annual results
  • Review annual report and accounts
  • External audit report
  • Review risk management and internal control
  • Auditors’ management letter
  • Final dividend 2017
  • HSE audit findings
  • Review full-year compliance report
  • Review five-year outlook and planning
  • Separation of Specialty Chemicals business (including dual track, risks and carve-out)

Q2 activities 2018

  • Review Q1 2018 financial statements
  • Review year-to-date audit findings (report of Internal Audit)
  • Review compliance cases year-to-date
  • Follow-up on audit scope and fee 2018
  • Review evaluation external auditor
  • Review external quality review of Internal Audit
  • Pension funds update
  • Implementation of IFRS 16 update
  • Update finance transformation
  • Treasury and Investor Relations update
  • Distribution of proceeds from the sale of the Specialty Chemicals business

Q3 activities 2018

  • Review Q2 2018 financial statements
  • Review of possible ways to distribute proceeds from the sale of the Specialty Chemicals business
  • Review November 2018 EGM materials

Q4 activities 2018

  • Distribution of proceeds from the sale of the Specialty Chemicals business
  • Review Q3 2018 financial statements
  • Recommendation on interim dividend
  • Review compliance cases year-to-date
  • Tax strategy review
  • Review 2019 budget and outlook
  • Review audit findings year-to-date and hard close audit report
  • Internal Audit plan 2019
  • Review of legal liability exposure report
  • Update on IFRS changes
  • Update finance transformation
  • Follow-up external quality review of Internal Audit
  • Change lead partner external auditor

External audit

PricewaterhouseCoopers Accountants N.V., AkzoNobel’s external auditors, reported in-depth to the Audit Committee on the scope and outcome of the annual audit of the financial statements, including the consolidated financial statements and the company financial statements and report.

The Audit Committee held independent meetings with the external auditors and critically reviewed and constructively challenged their audit approach, fees, risk assessment and audit plan for the year ahead.

Other topics discussed included:

  • The “hard close”, which was discussed with the intention of improving the efficiency of the year-end process and to highlight important issues for the annual financial statements. AkzoNobel performed a “hard close” as of October 31, 2018
  • Separation of Specialty Chemicals
  • Quality of the external audit
  • Impact of new accounting rules
  • Transformation of the Finance function

As the current lead audit partner will retire in 2019, it was decided to appoint a new lead audit partner as per the start of the audit on the financial year 2019. In close cooperation with PricewaterhouseCoopers Accountants N.V. and after having interviews with potential candidates, the Audit Committee decided on the succession of the current lead audit partner.

The Audit Committee performed an annual review of the services of the external auditor, and at each meeting it considered and assessed the status of the auditor’s independence. Further details on the external auditors can be found in the Governance and compliance section.

Risk management and internal control systems

The Audit Committee reviewed AkzoNobel’s overall approach to governance, risk management and internal controls, its processes, outcomes, financial reporting and disclosures. Regular updates were received from auditors and functions in this regard, and the Audit Committee was provided with comprehensive risk and internal control reports during the year.

In addition, the Audit Committee reviewed the annual operating plan (including budget) and AkzoNobel’s dividend proposals. Upon fulfilling its oversight responsibilities in relation to governance, risk management and internal control systems, the Audit Committee met regularly with senior executives.

The General Counsel reported regularly to the Audit Committee on the company’s compliance framework and compliance matters and activities, and on major litigation and liability exposures. The Internal Auditor reported to the Audit Committee on their assessment of the status of the system of governance, risk management and internal controls throughout 2018. The Internal Auditor also reported to the Audit Committee her assessment of the Internal Audit function by the Dutch Institute of Internal Auditors, with the assessors being satisfied with the effectiveness of the Internal Audit function.

Business and function reviews

In fulfilling its oversight responsibilities in relation to risk management and internal control systems, the Audit Committee received updates from functions throughout the year. These updates also informed the Audit Committee’s review of the annual operating plan, including budget.

During the year, updates were provided from Accounting and Control, Treasury, Investor Relations, Information Management and Tax. The Audit Committee continued to monitor functional initiatives, such as the progress on the transformation of the Finance function and the transformation of the company into a focused paints and coatings company. The Audit Committee also met regularly with other senior executives.

Separation of Specialty Chemicals

An important feature of the Audit Committee’s work in 2018 was to review and closely monitor the process for the separation of Specialty Chemicals, including assessing the associated risks and related mitigating actions and receiving regular financial updates. The Audit Committee reviewed and considered the proposal of the Board of Management to distribute an additional €5.5 billion to shareholders from the sale of the Specialty Chemicals business and the preferred methods for distribution.

Internal Audit

The Internal Auditor presented all main audit findings to the Audit Committee and discussed the progress of the audit plan. During the year, the Audit Committee approved the Internal Audit plan and strategy of the Internal Audit function, and agreed on the budget and resource requirements for the function. The Audit Committee also met separately with the Internal Auditor during the year to discuss the results of the audits performed and the status of the follow-up on action plans identified. In 2018, the Audit Committee was satisfied with the effectiveness of the Internal Audit function.

Results and financial statements

Before each publication of the quarterly results and the financial statements, the Audit Committee reviewed the financial results. In addition, the Audit Committee reviewed and commented on the interim and final dividend proposals and on reports and press releases to be published. This was reviewed in addition to the work undertaken by the company’s Disclosure Committee in reviewing the company’s disclosure of potentially price sensitive information. Based on these discussions, advice was provided by the Audit Committee to the Supervisory Board with regard to the publications and disclosures, and to the interim and final dividends. All quarterly or annual releases of financial results, and any potentially price sensitive public disclosures, were approved by the full Supervisory Board prior to publication and release.

In order to ensure its effectiveness and expertise, the Audit Committee was provided with regular updates on IFRS developments and the anticipated impact of these developments on the financial statements. In addition, the Audit Committee reviewed and assessed management assertions made in regard to relevant accounting treatments.

Audit Committee evaluation

The Supervisory Board and the Audit Committee evaluated the performance of the Audit Committee, while the Audit Committee also carried out a self-assessment of its performance. Both concluded that the Audit Committee is performing effectively. The Audit Committee agreed to organize additional education and deep dive sessions during 2019. Reference is made to the paragraph on the evaluation of the Supervisory Board in this chapter.