Audit Committee

Mr. Grote has been chairman of the Audit Committee since his appointment in 2015. The other members of the Audit Committee in 2017 were Mrs. Bruzelius, Mr. Hughes and Mr. Sluimers. All members of the Audit Committee have extensive accounting and financial management expertise. The Audit Committee held ten meetings during 2017. The attendance record of the members can be seen in the attendance chart under Supervisory Board activities. Issues discussed in Audit Committee meetings were reported back to the full Supervisory Board in subsequent meetings.

Audit Committee activities 2017

The table opposite provides an overview of relevant topics discussed and reviewed in meetings of the Audit Committee in 2017. In addition to the topics listed, the Audit Committee also reviewed and discussed the topics related to the events set out in the Timeline of key events in 2017.

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, 2017
  • The quality of the external audit
  • Impact of new accounting rules

The Audit Committee performed the 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 a comprehensive risk and internal control report during the year.

In addition, the Audit Committee reviewed the annual operational 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 2017.

Business and function reviews

In fulfilling its oversight responsibilities in relation to risk management and internal control systems, the Audit Committee also received updates from functions throughout the year. These updates also inform the Audit Committee’s review of the annual operational 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 progress on the company’s cyber-security road map as an aspect of updates received from Information Management. The Audit Committee also met regularly with other senior executives.

Separation of Specialty Chemicals

An important feature of the Audit Committee’s work in 2017 has been its attention to the financial impact of the events set out in the Timeline of key events in 2017. In particular, the Audit Committee has reviewed and closely monitored 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 discussed the 2014-2016 Specialty Chemicals financial statements and demerger accounts. The Audit Committee is confident the separation process remains on track for April 2018. With regard to the dual-track process, the Audit Committee continues to carefully review and consider the preferred method for separating the Specialty Chemicals business, and will be involved in the assessment of the value of the Specialty Chemicals business that can be unlocked in either a private sale or a legal demerger.

Internal audit

The Internal Auditor presents all main audit findings to the Audit Committee and discusses 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 2017, 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 annual 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. These were 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, are approved by the full Supervisory Board prior to publication and release.

In order to ensure its effectiveness and expertise, the Audit Committee is 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

Every year, the Audit Committee undergoes an annual evaluation of its effectiveness and performance. In general, this process involves the Audit Committee undertaking a self-evaluation of its performance in conjunction with the Supervisory Board. Once every three years – unless it is decided to do so more frequently – the Audit Committee undergoes an independent external assessment of its effectiveness and performance, facilitated by a specialist consultant. In 2016, the Audit Committee underwent an external evaluation of its effectiveness and performance. During 2017, the Audit Committee continued to improve on the areas highlighted by the external assessment, including its role with regard to cyber-security and the relationship between the Audit Committee and the Board of Management.

As part of the selection process for the three newly appointed members of the Supervisory Board, a review of the functioning and composition of the Supervisory Board and its committees, including the Audit Committee, was carried out.