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Audit Committee Report

Responsibilities and role of the Audit Committee

The Committee's main responsibilities are to oversee and monitor:

  • the external audit process, including the appointment of the external auditor, their fees and independence;
  • the nature and scope of the external audit and its effectiveness;
  • the effectiveness of internal audit;
  • the Company's procedure for handling allegations from whistleblowers and for detecting fraud;
  • the effectiveness of systems for internal financial control, financial reporting and risk management;
  • the integrity of the Company's financial reports, including reviewing the findings of the external audit; and
  • making appropriate recommendations to the Board.

The full Terms of Reference of the Committee are available on our website at www.aggreko.com/investors/corporategovernance

Membership of the Committee

The members of the Committee during the year were as follows:

Robert MacLeod
  Chairman

David Hamill

  

Ken Hanna 

Russell King

  

All members of the Committee are independent Non-executive Directors. Robert MacLeod, a chartered accountant and Group Finance Director of Johnson Matthey plc, and Ken Hanna, until recently Chief Financial Officer of Cadbury plc, each brings a high level of recent relevant financial experience to the Committee. Peter Kennerley is Secretary to the Committee. The Group Chairman, the Chief Executive, Finance Director, Group Financial Controller and Head of Internal Audit attend meetings by invitation when appropriate. The Group audit partner from our external auditor also generally attends the Committee. At least once each year we hold a separate session with the external auditor without members of management and a separate private session with the Head of Internal Audit.

The Committee met three times during the year.

Main activities of the Committee during the year

Integrity of financial reports

During the year, the Committee reviewed salient features arising out of PricewaterhouseCoopers' audit of the Annual Report, reviewed the draft Annual Report and after consideration of a paper on going concern agreed to recommend the 2011 Annual Report to the Board. The Committee also considered and recommended to the Board the Company's half-yearly report.

External auditor independence 

We reconfirmed our policy on non-audit services provided by the external auditor: individual fees in excess of 50% of the annual audit fee and any in excess of the aggregate fees above 100% of the audit fee require the Committee's specific approval. We also considered the actual level and nature of non-audit work and were satisfied that they were in line with policy and did not detract from the objectives and independence of the external auditor. Further details of the fees paid to the external auditor are set out in Note 6 in the Notes to the Group Accounts.

Reappointment of external auditor

The Committee last supervised a competitive tender for the external audit in 2006, following which PricewaterhouseCoopers were reappointed external auditor. The Committee is again recommending to the Board that a proposal be put to shareholders at the 2012 Annual General Meeting for the reappointment of PricewaterhouseCoopers. There are no contractual restrictions on the Company's choice of external auditor, and in making our recommendation we took into account, amongst other matters, the objectivity and independence of PricewaterhouseCoopers, as noted above, their continuing effectiveness and cost.

External auditor effectiveness

Following completion of the 2010 year end process, the Committee assessed the audit process and the strategy for the 2011 audit and considered the performance of the auditor.

Internal audit function

The internal audit team undertake financial, operational and strategic audits across the Aggreko Group using a risk based methodology. Group Internal Audit is also responsible for IT related audits, and these services are provided by an outsourced provider. We agreed the scope of work and coverage levels as part of the annual internal audit plan and reviewed its progress during the year. We also considered all internal control issues raised in the internal audit reports, the adequacy of internal audit resources and the effectiveness of the internal audit function.

Financial control and managing risk

At Aggreko we aim to have a strong and regularly monitored control environment that minimises financial risk, and as part of our responsibilities we review the effectiveness of systems for internal financial control, financial reporting and risk management. Our approach is to ensure that the same high standards are applied through the business, with the framework set at Group level and a strong focus on training and development. Central to this process are regular financial control reviews and a financial control checklist, which enable us to set targets and identify and monitor areas for improvement.

We also aim, on a regular basis, to look in some depth into some of the particular principal risks that face the Group, and which are described in the Key Performance Indicators of the Directors' Report. The rapid growth of the local business within Aggreko International has presented its own particular challenges, and we asked the management of AI to address us on this topic, enabling us to understand some common themes and the steps being taken to manage these risks. Given the Group's reliance on information technology, we also reviewed the Group's IT risk management and governance framework, including high level infrastructure design, mitigation components by location, the ongoing audit and assurance plan and our approach to business continuity and disaster recovery.

Whistleblowing

In April Aggreko introduced an independent compliance hotline, operated by an external agency, which gives employees the opportunity to report potential improprieties in financial reporting or other matters. The hotline is available to all employees, in all of the languages used throughout the Group, and callers can remain anonymous if they wish. We also improved our procedures for investigation and follow-up and received a report on progress in December. As a result of that report we can confirm that they remain adequate for addressing the Company's obligations under the Code.

Robert MacLeod
Chairman of the Audit Committee
9 March 2012