Strategic Report Strategic Report Strategic Report Financial Additional Overview Strategy Performance Governance Statements Information Matter considered Action taken External audit Pension reform Noted the introduction of mandatory With respect to our responsibilities for the external audit contributions to the Georgian process on behalf of the Board, the Audit Committee: Pension Agency from January 2019, • approved the annual audit plan, which included setting to be recognised as part of salaries the areas of responsibility, scope and materiality of and other employee benefit the audit and key risks identified; expenses. The Group’s Georgian • oversaw the audit engagement, including the degree companies, including the Bank, to which the external auditor was able to assess will double their contributions key accounting and audit judgement; to employees’ pensions under • reviewed the findings of the external audit with the this initiative. external auditor, including the level of errors identified during the audit; The Committee also received regular reports on recoveries • monitored management’s responsiveness to the and write-offs of loans, and a report on non-recurring external auditor’s findings and recommendations; losses arising from sale of assets. • reviewed the qualifications, expertise and resources of the external auditor; Internal Audit • monitored the external auditor’s independence, The Audit Committee is responsible, on behalf of the objectivity and compliance with ethical, professional Board, for overseeing the Internal Audit function, which and regulatory requirement; serves as the Group’s independent assurance over the • reviewed audit fees; adequacy and effectiveness of the systems and processes • monitored the rotation of key partners in accordance of risk management and control across the Group. with applicable legislation; and • recommended the appointment, re-appointment The Audit Committee monitors the scope, extent and or removal, as applicable, of the external auditor. effectiveness of the Group’s Internal Audit function. Auditor independence It reviews and approves the Internal Audit Policy and To safeguard the auditor’s independence and objectivity, oversees the internal audit plan, which is designed using the Group has a policy on non-audit services which a risk-based approach aligned with the overall strategy is approved and maintained by the Audit Committee. of the Group. Regular reports are received from Internal It is available at https://bankofgeorgiagroup.com/ Audit on audit activities and significant findings as well governance/documents. as corrective measures and follow-up. The Head of Internal Audit has direct access to the Audit The Audit Committee has formally assessed the Committee and the opportunity to discuss matters independence of EY, which included the review of: (i) a with the Audit Committee without other members of report from EY describing their arrangements to identify, management present. The Audit Committee also monitorsreport and manage any conflicts of interest, and their the staffing of the Internal Audit department as well as policies and procedures for maintaining independence and the relevant qualifications and experience of the team. monitoring compliance with relevant requirements; and (ii) the value of non-audit services provided by EY. EY has A review was also conducted of the effectiveness of the also confirmed its independence throughout the year, Internal Audit department by considering the progress within the meaning of the regulations on this matter of Internal Audit against the agreed plan, considering and in accordance with their professional standards. the need to respond to changes in the Group’s business As indicated in Note 23 of the audited IFRS financial and the external environment. The Audit Committee also statements for 2018 the total fees paid to EY for the year considered the quality of the reporting by Internal Audit to ended 31 December 2018 were GEL 5.8 million of which the Audit Committee and the ability of Internal Audit to GEL 4.2 million related to work other than the audit or address unsatisfactory results. On this basis, it concluded review of the interim accounts, from which GEL 2.1 million that the Internal Audit function is effective and respected was paid by demerged entities: JSC Georgia Capital and by management, and that it conforms to the standards Georgia Capital PLC. set by the Institute of Internal Auditors. The ratio of non-audit fees to audit fees exceeds 1:1. However, nearly all of the non-audit fees relate to reporting accountant services provided in relation to the Demerger. The Committee is convinced that appointing EY to undertake these services was the most efficient method of achieving them. The Audit Committee (and EY) do not consider that this work compromises the independence of the external auditor. Annual Report 2018Bank of Georgia Group PLC 123