Consolidated Financial Statements and Consolidated Management ...

ANNUAL REPORT OF
THE AUDIT COMMITTE
1) Functions, competencies and functioning of the Audit Committee
The Audit and Control Committee’s primary function is to provide the Board of Directors with support in its oversight and control functions, the most
important of which consist of ensuring that generally accepted accounting standards are correctly applied and the integrity of the internal control systems
used to draw up the individual and consolidated Annual Accounts is maintained.
On 31 March 2004, the Board of Directors approved the Board of Directors Regulations which developed the Audit and Control Committee’s framework,
the way it is run and its composition. One of the most significant changes has been caused by the entry into force of the following legislation: Law 12/2010
of 30 June, amending Law 19/1988 of 12 July, on the Auditing of Accounts, Law 24/1988 of 28 July on the Securities Market and the consolidated text of
the Law on Limited Companies, approved by Royal Legislative Decree 1564/1989 of 22 December, for its adaptation to EU regulations, by virtue of which
the Audit Committee has been given a specific legal framework regarding its functioning and powers, with the bylaw provisions and content of the Board
Regulations on this matter having been appropriately modified for the purposes of adaptation to the aforementioned legal text.
Consequently, both the text of the Articles of Association, as well as the regulations contained in the Board Regulations govern all matters concerning the
composition, competencies and functioning of the Audit Committee, which can essentially be summarised as follows:
a) Composition
The Audit and Control Committee shall comprise at least three and at most five Directors appointed by the Board of Directors. All the members of said
Committee must be external or non-executive Directors.
The Audit and Control Committee’s members, and particularly its Chairman, shall be appointed on the basis of their knowledge and experience in
accounting, auditing or risk management.
The Chairman of the Audit and Control Committee shall be an independent director and shall be appointed from among the directors who hold neither
management or executive responsibilities in the organisation nor maintain a contractual relationship other than the office to which they have been
appointed. The Chairman shall be appointed from among the Committee’s members who are non-executive directors. The chairman shall be replaced
every four years and may be re-elected one year after standing down from office.
b) Competencies
Notwithstanding any other tasks it may be entrusted with by the Board of Directors, the Audit and Control Committee’s primary function consists of
providing support to the Board of Directors in its oversight functions and, more specifically, it holds at least the following competencies:
1) By means of its Chairman, to report, within the sphere of its competence, on any issues raised by shareholders at the General Shareholders’
Meeting.
2) Supervising the effectiveness of the company’s internal control, internal auditing, where applicable, and risk-management systems, as well as
discussing any significant weaknesses in the internal control system, identified during audits, with auditors or audit companies.
3) To supervise the process of preparing and the integrity of financial reporting relating to the Company and, should it be the case, to the Group,
reviewing compliance with regulations, correct scope of consolidation and the proper application of accounting standards.
4) To propose to the Board of Directors the appointment of the Auditor of Accounts referred to by Article 264 of the Capital Companies Act for
submission to the General Shareholders’ Meeting, as well as, where appropriate, the conditions under which the Auditor’s services are engaged,
the scope of their professional mandate and the revocation or renewal of their appointment.
5) Establishing suitable relationships with auditors or audit firms in order to receive information regarding any issues that may endanger their
independence, so that these can be examined by the committee, as well as any other matters related with the process of conducting accounts
auditing, as well as any other communications stipulated in the accounts auditing legislation and audit regulations. In any event, it shall receive
written confirmation on an annual basis from the auditors of accounts or auditing firms of their independence from the Company or from any
entities related to it either directly or indirectly, as well as information on any additional service of any kind whatsoever provided to such entities by
the aforementioned auditors of accounts or by persons related to them in accordance with the provisions set forth in Act 19/1988 of 12 July on the
Auditing of Accounts.
6) Issuing, once a year and prior to the release of the accounts auditing report, a report expressing an opinion regarding the independence of the
auditors or audit firms. This report must, in all cases, make a statement regarding the provision of any services additional to those mentioned in the
previous section.
7) To safeguard the independence and efficiency of the internal auditing area; to propose the recruitment, appointment, reappointment and removal
of the person in charge of internal auditing; to propose said service’s budget; to receive periodic information about its activities; and to verify that
senior management is aware of the conclusions and recommendations made in internal audit reports.
8) To set and oversee a mechanism that allows employees to report in confidence and, if appropriate, anonymously, any irregularities that could be
potentially important, especially any financial and accounting irregularities they may notice within the company.
114 ANNUAL REPORT OF THE AUDIT COMMITTE