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Main page Corporate governance Internal control and audit
Internal control and audit

Rosneft Oil Company has a system of internal control over its financial and operating activities, consisting of: Audit Commission, Board Audit Committee, independent auditor, executive bodies, Company management, and Internal Audit.

The existing scheme of subordination and interaction among the elements of control system ensures the level of independence required for its efficient operation and conforms to international standards and best practices in the field of internal audit.

In accordance with Rosneft’s Charter, the Audit Commission is entrusted with the control over the Company’s financial and economic activities.

The Audit Commission is an integral part of Rosneft’s financial and economic control system, along with the Board’s Audit Committee, the independent auditor, the executive bodies, the Company management, and the Internal Audit. The Commission’s primary function is to control the execution of the Company’s financial and economic plan approved by the Board of Directors.

The Audit Commission is composed of 5 members elected by the Company’s Annual General Shareholders’ Meeting for a term until the close of the next Annual General Shareholders’ Meeting.

On June 15, 2016, Rosneft’s Annual General Shareholders’ Meeting resolved that the following nominees be elected to the Company’s Audit Commission consisting of 5 persons:

  1. Alexei A. Afonyashin
  2. Oleg S. Zenkov
  3. Sergey I. Poma
  4. Victor V. Mamin
  5. Zakhar B. Sabantsev

Detailed information on the members of Rosneft’s Audit Commission is available here.

The Audit Commission’s activities are governed by the following documents:

Rosneft’s Charter

Regulation on Rosneft’s Audit Commission

Rosneft’s Corporate Governance Code

Detailed information on activities of the Audit Commission and other bodies of the audit and control system of Rosneft can be found in the Annual Report.

Structure of the Audit Committee:

  • Donald Humphreys (Chairman of the Committee)
  • Matthias Warnig
  • Oleg V. Viyugin

Committee objectives and functions

Main objective of the Committee is to provide assistance to the Board of Directors in ensuring protection of the shareholders' interests by way of monitoring completeness and accuracy of financial and other reporting of the Company, reliability and efficiency of the internal controls and risk management, compliance, internal audit and corporate governance system.

Key functions of the Committee are:

-      control completeness, accuracy and reliability of the accounting (financial statements) reporting of the Company;

-      ensure independence and objectivity of the external and internal audit as well as ensure effective interaction of the external auditor with the Company;

-      control operating effectiveness and reliability of the internal controls and risk management system;

-      monitor Company' corporate governance system, evaluate corporate governance practice and develop recommendations on improving corporate governance system;

-      regular interaction with Audit Commission;

-      control performance of the Fraud Early Warning System that informs about potential fraud of Rosneft employees (incl. wrongful use of insider information) and third parties and other noncompliance issues of the Company activities;

-     ensure regular interaction of the Board of Directors with the executive bodies, structural units (hereinafter also the JV) finance and economic function, JV's, employees responsible for the matters of internal audit, internal control and Audit commission.

The Committee's activity in the reporting corporate period.

The Committee’s functions and mechanisms of interaction with other corporate bodies are governed by the Regulation on the Audit Committee of Rosneft’s Board of Directors.

The units directly reporting to the Vice President - Head of Internal Audit Service are the Operational Audit Department, the Corporate Audit Department, the Regional Audit Department, Internal Audit Methodology and Organization Division, Economic and Organizational Analysis Division (hereinafter, the Structural units of Internal Audit Service).

The key objectives of the Structural units of Internal Audit Service are:

  • assistance to executive bodies and employees of the Company in the development of, and monitoring of implementing procedures and measures for improvement of the risk management and internal control system and corporate governance of the Company by assessing reliability and effectiveness of the risk management, internal control system and corporate governance system, as well as in providing:
    • reliability and integrity of provided information about financial and business operations of the Company, including Group Companies;
    • efficiency and effectiveness of operations conducted by the Company, including Group Companies;
    • identification of internal reserves to improve the efficiency of financial and business operations of the Company, including Group Companies;
    • preservation of assets of the Company, including Group Companies;
  • coordinate activities with the External Auditor, the Revision Committee of Rosneft, Revision Committees of Group Companies, counterparties providing consulting services in the area of Company risk management, internal control and corporate governance;
  • conduct audits of Rosneft and of controlled Group Companies;
  • independent audit of effectiveness of the Quality Management System (inter alia, in the area of capital construction, including assessment of compliance with ISO requirements);
  • verify compliance of the members of executive bodies of the Company and its employees with the provisions of the existing legislation and internal documents of the Company related to insider information and combatting corruption, observance of requirements stipulated by the Code of Ethics of Rosneft;
  • prepare and submit to the Board of Directors of Rosneft and executive bodies of the Company internal audit reports (including, among other things, information about significant risks, violations / deficiencies, results and effectiveness of implementation of proposals formulated by internal audit based on the findings of inspections in terms of elimination of identified violations/deficiencies, results of implementation of the internal audit plan, results of evaluation of the actual condition, reliability and effectiveness of RM&ICS and corporate governance);
  • improve the quality of conducted audits and timely response to changes, connected with development of Rosneft business.

The key functions of the Structural units of Internal Audit Service are:

  • assess reliability and effectiveness of the risk management and internal control system, its appropriateness to scope and complexity of the Company  business;
  • evaluate corporate governance;
  • conduct inspections on the basis of the internal audit plan of Rosneft approved by the responsible governing body of the Company and endorsed by the Audit Committee of the Board of Directors;
  • conduct other inspections, perform other tasks as directed/instructed by the Board of Directors of Rosneft (Audit Committee of the Board of Directors) and/or executive bodies of Rosneft within the relevant scope of competence, inter alia, based on information received by operators of the "hot line" established by the Company;
  • conduct integrated inspections (revisions) of operations of inspection targets in the form of documentary of physical verification of legality of completed financial and business transactions, reliability and correctness of their reflection in accounting (financial) reports, exercise follow-up control of financial and business operations of inspection targets;
  • Provide consultations to executive bodies of the Company on risk management, internal control and corporate governance matters (subject to preservation of independence of internal audit);
  • Monitor implementation of proposals advanced by the auditors with a view to improve the Internal Control, Risk Management and Corporate Governance System, eliminate violations and deficiencies identified in the course of inspections;
  • Develop and update local normative documents governing internal audit operations (internal audit methodology) in accordance with the standards and practices of the Institute of Internal Auditors;

Internal Audit Service subordination and reporting lines

The Vice President - Head of Internal Audit Service shall be appointed and dismissed by the Chief Executive Officer of Rosneft on the basis of a decision by the Board of Directors of Rosneft. The Vice President - Head of the Internal Audit Service of Rosneft shall be administratively subordinated directly to the Chief Executive Officer of Rosneft and functionally to the Board of Directors of Rosneft.

Interaction of Internal Audit Service with the executive bodies and the Board of Directors of Rosneft

The goal of Internal Audit (Vice President - Head of the Internal Audit Service of Rosneft, structural units of Internal Audit Service of Rosneft) is assistance to the Board of Directors of Rosneft and executive bodies of the Company in improving effectiveness of management system in the Company, improving its financial and business operations through application of a systematical and consistent approach to analysis and evaluation of the rRisk Management and Internal Control System and corporate governance as tools used to obtain reasonable assurances of attainment of the objectives of the Company.

Jointly with the structural unit leaders decisions are prepared to eliminate identified violations and deficiencies, and risk prevention actions are developed.

The Board of Directors reviews the Internal Audit Service reports. The existing scheme of the Vice President – Head of Internal Audit Service subordination to the Board of Directors and executive bodies of the Company ensures sufficient independence for fulfilling the internal audit functions and conforms to international standards and best practices in the field of internal audit.

The key documents regulating the Internal Audit activities are:

Ernst & Young LLC is selected as auditor of Rosneft (legal entity) for the period of 2016-2018.

Pursuant to Subitem 10, Item 1, Article 48 of the Federal Law On Joint Stock Companies, and Subitem 9.2.2 (3), Item 9.2, Article 9 of the Charter of Rosneft, the auditor of the Company shall be approved at the Annual General Meeting of Shareholders. The Annual General Meeting of Shareholders of Rosneft held on 15 June 2016 approved Ernst & Young LLC as the Company auditor.

Ernst & Young was proposed as auditor of Rosneft for the period of 2016-2018 on the basis of a purchase procedure “Rendering of services for the audit of the Russian statutory accounting (financial) statements and the IFRS consolidated financial statements of Rosneft and its major subsidiaries for 2016-2018”, held in late 2015 in accordance with the legislation and the local normative documents of the Company.

Ernst & Young LLC, established under the laws of the Russian Federation, is an independent member of the global Ernst & Young network providing audit as well as tax and business consulting services. Ernst & Young is one of the Big Four audit firms.

Rosneft and Ernst & Young LLC have been successfully cooperating since 2004. Currently, the auditor of the Company renders the following services:

  • statutory audit of accounting (financial)      statements of Rosneft (legal entity) prepared under Russian Accounting      Standards (RAS);
  • statutory audit of consolidated financial      statements of Rosneft (Group reporting) prepared under International      Financial Reporting Standards (IFRS);
  • quarterly reviews of interim consolidated      financial statements of Rosneft.

Ernst & Young LLC also audits a number of Rosneft's major Russian and international subsidiaries.