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The Audit and Compliance Committee has
reviewed the Group’s financial reporting process on behalf of the
Board of Directors. Management is responsible for creating the financial
statements and managing the reporting process, including the system
of internal controls by which those statements are created.
For each quarterly and annual financial
release, management’s Disclosure Committee reviews the release for
accuracy and completeness of the release’s disclosures. The decisions
taken by the Disclosure Committee are reviewed with the Audit and
Compliance Committee before publication of the financial release.
The internal audit function, which reports
to the Chairman and works closely with the Audit and Compliance Committee,
reviews the effectiveness, efficiency and appropriateness of the internal
control systems, particularly regarding the protection of assets,
the completeness and accuracy of operational and financial information
(with emphasis on internal reporting) and the adherence to Novartis
Group guidelines.
The independent auditors, PricewaterhouseCoopers
AG (PwC), are responsible for expressing an opinion on the conformity
of the audited financial statements with international financial reporting
standards and compliance with Swiss law. The Audit and Compliance
Committee is responsible for overseeing the conduct of these activities
by the Group’s management and the independent auditors. On behalf
of the Board of Directors, the Audit and Compliance Committee nominates
the independent auditor for election at the Shareholders’ Meeting.
During 2003, the Audit and Compliance Committee
held eight meetings. PwC attended all meetings of the Audit and Compliance
Committee and all matters of importance were discussed. PwC also attended
one meeting of the Board of Directors of the Group. PwC also provided
to the Audit and Compliance Committee the written disclosures required
by US Independence Standards Board Standard No. 1 (Communications
with Audit Committees), and the Committee and the independent auditors
have discussed the auditors’ independence from the Group and its management,
including the matters in those written disclosures.
Based upon the reviews and discussions with
management and the independent auditors referred to above, the Audit
and Compliance Committee recommended to the Board of Directors, and
the Board approved, inclusion of the audited financial statements
in the Group’s Annual Report for the year ended December 31, 2003.
Duration of the Mandate and Terms of Office
of the Independent Auditors
PwC assumed the existing auditing mandate
for Novartis in 1996. The head auditors responsible for the mandate,
Mr. James Kaiser and Mr. Daniel Suter, began serving in their roles
in 2002 and 2003, respectively.
Policy on Pre-Approval of Audit and Non-Audit
Services of Independent Auditors
The Audit and Compliance Committee’s policy
is to pre-approve all audit and non-audit services provided by PwC.
These services may include audit services, audit-related services,
tax services and other services, as described below.
Pre-approval is detailed as to the particular
service or categories of services, and is subject to a specific budget. |
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Additional services may be pre-approved on
an individual basis. PwC and management report to the Audit and
Compliance Committee regarding the extent of services provided in
accordance with this pre-approval and the fees for the services
performed to date on a quarterly basis. The Audit and Compliance
Committee may also pre-approve services on a case-by-case basis.
Independent Auditor Fees
The following fees were charged for professional
services rendered by PwC for the 12-month period ended December
31:
1
Increase principally due to acquisition related due diligence services.
2 These cover management and human resource consulting
services which were transferred to IBM and Mellon Financial Services
respectively during 2002. The amount shown comprises fees charged
by PwC until the date of the transfer.
Audit Services are defined as the
standard audit work that needs to be performed each year in order
to issue an opinion on the consolidated financial statements of
the Group and to issue reports on the local statutory financial
statements. It also includes services that can only be provided
by the Group auditor such as auditing of non-recurring transactions
and application of new accounting policies, audits of significant
and newly implemented system controls, pre-issuance reviews of quarterly
financial results, consents and comfort letters and any other audit
services required for US Securities and Exchange Commission or other
regulatory filings.
Audit Related Services include those
other assurance services provided by auditors but not restricted
to those that can only be provided by the auditor signing the audit
report. They comprise amounts for services such as acquisition due
diligence, audits of pension and benefit plans, contractual audits
of third party arrangements, assurance services on corporate citizenship
reporting, and consultation regarding new accounting pronouncements.
Tax Services represent tax compliance
and other services and expatriate and executive tax return services.
Other Services consist of actuarial
services for pension and employee benefit plans. As required by the
Sarbanes-Oxley Act, PwC can no longer provide certain of these services
after May 2004. The total of audit related, tax and other services
was USD 11 300 000 for 2003 and USD 33 114 000 for 2002.
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