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## Risk management and internal controls 

The Board has delegated responsibility for monitoring the effectiveness of the Group’s risk management and internal control systems to the Audit Committee . Further details in relation to the Committee’s work in this area are set out in the section on Risk Management and Internal Controls  on pages 50 and 51. 

## External auditors: appointment, tenure and independence 

Under its terms of reference, the Audit Committee  makes recommendations to the Board in relation to the appointment of the external auditors. The factors taken into account by the Audit Committee in assessing whether to recommend the auditors for re-appointment are: 

– the quality of reports provided to the Audit Committee and the Board; 

– the quality of advice given by the auditors; 

– the level of understanding demonstrated of the Group’s business and industry; 

– the objectivity of the auditors’ views on the financial controls around the Group and their ability to co-ordinate a global audit; 

– the results of formal evaluations of the auditors. 

Section 160(2) of the Companies Act, 1963 provides that the auditor of an Irish company shall be automatically re-appointed at a company’s annual general meeting unless the auditor has given notice in writing of his unwillingness to be re-appointed or a resolution has been passed at that meeting appointing someone else or providing expressly that the incumbent auditor shall not be re-appointed. In this respect, Irish company law differs from the requirements that apply in other jurisdictions, for example in the UK, where auditors must be re-appointed annually by shareholders at the annual general meeting. Therefore, the Directors have not proposed a resolution to re-appoint Ernst & Young, Chartered Accountants, who are willing to continue in office, as such a resolution can have no effect under Irish company law. 

A resolution authorising the Directors to fix the remuneration of the auditors will be submitted to the Annual General Meeting. 

Ernst & Young have been the Group’s auditors since 1988. Following an evaluation carried out in 2009, the Committee recommended to the Board that Ernst & Young be retained as the Group’s external auditors. The Committee monitors the implementation of the recommendations made as part of the evaluation process. There are no contractual obligations which act to restrict the Audit Committee’s choice of external auditor. The Committee has considered the risk of withdrawal by Ernst & 

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Young from the market and the potential impact on the Group, were that eventuality to materialise. 

The Audit Committee has put in place safeguards to ensure that the independence of the audit is not compromised. Such safeguards include: 

– seeking confirmation from the external auditors that they are, in their professional judgement, independent from the Group; 

– obtaining from the external auditors an account of all relationships between the auditors and the Group; 

– monitoring the Group’s policy prohibiting the employment of former staff of the external auditors, who were part of the CRH audit team, in senior management positions until two years have elapsed since the completion of the audit; 

– monitoring the number of former employees of the external auditors currently employed in senior positions in the Group and assessing whether those appointments impair, or appear to impair, the auditors’ judgement or independence; 

– considering whether, taken as a whole, the various relationships between the Group and the external auditors impair, or appear to impair, the auditors’ judgement or independence; 

– reviewing the economic importance of the Group to the external auditors and assessing whether that importance impairs, or appears to impair, the external auditors’ judgement or independence. 

The Group external audit engagement partner is replaced every five years and other senior audit staff are rotated every seven years. 

The Group has a policy governing the conduct of non-audit work by the auditors. The policy, which was updated in 2012, is available on the CRH website. Under the policy, the external auditors are prohibited from performing services where they: 

– may be required to audit their own work; 

– participate in activities that would normally be undertaken by management; 

– are remunerated through a “success fee” structure; 

– act in an advocacy role for the Group. 

Other than the above, the Group does not impose an automatic ban on the external auditors undertaking non-audit work. The external auditors are permitted to provide non-audit services that are not, or are not perceived to be, in conflict with auditor independence, provided they have the skill, competence and integrity to carry out the work and are considered by the Committee to be the most appropriate to undertake such work in the best interests of the Group. 

The engagement of the external auditors to provide any non-audit services must be pre- approved by the Audit Committee or entered into pursuant to pre-approval policies and procedures established by the Committee. The pre-approval policy specifies the services that are prohibited and the services which have general pre-approval. 

The Committee has delegated to the Finance Director responsibility for confirming whether a service which has general pre-approval can be provided by Ernst & Young. In addition, Internal Audit reviews the pre-approval process to ensure that it is robust in addressing the requirements of the PCAOB and does not impinge on Ernst & Young’s independence. The Finance Director reports regularly to the Committee on services which have been approved. 

In 2012, the external auditors provided a number of audit-related, including Sarbanes-Oxley Section 404 attestation, and non-audit services, including due diligence services associated with proposed acquisitions and disposals. They were also engaged during 2012 in a number of jurisdictions in which the Group operates to provide help with local tax compliance, advice on taxation laws and other related matters; assignments which typically involve relatively small fees. The Audit Committee is satisfied that the external auditors’ knowledge of the Group was an important factor in choosing them to provide these services. The Committee is also satisfied that the fees paid to Ernst & Young for non-audit work, which amounted to 19% of the total fee in 2012, did not compromise their independence or integrity. Details of the amounts paid to the external auditors during the year for audit and other services are set out in note 4 to the financial statements on page 86. 

