The terms of reference of the Audit Committee were reviewed during 2005. No revisions to the terms of reference were considered to be necessary. The terms of reference are available on request from the Group Company Secretary, who also acts as secretary to the Committee, and are included on the website at www.laing.com.

REVIEW OF 2005
During 2005, the Audit Committee monitored the continued implementation of risk management procedures. This project commenced in the second half of 2002 and was completed, with the revised processes being fully operational, by 30 June 2003. There is an ongoing process of refinement and improvement of these procedures. The Committee has focussed on the level of compliance with these processes both within Group companies and in joint ventures throughout 2005. Compliance has been monitored, on a sample basis, through the internal audit function. The Committee also reviewed the level of compliance with the Revised Guidance for Directors on the Combined Code relating to internal control.

The Committee reviewed and approved the external audit approach and the audit plan proposals put forward by the external auditor, with a view to ensuring not only its effectiveness but also that it reflected the nature and scale of the activities of the Group.

The Committee has reviewed the procedures adopted in order to ensure that the independence of the external auditor is not compromised. The Committee has given specific approval to proposals for the provision of non-audit services by the external auditor where the fee was expected to be above a pre-determined threshold of £20,000. The Committee has reviewed total fees payable to the external auditor for non-audit services at each of its meetings. The Committee is satisfied that the non-audit work carried out by Deloitte & Touche LLP has not compromised their independence. The external auditor has also confirmed to the Audit Committee that it is satisfied that it has maintained independence since appointment.

During 2005 the Committee considered the effectiveness of the internal audit function and specifically reviewed the advantages of continuing with use of an outsourced internal auditor. Following this review, the Committee recommended to the Board that Ernst & Young LLP should continue to provide independent outsourced internal audit services. The Committee reviewed, and recommended to the Board, the internal audit programme proposals of Ernst & Young LLP, which aimed to cover all key internal control processes on a three year rolling basis.

Early in 2006, the Committee reviewed the resourcing of internal audit for the future and recommended to the Board that the Group should establish an internally resourced internal audit function. This will be established during 2006.

The Committee has received reports on internal controls from the internal and external auditors and has reviewed management’s responses to recommendations. The Committee has a process for reviewing the progress on implementing agreed management actions.

During 2004 the Group established a process for monitoring compliance with critical internal control processes (‘walk through tests’). This process was continued and the scope extended in 2005. In this connection, the Committee has reviewed a report from Ernst & Young LLP on compliance with the Group’s documented internal control procedures associated with work winning, financial reporting and treasury operations.

The Committee has reviewed the process for prevention and reporting of potential or actual fraud. The Committee has reviewed the fraud policy which is implemented throughout the organisation and which includes a “whistleblowers” charter.

The Committee receives and considers written reports from the Group Finance Director and the external auditor to coincide with the review of draft interim and draft full year results, prior to their approval by the Board. The Committee reviews the significant judgements exercised by management, the appropriateness of accounting policies adopted by the Group and unadjusted audit differences. Following these reviews, the Committee reports the significant issues to the Board prior to the Board’s approval of the half year and full year accounts.

The Committee met with the independent actuary to the John Laing pension schemes and discussed the range of assumptions that might be considered appropriate for the purposes of the actuarial assessment of pension fund liabilities as at 31 December 2005. As a result, the Committee recommended to the Board the assumptions that have been adopted.

During 2005, the Committee has paid particular attention to the Group’s preparations for the implementation of IFRS, which have been adopted in full for the year ended 31 December 2005. The Committee has considered the choice of suitable accounting policies in accordance with IFRS and has brought the significant differences between application of IFRS and UK GAAP to the attention of the Board. The Committee reviewed a separate publication to shareholders that set out a reconciliation of the 2004 financial statements under existing UK GAAP and under IFRS. This publication, “John Laing – Implementation of International Accounting and Financial Reporting Standards”, formed the basis of a process of preparation for analysts and was issued to all shareholders. It is also available on the website at www.laing.com.

T G Boatman
Chairman, Audit Committee
13 March 2006