Pearson

Introduction

The Pearson board believes that good corporate governance supports good performance and the long-term development of strategy. It believes that robust, open board debate over major business issues brings a discipline to important decisions and adds a valuable and diverse set of external perspectives. The board believes that during 2010 the company was in full compliance with section 1 of the Combined Code 2008 (the Code) with the exception of its ratio of independent non-executive directors to executive directors. Following the resignation of Terry Burns and the untimely death of CK Prahalad in April last year, there was an imbalance of executive and non-executive directors on the board for a short period of time. However, effective 1 March 2011, Joshua Lewis was appointed to the board as an independent non-executive director and upon appointment joined the nomination committee and audit committee. The board embraces the Code’s underlying principles with regard to board balance and the nomination committee, led by the chairman, is actively seeking an additional suitable candidate who possesses the right mix of knowledge, skills and experience to enhance debate and decision-making. A detailed account of the provisions of the Code can be found on the company website at www.pearson.com/investors/shareholder-information/governance

Composition of the board

The board currently consists of the chairman, Glen Moreno, five executive directors including the chief executive, Marjorie Scardino, and five independent non-executive directors.

Chairman

As stated in his biography, the chairman was appointed as deputy chairman of the Financial Reporting Council Limited on 18 November 2010. Both the chairman and the board are confident that he can fulfil this new role without reducing his time commitment to Pearson.

Senior independent director

Patrick Cescau was appointed senior independent director last year following the retirement of Terry Burns. The board believes that Patrick’s extensive knowledge of Pearson together with his broad commercial experience, make him highly suitable for this appointment. Although he is approaching nine years of service, the board continues to consider him to be independent.

His role includes being available to shareholders if they should have concerns that have not been addressed through the normal channels, and attending meetings with shareholders in order to gain a balanced understanding of any concerns that they might have. The senior independent director also meets with the non-executive directors at least once a year in order to appraise the performance of the chairman, and would be expected to chair the nomination committee in the event that it was considering succession to the role of chairman of the board.

Independence of directors

The board reviews the independence of each of the non-executive directors annually. This includes reviewing their external appointments and any potential conflicts of interest as well as assessing their individual circumstances.

All of the non-executive directors were considered by the board to be independent for the purposes of the Code during the year ended 31 December 2010.

Conflicts of interest

Since October 2008, directors have had a statutory duty under the Companies Act 2006 (the Act) to avoid conflicts of interest with the company. As permitted by the Act, the company adopted new Articles of Association at its AGM in 2008 to allow the directors to authorise conflicts of interest. The company has established a procedure to identify actual and potential conflicts of interest, including all directorships or other appointments to companies which are not part of the Pearson Group and which could give rise to actual or potential conflicts of interest. Such conflicts are then considered for authorisation by the board. The relevant director cannot vote on an authorisation resolution, or be counted in the quorum, in relation to the resolution relating to his/her conflict or potential conflict. The board reviews any authorisations granted on an annual basis.

The board meets six times a year, each meeting taking place over two days, and at other times as appropriate. In recent years, we have developed our board meeting agenda to ensure that board discussion and debate is centred on the key strategic issues facing the company. Over the course of 2010 the major items covered by the board included:

Business Performance: 25 and 26 February 2010, London

• 2009 Report and Accounts
• 2010 Operating plan
• Risk
• Annual review of authorised conflicts
• Disposal of Interactive Data Corporation

Governance: 29 and 30 April 2010, London

• Feedback on Annual Report
• Report on shareholders’ views
• Board effectiveness review
• Acquisition of Melorio plc
• Disposal of Interactive Data Corporation

Strategy: 10 and 11 June 2010, Upper Saddle River, New Jersey

• Strategy discussions (Communications; Corporate responsibility; People; Shared Services; Digital)
• Acquisition of Sistema Educacional Brasiliero
• Review of non-executive directors’ fees

Busines Performance: 22 and 23 July 2010, London

• Interim results
• Post-acquisition reviews
• Acquisition of Wall Street Institute
• Acquisition of America’s Choice

Strategy: 7 and 8 October 2010, Austin, Texas

• Strategic plan 2011 to 2013
• Review of Assessment and Information business
• Acquisition of CTI Education Group
• Review of audit, remuneration and nomination committee terms of reference

People and Strategic Plan: 9 and 10 December 2010, London

• Acquisition of TutorVista
• Review of standing committee terms of reference
• People and business strategies
• Risk

The following table sets out the attendance of the company’s directors at board and committee meetings during 2010:

	Board meetings (maximum 6)	Audit committee meetings (maximum 4)	Remuneration committee meetings (maximum 4)	Nomination committee meetings (maximum 3)
Chairman
Glen Moreno	6		4	3
Executive directors
Marjorie Scardino	6			3
Will Ethridge	6
Rona Fairhead*	4
Robin Freestone	6
John Makinson	5
Non-executive directors
David Arculus	6	3	4	3
Terry Burns**	2		2	1
Patrick Cescau***	6	4	2	3
Susan Fuhrman	6	4		3
Ken Hydon	5	4	3	3
CK Prahalad****	1			1

*    took a temporary leave of absence due to illness.

**   resigned 30 April 2010.

***  appointed to the remuneration committee effective 30 April 2010.

**** deceased 16 April 2010.

The board values the insight it receives from witnessing first hand how our businesses are run and meeting the operating teams who run them. It held its June board meeting in New Jersey and its October meeting in Texas, to review and discuss the business and strategy for its operating companies located there.

The formal matters reserved for the board’s decision and approval include:

• Determining the company’s strategy in consultation with management and reviewing performance against it;
• Any decision to cease to operate all or any material part of the company’s business;
• Major changes to the company’s corporate structure, management and control structure or its status as a public limited company;
• Approval of all shareholder circulars, resolutions and corresponding documentation and press releases concerning matters decided by the board;
• Acquisitions, disposals and capital projects above £15m per transaction or project;
• All guarantees over £10m;
• Treasury policies;
• Setting interim dividends, recommending final dividends to shareholders and approving financial statements;
• Borrowing powers;
• Appointment of directors;
• Appointment and removal of the company secretary;
• Ensuring adequate succession planning for the board and senior management;
• Determining the remuneration of the non-executive directors, subject to the Articles of Association and shareholder approval as appropriate;
• Approving the written division of responsibilities between the chairman and the chief executive and approval of the terms of reference of board committees; and
• Reviewing the Group’s overall corporate governance arrangements, including the performance of the board, its committees and individual directors and determining the independence of directors.

The board receives timely, regular and necessary financial, management and other information to fulfil its duties. Directors can obtain independent professional advice, at the company’s expense, in the performance of their duties as directors. All directors have access to the advice and services of the company secretary.

We endeavour to give non-executive directors access to the senior managers of the business via involvement at both formal and informal meetings. In this way we hope that the experience and expertise of the non-executive directors can be utilised for the benefit of the company. At the same time, this practice enables the non-executive directors to develop an understanding of the abilities of senior management which will help them judge the company’s prospects and plans for succession.

The board conducts an annual review of its effectiveness. For the review of 2010, the board has appointed an external adviser to conduct detailed interviews with all directors to ensure the board is effectively focused on its agreed priorities: governance; strategy; business performance and people. The outcome and recommendations of this review will be discussed at the April 2011 board meeting.

During the year, we have made progress in a number of areas which came out of the 2009 board effectiveness review. In particular, board meetings have been lengthened to take place over two days, including an informal dinner to give further opportunity for constructive debate and discussion of issues raised in the board meetings.

During the course of the year the executive directors were evaluated by the chief executive on their performance against personal objectives under the company’s standard appraisal mechanism. The chairman leads the assessment of the chief executive and the senior independent director conducts a review of the chairman’s performance.

Directors receive a significant bespoke induction programme and a range of information about Pearson when they join the board. This includes background information on Pearson and details of board procedures, directors’ responsibilities and various governance-related issues, including procedures for dealing in Pearson shares and their legal obligations as directors. The induction also includes a series of meetings with members of the board, presentations regarding the business from senior executives and a briefing on Pearson’s investor relations programme.

We supplement the existing directors’ training programme through continuing presentations at board meetings about the company’s operations, by holding board meetings at the locations of operating companies and by encouraging the directors to visit operating companies and local management as and when their schedule allows. Directors can also make use of external courses.

In accordance with section 232 of the Companies Act 2006 (the Act), the company grants an indemnity to all of its directors. The indemnity relates to costs incurred by them in defending any civil or criminal proceedings and in connection with an application for relief under sections 661(3) and (4) or sections 1157(1)-(3) of the Act, so long as it is repaid not later than when the outcome becomes final if: (i) they are convicted in the proceedings; (ii) judgement is given against them; or (iii) the court refuses to grant the relief sought.

The company has purchased and maintains directors’ and officers’ insurance cover against certain legal liabilities and costs for claims in connection with any act or omission by such directors and officers in the execution of their duties.

We have an extensive programme for the chairman, chief executive, executive directors and senior managers to meet with institutional shareholders. The chief executive and chief financial officer present trading updates five times a year and attend regular meetings throughout the year with investors both in the UK and around the world. The chairman meets with our principal investors and our advisers throughout the year and keeps the board informed of their views on strategy and corporate governance. The chairman and senior independent director also make themselves available to meet any significant shareholder as required. The non-executive directors meet informally with shareholders both before and after the AGM and respond to shareholder queries and requests as necessary.

Every year the board receives a detailed report on the views of major institutional shareholders, provided either by our corporate brokers or our independent investor relations advisers, Makinson Cowell. At every meeting, the directors also receive an analysis of the shareholder register highlighting any significant movements in ownership or the share price.

The board has established three committees: the nomination committee, the remuneration committee and the audit committee. The chairmen and members of these committees are appointed by the board on the recommendation (where appropriate) of the nomination committee and in consultation with each relevant committee chairman.

Nomination committiee
Chairman Glen Moreno
Members Glen Moreno, Marjorie Scardino, David Arculus, Patrick Cescau, Susan Fuhrman, Ken Hydon and Joshua Lewis

The nomination committee meets as and when required. The committee primarily monitors the composition and balance of the board and its committees, and identifies and recommends to the board the appointment of new directors and/or committee members.

When considering the appointment of a new director the committee reviews the current balance of skills and experience of the board.

Whilst the chairman of the board chairs this committee, he is not permitted to chair meetings when the appointment of his successor is being considered or during a discussion regarding his performance.

During 2010 the committee met to consider the appointment of additional independent non-executive directors and to review succession planning for non-executive and executive board positions, as well as board committee assignments.

The committee has written terms of reference which clearly set out its authority and duties. These can be found on the company website at www.pearson.com/investors/shareholder-information/governance

Remuneration committee
Chairman David Arculus
Members David Arculus, Patrick Cescau, Ken Hydon and Glen Moreno

The remuneration committee has responsibility for determining the remuneration and benefits packages of the executive directors, the chief executives of the principal operating companies and other members of the management committee, as well as recommending the chairman’s remuneration to the board for its decision.

The committee takes independent advice from consultants when required. No director takes part in any discussion or decision concerning their own remuneration. The committee reports to the full board and its report on directors’ remuneration, which has been considered and adopted by the board, is set out here.

The committee met four times during the year, and has written terms of reference which clearly set out its authority and duties. These can be found on the company website at www.pearson.com/investors/shareholder-information/governance

During the year, Terry Burns retired from the board and was replaced on the remuneration committee by Patrick Cescau.

Audit committee
Chairman Ken Hydon
Members Ken Hydon, David Arculus, Patrick Cescau, Susan Fuhrman and Joshua Lewis

Members

All of the audit committee members are independent non-executive directors and have financial and/or related business experience due to the senior positions they hold or held in other listed or publicly traded companies and/or similar public organisations. Ken Hydon, chairman of the committee, is the company’s designated financial expert. He is a fellow of the Chartered Institute of Management Accountants, the Association of Chartered Certified Accountants and the Association of Corporate Treasurers. He also serves as audit committee chairman for Tesco plc, Reckitt Benckiser Group plc and Royal Berkshire NHS Foundation Trust.

The qualifications and experience of the other committee members are detailed here.

Role and responsibilities

The committee has written terms of reference which clearly set out its authority and duties. These are reviewed annually and can be found on the company website at www.pearson.com/investors/shareholder-information/governance

The committee has been established by the board primarily for the purpose of overseeing the accounting, financial reporting, internal control and risk management processes of the company and the audit of the financial statements of the company.

The committee is responsible for assisting the board’s oversight of the quality and integrity of the company’s external financial reporting and statements and the company’s accounting policies and practices. The Group’s internal and external auditors have direct access to the committee to raise any matter of concern and to report on the results of work directed by the committee. The committee reports to the full board on a regular basis but no less frequently than at every board meeting immediately following a committee meeting. It also reviews the independence of the external auditors, including the provision of non-audit services (further details of which can be found here), and ensures that there is an appropriate audit relationship.

External audit

Based on management’s recommendations, the committee reviews the proposal to reappoint the external auditors. The committee reviewed the effectiveness and independence of the external auditors during 2010 and remains satisfied that the auditors provide effective independent challenge to management. The committee will continue to review the performance of the external auditors on an annual basis and will consider their independence and objectivity, taking account of all appropriate guidelines. There are no contractual obligations restricting the committee’s choice of external auditors. In any event, the external auditors are required to rotate the audit partner responsible for the Group audit every five years. The current lead audit partner has been in place for three years.

During the year, the committee discussed the planning, conduct and conclusions of the external audit as it proceeded.

At the July 2010 audit committee meeting, the committee discussed and approved the auditors’ group audit plan, in which they identified the following key risks of misstatement of the Group’s financial statements:

• Revenue recognition, specifically in relation to long-term contract accounting and increasingly to digital revenue streams where management assumptions and estimates are necessary;
• Accounting for acquisitions and disposals in light of material transactions in 2010, in particular, valuation of acquired intangibles which involves significant judgement;
• Key balance sheet judgements, since small changes in provisioning judgements or methodology can have notable impacts on the Group’s balance sheet and income statement; and
• Assessment of goodwill and intangible assets for impairment in the context of current market conditions, recognising that management judgement is required.

The committee also discussed with the auditors the risks of fraud in the Group and the programme of work they planned to undertake to address the risks they had identified to ensure that they did not lead to a material misstatement of the financial statements. This work included the evaluation and testing of the Group’s own internal controls. The auditors explained where they planned to obtain direct external evidence.

The committee discussed these issues with the auditors at the time of their review of the half year interim financial statements in July 2010 and again at the conclusion of their audit of the financial statements for the year in February 2011. In December 2010, the committee discussed with the auditors the status of their work, focusing on their work in relation to internal controls. As the auditors concluded their audit, they explained to the committee:

• The work they had conducted over revenue, which included targeted procedures at businesses which were considered to have more complex revenue recognition, such as the assessment and testing businesses;
• The results of their review of acquisition accounting for all significant acquisitions, encompassing assessment of management’s valuations of intangible assets as well as other purchase price adjustments;
• The work they had done to test management’s assumptions and estimates in relation to balance sheet judgements (encompassing provisions for bad and doubtful debts and inventory, recoverability of pre-publication assets and authors’ advances, estimates of tax and pension liabilities) and how they had satisfied themselves that these were reasonable;
• The results of their review of the impairment model, including a consideration of key assumptions such as discount rates and perpetuity rates and sensitivities, which indicated that all cash-generating units had ample headroom; and
• The outputs of their controls testing for Sarbanes-Oxley, section 404 reporting purposes and in support of their financial statements audit.

The auditors also reported to the committee the misstatements that they had found in the course of their work and the committee confirmed that there were no such material items remaining unadjusted in these financial statements.

Training

The committee receives regular technical updates as well as specific or personal training as required. In addition to the committee’s regular technical updates, a training session was held in June 2010 at which PwC updated the committee on a number of relevant accounting matters and provided a briefing on the UK Bribery Act and changes to UK corporate governance practice.

Meetings

The committee met four times during the year with the chief financial officer, head of group internal audit, members of the senior management team and the external auditors in attendance. The committee also met regularly in private with the external auditors and the head of group internal audit. The committee members attended site visits to our businesses in New Jersey and Texas during the year and met with senior financial management based there in order to better understand how Group policies are embedded in operations.

At every meeting, the committee considered reports on the activities of the internal audit function, including the results of internal audits, risk reviews, project assurance reviews, and fraud and whistleblowing reports. The committee also monitored the company’s financial reporting, internal controls and risk management procedures and considered any significant legal claims and regulatory issues in the context of their impact on financial reporting.

Specifically, the committee considered the following matters during the course of the year:

• The annual report and accounts: preliminary announcement and trading update;
• The Group accounting policies;
• Compliance with the Combined Code;
• The Form 20-F and related disclosures including the annual Sarbanes-Oxley Act 404 attestation of financial reporting internal controls;
• Receipt of an external auditors’ report on the Form 20-F and on the year end audit;
• Assessment of the effectiveness of the company’s internal control environment;
• Reappointment, remuneration and engagement letter of the external auditors;
• Triennial review of external auditors benchmarking;
• Review of the interim management statements;
• Review of the effectiveness of the audit committee and a review of both the internal and external auditors;
• Annual approval of the internal audit mandate;
• Compliance with SEC & NYSE requirements including Sarbanes-Oxley;
• Review of interim financial statements and announcement;
• Approval of external audit policy;
• Review of the committee’s terms of reference;
• Annual internal audit plan including resourcing of the internal audit function;
• Review of company risk returns including Social, Ethical and Environmental risks; and
• Annual review of treasury policy.

The board of directors has overall responsibility for Pearson’s system of internal control, which is designed to manage, rather than eliminate, the risks facing the Group, safeguard assets and provide reasonable, but not absolute, assurance against material financial misstatement or loss.

In accordance with the provisions of the Code, the directors confirm that they have reviewed the effectiveness of the Group’s internal control and risk management systems.

They also confirm that there is an ongoing process allowing for the identification, evaluation and management of significant business risks. This ongoing process accords with the revised Turnbull Guidance ‘Internal control: Revised Guidance for Directors on the Combined Code’, and was in place throughout 2010 and up to the date of approval of this annual report.

The Group’s internal control framework covers financial, operational and compliance risks. Its main features are described below:

Board

The board of directors exercises its control through an organisational structure with clearly defined levels of responsibility and authority and appropriate reporting procedures. To maintain effective control over strategic, financial, operational and compliance matters the board meets regularly, and has a formal schedule of matters that is brought to it, or its duly authorised committees, for attention. Responsibility for monitoring financial management and reporting, internal control and risk management systems has been delegated to the audit committee by the board. At each meeting, the audit committee considers reports from management, internal audit and the external auditors, with the aim of reviewing the effectiveness of the internal financial and operating control environment of the Group.

Operating company controls

The identification and mitigation of major business risks is the responsibility of Group senior management and operating company management. Each operating company, including the corporate centre, maintains internal controls and procedures appropriate to its structure and business environment, whilst complying with Group policies, standards and guidelines. These controls include those over external financial reporting which are documented and tested in accordance with the requirements of section 404 of the Sarbanes-Oxley Act, which is relevant to our US listing.

Financial reporting

There is a comprehensive strategic planning, budgeting and forecasting system with an annual operating plan approved by the board of directors. Monthly financial information, including trading results, balance sheets, cash flow statements and indebtedness, is reported against the corresponding figures for the plan and prior years, with corrective action outlined by the appropriate senior executive. Group senior management meet, on a quarterly basis, with operating company management to review their business and financial performance against plan and forecast. Major business risks relevant to each operating company as well as performance against the stated financial and strategic objectives are reviewed in these meetings.

In particular, with regard to preparing consolidated accounts, the group financial reporting team operates a rigorous process. This includes up-to-date Group financial policies, formal requirements for business unit finance functions, Group consolidation reviews and analysis of material variances, group finance technical reviews, including the use of technical specialists, and review and sign-off by senior finance managers. These controls are monitored and assessed during the year by the group internal audit and group compliance functions.

In addition, the chief executive prepares a report for the board, 11 times a year, on key developments, performance and issues in the business.

Risk management

Operating companies undertake formal, semi-annual risk reviews to identify new or potentially under-managed risks. Throughout the year, risk sessions facilitated by the head of group internal audit are held with operating company management to identify the key risks the company faces in achieving its objectives, to assess the probability and impact of those risks and to document the actions being taken to manage those risks. The Pearson management committee reviews the output of these sessions, focusing on the significant risks facing the business. Management has the responsibility to consider and execute appropriate action to mitigate these risks whenever possible. The results of these reviews are summarised twice a year by group internal audit for evaluation and onward reporting to the board, in summary, and in more detail via the audit committee.

Group internal audit

The group internal audit function is responsible for providing independent assurance to management on the design and effectiveness of internal controls to mitigate financial and operational risks. The annual internal audit plan, derived from a risk-based approach, is approved by the audit committee. Recommendations to improve internal controls and to mitigate risks, or both, are agreed with operating company management after each audit. Formal follow-up procedures allow Group internal audit to monitor operating companies’ progress in implementing its recommendations and to resolve any control deficiencies. The group internal audit function also has a remit to monitor significant Group projects, in conjunction with the central project management office and to provide assurance that appropriate project governance and risk management strategies are in place. Regular reports on the work of group internal audit are provided to executive management and, via the audit committee, to the board.

The head of group internal audit is jointly responsible with the group legal counsel for monitoring compliance with our Code of Conduct, and investigating any reported incidents including fraud allegations.

Treasury management

The treasury department operates within policies approved by the board and its procedures are reviewed regularly by the audit committee. Major transactions are authorised outside the department at the requisite level, and there is an appropriate segregation of duties. Frequent reports are made to the chief financial officer and regular reports are prepared for the audit committee and the board.

Insurance

Insurance is provided through Pearson’s insurance subsidiary or externally, depending on the scale of the risk and the availability of cover in the external market, with the objective of achieving the most cost-effective balance between insured and uninsured risks.

Having reviewed the Group’s liquid resources and borrowing facilities and the Group’s 2011 and 2012 cash flow forecasts, the directors believe that the Group has adequate resources to continue as a going concern. For this reason, the financial statements have, as usual, been prepared on that basis. Information regarding the Group’s borrowing liabilities and financial risk management can be found in notes 18 and 19.

Pearson has an extensive programme of communication with all of its shareholders – large and small, institutional and private.

We also make a particular effort to communicate regularly with our employees, a large majority of whom are shareholders in the company. We post all company announcements on our website, www.pearson.com, as soon as they are released, and major shareholder presentations are made accessible via webcast or conference call. Our website contains a dedicated investor relations section with an extensive archive of past announcements and presentations, historical financial performance, share price data and a calendar of events. It also includes information about all of our businesses, links to their websites and details of our corporate responsibility policies and activities.

We have an established programme of educational seminars for our institutional shareholders focusing on individual parts of Pearson. These seminars are available to all shareholders via webcast on www.pearson.com

Our AGM – which will be held on 28 April this year – is an opportunity to meet the company’s managers, hear presentations about Pearson’s businesses and the previous year’s results as well as to conduct general AGM business.

Details of share issues are given in note 27 to the accounts. The company has a single class of shares which is divided into ordinary shares of 25p each. The ordinary shares are in registered form. As at 31 December 2010, 812,677,377 ordinary shares were in issue. At the AGM held on 30 April 2010, the company was authorised, subject to certain conditions, to acquire up to 80 million of its ordinary shares by market purchase. Shareholders will be asked to renew this authority at the AGM on 28 April 2011.

Information provided to the company pursuant to the Financial Services Authority’s Disclosure and Transparency Rules is published on a Regulatory Information Service and on the company’s website. As at 25 February 2011, the company had been notified under DTR5 of the following significant voting rights in its shares.

	Number of shares	Percentage
Legal & General Group plc	32,300,784	3.98%
Libyan Investment Authority	24,431,000	3.01%

The notice convening the AGM to be held at 3 pm on Thursday, 28 April 2011 at The Institution of Engineering and Technology, 2 Savoy Place, London WC2R 0BL is contained in a circular to shareholders to be dated 24 March 2011.

In accordance with section 489 of the Companies Act 2006 a resolution proposing the reappointment of PricewaterhouseCoopers LLP (PwC) as auditors to the company will be proposed at the AGM, at a level of remuneration to be agreed by the directors.

In line with best practice, our relationship with PwC is governed by our external auditors policy, which is reviewed and approved annually by the audit committee. The policy establishes procedures to ensure the auditors’ independence is not compromised as well as defining those non-audit services that PwC may or may not provide to Pearson. These allowable services are in accordance with relevant UK and US legislation.

The audit committee approves all audit and non-audit services provided by PwC. Certain categories of allowable non-audit services have been pre-approved by the audit committee subject to the authorities below:

• Pre-approved non-audit services can be authorised by the chief financial officer up to £100,000 per project, subject to a cumulative limit of £500,000 per annum;
• Acquisition due diligence services up to £100,000 per transaction;
• Tax compliance and related activities up to the greater of £1,000,000 per annum or 50% of the external audit fee; and
• For forward-looking tax planning services we use the most appropriate adviser, usually after a tender process. Where we decide to use our independent auditors, authority, up to £100,000 per project subject to a cumulative limit of £500,000 per annum, has been delegated by the audit committee to management.

Services provided by PwC above these limits and all other allowable non-audit services, irrespective of value, must be approved by the audit committee. Where appropriate, services will be tendered prior to awarding work to the auditors.

In 2007, Interactive Data appointed Ernst & Young LLP (Ernst & Young) as its independent auditors. Until July 2010, Interactive Data was part of the Group and therefore, in order to maintain Ernst & Young’s independence we have restricted the services that Ernst & Young can provide to Pearson and its subsidiaries, in a similar way to which we restrict the services that PwC can provide to the company.

The audit committee receives regular reports summarising the amount of fees paid to the auditors.

A full statement of the fees for audit and services is provided in note 4 to the accounts.

The directors are responsible for preparing the Annual Report, the Directors’ Remuneration Report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the Group and parent company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and the Group and of the profit or loss of the Group for that period.

In preparing these financial statements, the directors are required to:

• Select suitable accounting policies and then apply them consistently;
• Make judgements and accounting estimates that are reasonable and prudent;
• State that the financial statements comply with IFRSs as adopted by the European Union or disclose and explain any material departures from those IFRSs; and
• Prepare the financial statements on a going concern basis, unless it is inappropriate to presume that the company and/or the Group will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and the Group. This enables them to ensure that the financial statements and the report on directors’ remuneration comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the company and the Group and for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors are responsible for the maintenance and integrity of the company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Each of the directors, whose names and functions are listed here, confirm that to the best of their knowledge and belief:

• The Group financial statements, prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group and company; and
• The directors’ report contained in the annual report includes a fair review of the development and performance of the business and the position of the company and Group, together with a description of the principal risks and uncertainties that they face.

The directors also confirm that, for all directors in office at the date of this report:

• a) so far as the directors are aware, there is no relevant audit information of which the company’s auditors are unaware; and
• b) they have taken all the steps that they ought to have taken as directors in order to make themselves aware of any relevant audit information and to establish that the company’s auditors are aware of that information.

Approved by the board on 7 March 2011 and signed on its behalf by

Philip Hoffman Secretary