REPORT OF THE AUDIT COMMITTEES statements; review of internal control effectiveness; reviewing and approving the internal audit plan; review of internal audit findings - February: review and approval of annual financial statements, results announcement and related formal statements; review of external audit findings - June: monitoring and assessing the qualification, performance, expertise, resources, objectivity and independence of the external auditors and the effectiveness of the external and internal audit process; agreeing the external audit plan; reviewing significant financial reporting issues and judgements arising in connection with the interim financial statements; review of risk management activities; review of report from external auditors on control matters; review of internal audit findings - August: review and approval of the interim financial statements, results announcement and related formal statements; review of external audit findings; review of internal audit findings - December: review of year end financial reporting and accounting issues; review of significant external financial reporting and regulatory developments; review of external audit findings to date; review of internal audit findings. The Audit Committee meetings are typically attended by the chief financial officer, group chief accountant, director of internal audit and senior representatives of the external auditors. Additionally, the managing director and senior representatives of the external auditors of Elsevier Reed Finance BV attend the August and February meetings of the parent company Audit Committees. At two or more of the meetings each year, the Committees additionally meet separately with the external auditors without management present, and also with the director of internal audit. In discharging their principal responsibilities in respect of the 2003 financial year, the Committees have: (i) received and discussed reports from the Reed Elsevier Group plc group chief accountant that set out areas of significance in the preparation of the financial statements, including: review of the carrying values of goodwill and intangible assets for possible impairment, review of estimated useful lives of goodwill and intangible assets, pensions accounting and related assumptions, accounting treatment for acquisitions and disposals and exceptional items, application of revenue recognition and cost capitalisation and provisioning policies, review of tax reserves and provisions for lease obligations. Discussion of reporting matters has additionally focused on the adoption of UK GAAP by Reed Elsevier NV, the format and content of the operating and financial review to meet the new UK best practice guidelines, and compliance with the new SEC restrictions on the use of non-GAAP financial measures in the Annual Report on Form 20-F.  (ii) reviewed the critical accounting policies and compliance with applicable accounting standards and other disclosure requirements and have received regular Chairman of the Audit Committees 18 February 2004 Based on their observations on the planning and execution of the external audits, the Committees have recommended to the respective boards that resolutions for the re-appointment of the external auditors be proposed at the forthcoming Annual General Meetings. At their meeting in June 2004, the Committees will conduct a more formal review of the performance of the auditors and the effectiveness of the audit process for both the external and internal audit activities. The external auditors have confirmed their independence from management and compliance with the Reed Elsevier policy on auditor independence. This policy sets out inter aliathe requirements for rotation of the lead, review and other senior partners, as well as guidelines for the provision of permitted non-audit services. The Committees have reviewed and agreed the non-audit services provided by the external auditors, together with the associated fees. The external auditors’ fees for audit services have been reviewed and approved by the Committees.  The external auditors have attended all meetings of the Committees. They have provided written reports at the August, December and February meetings summarising the most significant findings from their audit work. These reports have been discussed by the Committees and actions agreed where necessary.  (v) reviewed and approved the internal audit plan for 2003 and monitored execution. Reviewed the resources and budget of the internal audit function.  (iv) received and discussed regular reports from the director of internal audit summarising the status of the Reed Elsevier risk management activities and the findings from internal audit reviews and the actions agreed with management. An area of focus in 2003 has been the development and agreement of plans to meet the new requirements, effective for the 2005 financial year, of Section 404 of the Sarbanes-Oxley Act relating to the documentation and testing of internal financial controls. (iii) received and discussed regular reports on the management of material risks and reviewed the effectiveness of the systems of internal control. As part of this review, detailed internal control evaluation and self-certification is obtained from management across the operating businesses, reviewed by internal audit and discussed with the Committees.  update reports on accounting and regulatory developments, including in relation to International Accounting Standards. Lord Sharman of Redlynch 28 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003