Audit and Risk Committee Report

“The primary role of the ARC is to assist the Board in fulfilling its oversight responsibilities in areas such as the integrity of financial reporting, the effectiveness of risk management and internal controls, as well as the consideration of ethics and compliance matters.“

Ann Godbehere

Chair of the Audit and Risk Committee

Dear Shareholders,

I am pleased to present our Audit and Risk Committee (the "ARC") Report for 2023.

I was delighted to welcome new ARC members, Cyrus Taraporevala, Sir Charles Roxburgh and Catherine Hughes. They joined the ARC on March 2, 2023, March 13, 2023 and May 23, 2023 respectively and bring valuable insight and experience. I would also like to thank Martina Hund-Mejean for her contribution as a committee member since May, 2020.

The ARC assists the Board in fulfilling its oversight responsibilities in areas such as the integrity of financial reporting, the effectiveness of risk management and internal controls, as well as the consideration of ethics and compliance matters. We are responsible for assessing the quality of the audit performed by, and the independence and objectivity of, the external auditor. The ARC also makes a recommendation to the Board on the appointment or reappointment of the external auditor. In addition, we oversee the work and quality of the internal audit function. During the year, the ARC's core duties remained largely unchanged and our usual cadence of activities remained in place. However, in recognition of the ARC's increased focus on risk management, we refreshed our Terms of Reference, formalising our role in assisting the Board in this area and revised our committee name to include "Risk". Detail on our oversight activities in relation to risk management can be found below in the "Risk Management and Internal Control" section.

Our work programme over the course of a year focuses on a variety of matters that involve a high degree of judgement and/or are significant to Shell's consolidated financial statements. We review with management the sources of estimation uncertainty and other key assumptions against the backdrop of economic and market uncertainty and volatility, climate risk and the energy transition and evolving stakeholder expectations. In addition, we consider the robustness of the risk and internal control framework, results of internal control testing performed throughout the year, and remediation activities.

Topics addressed in 2023 included: updates on Shell's announced withdrawal from Russian oil and gas activities; deferred taxes and tax exposures; the impact on tax balances and disclosures as a result of windfall and minimum taxes around the world; significant portfolio developments; litigation; impairment trigger assessments; impairment charges and reversals; accounting for complex contracts; dividend distribution capacity; and mark-to-market derivatives accounting, including the impact of volatile gas and power markets.

We received briefings from the Chief Internal Auditor on the effectiveness of Shell's risk management and internal control system and on the outcomes of significant audits and notable control matters.

The impacts of climate change and the energy transition continue to touch on many aspects of the ARC's work, including the financial statement impacts as well as data assurance challenges of meeting expanded climate-related disclosures. In order to obtain feedback to continuously improve carbon-related disclosures, management engaged with Sarasin & Partners and Carbon Tracker during 2023.

The ARC, recognising the evolving nature of climate change risks and responses, concluded that climate change has been appropriately considered by management in key judgements and estimates and agreed with the disclosure made by management.

During 2023, the ARC was briefed on the implementation of the Shell Performance Framework which replaced the former Shell Control Framework with effect from July 1, 2023. Other focus topics for 2023 included Trading and Supply; regulatory developments, for example audit reform and corporate governance proposals and new sustainability reporting regulations; and new business ventures and controls.

As part of its oversight of compliance with applicable legal and regulatory requirements, including monitoring ethics and compliance risks, the ARC discussed with the Group Chief Privacy Officer activities undertaken in the ethics and compliance programme related to compliance with data privacy laws and regulations, and steps taken to manage those risks.

In 2023, the ARC conducted a site visit to the USA where it visited a number of operations and more recently, some members of the ARC visited Oman and Qatar. These site visits deepen the ARC's understanding of risks and opportunities, as well as its understanding of how the Company's Powering Progress strategy is being implemented.

The external audit tender process also commenced in 2023 and will continue in 2024 as set out later in this report.

On a final note, the ARC recognises the strong commitment and dedication of the financial reporting team and would like to thank them for all their efforts during 2023.

Ann Godbehere
Chair of the Audit and Risk Committee
March 13, 2024

Committee membership and attendance for 2023

Ann Godbehere

Chair

100% attendance

6 out of 6 possible meetings attended

Member since: May 23, 2018

Dick Boer

Committee member

100% attendance

6 out of 6 possible meetings attended

Member since: May 20, 2020

Cyrus Taraporevala

Committee member

100% attendance

5 out of 5 possible meetings attended

Member since: March 2, 2023

Sir Charles Roxburgh

Committee member

100% attendance

4 out of 4 possible meetings attended

Member since: March 13, 2023

Catherine J. Hughes

Committee member

100% attendance

3 out of 3 possible meetings attended

Member since: May 23, 2023

During 2023, the members and meeting attendance of the ARC were as follows:

Committee member	Member since	Meetings attended	% of meetings attended
Ann Godbehere (Chair)	May 23, 2018	6/6	100%
Dick Boer	May 20, 2020	6/6	100%
Martina Hund-Mejean [B]	May 20, 2020	3/3	100%
Cyrus Taraporevala [C]	March 2, 2023	5/5	100%
Sir Charles Roxburgh [D]	March 13, 2023	4/4	100%
Catherine Hughes [E]	May 23, 2023	3/3	100%
[A] In addition to the six meetings, as part of its activities in 2023, the ARC conducted a site visit to the USA. [B] Martina Hund-Mejean retired from the Board and the ARC with effect from May 23, 2023. [C] Cyrus Taraporevala was appointed to the Board and the ARC with effect from March 2, 2023. [D] Sir Charles Roxburgh was appointed to the Board and the ARC with effect from March 13, 2023. He attended an additional ARC meeting in an observer capacity. [E] Catherine Hughes was appointed to the ARC with effect from May 23, 2023. She attended two additional ARC meetings prior to becoming an ARC member.

All ARC members are financially literate, independent Non-executive Directors. In respect of the year ended December 31, 2023, for the purposes of the UK Corporate Governance Code, Ann Godbehere qualifies as: a person with "recent and relevant financial experience" and competence in accounting, and, for the purposes of US securities laws, an "audit committee financial expert".

The experience of the ARC members outlined in the section "The Board of Shell plc" demonstrates that the ARC as a whole has competence relevant to the sector in which Shell operates, and the necessary commercial, regulatory, financial and audit expertise required to fulfil its responsibilities. The ARC members have gained further knowledge and experience of the sector as a result of their Board membership and through various in-person and virtual site visits since their respective appointments.

The ARC invites the CFO, the Legal Director, the Chief Internal Auditor, the Executive Vice President (EVP) Controller, the Vice President Group Appraisal and Reporting and Deputy Controller and the external auditor to attend each meeting. The CEO, the Chair of the Board and the Company Secretary may also attend ARC meetings. Other members of management attend when requested on specific topics or to provide input on more detailed technical matters that may arise. The ARC regularly holds private sessions separately with the Chief Internal Auditor and the external auditor without members of management, except for the Legal Director, being present. Outside of the formal ARC meetings, the Chair of the ARC meets regularly with each of the following: the CFO, EVP Tax, EVP Controller, the Chief Internal Auditor, the external auditor, and the Chief Information Officer.

Committee remit

The roles and responsibilities of the ARC, as set out in its Terms of Reference, are reviewed annually (last reviewed in July 2023 and a copy of which can be found at shell.com) taking into account relevant regulatory changes and recommended best practice. The key responsibilities of the ARC include, but are not limited to:

Risk Management and Internal Control

• assisting the Board in reviewing the emerging, principal, and other significant risks facing the Group;
• monitoring the effectiveness of the system of risk management and internal control;

Financial Reporting

• reviewing the integrity of the financial statements, including annual reports, half-year reports, and quarterly financial statements;
• reviewing the potential impacts on the consolidated financial statements of the implementation of the Company's strategy, climate change and the energy transition;
• advising the Board whether, in the ARC's view, the Annual Report taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy;
• reviewing and discussing with management the appropriateness of judgements involving the application of accounting principles and disclosure rules;

Compliance and Governance

• reviewing the functioning of the Shell Global Helpline and reports arising from its operation;
• overseeing compliance with applicable legal and regulatory requirements, including monitoring ethics and compliance risks;

Internal Audit

• monitoring the qualifications, expertise, resources and independence of the internal audit function;
• approving the internal audit function's charter and the annual internal audit plan to ensure alignment with the key risks of the business;
• reviewing any significant matters arising from internal audits with the Chief Internal Auditor, and the Company's management and assessing management's response to internal audit findings and control weaknesses as appropriate, including potential improvements and agreed actions;
• assessing internal audit's performance and effectiveness each year;

External Audit

• reviewing and monitoring the independence and objectivity of the external auditor;
• considering the annual external audit plan and approving related remuneration, including fees for audit and non-audit services;
• assessing the performance and effectiveness of the external auditor and the audit process, including an assessment of the quality of the audit; and
• recommending to the Board for it to put to the Company's shareholders for approval at the Annual General Meeting ("AGM") a resolution to appoint, reappoint, or remove the external auditor.

These responsibilities form the basis of the ARC's annual work plan, which is adjusted as necessary throughout the year. In addition, the ARC annually identifies certain business and function areas to focus on during that year. The focus areas generally encompass aspects of risk management and internal control, financial reporting and compliance. The ARC is authorised to seek any information it requires from management and external parties and to investigate issues or concerns as it deems appropriate. The ARC may also obtain independent professional advice at the Company's expense. No such independent advice was requested in 2023.

The ARC keeps the Board informed of its activities and recommendations, and the Chair of the ARC provides an update to the Board after every ARC meeting. The ARC discusses with the Board if it is not satisfied with or believes that action or improvement is required concerning any aspect of financial reporting, risk management and internal control, compliance or audit-related activities.

ARC topic coverage in 2023

The pie chart below shows the percentage of time the ARC spent on various activities during 2023.

The ARC met with senior leaders from various business and function areas to discuss the adequacy, design and operational effectiveness of risk management and controls related to the critical activities carried out by their respective business or function. The discussions included information on any enhancements to strengthen controls and how areas identified for improvement had been addressed; the monitoring of activities around key risks; and the steps being taken to identify new or emerging areas of risk.

In addition to the significant accounting and reporting considerations discussed in section "Significant accounting and reporting considerations", the business and function areas reviewed by the ARC in 2023 included the following:

• Trading and Supply – the ARC was provided with updates on Trading and Supply activities, particularly in the light of market volatility. Topics included transformation programmes, and management of credit and market risk. The ARC also visited the trading floor in Houston where ARC members received various briefings, including in relation to the trading and IT platforms used by the Shell Energy Americas Gas & Power Trading team.
• Shell Performance Framework – the ARC reviewed the introduction of the Shell Performance Framework which replaced the existing Shell Control Framework with effect from July 1, 2023. The new framework retains the core strengths of the previous Shell Control Framework, while placing greater focus on achieving the right commercial outcomes by emphasising the value of using a "whole systems" approach to business activities including the role that performance culture plays in achieving Shell's objectives. The ARC discussed with management how the framework is being applied in practice.
• Regulatory developments – the ARC was regularly updated with respect to regulatory developments and their potential implications for Shell, including in relation to the draft Audit Regulation (which was subsequently withdrawn) and the Corporate Governance Code consultation. The ARC was briefed in relation to UK, US and EU sustainability reporting developments, including the CSRD, and their implications for Shell, in particular potential assurance requirements.
• New business ventures and controls – the ARC met with the management of Sprng Energy (which Shell acquired in August 2022) and discussed the integration process.

Site visits

During the year, the ARC conducted a site visit to the USA where ARC members visited a number of operations including Shell Polymers Monaca, the Shell Norco facility, the Shell-operated Vito floating production facility in the Gulf of Mexico (virtual visit from New Orleans) and the Houston trading floor. Recently, some members of the ARC also visited Oman and Qatar.

Site visits are an important part of the ARC's annual work plan, as they provide the opportunity for the ARC to gain a deeper understanding of the various businesses and functions at each location, the local external and risk environment within which those activities take place and how they contribute to Shell achieving its strategic ambitions. In addition to in-depth examinations of specific business areas, site visits enable the ARC members to interact with a diverse group of employees and learn about their experiences, challenges they face and their opportunities for career development. The ARC is also briefed on the impact of the energy transition at a local level, how risks associated with climate change are managed, and the results of the Shell People Survey.

The ARC assists the Board in reviewing the emerging, principal, and other significant risks facing the Group and in fulfilling its responsibilities in relation to risk management and internal control. In order to monitor the effectiveness of the procedures for internal control over financial reporting, compliance and operational matters, the ARC reviews reports on risks, controls and assurance, including the annual assessment of the system of risk management and internal control. The ARC also reviews the Company's evaluation of the internal control over financial reporting as required under Section 404 of the Sarbanes-Oxley Act (SOX 404). The ARC updated the Board on compliance with internal controls across the Shell Group and on any major matters for which action or improvement was recommended.

Throughout the year, the ARC and management discuss Shell's overall approach to risk management and internal control, including compliance, tax, and information risk management matters and the adequacy of disclosure controls and procedures. The ARC receives regular reports from the EVP Controller on the status of actions to address control weaknesses identified via business control incidents and the trends in other measures used to monitor the robustness of the risk management framework and internal control systems.

The ARC regularly reviews the status of management's SOX 404 testing of controls and remediation actions to address any identified weaknesses. For 2023, these reviews included consideration of how the volatile external environment affected the controls and assurance landscape, including the financial reporting process. The ARC and management discussed the steps taken to maintain an effective control environment and to demonstrate "management in control" during the year.

It is important that the ARC monitors and learns about evolving external developments in a timely fashion. Accordingly, the ARC is regularly briefed on developments in the legal, regulatory and financial reporting landscape that could affect the Company.

In 2023, the ARC dedicated time to the following topics:

• Tax risks – In addition to the regular review of Shell's tax provisions, management also briefed the ARC regarding developments in the external tax landscape, including windfall and minimum taxes and how different jurisdictions are seeking to incentivise investment when entering new markets and businesses. Management outlined for the ARC the steps being taken to manage tax risks and exposures arising from differing viewpoints on complex tax laws.
• Information risk management, including cyber security – The ARC was briefed in relation to Shell's Information and Risk management framework, particularly in the light of the deterioration of the external threat environment and evolving global regulatory landscape (including SEC cybersecurity disclosure rules).
• Oil and gas reserves control framework – The ARC annually reviews the framework that supports Shell's internal reporting and external disclosures of oil and gas reserves. The ARC also reviews the processes and controls that prevent and/or mitigate the risks of non-compliance with regulatory reporting requirements. This annual review of Shell's oil and gas reserves control framework supports the ARC's review of Shell's reported proved oil and gas reserves discussed later in this report.

In addition to the above, the ARC also had quarterly discussions with the Chief Internal Auditor regarding the Company's risk management and internal control system, significant matters arising from the internal audit assurance programme and management's response to internal audit findings and control weaknesses, including potential improvements and agreed actions.

The ARC similarly holds discussions with EY, the external auditor, on a quarterly basis regarding how risks to audit quality are addressed, key accounting and audit judgements, results from audit procedures and management's response to any significant audit findings and any material communications between EY and management.

The ARC receives comprehensive reports from management and the external auditor on quarterly financial reporting, accounting policies and significant judgements and reporting matters.

Shell's Annual Report and Accounts for the year ended December 31, 2022 was selected by the Financial Reporting Council (FRC) for review [A] in accordance with Part 2 of the FRC's Corporate Reporting Review Operating Procedures. The FRC raised some queries in relation to determination of discount rates used in impairment testing and provided some observations to take into account when considering whether any improvements can be made to future financial reporting. Following correspondence, the review was closed on January 19, 2024 and some disclosure enhancements have been made to the Consolidated Financial Statements for the year ended December 31, 2023. The ARC reviewed Shell's correspondence with the FRC and discussed with management the disclosures incorporated in the Consolidated Financial Statements in response to the FRC review.

[A] The FRC noted that their review is based solely on the annual report and accounts and does not benefit from detailed knowledge of Shell's business or an understanding of the underlying transactions entered into, but that it is, however, conducted by staff of the FRC who have an understanding of the relevant legal and accounting framework. The FRC correspondence provides no assurance that Shell's annual report and accounts for the year ended December 31, 2022 are correct in all material respects; the FRC's role is not to verify the information provided but to consider compliance with reporting requirements.

The ARC reviewed the Company's 2023 quarterly unaudited interim financial statements, half-year report, Annual Report and Form 20-F with management and the external auditor.

Shell uses alternative performance measures (APMs) to provide greater insights into its financial and operating results. The ARC regularly considers the APMs used in Shell's reporting, the reconciliations to IFRS financial statements and explanations for changes from the previous quarter and year. The ARC reviews the overall presentation of APMs with management to ensure they are not given undue prominence. The ARC discusses adjusting items with management including any changes to methodology.

The APMs disclosed by Shell are subject to the same internal control process as applied for other financial reporting.

Fair, balanced and understandable assessment

The ARC advised the Board that in its view the 2023 Annual Report including the financial statements for the year ended December 31, 2023, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess Shell's position and performance, business model and strategy (see "Other regulatory and statutory information" section). To arrive at this conclusion, the ARC critically assessed drafts of the 2023 Annual Report including the financial statements and discussed with management the process undertaken to ensure that the relevant requirements were met. This process included: verifying that the contents of the 2023 Annual Report are consistent with the information shared with the Board during the year to support their assessment of Shell's position and performance; ensuring that consistent materiality thresholds are applied for favourable and unfavourable items; considering observations from the external auditor; and receiving assurance from the Executive Committee (EC).

Going concern and viability statement

The ARC reviewed the Directors' half-year and full-year statements with respect to the going concern basis of accounting. As noted in the viability statement, the Board reviews the strategic plan which takes account of longer-term forecasts and a wide range of outlooks. Key assumptions included: the impact of commodity prices; exchange rates; future carbon costs; agreements such as liquid natural gas contract renewals; production levels, product demand and schedules of growth programmes; the financial framework; Shell's business portfolio developments including consideration of the impacts of various possible energy pathways and scenarios for changes in societal expectations in relation to climate change and Shell's commitment to the Paris Agreement goals; the project funnel to support future growth; and using severe but possible scenarios to run models of the financial impact if certain of Shell's principal risks materialised. The ARC considered the mitigating measures and sensitivities that management had applied to the modelling of scenarios when evaluating the viability statement. The ARC also considered the merits of extending the viability statement beyond a period of three years and concluded that the three-year period selected by the Board for the review of Shell's prospects, in line with the operating plan, remained appropriate. Particularly noting that assumptions do go well beyond the three-year period and do take into account climate change and energy transition, the ARC supported the going concern basis of accounting and the inclusion of Shell's viability statement in "Other regulatory and statutory information" and considered such statement to be in line with best practice guidance issued by the FRC.

Significant accounting and reporting considerations

The ARC assessed the following significant accounting and reporting areas, including those related to Shell's 2023 Consolidated Financial Statements. The ARC was satisfied with how each of the areas below was addressed. As part of this assessment, the ARC received reports, requested and received clarifications from management, and sought assurance and received input from the internal and external auditors.

Other matters

The ARC reviewed: the year-end reported proved oil and gas reserves, including management judgements and adjustments made to reflect changes in geological, technical, contractual and economic information (including yearly average price assumptions) and the effectiveness of financial controls. An explanation of the Group's accounting policies is provided in Note 2.

Ethics and compliance

In 2023, the ARC received an update from the Chief Ethics and Compliance Officer on how a range of macro factors and external trends and developments were affecting conduct risk at Shell. The Chief Ethics and Compliance Officer summarised the specific emerging ethics and compliance risks, with a particular focus on trade compliance and data privacy, and management's actions to manage and mitigate them. The Chief Ethics and Compliance Officer briefed the ARC on communications to staff from both senior leaders and mid-level management reinforcing the importance of adherence to and affirming Shell's commitment to the Ethics and Compliance framework and Code of Conduct throughout the year.

As part of the annual assessment of the system of risk management and internal control, the ARC discussed with the Chief Ethics and Compliance Officer their annual report on compliance matters. The report included an overview of the effectiveness of the Shell ethics and compliance programme in managing ethics and compliance risk in Shell's business activities, regulatory developments and compliance activities. The ARC also reviewed investigations of cases involving ethics and compliance concerns. The ARC discussed management's findings in such cases to satisfy itself that a rigorous process had been followed, with appropriate disciplinary action being taken where necessary, and that management had embedded learnings into Shell's systems and controls.

Whistleblowing investigations

The ARC is responsible for establishing and monitoring the implementation of procedures for the receipt, retention, investigation and follow-up actions of complaints received, including those from the Shell Global Helpline. The ARC reviewed whistleblowing reports and internal audit reports and considered management's responses to the findings in these reports. In 2023, 2,134 allegations and inquiries were made through the Shell Global Helpline (2022: 1,790), of which approximately 41% were submitted anonymously (2022: 41%). In 2023, a total of 470 investigations were closed (2022: 412), of which 54% were found to have some level of substantiation (2022: 44%) and were primarily in the areas involving harassment, conflicts of interest and protection of assets.

Regulatory developments

The ARC was briefed on regulatory developments in areas including:

(i) sustainability and climate-related disclosures (in particular management's responses to proposals from the International Sustainability Standards Board and FRC/EU disclosure requirements); (ii) the Audit Committees and the External Audit: Minimum Standard and the proposed new Audit Regulation (which was subsequently withdrawn); (iii) accounting and reporting developments; (iv) environmental liabilities; and (v) treasury activities. In May 2023, the FRC launched a consultation in relation to the UK Corporate Governance Code and subsequently issued a revised version in January 2024. The ARC and management discussed the consultation proposals, including potential implications for the Company, the Board and the ARC. The ARC reviewed management's proposed response to the consultation and supported the response.

ARC annual evaluation

The ARC undertakes an annual evaluation of its performance and effectiveness. This year the ARC's performance evaluation was facilitated by the Company Secretary. Each ARC member responded to a confidential anonymised questionnaire about the ARC's performance covering questions on: the management of the ARC in areas such as the annual cycle of work and the agenda for meetings; the quality of the information provided to the ARC; the effectiveness of the ARC's oversight in areas such as financial reporting, risk management policies and practices and internal controls, and the work of internal and external audit; rating the ARC's performance in reviewing and assessing significant accounting/reporting issues; and how to improve the ARC's performance. Progress against the ambitions identified during the 2022 evaluation is provided in the "Board evaluation" section. Three themes from the 2023 evaluation process were identified as areas of focus for 2024, including risk management and presentation; structure of internal audit updates and further enhancement of pre-read for ARC meetings. The ARC concluded that its performance in 2023 had been effective and that it had fulfilled its role in accordance with its Terms of Reference.

In preparing its work plan for 2024, the ARC has included the following focus areas in addition to the standing items: information risk management, including cyber security; regulatory developments, mainly those in relation to climate change and the energy transition, including non-financial reporting requirements and preparation for reporting under the CSRD and ISSB disclosure requirements; Trading and Supply; Shell Performance Framework; and external audit tender.

Each quarter, the ARC discusses with the Chief Internal Auditor the Company's risk management and internal control system, any significant matters arising from the internal audit assurance programme and management's response to significant audit findings and notable control weaknesses, including planned improvements and agreed actions. The ARC also holds private sessions separately with the Chief Internal Auditor without members of management, except for the Legal Director, being present. The ARC's time for these activities is included in Risk Management and Internal Control described earlier in this report. Outside of the formal ARC meetings, the Chair of the ARC meets regularly with the Chief Internal Auditor.

Internal audit remit

The internal audit function is an independent assurance function which supports Shell's continuous efforts to improve its overall control framework. The internal audit function contributes to the maintenance of a systematic and disciplined approach to evaluate and improve the design and effectiveness of Shell's risk management, and control and governance processes. The primary role of the internal audit function's assurance and investigation activities is to safeguard value by protecting Shell's assets, reputation and sustainability in relation to the organisation's defined goals and objectives.

The ARC defines the responsibility and scope of the internal audit function and approves its annual plan. The Chief Internal Auditor reports functionally to the Chair of the ARC and administratively to the Chief Financial Officer. The Chair of the ARC approves, in consultation with the Chief Financial Officer, all decisions regarding the performance evaluation, appointment or removal of the Chief Internal Auditor. A new Chief Internal Auditor was appointed with effect from August 2023.

Annual internal audit plan and assessment of internal audit's effectiveness

The ARC considered and approved the internal audit function's annual audit plan, including focus areas for 2023 consisting of:

• talent and capability (professional audit development and technical capabilities);
• quality (developing first-line staff competence and clarity on self-verification and supervisory controls);
• alignment (improved integration of risk management and alignment of assurance processes across Shell); and
• engagement (mainly in the area of keeping staff and Shell stakeholders engaged and informed on effective risk management and internal control).

The Chief Internal Auditor updated the ARC quarterly on the approved 2023 internal audit plan and discussed whether the plan remained fit for purpose in addressing the most critical areas of risk. The ARC assessed the performance of the internal audit function as effective. The ARC also assessed the performance of the Chief Internal Auditor as effective.

The Chief Internal Auditor periodically assesses whether the purpose, authority and responsibilities of the internal audit function continue to enable it to accomplish its objectives. The results of this periodic assessment are communicated to the EC and the ARC. The Chief Internal Auditor also confirms to the ARC the continued validity of the charter of the internal audit function or puts forward proposals for updates to it. The Chief Internal Auditor maintains an internal quality assurance and improvement programme, including an annual assessment of the effectiveness and efficiency of the internal audit function's activities and evaluations of conformance with the standards of the Chartered Institute of Internal Auditors (CIIA). The Chief Internal Auditor discusses the results of this annual assessment with the EC and the ARC. At least every five years, the effectiveness and quality of the internal audit function are independently assessed externally, and the Chief Internal Auditor reviews the report with the EC and the ARC. An independent assessment of the internal audit was conducted at the end of 2022, following up on the previous review in 2018. The 2022 assessment confirmed that the internal audit conformed with the CIIA standards and the 2020 Internal Audit code of practice and identified some opportunities for further improvement. The next external assessment is planned to take place in 2027.

Annual external audit plan and assessment of external audit's effectiveness

EY reviewed with the ARC its audit strategy, scope and plan for the 2023 audit, highlighting areas which would receive special consideration. In particular, the ARC and EY discussed how the audit would take into consideration risks associated with:

• Trading and Supply deal complexity;
• Revenue recognition fraud risk (unauthorised trading and management override);
• Climate change and the energy transition;
• Oil and gas reserves;
• Impairment assessments;
• Decommissioning and restoration obligations;
• Exploration assets;
• Goodwill recoverability;
• Pensions; and
• Taxation, specifically deferred tax assets and uncertain tax treatments.

EY defines significant audit risks as those areas where there is a higher likelihood of a material error and which therefore require special audit attention. In EY's view, the significant audit risks are Trading and Supply deal complexity and the risk of unauthorised trading or management override.

The ARC considered the annual audit plan, which included assessing whether the planned materiality levels and proposed resources to execute the audit plan were consistent with the scope of the audit.

EY regularly updated the ARC on the status of its procedures and preliminary findings, providing an opportunity for the ARC to monitor the execution and results of the audit. The ARC and EY discussed how risks to audit quality were addressed, key accounting and audit judgements, material communications between EY and management and any issues arising from them. At least quarterly, the ARC met privately with EY representatives without management (except for the Legal Director) being present in order to encourage open and transparent feedback from both parties. In addition, the Chair of the ARC meets separately with the external auditor on a regular basis.

As part of its oversight of the external auditor, the ARC annually assesses the performance and effectiveness of the external auditor and the audit process. This includes assessing the quality of the audit, how the auditor handled key judgements, and the auditor's response to the ARC's questions. The assessment also involves the ARC evaluating the objectivity and independence of EY and the quality and effectiveness of the external audit process.

The ARC's evaluation of the performance and effectiveness of the external auditor and the audit process includes the following key criteria:

• professionalism, competence, integrity and objectivity during the audit, including handling of areas involving judgement and estimates;
• EY's quality assurance procedures and internal quality control procedures;
• audit quality priorities and actions taken as part of maintaining a sustainable audit quality programme;
• constructive challenge of management and key judgements;
• efficiency, covering aspects such as service level and innovation in the audit process, use of data analytical and digital audit tools, and opportunities for improvement;
• quality of the audit team's leadership;
• the most recent EY Transparency Report;
• thought leadership and actions, especially in the areas of climate change; and
• compliance with relevant legislative, regulatory and professional requirements.

In addition to reflecting on its own experiences, including interactions with the external auditor throughout the year, the ARC considered and discussed the results of management's internal survey relating to EY's performance over the financial year 2023, which reflected a broadly comparable performance to 2022 and the views and recommendations from management and the Chief Internal Auditor. The ARC also considered the FRC Audit Quality Review ("AQR") team's inspection of EY's audit of the financial statements for the year ended December 31, 2022.

As part of the current assessment of effectiveness, the ARC has taken into consideration the guidance issued by the FRC, including the guidance on oversight of the external audit set out in "Audit Committees and the External Auditor: Minimum Standard".

Taking into account the above, the ARC is satisfied that EY continued to provide a high-quality and effective audit in its eighth year as auditor and maintained its objectivity, integrity and impartiality. As required under UK and US auditing standards, the ARC received a letter on independence-related matters from EY. EY also informed the ARC in writing of any significant relationships and matters that may reasonably be thought to affect its objectivity and independence. The ARC and EY discussed such relationships and matters and determined that they did not impair EY's objectivity, integrity and impartiality.

During 2023, EY's audit of Shell's Consolidated Financial Statements for the financial year ended December 31, 2022 was selected for inspection by the AQR team of the FRC. Following the AQR team's inspection of EY's audit of the financial statements for the year ended December 31, 2022, the FRC wrote to the Chair of the ARC setting out the scope of its inspection, its audit quality assessment, good practice, and other findings. The inspection report was shared with all ARC members and discussed at an ARC meeting in December 2023. The ARC noted the inspection did not raise any key findings and highlighted five audit areas of good practice.

Audit Committees and the External Audit: Minimum Standard

In May 2023, the FRC published the Audit Committees and the External Audit: Minimum Standard. This Audit and Risk Committee Report describes how the ARC has complied, to the extent applicable, with the provisions of the Minimum Standard during the year (in particular the "External Auditor" section of this report).

Reappointment and external audit tender

The ARC is responsible for considering whether there should be a rotation of the independent registered public accounting firm in order to ensure continuing auditor quality and/or independence, including consideration of the advisability and potential impact of conducting a tender process for the appointment of a different independent public accounting firm. The ARC is also responsible for making a recommendation to the Board, for it to put to the Company's shareholders for approval in the General Meeting, on the appointment, reappointment, or removal of the external auditor.

At the AGM in May 2023, the shareholders approved a resolution to reappoint EY as external auditor until the conclusion of the next AGM. EY was first appointed at the AGM in May 2016 after a competitive tender process. The lead audit partner, Gary Donald, has been in post since the start of the 2021 audit. Under UK legal requirements, the Company may retain EY as its external auditor for 20 years. For the 2023 financial year, the Company has complied with The Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014.

In its oversight of the external audit, the ARC considered whether it would be appropriate to conduct an audit tender in respect of the 2024 audit.

The ARC reflected on:

• its continued satisfaction with the quality and independence of EY's audit;
• any new external auditor would need a transition period to develop sufficient understanding of the business given Shell's size and complexity;
• frequent changes of external auditor would be inefficient and could lead to increased risk and the loss of cumulative knowledge;
• a change in auditor would be expected to have a significant impact on Shell, including on the Finance function; and
• any change in auditor should be scheduled to limit operational disruption.

The ARC also considered EY's leadership and activities in the area of climate change.

After due consideration the ARC determined that it would not be appropriate to re-tender for the external audit at this time. The ARC has recommended to the Board that at the 2024 AGM the Board should propose that EY be reappointed as the external auditor of the Company for the year ending December 31, 2024. The ARC's recommendation is free from third-party influence and there are no contractual obligations that restrict the ARC's ability to make such a recommendation.

The ARC acknowledges the UK legal requirements relating to mandatory audit rotation (maximum 20-year engagement) and audit tendering (with a requirement to undertake a formal process after ten years). As EY was appointed in 2016 after a competitive tender process, the Company is required to tender for the audit no later than the financial year commencing January 1, 2026. During 2023, the ARC considered the proposed approach to the Group audit tender and the tender process was commenced, with a view to reaching a conclusion before the end of 2024. The ARC believes that this timeline for the re-tender is in the best interests of shareholders in order to prepare for orderly transition in the event that a new audit firm is selected. In conducting the tender process, the ARC will consider insofar as practical the guidance on tendering set out in the FRC's "Audit Committees and the External Auditor: Minimum Standard".

Non-audit services

The ARC maintains an auditor independence policy (AIP) in respect of the provision of services by the external auditor. Under the AIP, the ARC will only approve services to be carried out by the external auditor or its affiliates where such services do not present a conflict of interest risk in fact or in appearance. The ARC regularly reviews this policy for necessary changes in response to changes in related standards and regulatory requirements.

This policy is designed to safeguard auditor objectivity and independence. It addresses the provision of audit services, audit-related services and other non-audit services and stipulates which services require specific prior approval by the ARC.

The policy also defines prohibited services in line with applicable rules and regulations. Our external auditors are not allowed to provide prohibited services due to independence concerns. For certain non-prohibited services, because of the knowledge and experience of the external auditor and/or for reasons of confidentiality, it may be more efficient or prudent for the external auditor to provide such services.

The ARC reviews quarterly reports from management on the audit and non-audit services reported in accordance with the policy or for which specific prior approval from the ARC is being sought. Under the AIP, no prior approval by the ARC is required for any additional audit service contract not individually exceeding $500,000. All non-audit services where the fee for an individual contract exceeds $100,000, including audit-related services, require individual prior approval by the ARC. For audit or non-audit service contracts that do not exceed the relevant threshold, the matter is approved by management by delegated authority from the ARC and is subsequently presented for approval by the ARC. The ARC is mindful of the overall proportion of fees for audit and non-audit services in determining whether to approve such services.

The scope of the non-audit services contracted with the external auditor in 2023 consisted mainly of interim reviews and other audit-related assurance services. The associated compensation for these audit-related services and other non-audit services amounted to 5% and 3%, respectively, of the external auditor's audit and audit-related remuneration.

Fees

After due consideration, the ARC approved the auditor's remuneration, satisfying itself that the level of fees payable in respect of the audit and non-audit services provided was appropriate and that an effective, high-quality audit could be conducted for such fees.