To the Board of Directors
Fomento Económico Mexicano, S.A.B. de C.V. (the "Company"):
Pursuant to Articles 42 and 43 of the Mexican Securities Law (Ley del Mercado de Valores) and the Charter of the Audit Committee, we submit to the Board of Director of the Company the following report of the activities performed by this Committee during the fiscal year ending on December 31st, 2011. In the performance of our work, we took into consideration the recommendations set forth in the Code of Corporate Best Practices and, since our Company is a publicly-listed company in New York Stock Exchange ("NYSE"), we also complied with the applicable provisions set forth in the Sarbanes - Oxley Act (SAROX). We met at least on a quarterly basis and, based on a work program, we carried out the activities described below:
Internal Control
We verified that Management, in compliance with its responsibilities regarding internal control, established the general guidelines and the procedures necessary for their application and compliance. Additionally, we followed through on the comments and remarks made in this regard by External Auditors as a result of their findings.
We validated the actions taken by the Company in order to comply with section 404 of the Sarbanes - Oxley Act regarding the self-assessment of internal control performed by the Company and to be reported for the fiscal year 2011. Throughout this process, we followed up on the preventive and corrective measures implemented for any internal control aspects that required improvement.
Risk Assessment
We periodically evaluated the effectiveness of the Risk Management System, which was established to identify, measure, record, assess, and control the Company's risks, as well as for the implementation of follow-up measures to ensure its effective operation, which we consider appropriate.
We reviewed with Management and both External and Internal Auditors of the Company, the key risk factors that could adversely affect the Company's operations and assets, and we determined that they have been appropriately identified and managed.
External Auditing
We recommended to the Board of Directors to hire external auditors for the Company and its subsidiaries for the fiscal year 2011. For this purpose, we verified their independence and their compliance with the requirements established by applicable laws and regulations. Together, we analyzed their approach and work program as well as their coordination with the Internal Audit department of the Company.
We remained in constant and direct communication in order to be kept informed of their progress and their observations, and also to note any comments that resulted from their review of quarterly and annual financial statements. We were timely informed on their conclusions and reports regarding annual financial statements and followed up on the committed actions implemented resulting from the findings and recommendations provided during their work program.
We authorized the fees to be paid to external auditors for their audit and other permitted services, and made sure that such services would not compromise their independence from the Company.
Taking into account Management's views, we carried out an assessment of their services for the previous year and initiated the evaluation process for the fiscal year 2011.
Internal Auditing
In order to maintain independence and objectiveness, the Internal Audit area reports functionally to the Audit Committee. Therefore:
We reviewed and approved, in due time, their annual work program and budget. In order to prepare them, the Internal Audit area participated in the process of identifying risks, establishing controls and testing them, in order to comply with the requirements of SAROX.
We received periodical reports regarding the progress of the approved work program, any deviations and the causes thereof.
We followed up on the remarks and suggestions they issued and their proper implementation.
We made sure an annual training plan was implemented.
We reviewed the evaluations of the Internal Audit service performed by the responsible person of each business unit and the Audit Committee.
Financial Information, Accounting Policies and Reports to Third Parties
We reviewed the quarterly and annual financial statements of the Company with the individuals responsible for their preparation and recommended the Board of Directors to approve them and authorize their disclosure. As a part of this process, we took into account the opinions and remarks of the external auditors and made sure that the criteria, accounting policies and information used by Management to prepare financial information were adequate and sufficient and that they were applied consistently with the previous year. As a consequence, the information submitted by Management reasonably reflects the Company's financial situation, its operating results and the changes in its financial situation for the fiscal year ending on December 31, 2011.
We also reviewed the quarterly reports prepared by Management to be submitted to shareholders and the public, verifying that such information was prepared with the same accounting criteria used to prepare annual information. We also reviewed the existence of an integral process that provides a reasonable assurance of fairness in the information content. To conclude, we recommended to the Board to authorize the disclosure thereof.
Our review also included the reports as well as any other financial information required by Mexican and United States regulatory authorities.
We approved the inclusion of new accounting procedures issued by the entities in charge of Mexican accounting standards that came into force in 2011, into the corporate accounting policies, recommending their approval to the Board of Directors.
We periodically received advance reports about the process taken by the Company for the adoption of International Financial Reporting Standards based on the terms established in the Circular for Issuers issued by the Mexican National Banking and Securities Commission, and reviewed and approved the corresponding new accounting policies for the Company that came into force in 2012, recommending their approval to the Board of Directors.
Compliance with Standards, Legal Issues and Contingencies
We confirm the existence and reliability of the Company-established controls to ensure compliance with the various legal provisions applicable to the Company. We verified they were properly disclosed with the financial information.
We made a periodical review of the various tax, legal and labor contingencies of the Company. We oversaw the efficiency of the procedures established for their identification and follow-up, as well as their adequate disclosure and recording.
Code of Conduct
With the support from Internal Auditing, we verified the compliance of the personnel of the Company with the Business Code of Ethics currently in force in the Company, the existence of adequate processes to update it and its diffusion to the employees, as well as the application of sanctions in those cases where violations were detected, ensuring that the current Code incorporates the anti-bribery provisions established in the Foreign Corrupt Practices Act.
We went over the complaints recorded in the Company's Whistle-Blower System and followed up on their correct and timely handling.
Administrative Activities
We held regular Committee meetings with Management to stay informed of the management of the Company and of any relevant or unusual activities and events. We also met with external and internal auditors to comment on their work, the problems that might have arisen and to facilitate any private communication they might wish to have with the Committee.
In those cases where we deemed advisable, we requested the support and opinion from independent experts. We did not know of any significant non-compliance with the operating policies, the internal control system or the accounting recording policies of the Company.
We held executive meetings that were solely attended by Committee members. In the course of such meetings, agreements and recommendations for Management were made.
The Chairman of the Audit Committee submitted quarterly reports to the Board of Directors, on the activities performed by the Audit Committee.
We reviewed the Audit Committee Charter and made the amendments that we deemed appropriate in order to maintain it updated, submitting such changes to the Board of Directors for its approval.
We verified that the financial expert of the Committee meets the educational background and experience requirements to be considered such and that each Committee Member meets the independence requirements set forth in the applicable laws and regulations.
The work performed was duly documented in the minutes prepared for each meeting. Such minutes were properly reviewed and approved by Committee members.
We carried out our annual performance self-assessment and submitted the results to the Chairman of the Board of Directors.
Sincerely,
José Manuel Canal Hernando
Alfonso González Migoya
Francisco Zambrano Rodríguez
THE MEMBERS OF THE AUDIT COMMITTEE
February 27, 2012