Audit Committee
Terms of Reference
Reference to 'the Committee' shall mean the Audit Committee.
Reference to 'the Board' shall mean the Board of Directors.
1 Membership Back to top
1.1 Members of the Committee shall be appointed by the Board, on the recommendation of the Nomination Committee in consultation with the Chairman of the Audit Committee. The Committee shall be made up of at least 3 members.
1.2 All members of the Committee shall be independent non-executive directors at least one of whom shall have recent and relevant financial experience. The Chairman of the Board shall not be a member of the Committee.
1.3 Only members of the Committee have the right to attend Committee meetings. However, other individuals such as the Chairman of the Board, Chief Executive, Finance Director, other directors, the heads of risk, compliance and internal audit and representatives from the finance function may be invited to attend all or part of any meeting as and when appropriate.
1.4 The external auditors will be invited to attend meetings of the Committee on a regular basis.
1.5 Appointments to the Committee shall be for a period of up to three years, which may be extended for two further three year periods, provided the director remains independent.
1.6 The Board shall appoint the Committee Chairman who shall be an independent non-executive director. In the absence of the Committee Chairman and/or an appointed deputy, the remaining members present shall elect one of themselves to chair the meeting.
2 Secretary Back to top
2.1 The Company Secretary or their nominee shall act as the Secretary of the Committee.
3 Quorum
3.1 The quorum necessary for the transaction of business shall be 2 members. A duly convened meeting of the Committee at which a quorum is present shall be competent to exercise all or any of the authorities, powers and discretions vested in or exercisable by the Committee.
4 Frequency of Meetings Back to top
4.1 The Committee shall meet at least three times a year at appropriate times in the reporting and audit cycle and otherwise as required.
5 Notice of Meetings Back to top
5.1 Meetings of the Committee shall be summoned by the Secretary of the Committee at the request of any of its members or at the request of external or internal auditors if they consider it necessary.
5.2 Unless otherwise agreed, notice of each meeting confirming the venue, time and date together with an agenda of items to be discussed, shall be forwarded to each member of the Committee, any other person required to attend and all other non-executive directors, no later than 5 working days before the date of the meeting. Supporting papers shall be sent to Committee members and to other attendees as appropriate, at the same time.
6 Minutes of Meetings Back to top
6.1 The Secretary shall minute the proceedings and resolutions of all meetings of the Committee, including recording the names of those present and in attendance.
6.2 The Secretary shall ascertain, at the beginning of each meeting, the existence of any conflicts of interest and minute them accordingly. Where there is a conflict of interest and the Chairman of the Committee determines that it is material, he shall have the power to exclude that Committee member from discussions on that issue.
6.3 Minutes of Committee meetings shall be circulated promptly to all members of the Committee and, once agreed, to all members of the Board, unless a conflict of interest exists.
7 Annual General Meeting Back to top
7.1 The Chairman of the Committee shall attend the Annual General Meeting prepared to respond to any shareholder questions on the Committee's activities.
8 Duties Back to top
The Committee should carry out the duties below for the parent company and the group as a whole (also referred to below as "the company"). The Committee is not responsible for the financial reporting review of subsidiary undertakings.
8.1 Financial Reporting
8.1.1 The Committee shall:
(i) monitor the integrity of the financial statements of the company, including its annual and interim reports, preliminary results announcements and any other formal announcement relating to its financial performance, reviewing significant financial reporting issues and judgements which they contain; and
(ii) review summary financial statements, significant financial returns to regulators and any financial information contained in certain other documents, such as announcements of a price sensitive nature,
provided that such monitoring and review is not inconsistent, with any requirement for prompt reporting under the Listing Rules. Wherever practicable, sufficient time should be given between meetings of the Committee and the publication of financial information so that any issues which may have arisen can be resolved.
8.1.2 The Committee shall review and challenge where necessary:
(i) the consistency of, and any changes to, accounting policies both on a year on year basis and across the company/group;
(ii) the methods used to account for significant or unusual transactions where different approaches are possible, including any off-balance sheet activities/accounting;
(iii) whether the company has followed appropriate accounting standards and made appropriate estimates and judgements, taking into account the views of the external auditor;
(iv) the clarity of disclosure in the company's financial reports and the context in which statements are made; and
(v) all material information presented with the financial statements, such as the operating and financial review and the corporate governance statement (insofar as it relates to the audit and risk management).
8.2 Internal Controls and Risk Management Systems
The Committee shall:
8.2.1 keep under review the effectiveness of the company's internal controls and risk management systems, including internal financial control and compliance systems;
8.2.2 review and approve, subject to final approval of the Board, the statements to be included in the Annual Report concerning internal controls and risk management; and
8.2.3 review the overall effectiveness of the company's implementation of processes to meet the FSA's Treating Customers Fairly ('TCF') requirements.
8.3 Whistleblowing and Fraud
The Committee shall:
8.3.1 review the company's arrangements for its employees to raise concerns, in confidence, about possible wrongdoing in financial reporting or other matters. The Committee shall ensure that these arrangements allow proportionate and independent investigation of such matters and appropriate follow up action;
8.3.2 review the company's procedures for detecting internal fraud.
8.4 Internal Audit
The Committee shall:
8.4.1 monitor and review the effectiveness of the company's internal audit function in the overall context of the company's internal controls and risk management systems;
8.4.2 approve the appointment, line reporting arrangements and removal of the head of the internal audit function;
8.4.3 consider and approve the remit of the internal audit function and ensure it has adequate resources and appropriate access to information to enable it to perform its function effectively and in accordance with the relevant professional standards. The Committee shall also ensure the function has adequate standing and is free from management or other restrictions;
8.4.4 review and assess the annual internal audit plan, including arrangements for monitoring compliance systems and for monitoring processes for identifying and assessing business risks;
8.4.5 review promptly all reports on the company from the internal audit function;
8.4.6 review and monitor management's responsiveness to the findings and recommendations of the internal audit function;
8.4.7 receive a summary report on the results of the work of the internal audit function on a periodic basis; and
8.4.8 meet the head of internal audit at least once a year, without management being present, to discuss their remit and any issues arising from the internal audits carried out. In addition, the head of internal audit shall be given the right of direct access to the Chairman of the Board and to the Committee.
8.5 External Audit
The Committee shall:
8.5.1 consider and make recommendations to the Board, to be put to shareholders for approval at the AGM, in relation to the appointment, re-appointment and removal of the company's external auditor. The Committee shall oversee the selection process for new auditors and if an auditor resigns the Committee shall investigate the issues leading to this and decide whether any action is required;
8.5.2 oversee the relationship with the external auditor including (but not limited to):
(i) approval of their remuneration, whether fees for audit or non audit services and that the level of fees is appropriate to enable an adequate audit to be conducted;
(ii) approval of their terms of engagement, including any engagement letter issued at the start of each audit and the scope of the audit;
(iii) assessing annually their independence and objectivity taking into account relevant UK professional and regulatory requirements and the relationship with the auditor as a whole, including the provision of any non audit services;
(iv) satisfying itself that there are no relationships (such as family, employment, investment, financial or business) between the auditor and the company (other than in the ordinary course of business);
(v) implementation and monitoring of the company’s policy that the Audit Committee must give its prior approval of the employment of any individual who has been engaged by the External Auditor in the audit of the company;
(vi) monitoring the auditor's compliance with relevant ethical and professional guidance on the rotation of audit partners, the level of fees paid by the company compared to the overall fee income of the firm, office and partner and other related requirements; and
(vii) assessing annually their qualifications, expertise and resources and the effectiveness of the audit process which shall include a report from the external auditor on their own internal quality procedures;
8.5.3 meet regularly with the external auditor, including once at the planning stage before the audit and once after the audit at the reporting stage. The Committee shall meet the external auditor at least once a year, without management being present, to discuss their remit and any issues arising from the audit;
8.5.4 review and approve the annual audit plan and ensure that it is consistent with the scope of the audit engagement;
8.5.5 review the findings of the audit with the external auditor. This shall include but not be limited to, the following;
(i) a discussion of any major issues which arose during the audit,
(ii) any accounting and audit judgements, and
(iii) levels of errors identified during the audit.
The Committee shall also review the effectiveness of the audit.
8.5.6 review any representation letter(s) requested by the external auditor before they are signed by management;
8.5.7 review the management letter and management's response to the auditor's findings and recommendations; and
8.5.8 review and monitor implementation of the company's policy on the supply of non audit services by the external auditor, to ensure that the supply of such services does not impair auditor independence or objectivity, taking into account any relevant ethical guidance on the matter. The Annual Report to shareholders should explain how, if the external auditor supplies non-audit services, auditor independence and objectivity is safeguarded.
8.6 Reporting Responsibilities
8.6.1 The Committee Chairman shall report formally to the Board on its proceedings after each meeting on all matters within its duties and responsibilities.
8.6.2 The Committee shall make whatever recommendations to the Board it deems appropriate on any area within its remit where action or improvement is needed.
8.6.3 The Committee shall compile a report to shareholders on its activities to be included in the company's Annual Report. Membership of the Committee and attendance shall also be noted in the Annual Report.
8.6.4 Where there is disagreement between the Committee and the Board, adequate time should be made available for discussion of the issue with a view to resolving the disagreement. Where any such disagreements cannot be resolved, the Committee has the right to report on the issue to the shareholders as part of the report on its activities.
8.7 Other Matters
The Committee shall:
8.7.1 have access to sufficient resources in order to carry out its duties, including access to the company secretariat for assistance as required;
8.7.2 be provided with appropriate and timely training, both in the form of an induction programme for new members and on an ongoing basis for all members. The induction programme shall cover the role of the Committee, including its terms of reference and expected time commitment by members; an overview of the business, identifying the main business and financial dynamics and risks; and meeting staff, as appropriate. The ongoing training should include developments in financial reporting, related company law and the regulatory framework in which the business operates, and updates on the main business, financial dynamics and risks;
8.7.3 give due consideration to laws and regulations, the provisions of the Combined Code and the requirements of the UK Listing Authority's Listing Prospectus and Disclosure and Transparency Rules as appropriate;
8.7.4 monitor co-ordination of the internal and external auditors;
8.7.5 oversee any investigation of activities which are within its terms of reference and act, for internal purposes, as a court of the last resort; and
8.7.6 at least once a year, review its own performance, constitution and terms of reference to ensure it is operating at maximum effectiveness and recommend any changes it considers necessary to the Board for approval. The Board shall review the Committee's effectiveness annually.
9 Authority Back to top
The Committee is authorised:
9.1 to investigate any activity within its terms of reference and to seek any information it requires from any employee of the company in order to perform its duties. The Committee shall have access to all records of the company and any internal or external reports relating thereto;
9.2 to obtain, at the company's expense, outside legal or other professional advice on any matter within its terms of reference; and
9.3 to call any employee to be questioned at a meeting of the Committee as and when required.