Audit Committee Terms of Reference

1. Constitution

1.1 The Committee is established as a Committee of the Board

2. Membership

2.1 Members of the Committee shall be appointed by the Board, on the recommendation of the Nomination Committee.

2.2 The Committee shall consist of at least 3 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.

2.3 Only members of the Committee have the right to attend Committee meetings. However, other individuals such as the Finance Director and external auditors may be invited to attend all or part of any meeting as and when appropriate.

2.4 The Committee should, at least annually, meet the external and internal auditors, without management, to discuss matters relating to its remit and any issues arising from the audit.

2.5 The Board shall appoint one of the members of the Committee as Chairman of the Committee. 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.

3. Secretary

3.1 The Group Company Secretary shall act as the secretary of the Committee.

4. Quorum

4.1 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.

5. Frequency of Meetings

5.1 The Committee shall meet at least three times a year and otherwise as required.

6. Notice of Meetings

6.1 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.

7. Minutes of Meetings

7.1 The secretary shall minute the proceedings and resolutions of all meetings of the Committee, including recording the names of those present and in attendance

7.2 Minutes of Committee meetings shall be circulated promptly to all members of Committee.

8. Annual General Meeting

8.1 The Chairman of the Committee shall attend the Annual General Meeting prepared to respond to any shareholder questions on the Committee’s activities

9. Duties

The Committee should carry out the duties below for the parent company, major subsidiary undertakings and the group as a whole, as appropriate

9.1 Financial Reporting

9.1.1 The Committee shall 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. The Committee shall also 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

9.1.2 The Committee shall review and challenge where necessary:

  • The consistency of, and any changes to, accounting policies both on a year on year basis and across the company/group
  • The methods used to account for significant or unusual transactions where different approaches are possible
  • Whether the company has followed appropriate accounting standards and made appropriate estimates and judgements, taking into account the views of the external auditor
  • Tax and treasury management
  • The clarity of disclosure in the company’s financial reports and the context in which statements are made and;
  • All material information presented with the financial statements, such as the going concern statement, operating and financial review and the corporate governance statement (insofar as it relates to the audit and risk management.
  • Key P&L changes and balance sheet movements

9.1.3 The Committee shall review the annual financial statements of the pension funds , pension fund regulator returns and pension valuation and actuarial assumptions

9.2 Internal Controls and Risk Management Systems

The Committee shall:

9.2.1 Keep under review the effectiveness of the company’s internal controls and risk management systems and;

9.2.2 Review and approve the statements to be included in the annual report concerning internal controls and risk management

9.2.3 Review principal insurance cover

9.3 Whistleblowing

9.3.1 The Committee shall 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

9.4 Internal Audit

The Committee shall:

9.4.1 Monitor and review the effectiveness of the company’s internal audit function in the context of the company’s overall risk management system

9.4.2 Approve the appointment and removal of the head of the internal audit function

9.4.3 Consider and approve the remit of the internal audit function (including the anti fraud programme) 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.

9.4.4 Ensure the function has adequate standing and is free from management or other restrictions

9.4.5 Review and assess the annual internal audit plan

9.4.6 Review promptly all reports on the company from the internal auditors

9.4.7 Review and monitor management’s responsiveness to the findings and recommendations of the internal auditor; and

9.4.8 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

9.5 External Audit

The Committee shall:

9.5.1 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

9.5.2 Oversee the relationship with the external auditor including (but not limited to):

  • 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
  • Monitor annual estimated/actual spend for audit and non audit fees
  • Approval of their terms of engagement, including any engagement letter issued at the start of each audit and the scope of the audit
  • 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
  • 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 the business)
  • Agreeing with the board a policy on the employment of former employees of the company’s auditor, then monitoring the implementation of this policy
  • 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
  • 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

9.5.3 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

9.5.4 Review and approve the annual audit plan and ensure that it is consistent with the scope of the audit engagement

9.5.5 Review the findings of the audit with the external auditor. This shall include but not be limited to, the following:

  • The external auditor early warning report
  • A discussion of any major issues which arose during the audit
  • Any accounting and audit judgements, and
  • Levels of errors identified during the audit

9.5.6 Review the effectiveness of the audit which shall include:

  • Review any representation letter(s) requested by the external auditor before they are signed by management
  • Review the management letter and management’s response to the auditor’s findings and recommendations; and
  • Develop and implement a policy on the supply of non-audit services by the external auditor, taking into account any relevant ethical guidance on the matter.

9.5.7 Review key regulatory and audit changes

9.6 Reporting Responsibilities

9.6.1 The Committee Chairman shall report formally to the board on its proceedings after each meeting on all matters within its duties and responsibilities.

9.6.2 The Committee shall make whatever recommendations to the board it deems appropriate on any area within its remit where action or improvement is needed

9.6.3 The Committee shall compile a report to shareholders on its activities to be included in the company’s annual report

9.7 Directors’ Conflict of Interests

The Committee shall:

9.7.1 In respect of each Director, review any interests the Director may have which conflict or may conflict with the interests of the Company.

9.7.2 Make recommendations to the Board as to whether any such conflict should be authorised and, if so, as to the terms and conditions on which any such authorisation should be given by the Board.

9.7.3 Review on a bi-annual basis any authorisation given by the Board in order to determine whether the authorisation given should stand on the terms and conditions on which it has been given or whether additional terms and conditions should be imposed or whether the authorisation should be revoked (subject to giving the relevant Director notice of the proposed revocation).

9.7.4 In the case of review, by the Committee, of the interests of directors, and authorisations given by the Board, the affected Director shall not participate in the review or in discussions or decisions of the Committee which relate to that Director.

9.8 Other Matters

The Committee shall:

9.8.1 Have access to sufficient resources in order to carry out its duties, including access to the company secretariat for assistance as required

9.8.2 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

9.8.3 Give due consideration to laws and regulations, the provisions of the Combined Code and the requirements of the UK Listing Authority’s Listing Rules as appropriate

9.8.4 Be responsible for co-ordination of the internal and external auditors

9.8.5 Oversee any investigation of activities which are within its terms of reference and act as a court of the last resort and

9.8.6 At least once a year, review its own performance, constitution, agenda and terms of reference (including policy framework and policies allocated to audit committee for review) to ensure it is operating at maximum effectiveness and recommend any changes it considers necessary to the board for approval

10. Authority

The Committee is authorised:

10.1 to seek any information it requires from any employee of the company in order to perform its duties

10.2 to obtain, at the company’s expense, outside legal or other professional advice on any matter within its terms of reference; and

10.3 to call any employee to be questioned at a meeting of the Committee as and when required

Approved by the Audit Committee and the Board on 23 October 2009

References to “the Committee” shall mean the Audit Committee
References to “the Board” shall mean the Board of Directors
CC refers to the Combined Code 2006
ICSA refers to the Institution of Chartered Secretaries & Administrators Best Practice Guide
Smith refers to Smith Guidance on Audit Committees 2003