Audit Committee Terms of Reference
1. Constitution
1.1 The committee is established as a committee of the Board and will act in a way which the committee considers to be most likely to promote the success of the company for the benefits of its members as a whole.
2. Membership
2.1 Members of the committee shall be appointed by the Board, on the recommendation of the Nomination Committee in consultation with the chairman of the committee.
2.2 The committee shall consist of at least three 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 Committee members shall be appointed for a period of up to three years, extendable by no more than two additional three-year periods, so long as the members continue to be independent.
2.4 Only members of the committee have the right to attend committee meetings. However, other individuals such as the Chairman of the Board, the Group Chief Executive and the Group Finance Director may be invited to attend all or part of any meeting as and when appropriate.
2.5 The external and internal auditors will be invited to attend committee meetings on a regular basis.
2.6 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.
2.7 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 or his or her nominee shall act as the secretary of the committee. The secretary shall ascertain at the beginning of each meeting of the committee, the existence of any conflicts and minute them accordingly.
4. Quorum
4.1 The quorum necessary for the transaction of business shall be two 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. Meetings
5.1 The committee shall meet at least three times a year at appropriate times in the reporting and audit cycle and otherwise as required by the chairman of the committee. Meetings may be held in person or by telephone or videoconference.
6. Notice of Meetings
6.1 Meetings of the committee shall be called 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.
6.2 Unless otherwise agreed with the Chairman of the committee, notice of each meeting confirming the venue, time and date together with agenda items to be discussed and supporting papers, shall be forwarded to each member of the committee, and any other person required to attend, no later than five working days before the date of the meeting.
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 Draft minutes of committee meetings shall be circulated promptly to all members of committee, and once approved to all members of the Board unless it would be inappropriate to do so.
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 shall:
9.1 Financial Reporting
9.1.1 monitor the integrity of the financial statements of the company, including its annual and half-yearly reports, interim management statements (in conjunction with the Board or relevant Board members), preliminary results’ announcements and any other formal announcement relating to its financial performance, reviewing significant financial reporting issues and judgements which they contain;
9.1.2 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;
9.1.3 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 and receive updates of the items of business considered by the Treasury Operating Committee;
- the clarity and completeness of disclosures in the company’s financial statements and the context in which statements are made;
- 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); and
- Key profit and loss changes and balance sheet movements; and
9.1.4 review the pension valuation and actuarial assumptions.
9.2 Internal Controls and Risk Management Systems
The committee shall:
9.2.1 keep under review the adequacy and effectiveness of the company’s internal financial controls and internal control and risk management systems;
9.2.2 assist the board with evaluating the company’s risk appetite, tolerance and strategy;
9.2.3 review reports received from management on the effectiveness of the systems adopted to identify, assess, manage and monitor risk and the conclusions of any testing carried out by internal and external auditors;
9.2.4 review and approve the statements to be included in the annual report concerning internal controls and risk management; and
9.2.5 review principal insurance cover (in conjunction with the Board).
9.3 Compliance, whistleblowing and fraud
The committee shall:
9.3.1 review the adequacy and security of the company’s arrangements for its employees and contractors 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; an
9.3.2 review the company’s procedures for detecting fraud and its systems and controls for the prevention of bribery and receive reports on non-compliance.
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 the adequacy of any relevant anti-money laundering measures) 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 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 a new auditor and if an auditor resigns without explanation 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):
- recommendations on their remuneration, the categories of audit related and non-audit work that are prescribed/permitted with pre-approval; whether fees for audit or non-audit services and that the level of fees is appropriate to enable an adequate audit to be conducted;
- approval of their terms of engagement, including any engagement letter issued at the start of each audit/interim review and the scope of the audit;
- monitor annual estimated/actual spend for audit and non-audit fees;
- 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;
- assessing annually their qualifications, expertise and resources of the auditor and the effectiveness of the audit process which shall include a report from the external auditor on their own internal quality procedures; and
- seeking, where appropriate, to ensure co-ordination with the activities of the internal audit function.
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 the auditor’s 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;
- levels of errors identified during the audit; and
- the effectiveness of the audit.
9.5.6 review any representation letter(s) requested by the external auditor before they are signed by management;
9.5.7 review the management letter and management’s response to the auditor’s findings and recommendations;
9.5.8 develop, implement and review a policy on the supply of non-audit services by the external auditor, taking into account any relevant ethical guidance on the matter; and
9.5.9 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 produce a report to shareholders on its activities to be included in the company’s annual report
9.7 Other Matters
The committee shall:
9.7.1 have access to sufficient resources in order to carry out its duties, including access to the company secretariat for assistance as required;
9.7.2 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;
9.7.3 give due consideration to laws and regulations, the provisions of the Code and the requirements of the UK Listing Authority’s Listing, Prospectus and Disclosure and Transparency Rules and any other applicable Rules, as appropriate;
9.7.4 be responsible for co-ordination of the internal and external auditors;
9.7.5 oversee any investigation of activities which are within its terms of reference; and
9.7.6 arrange for periodic reviews of its own performance and , at least annually, review its 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 or agent 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;
10.3 to call any employee or any agent (to the extent permissible by law) to be questioned at a meeting of the committee as and when required; and
10.4 to have the right to publish in the company’s annual report details of any issues that cannot be resolved between the committee and the board.
Approved on 29 June 2011