AUDIT COMMITTEE TERMS OF REFERENCE

Transcription

1 AUDIT COMMITTEE TERMS OF REFERENCE 1. Purpose The Audit Committee will assist the Board of Directors (the "Board") in fulfilling its oversight responsibilities. The Audit Committee will review the financial reporting process, the system of internal control and management of financial risks, the audit process, and the Company's process for monitoring compliance with laws, regulations and governance and the Company s Code of Conduct. In performing its duties, the Committee will maintain effective working relationships with the Board, management, and the internal and external auditors. To perform his/her role effectively, each Committee member will obtain an understanding of the detailed responsibilities of Committee membership as well as the Company's business, operations, and risks. 2. Authority The Board authorises the Audit Committee, within the scope of its responsibilities, to: 2.1 seek any information it requires from: any employee (and all employees are directed to co-operate with any request made by the Audit Committee); and external parties; 2.2 call any employee to be questioned at a meeting of the Committee as and when required; 2.3 ensure the attendance of Company officers at meetings of the Committee, as appropriate; and 2.4 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. 3. Composition 3.1 The Audit Committee will comprise at least three (3) members, each of whom shall be independent for the purposes of the UK Corporate Governance Code and the NASDAQ stock market independence requirements. Members of the Committee shall be appointed by the Board on the recommendation of the Governance and Nomination Committee in consultation with the chairman of the Audit Committee. 3.2 Each member should be capable of making a valuable contribution to the Committee. 3.3 At least one member of the Committee shall have recent and relevant financial experience. The chairman of the Board shall not be a member of the Committee. 3.4 The chairman of the Audit Committee will be nominated by the Board from time to time and 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 3.5 Members will be appointed for periods of up to three years which may be extended for further periods of up to three years, provided the director still meets the criteria for membership of the Committee. 3.6 The secretary of the Audit Committee will be the Company secretary, or his or her nominee. 3.7 The Board may remove members of the Committee with or without cause. 4. Duties, Roles and Responsibilities 4.1 Internal Control (c) (d) (e) (f) keep under review, the adequacy and effectiveness of the Company's internal financial controls and internal control and risk management systems; evaluate whether management is setting the appropriate "control culture" by communicating the importance of internal control and the management of risk, ensuring that all employees have an understanding of their roles, responsibilities and duties in compliance with the Company's system of internal controls; consider how management is held to account for the security of computer systems and applications, and the contingency plans for processing financial information in the event of a systems breakdown; review whether internal control recommendations made by the external auditors have been implemented by management; review the Company's annual risk assessment; and review and approve the statements to be included in the annual report concerning internal controls and risk management. 4.2 Financial Reporting General (ii) (iii) (iv) (v) gain an understanding of the current areas of greatest financial risk and how management is managing these effectively; consider with the external auditors any fraud, illegal acts, deficiencies in internal control or other similar issues; review significant accounting and reporting issues, including recent professional and regulatory pronouncements, and gain an understanding of their impact on the financial statements; ask management and the external auditors about significant risks and exposures and the plans to minimize such risks; and review any legal matters which could significantly impact the financial statements.

3 Annual Financial Statements (ii) (iii) (iv) (v) (vi) (vii) review and monitor the integrity of the annual financial statements and the annual report on Form 20-F and determine whether they are complete and consistent with the information known to Committee members, assess whether the financial statements reflect appropriate accounting standards and principles and make appropriate estimates and judgments, taking into account the view of the external auditor; review and challenge where necessary the consistency of and any changes to accounting policies on a year to year basis; review the clarity of disclosure in the financial statements and the context in which the statements are made; pay particular attention to complex and/or unusual transactions such as restructuring charges and derivative disclosures and review and challenge the methods used to account for significant or unusual transactions where different approaches are possible; focus on judgmental areas, for example those involving valuation of assets and liabilities, warranty, product or environmental liability, litigation reserves, and other commitments and contingencies; meet with management and the external auditors to review the financial statements and the results of the audit; and review the other sections of the annual report before its release and consider whether the information is understandable and consistent with members' knowledge about the Group and its operation. (c) Preliminary Announcements, Interim and Quarterly Financial Statements and other announcements relating to financial performance (ii) review and monitor the integrity of preliminary announcements, interim and quarterly financial statements and other announcements relating to financial performance and assess whether they reflect appropriate accounting standards and principles and make appropriate estimates and judgments taking into account the views of the external auditor; assess the fairness of the preliminary announcements, interim and quarterly financial statements and other announcements relating to financial performance, including reviewing the clarity of disclosure and the context in which statements are made and obtain explanations from management and external auditors on whether: (A) (B) (C) actual financial results for the relevant period varied significantly from budgeted or projected results; changes in financial ratios and relationships in the relevant financial statements are consistent with changes in the Company's operations and financial practices; the appropriate accounting standards and principles have been consistently applied;

4 (D) (E) (F) (G) there have been actual or there are proposed to be changes in accounting or financial reporting practices; there are or have been any significant or unusual events or transactions and whether the methods used to account for significant or unusual transactions are appropriate; the Company's financial and operating controls are functioning effectively; and the preliminary announcements and interim and quarterly financial statements and other announcements relating to financial performance contain adequate and appropriate disclosures. 4.3 External Audit (c) (d) (e) (f) (g) (h) (j) (k) (l) review the external auditors' terms of engagement and approve the proposed audit scope and approach and ensure no unjustified restrictions or limitations have been placed on the scope; review and oversee the relationship and the performance of the external auditors; make recommendations on the auditor's remuneration and whether fees for audit or nonaudit services are appropriate, including to enable an adequate audit to be conducted; assessing annually the auditor's independence and objectivity, taking into account relevant 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 business); make recommendations to the Board regarding the appointment, reappointment and removal of the external auditors and the rotation of the audit partner. The Committee shall oversee the selection process for a new auditor and if an auditor resigns, the Committee shall investigate the issues leading to this and decide whether any action is required; agree with the Board a policy on the employment of former employees of the Company's auditor, and monitor the implementation of this policy; monitor the auditor's compliance with relevant ethical and professional guidance on the rotation of audit partner, the level of fees paid by the Company compared to the overall fee income of the firm, office and partner and other related requirements; assess annually the 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; seek to ensure co-ordination with the activities of the internal audit function; 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; review and approve the annual audit plan and ensure that it is consistent with the scope of the audit engagement;

5 (m) review the findings of the audit with the external auditor. This shall include but not be limited to, the following: (ii) (iii) (iv) 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. (n) (o) (p) 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. 4.4 Internal Audit The Audit Committee shall: (c) (d) (e) (f) (g) monitor and review the effectiveness of the Company's internal audit function in the context of the Company's overall risk management system; approve the appointment and removal of the head of the internal audit function; 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; review and assess the annual internal audit plan; review reports addressed to the Committee from the internal auditor; review and monitor management's responsiveness to the findings and recommendations of the internal auditor; and 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. 4.5 Risks The Audit Committee shall: advise the Board on the Group s overall risk appetite, tolerance and strategy in connection with its business plans and operations, taking account of the current and prospective local and international regulatory, political, trading and economic environments within which it operates; oversee and advise the Board on the current risk exposures of the Group and future risk strategy;

6 (c) (d) (e) before a decision to proceed is taken by the Board, if requested by the Board, advise the Board on proposed strategic transactions, including any significant new project, tender, development phase, acquisition or disposal, ensuring that a suitable due diligence appraisal of the proposition is undertaken, focussing in particular on risk aspects and implications for the risk appetite and tolerance of the Company, and taking independent external advice where appropriate and available; review the adequacy and effectiveness of environmental and health and safety policies, strategies, standards, reporting and management behaviours, including organisational structures, compliance processes and competency within the Group and where relevant in respect of instruction, coordination and supervision of contractors, and equivalent arrangements in relation to other key project and operational risks and responsibilities such as concerning local employment, sustainable development, human rights and managing relationships with communities and other stakeholder engagement; and review and monitor the effectiveness of the Group s risk management systems, including reviewing the process of indentifying, assessing and reporting key risks and control activities as well as reviewing the Group s annual review report. 5. Compliance, whistleblowing and fraud The Audit Committee shall: 5.1 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; 5.2 review the Company's procedures for detecting fraud and the results of any management investigation of any suspected fraudulent acts; 5.3 review the Company's systems and controls for the prevention of bribery and receive reports on non-compliance; 5.4 review the effectiveness of the system for monitoring compliance with laws and regulations and the results of any management's investigation into non-compliance; 5.5 obtain regular updates from management and the Company's legal counsel regarding compliance matters; 5.6 be satisfied that all regulatory compliance matters have been considered in the preparation of the financial statements; and 5.7 review the findings of any investigation, report or examination by any external regulatory agency and make appropriate recommendations to the Board. 6. Compliance with the Code of Conduct The Audit Committee shall: 6.1 ensure that the Code of Conduct is being brought to the attention of all employees; and 6.2 evaluate whether management is setting the appropriate "tone at the top" by communicating the importance of the Code of Conduct and the guidelines for acceptable behaviour.

7 7. Meetings 7.1 Only members of the Committee have the right to attend Committee meetings. The Audit Committee may invite such other persons (e.g. the chief executive officer, chief financial officer, chairman of the Board, other directors and internal audit and representatives from the finance function) to all or part of its meetings, as it deems appropriate or necessary. 7.2 A quorum for any meeting will be two members. 7.3 The external auditors should be invited to attend meetings of the Committee and make presentations to the Audit Committee as appropriate. 7.4 Meetings shall be held not less than four times a year at appropriate times in the reporting and audit cycle. Other meetings may be convened as required. 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 the external or internal auditor if they consider that it is necessary. 7.5 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 four 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. 7.6 The proceedings and decisions of all meetings will be minuted by the secretary. 7.7 Draft minutes of Committee meetings shall be circulated to all members of the Committee. Once approved, minutes should be circulated to all other members of the Board unless it would be inappropriate to do so. 7.8 The Committee chairman shall report formally to the Board on its proceedings after each meeting on all matters within its duties and responsibilities. 8. Other Matters 8.1 The Committee Chairman should attend the annual general meeting to answer shareholder questions on the Committee's activities. 8.2 The Committee shall make whatever recommendations to the Board it deems appropriate on any area within its remit where action or improvement is needed. 8.3 The Committee shall produce a report on its activities to be included in the Company's annual report. 8.4 The Committee shall have access to sufficient resources in order to carry out its duties, including access to the Company secretariat for assistance as required. 8.5 The Committee shall perform other oversight functions such as insurance cover, tax planning as may be requested by the Board. 8.6 The Committee shall keep under review, the Board Charter and make recommendations to the Board. 8.7 The Committee shall give due consideration to laws and regulations, the provisions of the UK Corporate Governance Code and the requirements of the UK Listing Authority's Listing, Prospectus and Disclosure and Transparency Rules and any other applicable rules, as appropriate. 8.8 The Committee shall be responsible for co-ordination of the internal and external auditors. 8.9 The Committee shall, if necessary, institute special investigations and oversee any investigation of activities which are within its terms of reference.

8 8.10 The Committee shall arrange for periodic reviews of its own performance and, at least annually, review its 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 Committee is authorised by the Board to obtain, at the Company's expense, outside legal or other professional advice on any matters within its terms of reference.