Terms of reference - Audit committee

Notes:
Reference to "the committee" shall mean the audit committee.
Reference to "the Board" shall mean the Board of directors.

1. Membership

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  The chairman of the committee (who will not be chairman of the Board) shall be an independent non-executive director, and will be appointed by the Board.  In the absence of the committee chairman, the remaining members present shall elect one of the non-executive members present to chair the meeting.
 
1.3  All members of the committee shall be independent non-executive directors, at least one of whom shall have recent and relevant financial experience.

1.4 Members should ensure that they have adequate training and knowledge to carry out their role.

1.5  The chairman of the audit committee will be available to any member of senior management to discuss any matters of concern in relation to financial reporting matters, internal control concerns or compliance with the group’s legal and regulatory obligations in the widest sense, should this be considered necessary by any of these individuals.

1.6  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.

2. Quorum

2.1  The quorum necessary for the transaction of business shall be two of the non-executive directors. 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.

3. Attendance at meetings

3.1  Only members of the committee have the right to attend committee meetings.  However other individuals such as the chairman of the Board, chief executive, chief finance officer, other directors, head of risk, compliance and internal auditor, external auditors and representatives from the finance function may be invited to attend all or part of any meeting as and when appropriate.

4. Frequency of meetings

4.1  Meetings shall be held not less than three times a year prior, to the approval of the company’s Annual and Interim accounts, and at such other times as the chairman of the committee shall require.

5. Notice of meetings

5.1  Generally the meetings will be held on or around the same date as the main Board meetings in May, November and March. An agenda and associated papers shall be forwarded to each member of the committee.  For any other meetings, the agenda, time and venue will be notified no fewer than five working days prior to the date of the meeting.

5.2  Any member of the committee may request through the chairman of the committee additional meetings and these will be organised by the secretary.

6. Secretary

6.1  The company secretary or their nominee shall act as secretary of the committee. The proceedings and resolutions of all meetings of the committee will be minuted, including recording the names of those present and in attendance.

7.  Minutes

7.1  Minutes of committee meetings shall be circulated, once agreed with the committee chairman, to all members of the committee and all members of the Board prior to the next Board meeting.

7.2  The secretary shall ascertain, at the beginning of each meeting, the existence of any conflicts of interest and minute them accordingly.

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.   Authority 

9.1 The committee is authorised by the Board to investigate any activity within its terms of reference, which are summarised below. It is authorised to seek any information it requires from any employees and all employees are directed to co-operate with any request made by the committee.
 
 9.2 The committee is authorised by the Board to obtain outside legal or other independent professional advice within its terms of reference, and to secure the attendance of advisers with relevant experience and expertise, if it considers this necessary.

10.  Duties

The committee, through the responses it receives from executive management, internal auditor, and the external auditors, will carry out the following roles:

10.1  Internal control and risk assessment

10.1.1  Keep under review the effectiveness of the company’s financial reporting and internal control policies and procedures for the identification, assessment, mitigating, managing and reporting of risks.

10.1.2  Review the company’s statement on internal control systems prior to endorsement by the Board and approve the statements to be included in the Annual report concerning internal controls and risk management.
 
10.1.3  Receive regular reports from management on material litigation, tax compliance and compliance with legal regulatory and statutory requirements.

10.1.4  Consider the effectiveness of contingency plans for the processing of financial information in the event of a major computer or other system breakdown.

10.2  Internal audit

10.2.1 Approve the appointment and removal of the head of the internal audit function.

10.2.2  Approve, monitor and review the effectiveness of the company’s internal audit function in the context of the company’s overall risk management system.

10.2.3  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 and other restrictions.

10.2.4  Review and monitor management’s responsiveness to the findings and recommendations of the internal auditor.

10.2.5  Review and assess the annual internal audit plan.

10.2.6  Allow the senior internal auditor the right of direct access to the chairman of the committee and chairman of the Board,  to discuss their remit and any issues arising from the internal audits carried out.

10.3 External audit

10.3.1 Consider and make recommendations to the Board, to be put to shareholders for approval at the Annual general meeting, in relation to the appointment, reappointment and removal of the company’s external auditor.  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. 

10.3.2  Keep under review the relationship with the external auditor including (but not limited to):

10.3.2.1  Assess annually the auditor’s 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 non-audit services.

10.3.2.2  Approve 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.

10.3.2.3  Discuss with the external auditor concerning such issues such as compliance with accounting standards and any proposals which the external audits have made vis-à-vis regarding the company’s internal auditing standards or otherwise.

10.3.2.4  Review the external auditor’s scope of the audit before it commences and ensure it is consistent with the scope of the audit engagement; and subsequently the results of the audit.

10.3.2.5  Meet regularly with the external auditor, including once at the planning stage and once after the audit at the reporting stage.

10.3.2.6  Develop and recommend to the Board the policy in relation to the provision of non-audit services by the external auditor to ensure such services do not impair the auditor’s independence taking into account relevant guidance on the matter.

10.3.2.7 Review the appropriateness of executive management responses to the auditor’s recommendations.

10.2.2.8  Review any representation letter(s) requested by the external auditor before they are signed by management.

10.3.2.9  Review from time to time and at least annually the cost effectiveness of the audit and the qualification, expertise, independence and objectivity of the external auditor, including reviewing the extent and nature of non-audit and consultancy services supplied to the group by the external auditor, which shall include a report from the external auditor on their own internal quality procedures.

10.3.2.10 Approve the terms of engagement, including any engagement letter issued at the start of each audit and the scope of the audit.

10.3.2.11 Approve the terms of any agreement with the auditors on limitations of liability, prior to being put to shareholders in general meeting.

10.3.2.12 Satisfy 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).

10.3.2.13 Agree with the Board a policy on the employment of former employees of the company’s auditor, then monitoring the implementation of this policy.

10.3.2.14 Monitor the auditor’s compliance with the 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.

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

10.3.2.15.1 a discussion of any major issues which arose during the audit.

10.3.2.15.2 any accounting and audit judgements.

10.3.2.15.3 levels of error identified during the audit.

10.4  Reporting responsibilities

10.4.1  Report formally to the Board of directors at each year to discuss such matters as the Annual report and the relationship with the external auditor.  The committee chairman shall report formally to the Board on its proceedings after each meeting on all matters within its duties and responsibilities.

10.4.2  Review the half-year and annual financial statements before submission to the Board, including:

10.4.2.1 Accounting policies and practices.

10.4.2.2 Significant matters raised by external audit.

10.4.2.3 The going concern assumption.

10.4.2.4  Compliance with accounting standards and relevant GAAP.

10.4.2.5 Compliance with the UK Listing Authority’s Listing Rules and legal requirements.

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.

10.4.3 The committee shall review and challenge where necessary:

10.4.3.1  The consistency of, and any changes to, accounting policies both on a year on year basis and across the company/group.

10.4.3.2  The methods used to account for significant or unusual transactions where different approaches are possible.

10.4.3.3 Whether the company has followed appropriate accounting standards and made appropriate estimates and judgements, taking into account the views of the external auditor.

10.4.3.4  The clarity of disclosure in the company’s financial context in which statements are made.

10.4.3.5 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).

10.4.4 In the light of its other duties, make whatever recommendations to the Board it deems appropriate and compile a report to shareholders to be included in the company’s Annual report and accounts.

10.4.5 The committee shall review the annual financial statements of the pension funds where not reviewed by the Board as a whole.

10.5 Whistleblowing

10.5.1 The committee shall review and monitor 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 the arrangements allow proportionate and independent investigation of such matters and appropriate follow up action.  The committee shall receive regular reports from management on any whistleblowing activity. Furthern details are available in our Employee disclosure policy.

10.6  Other matters

10.6.1  Be responsible for reviewing the co-ordination of the internal and external auditor.

10.6.2  Oversee any investigation of activities which are made within its terms of reference, and act as the final decision maker on any conflicts of decision.

10.6.3  The committee will be provided with appropriate updates on matters impacting on its remit and training as appropriate, both in the form of an induction programme for new members and on an ongoing basis for all members.

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

10.6.5  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.

11. Performance

11.1  The committee’s performance shall, at least once a year, be reviewed as part of the Board performance review.  On a regular basis, it shall 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.