Audit Committee - terms of reference
These Terms of Reference are intended as a component of the flexible framework within which the Board of Directors, assisted by its committees, directs the affairs of the Company. While it should be interpreted in the context of all applicable laws, regulations and listing requirements, as well as in the context of the Company’s Articles of Association, it is not intended to establish by its own force any legally binding obligations.
Membership
All members of the Committee shall be non-executive directors who meet the definition of “independence” as set out in the Combined Code and by the US Securities and Exchange Commission (“SEC”) and the New York Stock Exchange. The Chairman of the Board shall not be an Audit Committee member..
All members of the Committee shall be able to read and understand fundamental financial statements, including a company’s balance sheet, income statement and cash flow statement.
At least one member of the Committee must have recent and relevant financial experience and be an “audit committee financial expert” as defined by the applicable SEC rules.
Appointments to the Committee shall be made by the Board on the recommendation of the Nomination Committee and Corporate Governance Committee, in consultation with the Audit Committee Chairman.
Appointments are 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.
The Committee shall consist of at least three members and a quorum shall be two members.
The Chairman of the Committee shall be appointed by the Committee.
The Company shall provide an induction programme for new Audit Committee members and training will be provided on an on-going and timely basis for all members.
Meetings
Meetings of the Committee shall be held at least five times a year.
The Company Secretary shall be Secretary of the Committee.
The Committee may, at its discretion, invite anyone to attend and speak at the meetings.
Any member of the Committee, the Chairman of the Board, the Group Chief Executive, the Group Finance Director, the internal auditors and the external auditors may request a meeting if they consider it necessary.
Minutes of meetings of the Committee will be circulated at the discretion of the Chairman of the Committee
Reporting
The Chairman of the Committee shall make a brief report of the findings and recommendation of the Committee to the Board after each Committee meeting.
The Audit Committee shall describe its work in discharging its responsibilities in a separate section of the annual report.
Where there is disagreement between the Audit Committee and the Board, the Audit Committee has the right to report the issue to shareholders as part of the report on its activities in the annual report.
Authority
The Committee shall have the authority to consider any matters relating to the financial affairs, internal controls and risk management systems of the Company and its subsidiary companies and to the Group’s internal and external audit that it determines to be desirable.
The Committee is authorised to take such independent professional advice, including from legal counsel, auditors or other experts, as it considers necessary, and the Company will fund this.
Responsibilities and duties
The Committee’s role is one of oversight. The Company’s management is responsible for preparing the Company’s financial statements and the external auditors are responsible for auditing those financial statements. The Committee recognizes that Company management, including the internal audit staff, and the external auditors have more time, knowledge and detailed information about the Company than do Committee members. Consequently, in carrying out its oversight responsibilities, the Committee is not providing any expert or special assurance as to the Company’s financial statements or any professional certification as to the external auditors’ work.
The following responsibilities are set forth as a guide with the understanding that the Committee may diverge as appropriate given the circumstances. The Committee is authorized to carry out these and such other responsibilities assigned by the Board from time to time, and take any actions reasonably related to the mandate of these Terms of Reference.
The duties of the Committee shall include:
To review and discuss the integrity of significant financial reporting issues and judgements made in preparation of the Company’s annual financial statements (including the summary financial statement) and quarterly, interim, preliminary, Christmas and other trading statements before their submission to the Board for approval. Where the Audit Committee is not satisfied with any aspect of the proposed financial reporting it shall report its view to the Board, and make recommendations as to the steps to be taken;
To review and discuss related financial information presented with the financial statements, including the operating and financial review, and corporate governance statements relating to the audit and to risk management;
To review and discuss with management and the external auditors (A) any material financial or non-financial arrangements that do not appear on the financial statements of the Company; (B) all critical accounting policies and practices used by the Company; (C) any significant changes in Company accounting policies; and (D) any material alternative accounting treatments within GAAP that have been discussed with management, including the ramifications of the use of the alternative treatments and the appropriateness of accounting treatments as discussed with the external auditors;
To resolve disagreements between management and the external auditors regarding financial reporting;
To review and discuss management procedures to monitor the effectiveness of financial and accounting systems;
To review and discuss with management and the external auditors Company’s the financial procedures, risk assessment and risk management systems, and adequacy of its internal control over financial reporting and disclosure controls and procedures and to review and approve the statements included in the annual report in relation to internal control and the management of risk;
To review and discuss the reports of the Disclosure Control Committee;
To establish and maintain procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by employees of concerns regarding questionable accounting, auditing, financial reporting or other matters;
To review and discuss with management and the external auditors, and approve any transactions or courses of dealing with related parties that are significant in size or involve terms or other aspects that differ from those that would likely be negotiated with independent parties;
To monitor and review the effectiveness of the internal audit function, to review and approve the internal audit function’s remit, its resources and access to information, and to approve the appointment or termination of the head of internal audit;
To have the primary authority and responsibility for appointing (and if appropriate, dismissing), evaluating, compensating and overseeing the work of the external auditors, who shall report directly to the Committee;
To assess annually the qualification, expertise and resources, and independence of the external auditors;
If the external auditor resigns, to investigate the issues giving rise to such resignation and consider whether any action is required;
To review and discuss the scope and planning of the internal and external audit;
To review and discuss the findings and reports of the internal and external auditors, and to monitor management’s responsiveness;
To review and discuss the independence and objectivity of the external auditors annually and to request from the external auditors annually, a formal written statement delineating all relationships between the auditor and the Company consistent with Independence Standards Board Standard No. 1 (as may be modified or supplemented), information about policies and processes for maintaining independence and monitoring compliance with relevant requirements including the rotation of audit partners and staff;
To discuss with the external auditors any such disclosed relationships and their impact on the external auditors’ objectivity and independence and take appropriate action in response to the external auditors’ report to satisfy itself of the auditors’ independence;
To consider whether, in the interest of assuring continuing independence of the external auditors, the Company should regularly rotate its external auditors in following corporate governance practices as may be required in either the United Kingdom or the United States;
To recommend to the Board the Company’s policy for the employment of former employees of the external auditors;
To ensure at the start of each audit cycle that appropriate plans are in place for the audit, including planned levels of materiality;
To review and discuss with the external auditors the findings of their work;
To review and discuss the audit representation letter before signature by management;
To review and discuss the management letter and monitor management’s responsiveness to the auditors external findings and recommendations;
To assess the effectiveness of the audit process at the end of the annual audit cycle;
To review and pre-approve any work carried out by the Group’s auditors of an audit nature, including the fees and terms thereof (with pre-approvals disclosed as appropriate in the Company’s Form 10-K as filed with the SEC);
To review and pre-approve any permitted non-audit work to be carried out by the external auditors, including the fees and terms thereof (for items under Ł10,000 the Chairman of the Audit Committee is authorised to give such approval. When the aggregate of such work exceeds Ł50,000 in a year the Audit Committee should review the position regarding future such work. Quarterly reports will be made to the Audit Committee detailing such expenditure);
To explain in the annual report how the auditors’ objectivity and independence is maintained if the auditor provides permitted non-audit services;
To review and discuss any profit forecasts or other financial data to be published in any public document;
To examine any matters referred to it by the Board;
To meet (at least once a year) with the external auditors without management present; and
To meet at least once a year with the internal auditors without management present.
The Committee shall have no executive powers with regard to its findings and recommendations.
The Committee will review annually its Terms of Reference and its own effectiveness and compliance with its Terms of Reference, and the Committee will recommend any changes to the Board.
Reviewed March 2008