CHI-MED
HUTCHISON CHINA MEDITECH LTD

Corporate governance

Audit Committee - Terms of Reference
  1. Definitions

    2. In these terms of reference:

    "Board" means the board of directors of the Company; and

    "Committee" means the audit committee of the Board.
  2. Membership

    3. 2.1 Members of the Committee shall be appointed by the Board, in consultation with the chairman of the Committee. The Committee shall be made up of at least three members.
    2.2 The majority of members of the Committee shall be 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 may be invited to attend for all or part of any meeting, as and when appropriate.
    2.4 The external auditors of the Company shall be invited to attend meetings of the Committee on a regular basis.
    2.5 The Board shall appoint the chairman of the Committee, who shall be an independent non executive director. In the absence of the chairman of the Committee and/or an appointed deputy, the remaining members present shall elect one of their number to chair the meeting.
  3. Secretary

    4. The Company Secretary or his/her nominee shall act as the secretary of the Committee.
  4. Quorum

    5. The quorum necessary for the transaction of business shall be two. 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

    6. The Committee shall meet at least twice a year and at such other times as the chairman of the Committee shall require.
  6. Notice of meetings

    7. 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 the external auditor or internal audit function if they consider it necessary.
    6.2 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 three working days before the date of the meeting. Irrespective of the length of notice being given, attendance of a meeting by a member shall be deemed waiver of the requisite length of notice by the member. Notice of any adjourned meeting is not required if the adjournment is less than 5 working days. Supporting papers shall be sent to Committee members and to other attendees, as appropriate, at the same time.
  7. Minutes of meetings

    8. 7.1 The secretary of the Committee shall minute the proceedings and resolutions of all Committee meetings, including recording the names of those present and in attendance.
    7.2 Minutes of Committee meetings shall be circulated promptly within a reasonable time after the meetings to all members of the Committee and, once agreed, to all other members of the Board.
    7.3 Any declaration of interest by directors and executives on items considered at the Committee meeting shall be minuted in the minutes accordingly.
  8. Resolutions

    9. Resolutions of the Committee shall be passed by a majority of votes which can also be passed by way of unanimous written resolutions. Meetings can be held in person, by telephone or by video conference.
  9. AGM

    10. The chairman of the Committee shall attend the AGM prepared to respond to any shareholder questions on the Committee's activities.
  10. Duties

    11. The Committee shall carry out the duties below for the Company.

    10.1 Financial reporting

    10.1.1 The Committee shall monitor the integrity of the financial statements of the Company the annual report and accounts and half-year report and accounts of the Company, announcements of interim and final results, and to review significant financial reporting issues and judgements which they contain.
    10.1.2 The Committee shall review, whenever practicable without being inconsistent with any requirement for prompt reporting under applicable listing rules, other statements containing financial information such as significant financial returns to regulators and release of price sensitive information first where Board approval is required.
    10.1.3 The Committee shall review and challenge where necessary:

    10.1.3.1 the consistency of, and any changes to, accounting policies, both on a year on year basis and across the Company;
    10.1.3.2 the methods used to account for significant or unusual transactions where different approaches are possible;
    10.1.3.3 whether the Company has followed appropriate accounting standards and made appropriate estimates and judgements, taking into account the views of the external auditor;
    10.1.3.4 the clarity of disclosure in the Company's financial reports and the context in which statements are made; and
    10.1.3.5 all material information presented with the financial statements, such as any operating and financial review and any corporate governance statement (insofar as it relates to the audit and risk management).
    10.2 Internal controls and risk management systems

    The Committee shall:

    10.2.1 keep under review the effectiveness of the Company's internal controls and risk management systems; and
    10.2.2 review and approve any statements to be included in the Company's annual report and accounts concerning internal controls and risk management.
    10.3 Whistleblowing

    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.
    10.4 Internal audit

    The Committee shall:

    10.4.1 monitor and review the effectiveness of the Company's internal audit function in the context of the Company's overall risk management systems;
    10.4.2 approve the appointment and removal of the head of the internal audit function;
    10.4.3 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 or other restrictions;
    10.4.4 review and assess the annual internal audit plan;
    10.4.5 review promptly all reports on the Company from the internal audit function;
    10.4.6 review and monitor the executive management's responsiveness to the findings and recommendations of the internal audit function; and
    10.4.7 meet the head of internal audit at least once a year, without the executive management being present, to discuss the remit of the internal audit function 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.
    10.5 External audit

    The Committee shall:

    10.5.1 consider and make recommendations to the Board, to be put to shareholders for approval at the AGM, in relation to the appointment, re appointment or removal of the 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;
     
    10.5.2 oversee the relationship with the external auditor, including (but not limited to):

    10.5.2.1 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;
    10.5.2.2 approval of their terms of engagement, including any engagement letter issued at the start of each audit and the scope of the audit;
    10.5.2.3 assessing annually their independence and objectivity taking into account relevant professional and regulatory requirements and the relationship with the external auditor as a whole, including the provision of any non-audit services;
    10.5.2.4 satisfying itself that there are no relationships (such as family, employment, investment, financial or business) between the external auditor and the Company (other than in the ordinary course of business);
    10.5.2.5 agreeing with the Board a policy on the employment of former employees of the external auditor, then monitoring the implementation of this policy;
    10.5.2.6 monitoring the external auditor's compliance with relevant ethical and professional guidance on the rotation of audit partners, the level of fees paid by the Company; and
    10.5.2.7 assessing annually the qualifications, expertise and resources of the external auditor and the effectiveness of the audit process, which shall include a report from the external auditor on their own internal quality procedures;
    10.5.3 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 the executive management being present, to discuss their remit and any issues arising from the audit;
    10.5.4 review and approve the annual external audit plan and ensure that it is consistent with the scope of the audit engagement;
    10.5.5 review the findings of the audit with the external auditor. This shall include, but not be limited to, the following:

    10.5.5.1 a discussion of any major issues which arose during the audit;
    10.5.5.2 any accounting and audit judgements; and
    10.5.5.3 levels of errors identified during the audit.
    The Committee shall also review the effectiveness of the audit;
    10.5.6 review the executive management letter and executive management's response to the external auditor's findings and recommendations; and
    10.5.7 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.
    10.6 Other matters

    The Committee shall:

    10.6.1 have access to sufficient resources in order to carry out its duties;
    10.6.2 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;
    10.6.3 give due consideration to laws and regulations, and the provisions of the Combined Code, as appropriate;
    10.6.4 be responsible for co-ordination of the internal and external auditors; and
    10.6.5 oversee any investigation of activities which are within its terms of reference and act as a court of last resort.
  11. Reporting responsibilities

    12. 11.1 The chairman of the Committee shall report formally to the Board on its proceedings after each meeting on all matters within its duties and responsibilities.
    11.2 The Committee shall make whatever recommendations to the Board it deems appropriate on any area within its remit where action or improvement is needed.
    11.3 If requested by the Board, the Committee shall produce an annual report to shareholders on its activities, which will form part of the Company's annual report and accounts.
  12. Self-appraisal

    13. The Committee shall, at least once a year, 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.
  13. Authority

    14. The Committee is authorised by the Board:
    13.1 to seek any information it requires from any employee of the Company in order to perform its duties;
    13.2 to obtain, at the Company's expense, outside legal or other professional advice on any matters within its terms of reference; and
    13.3 to call any employee to be questioned at a meeting of the Committee as and when required.

 
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