The purpose of the Committee is to oversee the Company’s accounting and financial reporting process and the audit of the Company’s financial statements.
In these terms of reference:
"Board" means the board of directors of the Company;
"Committee" means the audit committee of the Board;
“Exchange Act” means U.S. Securities Exchange Act of 1934, as amended; and
“Sarbanes-Oxley Act” means the U.S. Sarbanes-Oxley Act of 2002.
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. All of the members of the Committee shall be independent non-executive directors, in accordance with the requirements of Rule 10A-3 of the Exchange Act and the rules of the NASDAQ stock market, subject to any applicable exemptions thereunder. The chairman of the Board shall not be a member of the Committee. Each member of the Committee must be able to read and understand fundamental financial statements, including the Company's balance sheet, income statement and cash flow statement. In addition, at least one member of the Committee must be designated by the Board to be the “audit committee financial expert”, as defined by the U.S. Securities Exchange Commission pursuant to the Sarbanes-Oxley Act.
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.
The Company Secretary or his/her nominee shall act as the secretary of the Committee.
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.
The Committee shall meet at least twice a year and at such other times as the chairman of the Committee shall require.
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.
7.1. 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.
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.
The chairman of the Committee shall attend the AGM prepared to respond to any shareholder questions on the Committee's activities.
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 financial reporting and internal control framework and policies as well as the policies and procedures for the identification, assessment and reporting of financial and non-financial risks and the management of those risks by the Company in accordance with the requirements of the Sarbanes-Oxley Act and other applicable laws, rules and regulations and the applicable requirements of any stock exchange; 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.
The Committee shall establish procedures for:
10.3.1 the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters;
10.3.2 the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters; and
10.3.3 documentation and testing of key internal controls over financial reporting required to give assurance that the internal controls system is operating effectively, sufficient to allow management, to make any required certifications pursuant to the Sarbanes-Oxley Act and rules and regulations thereunder.
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;
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; and
10.4.8 review with management and the Company's independent auditors the adequacy and effectiveness of the Company's internal control over financial reporting and disclosure controls and procedures.
10.5. External audit
The Committee shall:
10.5.1. be directly responsible for the appointment, compensation, retention and oversight of the work of the external auditors (including resolution of disagreements between management and the external auditors regarding financial reporting) for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company, and to remove the external auditors if circumstances warrant such removal. Each such external auditor must report directly to the Committee. In addition, 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. pre-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, and establish policies and procedures for the Committee's pre-approval of permitted services by the Company's external auditors or other registered public accounting firms on an on-going basis;
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 and management. 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;
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: and
10.5.8 at least annually, to obtain and review a report by the Company's external auditors that describes (1) the external auditor’s internal quality control procedures, (2) any material issues raised by the most recent internal quality control review, peer review or inspection of the firm or by any other inquiry or investigation by governmental or professional authorities in the past five years regarding one or more audits carried out by the firm and any steps taken to deal with any such issues, and (3) all relationships between the firm and the Company or any of its subsidiaries; and to discuss with the external auditors this report and any relationships or services that may impact the objectivity and independence of the auditors.
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 UK Corporate Governance 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.
11.1. 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.
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.
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.
Updated as of 17 March 2016