Audit Committee
Audit Committee meetings are attended by representatives of the group auditor, the chief financial officer, the head of internal audit and the company secretary
Members
Members of the Audit Committee are:
- Mark Seligman
- Lord Condon
- Winnie Fok
- Bo Lerenius
Mr Seligman is the member of the Audit Committee with recent and relevant financial experience. Thorleif Krarup was a member of the Audit Committee until his retirement from the board on 31 January 2011, although the committee did not meet in 2011 until after his retirement.
Audit Committee meetings are attended by representatives of the group auditor, the chief financial officer, the group financial controller, the head of group internal audit and the company secretary.
Role
The committee considers the group’s annual and half-yearly financial statements as well as interim management statements in certain circumstances, and any questions raised by the auditor on the financial statements and financial systems. It also reviews, amongst other matters, the group’s financial reporting and internal auditing processes, whistleblowing arrangements, risk management procedures and internal controls.
Key activities during 2011
In addition to its regular work, the Audit Committee has recommended that the board re-appoints the existing external auditor having reviewed its performance of audit services for the company, reports on the performance of the firm as a whole, its independence given the non-audit services it provides to the group and its policy and practice on audit partner rotation, as well as the cost of its services. The committee will keep the matter of the choice of external auditor under review at regular intervals.
The Audit Committee has revised its policy on the provision by the external auditor of non-audit services, so as to ensure that the independence of the audit is not compromised. Besides the formal audit function, the auditor is permitted to provide consultation and due diligence services related to mergers and acquisitions, audits of employee benefit plans, reviews of internal accounting and control policies and general advice on financial reporting standards. Where the fees for such services are significant, prior approval of the committee is required.
The auditor is also prohibited from providing other services without specific permission from the Audit Committee. The provision of any non-audit services by the audit firm must in any event comply with the requirements in that regard of the Auditing Practices Board. The auditor has written to the Audit Committee confirming that, in its opinion, it is independent.
The committee has reviewed and amended its terms of reference to ensure it meets the recommendations of the Financial Reporting Council.
TERMS OF REFERENCE FOR THE AUDIT COMMITTEE
1. CONSTITUTION
The Committee has been established by resolution of the board of directors of the Company (the “Board”) and is to be known as the Audit Committee.
2. MEMBERSHIP
2.1 The members of the Audit Committee shall be appointed by the Board from amongst the directors of the Company and shall consist of at least three members, all of whom are independent non-executive directors. The chairman of the Company shall not be a member of the Audit Committee.
2.2 At least one member of the Audit Committee shall have recent and relevant financial experience.
2.3 Audit Committee members shall ensure they undertake such induction and continuing training as is necessary to enable them to fulfil their function.
2.4 The Board shall appoint one of the members of the Audit Committee as its chairman (the “Chairman”) and shall decide his or her period of office.
2.5 The Board shall regularly review the membership of the Audit Committee to ensure that membership is refreshed and undue reliance is not placed on particular individuals as regards membership of the Audit Committee and other Board committees.
2.6 The Audit Committee may invite the chairman and the chief executive of the Company or any other person to advise and/or to join meetings of the Audit Committee when required notwithstanding that they are not members of the Audit Committee.
3. QUORUM
A quorum shall be two members. A duly convened meeting of the Audit 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 Audit Committee.
4. ATTENDANCE AT MEETINGS
4.1 No one other than the Audit Committee Chairman and other members is entitled to be present or vote at a meeting of the Audit Committee.
4.2 The chairman of the Company, chief executive, finance director, head of internal audit and a representative of the external auditor may be called upon or shall be able to speak at any meeting of the Audit Committee by prior arrangement with the Chairman.
4.3 There should be at least one meeting, or part of a meeting, each year which the external auditor attends without management present.
5. SECRETARY
The Company Secretary or his or her nominee shall act as the secretary of the Audit Committee and shall keep a record of the membership of and the dates of any changes to the membership of the Audit Committee.
6. FREQUENCY OF MEETINGS
6.1 Meetings shall be held at such times as the Audit Committee deems appropriate, and in any event shall be held not less than three times a year. Where appropriate, meetings should coincide with key dates in the company’s financial reporting cycle.
6.2 External auditors or internal auditors may request a meeting if they consider that one is necessary.
7. PROCEEDINGS
7.1 Unless varied by these terms of reference, meetings and proceedings of the Audit Committee will be governed by the Company’s articles of association regarding the meetings and proceedings of directors.
7.2 Meetings of the Audit Committee shall be summoned by the Secretary of the Audit Committee at the request of the Chairman or any member thereof or at the request of the external auditor or the head of internal audit if they consider it necessary.
7.3 Unless otherwise agreed, notice of each meeting confirming the venue, time and date, together with an agenda of items to be discussed and supporting papers, shall be sent to each member of the Audit Committee and any other person required to attend not later than 48 hours prior to the date of the meeting.
7.4 The Secretary to the Audit Committee or his or her deputy shall record the proceedings and resolutions of meetings of the Audit Committee and shall circulate the minutes of such meetings to all members of the Audit Committee and, if the Chairman so decides, to all members of the Board.
7.5 In the absence of the Audit Committee Chairman and/or an appointed deputy, those members present shall elect one of their number to chair the meeting.
8. AUTHORITY
8.1 The Audit Committee is authorised by the Board at the expense of the Company to investigate any matter within its terms of reference. It is authorised to seek any information that it requires from any employee in order to perform its duties and all employees are directed to cooperate with any requests made by the Audit Committee.
8.2 The Audit Committee is authorised by the Board at the expense of the Company to obtain external professional advice and to secure the attendance of third parties with relevant experience and expertise at meetings of the Audit Committee if it considers this necessary.
8.3 These terms of reference may be amended from time to time as required, subject to approval by the Board.
9. DUTIES
The responsibilities of the Audit Committee shall be to:
External audit
9.1.1 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 Company’s external auditor.
9.1.2 assess the independence of the external auditor, ensuring that key partners are rotated at appropriate intervals;
9.1.3 recommend the audit fee to the board and approve any fees in respect of non-audit services provided by the external auditor and to ensure that the provision of non-audit services does not impair the external auditor’s independence of objectivity;
9.1.4 ensure that proper disclosure is made in the annual report of how the Audit Committee’s policy in relation to non-audit fees paid to auditors adequately safeguards the independence of the auditor and that proper disclosure is made of all fees paid to the external auditor;
9.1.5 discuss with the external auditor, before the audit commences, the nature and scope of the audit and to review the auditor’s quality control procedures and steps taken by the auditor to respond to changes in regulatory and other requirements;
9.1.6 oversee the process for selecting a new external auditor and if an auditor resigns, investigate the issues leading to this and decide whether any action is required;
9.1.7 review the external auditor’s management letter and any major recommendations of the external auditor and to consider management’s response; and
9.1.8 approve the external auditor’s terms of engagement, including any engagement letter issued at the start of each audit and the scope of the audit.
Internal audit
9.1.9 review the internal audit programme and ensure that the internal audit function is adequately resourced and has appropriate standing within the company;
9.1.10 consider management’s response to any major internal audit recommendations; and
9.1.11 approve the appointment or dismissal of the head of internal audit.
9.1.12 review reports addressed to the Audit Committee from the head of internal audit
Risk management
9.1.13 review the company’s procedures for handling allegations from whistleblowers in order to ensure that arrangements are in place for the proportionate and independent investigation of such matters and for appropriate follow-up action;
9.1.14 review management’s and the internal auditor’s reports on the effectiveness of systems for internal financial control, financial reporting and risk management;
9.1.15 review the Company’s annual statement on its systems of internal control prior to endorsement by the Board, and in particular review:
(A) the procedures for identifying business, operational, financial, compliance and other risks and controlling their impact on the Company having regard, in particular, to any significant failings or weaknesses in internal control that have been reported;
(B) the actions taken to remedy any significant failings or weaknesses, including their timeliness;
(C) the Company’s policies for preventing or detecting fraud;
(D) the Company’s policies for ensuring that the Company complies with relevant regulatory and legal requirements; and
(E) the operational effectiveness of these policies and procedures;
9.1.16 review co-ordination between the internal audit function and the external auditors;
9.1.17 review significant cases of employee conflicts of interest, misconduct or fraud, or any other unethical activity by employees or the Company;
9.1.18 review the controls over significant risks;
9.1.19 receive and consider reports from the Company’s Group Risk Committee;
Financial reporting
9.1.20 monitor the integrity of the financial statements of the Company, including its annual and half yearly reports and any other formal announcements relating to its financial performance, reviewing significant financial reporting issues and judgements, including going concern assumptions, which they contain. In particular, the Audit Committee shall review and challenge where necessary:
(A) The consistency of, and any changes to, accounting policies both on a year-on-year basis and across the Company/group;
(B) The methods used to account for significant or unusual transactions where different approaches are possible;
(C) Whether the Company has followed appropriate accounting standards and made appropriate estimates and judgements, taking into account the views of the external auditor;
(D) The clarity of disclosure in the Company’s financial reports and the context in which statements are made; and all material information presented with the financial statements, such as the business review/operating and financial review and the corporate governance statement (insofar as it relates to the audit and risk management);
9.1.21 review the interim management statements of the Company where such statements contain particularly contentious or difficult issues (which it shall be the duty of the chief financial officer to bring to the Audit Committee’s attention);
9.1.22 review the annual financial statements of the Company’s pension fund(s) where not reviewed by the Board as a whole; and
Other
9.1.23 consider other topics, as referred to it by the Board.
10. REPORTING PROCEDURES
10.1 The Chairman of the Audit Committee or, as a minimum, another member of the Audit Committee, shall attend the Board meeting at which the accounts are approved.
10.2 Where, following its review, the Audit Committee is not satisfied with any aspect of the proposed financial reporting by the Company, it shall report its views to the Board.
10.3 The Audit Committee members shall conduct an annual review of their work and these terms of reference and make recommendations to the board.
10.4 The Audit Committee’s duties and activities during the year shall be disclosed in the annual financial statements.
11. ANNUAL GENERAL MEETING
The Chairman of the Audit Committee shall be available at the Annual General Meeting to answer questions on the Audit Committee’s activities and its responsibilities. He or she should also ensure that the Company maintains good contact with shareholders about audit matters in the same way as for other matters.
August 2011