9.1. Financial Reporting
9.1.1. The Committee shall monitor the integrity of the financial statements of the company, including its annual and half-yearly reports, preliminary announcements and any other formal statements relating to its financial performance, and review and report to the Board on significant financial reporting issues and judgements which those statements contain having regard to matters communicated to it by the auditor, with particular focus on:
a) any significant financial reporting issues.
b) any significant adjustments resulting from the audit; and,
c) the going concern assumption and major judgements which they contain.
9.1.2. In particular, the Committee shall review and challenge where necessary:
a) the application of significant accounting policies and any changes to them; the methods used to account for significant or unusual transactions where different approaches are possible.
b) whether the Company has adopted appropriate accounting policies and made appropriate estimates and judgements, taking into account the external Auditor’s views on the financial statements;
c) the clarity of and completeness of the disclosures in the Company’s financial statements and the context in which statements are made; and,
d) all material information presented with the financial statements, including the strategic report and the corporate governance statements relating to the audit and risk management.
e) any other statements requiring Board approval which contain financial information first, where to carry out a review prior to Board approval would be practicable and consistent with any prompt reporting requirements under any law or regulation including the Listing Rules, Prospectus Rules and Disclosure Guidance and Transparency Rules sourcebook.
9.2. Narrative Reporting
9.2.1. Where requested by the Board, the Committee should review the content of the annual report and accounts and advise the Board on whether, taken as a whole, it is fair, balanced and understandable and provides the information necessary for shareholders to assess the company’s performance, business model and strategy and whether it informs the Board’s statement in the annual report on these matters that is required under the Code.
9.3. Internal Controls and Risk Management Systems
9.3.1. The Committee shall keep under review the company’s internal financial controls systems that identify, assess, manage and monitor financial risks, and other internal control and risk management system.
9.3.2. The Committee shall review and approve the statements to be included in the annual report concerning internal control, risk management, including the assessment of principal risks and emerging risks, and the viability statement.
9.3.3. The Committee is also responsible for ensuing the company has adequate compliance, whistleblowing and fraud controls.
9.3.4. The Committee shall review the adequacy and security of the company’s arrangements for its employees, contractors and external parties to raise concerns, in confidence, about whistleblowing and 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.
9.3.5. The Committee shall review the company’s procedures for detecting fraud, the company’s systems and controls for the prevention of bribery and receive reports on non-compliance.
9.3.6. The Committee should ensure that it receives regular reports from the Money Laundering Reporting Officer and the adequacy and effectiveness of the company’s anti-money laundering systems and controls; and regular reports from the Head of Internal Audit and keep under review the adequacy and effectiveness of the company’s compliance function.
9.4. Internal Audit
9.4.1. The Committee shall approve the appointment or termination of appointment of the head of internal audit.
9.4.2. The Committee shall review and approve the role and mandate of internal audit, monitor and review the effectiveness of its work, ensuring that the Committee has adequate resources and appropriate access to information to enable it to perform its function effectively and in accordance with the relevant professional standards.
9.4.3. It is the responsibility of the Committee to review and approve the annual internal audit plan to ensure it is aligned to the key risks of the business, and receive regular reports on work carried out ensuring internal audit has unrestricted scope, the necessary resources and access to information to enable it to fulfil its mandate, ensure there is open communication between different functions and that the internal audit function evaluates the effectiveness of these functions as part of its internal audit plan, and ensure that the internal audit function is equipped to perform in accordance with appropriate professional standards for internal auditors.
9.4.4. The Committee must ensure the internal auditor has direct access to the Board chair and to the Committee chair, providing independence from the executive and accountability to the Committee.
9.4.5. The Committee should carry out an annual assessment of the effectiveness of the internal audit function and as part of this assessment meet with the head of internal audit without the presence of management to discuss the effectiveness of the function and review and assess the annual internal audit work plan.
9.4.6. The Committee should receive a report on the results of the internal auditor’s work, determine whether it is satisfied that the quality, experience and expertise of internal audit is appropriate for the business.
9.4.7. The Committee should review the actions taken by management to implement the recommendations of internal audit and to support the effective working of the internal audit function.
9.4.8. The Committee shall monitor and assess the role and effectiveness of the internal audit function in the overall context of the company’s risk management system and the work of compliance, finance and the external auditor.
9.4.9. Where appropriate the Committee should consider and subsequently recommend to the Board whether an independent, third-party review of processes is appropriate.
9.5. External Audit
9.5.1. The Committee shall consider and make recommendations to the Board, to be put to shareholders for approval at the AGM, in relation to the appointment, re-appointment, removal, remuneration and terms of engagement of the company’s external auditor.
9.5.2. The Committee will develop and oversee the selection procedure for the appointment of the audit firm in accordance with applicable Code and regulatory requirements, ensuring that all tendering firms have access to all necessary information and individuals during the tendering process.
9.5.3. If an external auditor resigns, the Committee shou investigate the issues and circumstances leading to this and decide whether any action is required.
9.5.4. The Committee is responsible for overseeing the relationship with the external auditor. In this context the Committee shall:
a) approve their remuneration, including both fees for audit and non-audit services, and ensure that the level of fees is appropriate to enable an effective and high-quality audit to be conducted.
b) approve their terms of engagement, including any engagement letter issued at the start of each audit (ensuring that it has been updated to reflect and change in the circumstances arising since the previous year) and the scope of the audit.
9.5.5. The Committee shall review annually the external auditor’s qualifications, expertise and resources, their independence and objectivity and the effectiveness of the external audit process, including a report from them on their own internal quality procedure ; taking into account relevant UK professional and regulatory requirements and also guidance from recognised bodies of good standing and the relationship with the external Auditor as a whole, including the provision of any non-audit services and the external Auditor’s compliance with applicable UK ethical guidance relating to the rotation of audit partner.
9.5.6. The Committee needs to 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) which could adversely affect the auditor’s independence and objectivity.
9.5.7. The Committee should agree with the Board a policy on the employment of former employees of the company’s auditor, taking into account the Ethical Standard and legal requirements, and monitor the application of this policy
9.5.8. The Committee should monitor the auditor’s processes for maintaining independence, its compliance with relevant law, regulation, other professional requirements and the Ethical Standard, including the guidance on the rotation of audit partner and staff
9.5.9. It should also monitor the level of fees paid by the company to the external auditor compared to the overall fee income of the firm, office and partner and assess these in the context of relevant legal, professional and regulatory requirements, guidance and the Ethical Standards.
9.5.10. The Committee should seek to ensure coordination of the external audit with the activities of the internal audit function.
9.5.11. It is the Committee’s responsibility to develop and implement the company’s formal policy on the provision of non-audit services by the auditor, ensuring there is prior approval of non-audit services by the Committee and specifying the types of non-audit service to be preapproved, and assessment of whether non-audit services have a direct or material effect on the audited financial statements. The policy should include consideration of the following matters:
a) threats to the independence and objectivity of the external auditor and any safeguards in place.
b) the nature of the non-audit services
c) whether the external audit firm is the most suitable supplier of the non-audit service
d) the fees for the non-audit services, both individually and in aggregate, relative to the audit fee
e) the criteria governing compensation
9.5.12. The Committee should meet regularly with the external auditor (including once at the planning stage before the audit and once after the audit at the reporting stage) and, at least once a year, meet with the external auditor without management being present, to discuss the auditor’s remit and any issues arising from the audit, factors that could affect audit quality and review and approve the annual audit plan, ensuring it is consistent with the scope of the audit engagement, having regard to the seniority, expertise and experience of the audit team; and to review the findings of the audit. This review shall include but not be limited to, the following:
a) a discussion of any major issues which arose during the audit .
b) the auditor’s explanation of how the risks to audit quality were addressed.
c) key accounting and audit judgements
d) the auditor’s view of their interactions with senior management.
e) levels of errors identified during the audit.
f) any representation letter(s) requested by the external auditor before it is (they are) signed by management.
g) the management letter and management’s response to the auditor’s findings and recommendations.
h) the effectiveness of the audit process, including an assessment of the quality of the audit, the handling of key judgements by the auditor, and the auditor’s response to questions from the Committee.
9.6. Reporting Requirements
9.6.1. The Committee chair shall report formally to the Board on its proceedings after each meeting on all matters within its duties and responsibilities and shall also formally report to the Board annually on how it has discharged its responsibilities. This report shall include:
a) the significant issues that it considered in relation to the financial statements and how these were addressed
b) its assessment of the effectiveness of the external audit process, the approach taken to the appointment or reappointment of the external auditor, length of tenure of audit firm, when a tender was last conducted and advance notice of any retendering plans
c) if the External Auditor provides non-audit services, an explanation of how auditor objectivity and independence are safeguarded
d) any other issues on which the Board has requested the Committee’s opinion
9.6.2. The Committee shall make whatever recommendations to the Board it deems appropriate on any area within its remit where action or improvement is needed.
9.6.3. The Committee shall compile a report on its activities to be included in the company’s annual report and recommend this statement to the Board for its approval. The report should describe the work of the audit Committee, including:
a) how it has assessed the prospects of the Company, over what period it has done so and why it considers that period to be appropriate. The statement should also set out whether the Board has a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, drawing attention to any qualifications or assumptions as necessary;
b) the significant issues that the Committee considered in relation to the financial statements and how these issues were addressed .
c) an explanation of how the Committee has assessed the independence and effectiveness of the external audit process and the approach taken to the appointment or reappointment of the external auditor, information on the length of tenure of the current audit firm, when a tender was last conducted and advance notice of any retendering plans.
d) an explanation of how auditor independence and objectivity are safeguarded if the external auditor provides non-audit services, having regard to matters communicated to it by the auditor and all other information requirements set out in the Code.
e) a report on the frequency of attendance by members of meeting.
f) confirmation that the Committee has completed its assessment of the Company’s emerging and principal risks, what procedures are in place to identify emerging risks, and an explanation of how these are being managed or mitigated.
9.7. In compiling the reports referred to above, the Committee should exercise judgement in deciding which of the issues it considers in relation to the financial statements are significant, but should include at least those matters that have informed the Board’s assessment of whether the company is a going concern and the inputs to the Board’s viability statement. The report to shareholders need not repeat information disclosed elsewhere in the annual report and accounts but could provide cross-references to that information.
9.8. The Committee must approve and recommend to the Board 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.
9.9. Where the Committee is not satisfied with any aspect of the proposed financial reporting by the Company, it shall report its views to the Board.