Audit and Risk Committee
Terms of reference
The Audit and Risk Committee of the board of directors of the Company (the "Board") has been established with delegated powers in accordance with the articles of association.
1.1 The Audit and Risk Committee shall consist of at least three members (the "Committee"), each of whom shall be appointed by the Board, on the recommendation of the Nomination Committee in consultation with the Chairman of the Committee.
1.2 All members of the Committee shall be independent non-executive directors. All members of the Committee should have the skills and experience appropriate for membership, and in particular sufficient knowledge of the Company's business, and at least one member should have a professional qualification from one of the professional accountancy bodies, either in the UK or elsewhere. The Chairman of the Board shall not be a member of the Committee.
1.3 If any member of the Committee is unable to act for any reason, the Committee Chairman may appoint any other independent non-executive director of the Company to act as his alternate.
1.4 Only members of the Committee and those entitled to attend as an observer have the right to attend Committee meetings. However, other individuals such as the Chairman of the Board, the Chief Executive Officer, the Chief Financial Officer, other directors and representatives from internal audit and finance functions may be invited to attend all or any part of any meeting as and when appropriate and necessary.
1.5 The external auditors will be invited to attend meetings of the Committee on a regular basis.
1.6 There should be at least one meeting a year, or part thereof, where the external auditors attend without management present.
1.7 Appointments to the Committee shall be for a period of up to three years, extendable by no more than two additional three year periods, provided the director remains independent.
1.8 The Board shall appoint the Committee Chairman. In the absence of the Committee Chairman and/or an appointed deputy, the remaining members present shall elect one of themselves to chair the meeting.
2.1 The Company Secretary or his or her nominee shall act as the secretary of the Committee and will ensure that the Committee receives information and papers in a timely manner to enable full and proper consideration to be given to the issues.
The quorum shall be two members present in person or linked by telephone or video conference facilities, and 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.
4. Voting Arrangements
4.1 Each Committee member shall have one vote which may be cast on matters considered at the meeting. Votes can only be cast by members attending a Committee meeting (whether in person or by audio or video conference).
4.2 If a matter that is considered by the Committee is one where a Committee member, either directly or indirectly has a personal interest, that member shall not be permitted to vote at the meeting.
4.3 Except where he has a personal interest, the Committee chairman shall have a casting vote.
4.4 The Committee chairman may ask any attendees of a Committee meeting to leave the meeting to allow discussions of matters relating to them.
5. Frequency of meetings
5.1 The Committee shall meet at least three times a year at appropriate intervals in the reporting and audit cycle and otherwise as required.
5.2 Outside of the formal meeting programme the Committee Chairman will maintain a dialogue with key individuals involved in the Company's governance, including the Chairman of the Board, the Chief Executive Officer, the Chief Financial Officer, the external audit lead partner and the head of internal audit.
5.3 To the extent practicable, a sufficient interval should be allowed between Committee meetings and meetings of the Board to allow any work arising from the Committee meeting to be carried out and reported to the Board, as appropriate.
6. Notice of meetings
6.1 Meetings of the Committee shall be called by the Secretary of the Committee at the request of any of its members or at the request of external or internal auditors 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 director no later than three working days before the date of the meeting. Supporting papers shall be sent to Committee members and to other attendees as appropriate at the same time.
7. Minutes of meetings
7.1 The Secretary of the Committee shall minute the proceedings and decisions of all meetings of the Committee, including recording the names of those present and in attendance.
7.2 Draft minutes of Committee meetings shall be circulated promptly to all members of the Committee and, once agreed, to all members of the Board unless it would be inappropriate to do so in the opinion of the Committee Chairman.
8. Annual General Meeting
The Chairman of the Committee shall attend the Annual General Meeting prepared to respond to any shareholder questions on the Committee's activities.
The Committee should carry out the duties below for the parent company, major subsidiary undertakings and the group as a whole, as appropriate.
9.1 The Committee shall monitor the integrity of the financial statements of the Company, including its annual and half year reports, preliminary results' announcements, dividend proposals and any other formal announcement relating to its financial performance, reviewing significant financial reporting issues and judgements which they contain. The Committee shall also review summary financial statements, significant financial returns to regulators and any financial information contained in certain other shareholder documents having regard to matters communicated to it by the auditor.
9.2 In particular, the Committee shall review and challenge where necessary:
- the consistency of, and any changes to, significant accounting policies both on a year on year basis and across the Company/Company's group;
- the methods used to account for significant or unusual transactions where different approaches are possible;
- the assumptions or qualifications in support of the going concern statement (including any material uncertainties as to the Company's ability to continue as a going concern over a period of at least twelve months from the date of approval of the financial statements) and the longer term viability statement (including an assessment of the prospects of the Company and the group looking forward over an appropriate and justified period);
- whether the Company has followed appropriate accounting standards and made appropriate estimates and judgements, taking into account the views of the external auditor;
- the clarity and completeness of disclosure in the Company's financial reports and the context in which statements are made;
- all material information presented with the financial statements, such as the business review and the corporate governance statement relating to the audit; and
9.3 Where the Audit Committee is not satisfied with any aspect of the proposed financial reporting by the Company, to report its views to the Board.
9.4 The Committee shall 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.
Risk Management Systems
9.5 The Committee shall on behalf of the board (which retains overall responsibility for risk management),assist the Board with the definition and execution of a risk management strategy, risk policies and current risk exposures, including any prudential risks.
9.6 In support of the Board's risk management strategy, the Committee shall:
- ensure that it delivers effective monitoring of risk management systems and risk appetite across the Company by working closely at all times with the Compliance Officer;
- review the Company's compliance system of corporate standards and procedures and assess the effectiveness of these standards and procedures;
- assess the policies and systems within the Company for ensuring compliance with safety and environmental regulatory requirements;
- assess the performance of the Company with regard to the impact of safety and environmental decisions and actions upon employees, communities, other third parties and the overall reputation of the Company;
- evaluate or oversee, on behalf of the Board, the quality and integrity of any reporting to external stakeholders concerning safety and environmental issues;
- ensure the adequacy of insurance coverage for the Company;
- maintain a risk register which will identify all material risks, evaluate any financial impact of such risks, identify actions to mitigate or avoid any potential impact from such risks, and, going forward, monitor and review the risks; and
- review the results of independent audits of the Company's performance in regard to safety and environmental matters, review any strategies and action plans developed by management in response to issues raised and, where appropriate make recommendations to the Board concerning the same.
9.7 The Committee shall review any external disclosures on the risk management system of the Company and provide an annual statement of effectiveness to the Board.
9.8 The Committee shall:
- keep under review the adequacy and effectiveness of the Company's internal financial and regulatory controls and risk management systems;
- review and approve the statements to be included in the annual report concerning the effectiveness of these financial and regulatory controls and risk management systems.
9.9 Where requested by the Board, provide advice on how, taking into account the Company's position and principal risks, the Company's prospects have been assessed, over what period and why the period is regarded as appropriate. The Committee shall also advise on whether there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the said period, drawing attention to any qualifications or assumptions as necessary.
Compliance, whistleblowing and fraud
9.10 The Committee shall:
- review the adequacy and security of 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;
- review the Company's procedures for detecting fraud;
- review the Company's system and controls for the prevention of bribery and receive reports on non-compliance; and
- to review regular reports from the Compliance Officer and keep under review the adequacy and effectiveness of the company's compliance function.
9.11 The Committee shall:
- ensure the internal auditor has direct access to the Chairman of the Board and to the Committee Chairman, and is accountable to the Committee;
- monitor and review the effectiveness of the Company's internal audit function in the context of the Company's overall risk management system;
- approve the appointment or termination of the head of the internal audit function;
- 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 fulfil its mandate and in accordance with the relevant professional standards;
- review and assess the annual internal audit plan;
- review significant reports on the Company from the internal auditors on a periodic basis;
- review and monitor management's responsiveness to the findings and recommendations of the internal auditor;
- meet the head of internal audit at least once a year without management being present; and
- monitor and review the effectiveness of the Company's internal audit function in the context of the Company's overall risk management system.
9.12 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 and removal of the Company's external auditor.
- The Committee shall ensure that at least once every ten years the audit services contract is put out to tender to enable the Committee to compare the quality and effectiveness of the services provided by the incumbent auditor with those of other audit firms and in respect of such tender oversee the selection process and ensure that all tendering firms have such access as is necessary to information and individuals during the duration of the tendering process. If an auditor resigns the Committee shall investigate the issues leading to this and decide whether any action is required;
- Oversee the relationship with the external auditor including (but not limited to):
- Recommendations on 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;
- approval of their terms of engagement, including any engagement letter issued at the start of each audit and the scope of the audit;
- assessing annually their independence and objectivity taking into account relevant UK professional and regulatory requirements and the relationship with the auditor as a whole, including the provision of any non-audit services;
- satisfying 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;
- agreeing with the Board a policy on the employment of former employees of the Company's auditor, and monitoring the implementation of this policy;
- monitoring the auditor's compliance with relevant ethical and provisional guidance on the rotation of audit partner, the level of fees paid by the Company compared to the overall fee income of the firm, office and partner and other related requirements;
- assessing annually their qualifications, expertise and resources and the effectiveness of the audit process which shall include a report from the external auditor on their own internal quality procedure;
- seeking to ensure co-ordination with the activities of the internal audit function; and
- evaluating the risks to the quality and effectiveness of the financial reporting process and consideration of the need to include risk of the withdrawal of the Company's present auditor from the market in that evaluation.
- 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, without management being present, to discuss the auditor's remit and any issues arising from the audit;
- review and approve the annual audit plan and ensure that it is consistent with the scope of the audit engagement, having regard to the seniority, expertise and experience of the audit team; and
- review the findings of the audit with the external auditor. This shall include, but not be limited to, the following;
- a discussion of any major issues which arose during the audit,
- key accounting and audit judgements;
- levels of errors identified during the audit; and
- the effectiveness of the audit process.
- 9.13 The Committee shall also:
- review any representation letter(s) requested by the external auditor before they are signed by management;
- review the management letter and management's response to the auditor's findings and recommendations; and
- develop and implement a policy on the supply of non-audit services by the external auditor to avoid any threat to auditor objectivity and independence, taking into account any relevant ethical guidance on the matter.
10. Reporting responsibilities
10.1 The Committee Chairman shall report formally to the Board on its proceedings after each meeting on all matters within its duties and responsibilities. This report shall include:
- the significant issues that it considered in relation to the financial statements and how these were addressed;
- its assessment of the effectiveness of the external audit process and its recommendation on the appointment or reappointment of the external auditor; and
- any other issues on which the Board has requested the Committee's opinion.
10.2 To consider the major findings of internal investigations and management's response;
- the Committee shall make whatever recommendations to the Board it deems appropriate on any area within its remit where action or improvement is needed; and
- the Committee shall compile a report on its activities to be included in the Company's annual report. The report should include an explanation of how the Committee has addressed the effectiveness of the external audit process, the significant issues that the Committee considered in relation to the financial statements and how these issues were addressed having regard to matters communicated to it by the auditor and all other information requirements set out in the UK Corporate Governance Code.
11. Other matters
The Committee shall:
- be responsible for co-ordination of the internal and external auditors
- have access to sufficient resources in order to carry out its duties, including access to the Company secretariat for assistance as required;
- 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;
- at least once a year review its own performance, constitution and terms of reference to ensure it is operating appropriately; and
- give due consideration to laws and regulations, the provisions of the UK Corporate Governance Code and the requirements of the UK Listing Authority's Listing Rules, Prospectus and Disclosure and Transparency Rules and any other applicable rules, as appropriate.
12.1 Be authorised to (i) seek any information it requires from any employee of the Company in order to perform its duties, (ii) call any employee to be questioned at a meeting of the Committee as and when required, and (iii) obtain, at the Company's expense, outside legal or other professional advice on any matter within its terms of reference.
As approved by the Board on 11 February 2016.