SMITH & NEPHEW PLC TERMS OF REFERENCE OF THE AUDIT COMMITTEE

Transcription

1 SMITH & NEPHEW PLC TERMS OF REFERENCE OF THE AUDIT COMMITTEE MEMBERSHIP 1. Members of the Audit Committee shall be appointed by the Board subject to annual re-election by shareholders at the AGM on the recommendation of the Nomination & Governance Committee and, if appropriate, in consultation with the Chairman of the Audit Committee. 2. The Audit Committee shall consist of at least three members, all of whom shall be independent Non- Executive Directors (as defined by the UK Corporate Governance Code, NYSE and the SEC) at least one of whom shall have recent and relevant financial experience as defined by the UK s Disclosure and Transparency Rule 7.1 and S407 of the Sarbanes-Oxley Act. 3. The Board shall appoint the Chairman of the Audit Committee who shall be an independent Non- Executive Director and shall not be the Chairman of the Board. 4. Only members of the Audit Committee and the External Auditor have the right to attend Audit Committee meetings. However, other individuals, including, but not limited to the Chairman of the Board, Chief Executive Officer, Chief Financial Officer, Head of Internal Audit, Group Financial Control will be invited to attend meetings as and when appropriate. In addition other members of the Board may attend with the Chairman s consent. 5. The Company Secretary or their designate shall be the Secretary of the Audit Committee. MEETINGS AND THE TRANSACTION OF BUSINESS 6. Meetings shall usually be held not less than four times a year at appropriate times in the audit and reporting cycle. Meetings may be held physically or by telephone and additional meetings may be convened as the Chairman of the Audit Committee shall determine. 7. The quorum for the transaction of business shall be two. 8. Meetings of the Audit Committee shall be summoned by the Secretary at the request of the Chairman or any of its Members. 9. 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 Audit Committee no later than three working days before the date of the meeting together with supporting papers. 10. At least once a year the Audit Committee shall meet with the External Auditor without any executive board member present. 11. The Secretary shall minute the proceedings and resolutions of all Audit Committee meetings and circulate them to the members of the Audit Committee.

2 12. The Chairman of the Audit Committee shall report regularly to the full Board on the proceedings of the Audit Committee and the minutes of all meetings shall be included in the Board papers for a subsequent Board meeting. 13. The Chairman of the Audit Committee shall be required to attend the annual general meeting of shareholders to respond to any shareholder questions on the activities of the Audit Committee. The Chairman of the Audit Committee shall also be required, if requested, to meet institutional shareholders to discuss any audit question they may have at other times. DUTIES 14. The duties of the Audit Committee shall be to : Finance and Accounting 14.1 Monitor the integrity of the financial statements of the Company, including the quarterly, halfyear and full year announcements, Annual Accounts (including Form 20-F) and any other formal announcements relating to the Company s financial performance before submission to the Board, focusing particularly on significant judgemental and financial reporting issues compliance with accounting standards appropriate accounting policies and practices and any changes therein relevant communications between the External Auditor and management including that relating to audit adjustments and items not adjusted the going concern assumption compliance with appropriate regulatory and legal requirements anti-fraud programmes and controls; 14.2 Discuss problems and reservations arising from the quarterly and interim reviews, final audit and 20-F audit and any other matters the External Auditor may wish to discuss (in the absence of management where necessary); External Audit 14.3 Appoint, re-appoint, remove, compensate and oversee the work of the External Auditor, subject to shareholder approval at the Annual General Meeting and, when appropriate, lead the process to select the External Auditor; 14.4 Approve the policy and processes for the appointment of the External Auditor to undertake non-prohibited non-audit services taking into account any relevant ethical guidance on the matter. (Appendix 1 and Appendix 2 detail non-prohibited and prohibited non-audit services);

3 14.5 Agree with the External Auditor before the audit commences the nature and scope of the audit, and ensure co-ordination where more than one audit firm is involved; 14.6 Review and monitor the External Auditor s independence, objectivity and effectiveness; and monitor the External Auditor s compliance with relevant ethical and professional guidance; 14.7 Review any representation letter(s) requested by the External Auditor before they are signed by management; 14.8 Review Control Observations made by the External Auditor and management s response; Internal Audit 14.9 Approve the appointment and removal of the Head of Internal Audit, who shall report functionally to the Audit Committee and administratively to the Chief Financial Officer and to meet with the Head of Internal Audit at least once a year without management; Together with the Head of Internal Audit, review and approve the Internal Audit Charter and the Internal Audit Annual Plan Review with Management, the Head of Internal Audit and the Chairman of the Audit Committee whether the remit and resources of the Function is appropriate; Monitor and review the effectiveness of the Internal Audit Function s activities. An independent review should be performed at least every 5 years; Review the approach adopted by internal audit on an annual basis including consideration of the tools and the methodology adopted by the function; Internal Control Review, in accordance with the requirements in S404 Sarbanes-Oxley Act in the US, management s assessment and reporting of the effectiveness of internal financial controls over financial reporting and to review the External Auditor s reports on management s assessment and the effectiveness of internal control over financial reporting; Review, in accordance with UK requirements, the effectiveness of the internal controls and review and approve the Board s statement in the Annual Report of its responsibility for the maintenance of the group s system of internal control and for reviewing its effectiveness; Risk Management On behalf of the Board (which retains overall responsibility for risk management), review and ensure oversight of the processes by which risks relating to the Company and its operations are managed, through regular functional reports and presentations, and report any issues arising out of such reviews to the Board;

4 14.17 On behalf of the Board (which retains overall responsibility for risk management), review financial risks through regular functional reports and presentations, and report any issues arising out of such reviews to the Board; Review the operating effectiveness of the Group s risk management process in supporting the Group s strategy and objectives; Whistleblowing Review arrangements by which staff may raise complaints against the Company regarding financial reporting or other matters; Reporting Review the statements to be made in the Annual Report on compliance with the corporate governance requirements of the UK Corporate Governance Code, the Disclosure and Transparency Rules, the NYSE listing rules and of the SEC, along with the verification undertaken, including that of the External Auditors, and advise the Board accordingly; Review the statements to be made in the Annual Report relating to internal control and risk management, including the disclosure of strategic risks and any mitigating actions; Produce a report on the activities of the Audit Committee to be included in the Company s Annual Report, explaining the activities undertaken by the Committee in the year, the significant issues considered and how they were addressed; Advise the Board on whether the Annual Report and Accounts, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company s performance, business model and strategy; Disclose in the Company s Annual Report details of any issues that cannot be resolved between the Audit Committee and the Board; ADMINISTRATION 15. The Audit Committee shall, at least once a year, review its own performance, constitution and terms of reference to ensure that it is operating at maximum effectiveness and recommend any changes it considers necessary to the Board for approval. 16. The Audit Committee is authorised by the Board to seek any information it requires from any employee of the Company in order to perform its duties and to obtain any outside legal or professional advice at the Company s expense. October 2014

5 Appendix 1 Permitted Services The following specific permitted services, consistent with the nature of services previously provided, are: 1. Advice on accounting, auditing and financial reporting matters: Consultation and research on accounting, auditing and financial reporting issues and assistance with understanding and implementing new accounting and financial reporting guidance from rule-making authorities. The provision of seminars with regards to auditing, tax and accounting matters. The provision of online reference materials. The provision of services required of the Company s external auditor in connection with offerings and regulatory filings in capital markets such as, but not limited to, registration statements and reports filed with the SEC. Assistance and consultation as to questions, comments or inquiries made by the SEC or other regulatory agencies. Review of translations of financial statements. Assurance over management assessment of performance in relation to financial matters. 2. Internal accounting and risk management control reviews: Business continuity planning assurance. Information systems disaster recovery project assistance. Assurance over outsourced services. Review of enterprise wide risk management and corporate governance systems. Information systems security management assurance, including intrusion and detection, incident response, policies and standards compliance, and physical security reviews. Evaluation of information system internal controls, policies, procedures and practices, including information systems vulnerability assessments and third party connectivity security review. 3. Non statutory audit: Audits as required of subsidiaries of the Company or related audits of elements of financial statements or agreed upon procedures. Joint agreement audits (including joint ventures). Employee benefit plan audits as required by regulation or law and any related trusts (including pension, savings, and health and welfare). Attest services through which procedures are performed to verify compliance with contractual commitments (including royalty audits, stock certification, regulatory audits, turnover certificates and reports on expenditure eligible for grants). Environmental and social attestation report. 4. Project assurance and advice on business and accounting process improvement 1 Advice on accounting process. Assistance in analysis of accounts. Corporate simplification assistance. Review of project progress. 1 The foregoing does not include services relating to information systems design and implementation related to Smith & Nephew s financial statements or accounting records

6 Information systems project assurance, including assurance over IT system replacement. Application integrity and security assurance. Information systems general control reviews. Data migration review. 5. Due diligence in connection with acquisitions, disposals and joint ventures Due-diligence work for potential acquisitions, disposals or joint ventures, which will specifically entail review and procedures relating to financial, information systems, accounting, human resources, markets information and tax procedures relating to the parties to the contemplated transaction and performance of audit and/or review procedures as of the closing or other dates related to the transaction. 6. Income tax and indirect tax compliance and advisory services Tax compliance services consisting of routine professional services in which the Company requests the preparation and/or review of an income tax, indirect tax, withholding tax or other tax return to be filed by the Company with a local regulator. Tax consulting consisting of routine professional advice in which the Company requests the auditors tax professionals research, comment or document in writing to the Company regarding local income tax, indirect tax, withholding tax, tax compliance, tax procedures and transfer pricing regulations. Such consultations may relate to a specific transaction or specific tax planning matter. 7. Employee tax services 2 Administrative services with respect to the Expatriate Tax Compliance Program. Tax compliance work for expatriates in compliance with Smith & Nephew s HR policies. Advice on tax issues affecting LTIP and other incentive plans. Assistance with determining required US reporting and withholding for LTIP participants. Operational compliance with the Internal Revenue Service s rules related to employee benefit plans. Pre-retirement planning, severance and broad-based financial planning workshops and employee tax seminars. Social security advice and refund of contributions claims. 2 The foregoing does not include tax services that could impair independence such as representation of the Company or its subsidiaries before the courts in a tax dispute.

7 Appendix 2 Prohibited Non-Audit Services Prohibited non-audit services are as follows: 3 Bookkeeping or other services related to the accounting records or financial statements Financial information systems design and implementation services Appraisal or valuation services, fairness opinions, or contribution-in-kind reports Actuarial services Internal audit outsourcing services Management functions Human resources functions Broker-dealer, investment adviser, or investment banking services Legal services Expert services unrelated to the audit