Halma plc Terms of Reference Audit Committee Approved 18 January 2018

Transcription

1 Reference to the Committee shall mean the Audit Committee. Reference to the Board shall mean the Board of Directors. 1. Membership 1.1. The Committee shall comprise at least three members and, where possible, one member of the Remuneration Committee. Members of the Committee shall be appointed by the Board, on the recommendation of the Nomination Committee in consultation with the Chairman of the Audit Committee All members of the Committee shall be independent non-executive Directors at least one of whom shall have recent and relevant financial experience and with competence in accounting and/or auditing. The Chairman of the Board shall not be a member of the Committee Only members of the Committee have the right to attend Committee meetings. However, other individuals such as the Chairman, Chief Executive, Finance Director, other Directors, the head of internal audit and representatives from the finance function may be invited to attend all or part of any meeting as and when appropriate and necessary 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 The external auditors will be invited to attend meetings of the Committee on a regular basis Appointments to the Committee shall be for a period of up to three years, which may be extended for two further three-year periods, provided the Director remains independent. 2. Secretary 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 issues. 3. Quorum 3.1. The quorum necessary for the transaction of business shall be two members. 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. Frequency of Meetings 4.1. The Committee shall meet at least three times a year at appropriate times in the reporting and audit cycle and otherwise as required Outside the formal meeting programme, the Committee Chairman will maintain a dialogue with key individuals involved in the Company s governance, including the Board Chairman, the Chief Executive, the Finance Director, the external audit lead partner and the head of internal audit. 5. Notice of Meetings 5.1. 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 the Finance Director or the external or internal auditors if they consider it necessary 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 five 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. The Finance Director is primarily responsible for the provision of information to the Committee. Page 1 of 7

2 5.3. Notices, agendas and supporting papers can be sent in electronic form. 6. Minutes of Meetings 6.1. The Secretary shall minute the proceedings and resolutions of all meetings of the Committee, including recording the names of those present and in attendance The Secretary shall ascertain, at the beginning of each meeting, the existence of any conflicts of interest and minute them accordingly Minutes of Committee meetings shall be agreed with the Committee Chairman and then circulated to all members of the Committee prior to the next Committee meeting, and once approved to all members of the Board, unless it would be inappropriate to do so in the opinion of the Committee Chairman. 7. Annual General Meeting 7.1. The Chairman of the Committee shall attend the Annual General Meeting prepared to respond to any shareholder questions on the Committee s activities. 8. Duties The Committee should carry out the duties below for Halma plc, major subsidiary undertakings and the group as a whole, as appropriate Financial Reporting The Committee shall monitor the integrity of the financial statements of the Company, including its annual and half year reports, trading updates, preliminary announcements of final results and any other formal announcement relating to its financial performance or containing financial information, and review and report to the Board on significant financial reporting issues and judgments which they contain, having regard to matters communicated to it by the external auditor. The Committee shall report its views to the Board if it is not satisfied with any aspect of the proposed financial reporting The Committee shall review and challenge where necessary: 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; whether the Company has followed appropriate accounting policies and, where necessary, made appropriate estimates and judgments, 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; and all material information presented with the financial statements, such as the strategic report and the corporate governance statement (insofar as it relates to the audit and risk management) The Committee shall ensure the timely production of the annual financial statements of the pension funds Narrative reporting 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 Page 2 of 7

3 the Board s statement in the annual report on these matters, as required under the UK Corporate Governance Code Internal Controls and Risk Management Systems keep under review the adequacy and effectiveness of the Company s internal financial controls, that identify, assess, manage and monitor financial risks, keeping in mind the FRC Guidance on Risk Management, Internal Control and related Financial and Business Reporting, and other risk management systems; and review and approve the statements to be included in the annual report concerning internal controls, risk management and the viability statement Compliance, Whistleblowing and Fraud review the adequacy and security of the Company s arrangements for its employees and contractors to raise concerns, in confidence, about possible improprieties in matters of 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 systems and controls for the prevention of bribery and receive reports on non-compliance; and review regular reports from those responsible for other aspects of the Company s compliance and keep under review the adequacy and effectiveness of the Company s compliance functions Internal Audit approve the appointment or termination of appointment of the head of internal audit; approve the structure and composition of the internal audit function; review and approve the role and mandate of internal audit, monitor and review the effectiveness of the Company s internal audit function in the context of the Company s overall risk management system; annually approve the internal audit charter, ensuring that it is appropriate for the current needs of the Company; review and approve the annual internal audit plan, ensuring that it is aligned to the key risks of the business, and receive regular reports on work carried out; ensure that the internal audit function has unrestricted scope, the necessary resources and appropriate access to information to enable it to perform its mandate 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 and that 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; Page 3 of 7

4 ensure that the head of internal audit has direct access to the Chairman of the Board and to the Committee, providing independence from management and accountability to the Committee; 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 management being present, to discuss the effectiveness of the function; review and assess the annual internal audit work plan; receive a report on the results of the internal audit work; determine whether it is satisfied that the quality, experience and expertise of the internal audit function is appropriate for the business; and review the actions taken by management to implement the recommendations of internal audit and to support the effective working of the internal audit function; 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; and consider whether an independent, third party review of processes is appropriate External Audit 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 mindful of the UK Corporate Governance Code, the Competition and Market Authority Order and the relevant EU regulation requirements that, et al, the external audit be tendered at least every ten years. In addition, the Committee shall give consideration to external tendering at least every five years. External tendering enables the Committee to compare the quality and effectiveness of the services provided by the incumbent auditor with those of at least two or more audit firms. The maximum tenure an auditor should remain in place is 20 years. The Committee shall be responsible for the selection process for new auditors and ensure that all tendering firms have such access as is necessary to information and individuals during the tendering process; and 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): approving their remuneration, whether fees for audit or permitted non-audit services, and ensuring that the level of fees is appropriate to enable an effective, high quality, audit to be conducted; approving their terms of engagement, including any engagement letter issued at the start of each audit and reviewing with the external auditor the scope of the audit; assessing annually their independence and objectivity (taking into account relevant UK professional, regulatory requirements and the Ethical Standard) and the relationship with the auditor as a whole, including the provision of any permitted 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 Page 4 of 7

5 than in the ordinary course of business) which could adversely affect the auditor s independence and objectivity; monitoring the auditor s processes for maintaining independence and their compliance with relevant ethical and professional guidance on the rotation of audit partners, the level of fees paid by the Company compared to the overall fee income of the firm, office and partner and other related requirements, in particular that the independent review and signing partners should serve no more than five consecutive years in either role; assessing annually the qualifications, expertise and resources of the auditor and 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 and a report from the external auditor on their own internal quality procedures; and evaluating the risks to the quality and effectiveness of the financial reporting process and consideration of the need to include the risk of the withdrawal of the Company s present auditor from the market 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 management being present, to discuss the auditor s remit and any issues arising from the audit; discuss with the external auditor the factors that could affect audit quality and review and approve the annual audit plan and ensure that it is consistent with the scope of the audit engagement; review the findings of the audit with the external auditor. This shall include but not be limited to, the following: The Committee shall also: a discussion of any major issues which arose during the audit; the auditor s explanation of how the risks to audit quality were addressed; key accounting and audit judgments; the auditor s view of their interactions with senior management; levels of errors identified during the audit; and the effectiveness of the audit 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; develop and recommend to the Board the Company s policy on the supply of non-audit services by the external auditor, including approval of non-audit services by the Committee and specifying the types of non-audit services to be pre-approved, 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: threat to the independence and objectivity of the external auditor and any safeguards in place; the nature of non-audit services; whether the external audit firm is the most suitable supplier of the non-audit service; Page 5 of 7

6 the fees for the non-audit services, both individually and in aggregate, relative to the audit fee; and the criteria governing compensation; agree the Company s policy for the employment of former employees of the external auditor, taking into account the Ethical Standard and paying particular attention to the policy regarding former employees of the audit firm who were part of the audit team and moved directly to the Company. The Committee should monitor application of the policy, including the number of former employees of the external auditor currently employed in senior positions in the Company, and consider whether in the light of this there has been any impairment, or appearance of impairment, of the auditor s independence and objectivity in respect of the audit; and consider whether the external auditor is the most suitable supplier of permitted nonaudit services. 9. Reporting Responsibilities 9.1. The Committee Chairman shall report formally to the Board on its proceedings after each meeting on all matters within its duties and responsibilities particularly noting how it has discharged its responsibilities in relation to the following matters: Any significant financial reporting issues and judgments made in connection with the preparation of the Company s financial statements, half-yearly reports, preliminary announcements and related formal statements, the approach taken to the appointment or reappointment of the external auditor (including the length of tenure of the audit firm, when a tender was last conducted and advance notice of any retendering plan) and the effectiveness of the external audit process, including: a review of whether the auditor has met the agreed audit plan and an understanding of the reasons for any changes, including changes in perceived audit risks and the work undertaken by the external auditors to address those risks; consideration of the robustness and perceptiveness of the auditors in their handling of the key accounting and audit judgments identified and in responding to questions from the audit committee, and in their commentary where appropriate on the systems of internal control; obtaining feedback about the conduct of the audit from key people involved, for example the Finance Director and the head of internal audit; and reviewing and monitoring the content of the external auditor s management letter, in order to assess whether it is based on a good understanding of the Company s business and establish whether recommendations have been acted upon and, if not, the reasons why they have not been acted upon The Committee shall make whatever recommendations to the Board it deems appropriate on any area within its remit where action or improvement is needed The Committee shall compile a report to shareholders 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. The Committee should exercise judgment 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. 10. Other Matters Page 6 of 7

7 10.1. 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; 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, Prospectus Rules and Disclosure Guidance and Transparency Rules as appropriate; be responsible for ensuring co-ordination of the activities of the internal and external auditors; oversee any investigation of activities which are within its terms of reference; work and liaise as necessary with all other board committees, taking particular account of the impact of risk management and internal controls being delegated to different committees; and periodically review its own performance, and at least once a year, review its 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; 11. Authority The Committee is authorised: to seek any information it requires from any employee of the Company in order to perform its duties; to obtain, at the Company s expense, outside legal or other professional advice on any matter within its terms of reference; to call any employee to be questioned at a meeting of the Committee as and when required; and to have the right to publish in the Company s annual report details of any issues that cannot be resolved between the Committee and the Board. Page 7 of 7