AWE LIMITED ACN 077 897 440 AUDIT AND GOVERNANCE COMMITTEE CHARTER Page No. 1. Introduction 2 2. Objectives of the Committee 2 3. Authority of the Committee 3 4. Committee Responsibilities 3 5. Committee Membership 8 6. Induction of New Members to the Committee 9 7. Meetings 10 8. Systems of Reporting 11 9. External Auditor Responsibilities 12 10. Assessing the Performance of the Committee 13 Adopted by AWE Board 15 April 2014 page 1
1. Introduction The Audit and Governance Committee, a committee constituted by the Board, comprises representatives of the Board of Directors to assist the Board in fulfilling its responsibilities of oversight and Corporate Governance in relation to AWE s financial reporting, internal control system, corporate and governance risk management and external audit functions. The Company Secretary shall be the Audit and Governance Committee s Secretary, unless the Board of Directors determines otherwise. The Charter shall be reviewed as required but in any event at least each 2 years by the Committee and updated (where appropriate) by the Board of Directors. The Charter shall be made available to all Board Directors and Committee members, management, external auditors, shareholders and other interested parties as appropriate. 2. Objectives of the Committee a) Assisting the Board of Directors to discharge its responsibility to exercise due care, diligence and skill in relation to the Company s: ~ reporting of financial information to users of financial statements; ~ application of accounting policies; ~ financial management; ~ internal control system; ~ corporate and governance risk management; ~ taxation risk management; ~ business policies and practices; ~ protection of the entity s assets; and ~ compliance with applicable laws, regulations, standards and best practice guidelines. b) Improving the credibility and objectivity of the accountability process (including financial reporting), especially where the role of the Committee and its membership by independent non-executive directors is disclosed to shareholders and the public. c) Providing a forum for communication between the Board of Directors and senior financial management. d) Improving the efficiency of the Board of Directors by delegating tasks to the Committee and thus allowing more time for issues to be discussed in sufficient depth. Adopted by AWE Board 15 April 2014 page 2
e) Improving the effectiveness of the external audit functions and being a forum for improving communication between the Board of Directors and the external auditor. f) Satisfy itself as to the independence of the external auditor. g) Improving the quality of internal and external reporting of financial information. 3. Authority of the Committee a) The Audit and Governance Committee, as a Committee appointed by the Board, has no authority to act for, or on behalf of the Board or the Company. Its primary Corporate Governance role is to assist the Board of Directors to discharge its responsibilities in respect to the financial affairs and related matters of the Company and to advise and make appropriate recommendations to the Board in respect to such financial responsibilities. b) However, in fulfilling its responsibilities, the Committee has the following rights: i) To obtain explanations and information from any employee and any relevant external party and to institute special investigations. ii) iii) iv) Of access to the external auditor (as well as other reviewers). To carry out or arrange investigations requested by the Board. To seek independent professional advice, at the Company s expense, on matters relevant to carrying out the responsibilities of the Committee, provided that the costs are reasonable and the Chairman of the Board of Directors is informed prior to such advice being sought, and further, that all such advice is provided promptly to all Directors. 4. Committee Responsibilities The Audit and Governance Committee s responsibilities are divided into the following areas: 4.1 External Reporting a) To consider the appropriateness of the Company s accounting policies and principles and any changes, as well as the methods of applying them, ensuring that they are in accordance with the stated financial reporting framework. In accomplishing this the Committee shall request management to inform the Committee of: Adopted by AWE Board 15 April 2014 page 3
whether the methods chosen by management are consistent with Australian Accounting Standards (including the Australian Accounting Interpretations); any changes in significant accounting policies or their application during the reporting period; the methods used to account for significant unusual transactions or transactions in emerging areas for which there may be no specific accounting standard, including management s reasoning in determining the appropriateness of those methods; the methods and reasoning used by management to prepare asset valuations used for reporting purposes; that adequate provisions have been made for liabilities; review of the annual Corporate Governance Statement; and material taxation issues. and then request the external auditor to inform the Committee of his or her views in relation to the above. b) To review with management, the Chief Executive Officer (or equivalent) and the Chief Financial Officer (or equivalent), Statements in writing to the Board which include: i) that the Company s financial statements present a true and fair view, to the best of their knowledge and belief, of the Company s financial condition and operational results and are in accordance with relevant accounting standards; ii) iii) iv) the statement given in accordance with best practice recommendation (b) (i) (the integrity of financial statements) is founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the Board; the Company s risk management and internal compliance and control system is operating efficiently and effectively in all material respects: and Representations made in the Audit Representation Letter are true and accurate. c) To assess significant estimates and judgements in financial statements by enquiring of management about the process used in making material estimates and judgements and then enquire of the external auditor the basis for his or her conclusions on the reasonableness of management s estimates. Adopted by AWE Board 15 April 2014 page 4
d) To review management s processes for ensuring and monitoring compliance with laws, regulations and other requirements (including Australian Accounting Standards, Australian Accounting Interpretations, the Corporations Act 2001 and the Australian Securities Exchange and, where applicable, those of other countries) relating to the external reporting by the Company of financial and nonfinancial information. e) To ensure that a comprehensive process is established by the Company s management to capture issues for the purposes of continuous reporting to the Australian Securities Exchange. f) To assess information from the external auditor that affects the quality of financial statements (eg. actual and potential material audit adjustments, financial statement disclosures, non-compliance with the laws and regulations, internal control issues.) g) To ask the external auditor for an independent judgement about the appropriateness, not just the acceptability, of the accounting principles used and the clarity of the financial disclosure practices used or proposed to be used by the company as put forward by management. h) To review financial documents and financial statements to regulators and make recommendations to the Board on their approval or amendment. i) To assess the management of financial information in documents (both public and internal) to ensure the information does not conflict inappropriately with the financial statements and other documents and assess internal control systems covering information releases that have the potential to adversely reflect on the Company s conduct. j) To review for completeness and accuracy the reporting of the Company s main corporate governance practices as required under the Australian Securities Exchange listing rules. k) To recommend to the Board whether the financial statements should be signed based on the Committee s assessment of them. 4.2 Related-party Transactions a) To review and monitor the propriety of related-party transactions. 4.3 Internal Control a) To assess the internal processes for determining and managing key corporate and governance risk areas, particularly: ~ non-compliance with applicable laws, regulations, standards and best practice guidelines; Adopted by AWE Board 15 April 2014 page 5
~ important judgements and accounting estimates: ~ litigation and claims; ~ fraud and theft; and ~ relevant corporate and governance risks other than those that are dealt with by other specific Board committees. b) To receive from management reports on all suspected and actual frauds, thefts and breaches of laws. c) To address the effectiveness of the Company s internal control system with management and the external auditor. d) To evaluate the process the Company has in place for assessing and continuously improving internal controls, particularly those related to areas of significant corporate and governance risk. e) To assess whether management has controls in place for unusual types of transactions and/or any potential transactions that may carry more than an acceptable degree of risk. f) To meet periodically with key management and external auditors to understand and discuss the Company s control environment. 4.4 External Audit a) To make recommendations to the Board on the appointment, remuneration and monitoring of the effectiveness and independence of the external auditor. b) To ensure that any suggestions by management that the auditor needs to be replaced or that the audit needs to be put out to tender are referred to and examined carefully by the Committee with it reporting to the Board on its examination before any decision is made by the Board. c) To review the rotation schedule of the external auditors engagement partner and the external auditors fee and be satisfied that an effective, comprehensive and complete audit can be conducted for the set fee. d) To review any fees for non-audit services provided by the external auditor. e) To review, at the start of each audit, the terms of the engagement with the external auditor. f) To invite the external auditor to attend Committee meetings to, at least, review the audit plan, discuss audit results and consider the implications of the external audit findings for the control environment. Adopted by AWE Board 15 April 2014 page 6
g) To review, together with the external auditor, the scope of the external audit (particularly the identified risk areas) and any additional agreed-upon procedures on a regular and timely basis. h) To enquire of the external auditor if there have been any significant disagreements with management irrespective of whether or not they have been resolved, or if any restrictions have been imposed on the external auditor in undertaking his or her duties. i) To monitor and critique management s responsiveness to the external auditor s findings and recommendations. j) To review all representation letters signed by management and ensure that the information provided is complete and appropriate. k) To provide the opportunity for the Committee members to meet with the external auditor, without management personnel being present, at least once a year. l) To review the external auditor s independence based on the external auditor s relationships and services with Company and other organisations that may impair or appear to impair the external auditor s independence. m) The Committee is assigned the task of recommending to the Board on the appointment and remuneration, effectiveness and independence of the external auditor. Any such appointment or replacement of the external auditor, shall be approved by ASIC and by shareholders. n) To seek representation that the Company s accounts have been reviewed by the external auditors quality review partner before sign off by the engagement lead partner. The quality review partner shall be the point of contact in relation to any dispute arising from the audit. o) The external auditor shall be eligible to receive advisory assignments from the Company with the exception that any one assignment which exceeds $100,000 in any financial year shall only be awarded to them on an open tender basis, or unless otherwise approved by the Board. p) The external auditor shall not be eligible to receive any other individual consulting or advisory assignments from the Company unless otherwise approved by the Board. q) Any partner or senior manager either currently associated with the external auditor, or who held such an association less than four years ago, shall not be employed by the Company or be eligible to be a director of the Company. r) The Committee shall be the forum for the maintenance of effective communication between the Board and external auditor. Adopted by AWE Board 15 April 2014 page 7
4.5 Policies The Committee is responsible for reviewing, monitoring and making recommendations to the Board on the following: a) Fraud and Corruption Policy; b) Treasury Risk Management Guidelines; c) Whistleblower Policy; d) Securities Trading Policy; e) Procurement Practices Policy; f) Disclosure Policy; g) Tax Risk Management Policy; and h) Dividend Policy 5. Committee Membership a) The Audit and Governance Committee is a committee of the Board of Directors with Committee membership comprised of at least three independent nonexecutive Board members appointed by the Board for specified terms with the Committee Secretary, and invited guests (eg. managing director) to a meeting having no voting powers. b) Any Director, who is not a member of the Committee, may attend committee meetings but shall have no voting powers at such meetings. c) Members shall have the appropriate skills (including financial literacy) and time to fill their role on the Committee. d) The majority of members shall have significant experience with financial and business matters. e) With the approval of the Board, members should be given the opportunity to attend technical and professional development courses to help them keep up to date with legislative, accounting and other relevant issues. f) The Board should appoint a Committee member who is a Director as the Committee chairperson based on the member s leadership and other skills. The term of appointment should be specified by the Board and relate to the Director s term of appointment to the Committee and the good management of the Committee. Where appropriate, the Board may also appoint a deputy chairperson in the same manner as it appoints the chairperson. Adopted by AWE Board 15 April 2014 page 8
g) The chairperson of the Board of Directors should not be the chairperson of the Committee. h) The Committee chairperson, or in his or her absence, the deputy chairperson, shall attend the Company s Annual General Meeting. i) The managing director (or chief executive if also a Director) should not be a member of the Committee. j) Members and potential members of the Committee shall exercise care to ensure that they disclose relationships for consideration by the Board that could be viewed by other parties as impairing the individual s independence and, in turn, the Committee s independence. In deciding what is significant, consideration shall be given to the significance of a relationship to the Company and to the individual. The decision and justification whether a Committee member is independent is the responsibility of the Board of Directors. 6. Induction of New Members to the Committee a) Prospective new Committee members shall be provided with a copy of the Audit and Governance Committee s charter and with specific, tailored information about the Company, particularly in the following areas: ~ business operations; ~ the industry in which the Company operates; ~ financial performance: ~ risk management system and the way they are managed; ~ the internal control system; ~ key financial reporting policies, including related-party issues; ~ legal and regulatory requirements, including external reporting and compliance responsibilities; ~ code of ethical conduct; ~ unusual transactions; and ~ an estimate of the time members need to commit to their Committee role, insofar as they have not received and/or retained the information as Directors. b) New members shall be financially and business literate. c) New members shall meet key management and the external auditor prior to their appointment. d) Background briefings on key audit issues and risk areas provided by the external auditor and management shall be provided to new Committee members prior to their appointment. Adopted by AWE Board 15 April 2014 page 9
e) All material previously provided to Committee members on matters still before the Committee shall be provided to new members at the time of their appointment. 7. Meetings a) A regular schedule of meetings (as least three per year) shall be held with prearranged dates having regard to fulfilling the Committee s charter. Additional unscheduled meetings may be necessary where matters arise that may require further deliberation and/or urgent consideration. b) Meetings shall be structured with the use of an agenda and supporting papers. Adequate time shall be allowed for discussion and resolution of each agenda item. c) A process shall be established for placing items on the agenda by those entitled to do so, and for special meetings to be arranged. Where appropriate the external auditor shall be invited to contribute to the agenda. d) The chairperson shall review the agenda prior to its issue to Committee members and other parties (eg. external auditor) authorised by the Committee. e) Agenda and briefing papers (including any input from management) shall be well documented and circulated in sufficient time to allow members to review the information well before the meeting. f) The external auditor shall have a right to attend Committee meetings except in situations where the Committee determines the auditors presence is not required or there could be a perceived conflict of interest. g) Meetings shall proceed when a quorum of two members is present. h) Meetings shall be minuted and signed by the chairperson and copies of the minutes shall be distributed to all Board members and Committee attendees. i) Management shall attend Committee meetings when invited by the Committee. j) The Committee, without management present, may decide to meet separately with the external auditor to discuss issues of mutual interest. Adopted by AWE Board 15 April 2014 page 10
8. Systems of Reporting a) The chairperson of the Audit and Governance Committee shall report formally to the Board of Directors at the Board meeting following each Committee meeting, providing a summary of the Committee s work and results. The report should cover the following: i) the Committee s minutes (including details of members and attendees present); ii) iii) iv) any formal resolutions of the Committee; information about the audit process and the results of the external audit; any determination by the Committee about the external auditor s independence; v) the review of the Committee s charter and its achievement of the charter; vi) other matters the Committee believes need to be reported to the Board; and vii) any recommendations requiring Board action and/or approval, with the charter used as a guide to the content of the reports. b) At the discretion of the Board of Directors, the following information about the Committee and its activities may be included in the Company s annual report, and where appropriate, interim external reports. i) summary of the Committee s main responsibilities and rights and whether these were reviewed and altered since the last annual report; ii) iii) iv) biographical details of Committee members, including Committee appointment date and term of appointment; details of expertise of non-director members; member and related party dealings with the Company; v) details of any change to the independent status of individual members since the last annual report; vi) details of the accounting or related financial management experience of members; Adopted by AWE Board 15 April 2014 page 11
vii) number of meetings in the year to date since the last annual report, number of meetings each member was eligible to attend and number of meetings attended by each member; viii) any adverse determination by the Committee regarding the external auditors independence; and ix) all fees paid to the external auditors, including payments for non-audit services. 9. External Auditor Responsibilities a) The external auditor s role and responsibilities in relation to effective interaction with an Committee shall include the following: i) Asking the Committee if there are any matters that the auditor needs to be aware of in planning and completing the audit. ii) iii) iv) Ensuring that information regarding the planning of the audit (eg. scope, materiality, past results) is communicated to the management and the Committee at a mutually agreed time in advance of the audit s commencement. Agreeing with the Committee and management on the form of the information that the external auditor intends to communicate to the Committee. Communicating to the Committee: ~ the responsibility the auditor assumes under Australian Auditing Standards and the legal mandate (where appropriate); and ~ matters that have come to the auditor s attention during the course of the audit that, in the auditor s judgement, represent significant deficiencies in the design or operation of the internal control structures. v) Informing the Committee of any significant unresolved and resolved issues revealed by the audit or areas of significant disagreement with management, the corrective action taken and the current status of the issues. The issues include errors, problems, weaknesses, disagreements with management, accounting treatments, estimates and judgements. vi) Documenting in the audit working papers significant matters communicated with the Committee as required by Australian auditing standards. vii) Responding in an appropriate manner to reasonable Committee questions and other communications. Adopted by AWE Board 15 April 2014 page 12
viii) Informing the Committee on an ongoing basis of relationships and services (both within the Company and with other parties) that the Committee needs to be made aware of so the Committee can assess the auditor s independence. ix) Ensuring that the Committee arranges for the auditor to attend the appropriate Committee meeting and subsequent Board meeting when approval of the Company s (audited) financial statements is to be considered. 10. Assessing the Performance of the Committee a) The Audit and Governance Committee shall be subjected to a comprehensive review every three years by the Board of Directors. b) On completion of the Comprehensive Performance Assessment, the Board and Committee shall respond to the findings and take appropriate action. The action may include revising the charter; revising reporting arrangements; training for Committee members to cover any identified needs to develop or enhance skills; and communicating the assessment findings and related action (or parts thereof) to the appropriate parties (e.g. Committee members, shareholders). c) An annual self-assessment by the Committee shall also be provided to the Board of Directors. Adopted by AWE Board 15 April 2014 page 13