Principles from the UK Corporate Governance Code
- The Board should establish formal and transparent policies and procedures to ensure the independence and effectiveness of internal and external audit functions and satisfy itself on the integrity of financial and narrative statements.
- The Board should present a fair, balanced and understandable assessment of the Company’s position and prospects.
- The Board should establish procedures to manage risk, oversee the internal control framework, and determine the nature and extent of the principal risks the company is willing to take in order to achieve its long-term strategic objectives.
The members of the Audit & Risk Committee and the Chairman of the Audit & Risk Committee shall be appointed by the Board. All members of the Audit & Risk Committee shall be Non-Executive Directors of the Company.
The Committee shall consist of not less than three members and whenever possible will include at least two independent Non-Executive Directors. A quorum shall be two members.
The Chairman of the Audit & Risk Committee shall be appointed by the Board from amongst the Non-Executive Directors.
One member of the Audit & Risk Committee should have significant, recent and relevant financial experience.
Appointments to the Audit & Risk Committee shall be for a period of up to three years, which may be extended for two further three year periods provided that the Audit & Risk Committee retains two Independent directors
The Company Secretary shall be the Secretary of the Audit & Risk Committee.
The Company Secretary shall minute the proceedings and resolutions of all Audit & Risk Committee meetings, including the names of those present and in attendance.
Attendance at meetings
No one other than the Audit & Risk Committee members shall be entitled to attend Audit & Risk Committee meetings.
The Chairman, other Non-Executive Directors, CEO, CFO, representatives of the external auditors, or other persons shall attend meetings at the invitation of the Audit & Risk Committee.
There should be at least one meeting a year, or part thereof, where the Audit & Risk Committee meets the external auditors and have the opportunity to discuss matters with the external auditors without Executive Directors present.
Frequency of meetings
Meetings shall be held not less than three times a year (to coincide with key dates in the Company’s financial reporting cycle).
Annual General Meeting
The Chairman of the Audit & Risk Committee shall attend the Annual General Meeting and be prepared to respond to any shareholder questions on the Audit & Risk Committee’s activities.
The Audit & Risk Committee is authorised by the Board to:
- Investigate any activity within its terms of reference
- Seek any information that it requires from any employee of the Company and all employees are directed to cooperate with any request made by the Audit & Risk Committee
- Obtain outside legal or independent professional advice, at the Company’s expense, and secure the attendance of outsiders with relevant experience and expertise if it considers this necessary
The duties of the Audit & Risk Committee shall be:
- To review, and challenge where necessary, the actions and judgements of management, in relation to the Company’s financial statements, operating and financial review, interim reports, preliminary announcements and related formal statements before submission to, and approval by, the Board, and before clearance by the auditors
Particular attention should be paid to:
- Critical accounting policies and practices, and any changes in them
- Decisions requiring a significant element of judgement and in particular revenue recognition and the capitalisation of R&D expenditure
- The extent to which the financial statements are affected by any unusual transactions in the year and how they are disclosed
- The clarity of disclosures
- Significant adjustments resulting from the audit
- The going concern assumption
- Compliance with accounting standards
- Compliance with stock exchange and other legal requirements
- To consider other topics, as defined by the board or on the initiative of the Committee
Internal control and risk management
- To review the Company’s procedures for detecting fraud and whistleblowing and ensure that arrangements are in place by which staff may, in confidence, raise concerns about possible improprieties in matters of financial reporting, financial control or any other matters
- To review management’s reports on the effectiveness of the systems for internal financial control, financial reporting and risk management
- To monitor the integrity of the Company’s internal financial controls
- To review the statement in the annual report and accounts on the Company’s internal controls and risk management framework
- To assess the scope and effectiveness of the systems established by management to identify, assess, manage and monitor financial and non-financial risks. Note: the Board retains responsibility for the review of the effectiveness of the system of internal control and must form its own opinion despite aspects of that review being delegated to the audit committee
- To consider annually whether there is a need for an internal audit function where no such function exists
- To review the internal audit programme and ensure that the internal audit function is adequately resourced and has appropriate standing within the Company
- To ensure that the internal auditor has direct access to the Board Chairman and the Audit & Risk Committee and is accountable to the Audit & Risk Committee
- To receive a report on the results of the internal auditors’ work on a periodic basis
- To review and monitor management’s responsiveness to the internal auditor’s findings and recommendations
- To monitor and assess the role and effectiveness of the internal audit function in the overall context of the Company’s risk management system;
- To appoint or dismiss the head of internal audit;
- To oversee the Company’s relations with the external auditor(s)
- To consider, and make recommendations on the appointment, reappointment and removal of the external auditor(s)
- To approve the terms of engagement and the remuneration to be paid to any external auditor in respect of audit services provided
- To assess the qualification, expertise and resources, effectiveness and independence of the external auditors annually - steps to consider include:
- Seeking reassurance that the auditors and their staff have no family, financial, employment, investment or business relationship with the Company (other than in the normal course of business)
- Seeking from the audit firm, on an annual basis, information about policies and processes for maintaining independence and monitoring compliance with relevant requirements, including current requirements regarding the rotation of audit partners and staff
- Monitoring the external audit firm’s compliance with applicable ethical guidance relating to the rotation of audit partners, the level of fees that the Company pays in proportion to the overall fee income of the firm, office and partner and other related regulatory requirements
- Agreeing with the Board and monitoring the Company’s policy for the employment of former employees of the external auditor
- To discuss with the external auditor(s), before the audit commences, the nature and scope of the audit
- To review with the external auditor(s):
- The findings of their work, including, any major issues that arose during the course of the audit and have subsequently been resolved and those issues that have been left unresolved
- Key accounting and audit judgements
- Levels of errors identified during the audit, obtaining explanations from management and, where necessary the external auditor(s), as to why certain errors might remain unadjusted
- To review the audit representation letters before consideration by the Board, giving particular consideration to matters that relate to non-standard issues
- To assess, at the end of the audit cycle, the effectiveness of the audit process by:
- Reviewing whether the auditor(s) have met the agreed audit plan and understanding the reasons for any changes, including changes in perceived audit risks and the work undertaken by the external auditor(s) to address those risks
- Consideration of the robustness and perceptiveness of the auditor(s) in their handling of the key accounting and audit judgements identified and in responding to questions from the audit committees, and in their commentary, where appropriate, on the systems of internal control
- Obtaining feedback about the conduct of the audit from key people involved
- To review and monitor 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 Company Secretary shall circulate the minutes of meetings of the Audit & Risk Committee to all members of the Board, and the Chairman of the Audit & Risk Committee shall, as a minimum, attend the Board meeting at which the accounts are approved.
The Audit & Risk Committee shall annually review its terms of reference and its own effectiveness and recommend any necessary changes to the Board.
The Audit & Risk Committee shall prepare a report on its role and responsibilities and the actions it has taken to discharge those responsibilities for inclusion in the annual report and accounts - such a report should specifically include:
- A summary of the role of the Audit & Risk Committee;
- The names and qualifications of all members of the Audit & Risk Committee during the period;
- The number of Audit & Risk Committee meetings and attendance by each member; and
- The way the Audit & Risk Committee has discharged its responsibilities.
Where disagreements between the Audit & Risk Committee and the Board cannot be resolved, the Audit & Risk Committee shall report the issue to the shareholders as part of the report on its activities in the Company’s annual report.
If the Board does not accept the Audit & Risk Committee’s recommendation regarding the appointment, reappointment and removal of the external auditor(s), the Audit & Risk Committee shall include a statement explaining its recommendation and reasons why the board has taken a different stance in the annual report.
The Audit & Risk Committee Chairman shall attend the AGM and shall answer questions, through the Chairman of the Board, on the Audit & Risk Committee’s activities and their responsibilities.
Compliance, whistleblowing and fraud
The Committee shall:
- Review the adequacy and security of the Company’s arrangements for its employees and contractors 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 systems and controls for the prevention of bribery and receive reports on non-compliance
The Audit & Risk Committee shall have access to sufficient resources in order to carry out its duties, including access to the Company Secretary as required.
The Audit & Risk Committee shall 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, Disclosure and Transparency Rules as appropriate.
The Audit & Risk Committee shall, on a regular basis, review its own performance, 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.