Overview Members The (the Committee ) is the delegated committee of the (the Board ) of (the Company ) responsible for determining the application of financial reporting, risk management and internal control principles, and for monitoring the effectiveness of internal and external audits. Members shall be appointed by the Board in consultation with the Chairman ( Committee Chairman ). The Committee or any nominated Committee thereof, shall be made up of at least three members. All members of the Committee shall be independent non-executive directors at least one of whom shall have recent and relevant financial experience. The Chairman of the Board shall not be a member of the Committee. Appointments to the Committee shall be reviewed annually by the Board as part of the review of the Constitution and Terms of Reference of all Board Committees. The Board shall appoint the Committee Chairman who shall be an independent non-executive director. 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. Membership Only members of the Committee have the right to attend Committee meetings. The following shall normally be invited to attend meetings but shall not contribute towards constituting a quorum: Executive Director, Finance or nominee Director, Legal and Compliance and Company Secretary or nominee Representative(s) of the external auditors Manager General Audit Office Head of Compliance or nominee Any nominee shall be approved in advance at the discretion of the Committee Chairman. However, other individuals may be invited by the Committee Chairman to attend all or part of any meeting as and when appropriate. The Company Secretary or their nominee shall act as the secretary of the Committee. Quorum Requirements Frequency of Meetings 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. The Committee shall meet at least four times a year at appropriate times in the reporting and audit cycle with two of the meetings being held immediately prior to submission of the annual and interim financial statements to the Board, and otherwise as required. The executive, normally through the Chairman of the Board, should inform the Committee Chairman (so that a special Committee meeting may be called, if deemed necessary), should there be an event, or sequence of events which may have 'material' consequences on the reported capital adequacy or net asset value of the Company. Page 1 of 7
Notice of Meetings All meetings of the Committee shall be called by the Secretary of the Committee or a nominee or at the request of any of its members, or at the request of external or internal auditors if they consider additional meetings are necessary. Unless otherwise agreed with the Committee Chairman, 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 5 working days before the date of the meeting. Supporting papers shall be sent to Committee members, and to other attendees as appropriate, wherever possible at the same time. Minutes of Meetings The Secretary shall minute the proceedings and resolutions of all meetings of the Committee, including recording the names of those present and in attendance. Members shall indicate to the Secretary any potential conflicts of interest at the beginning of each meeting and the Secretary shall minute them accordingly. Draft minutes of Committee meetings shall be circulated promptly to all members of the Committee for comment and, once provisionally agreed by the members of the Committee, the draft minutes shall be presented to the next meeting for approval and shall then be signed by the Chairman of that meeting as a true record of the proceedings. Once agreed the minutes shall be circulated to all members of the Board. To support compliance with the Senior Management Arrangements, Systems and Controls section within the Financial Services Authority Handbook the Committee should carry out the duties below for the Company including its major subsidiary undertakings and the group as a whole, as appropriate. Financial Reporting monitor the integrity of the financial statements of the Company, including its published annual and half-yearly reports and its Basel II Pillar 3 Declaration, and any other formal announcement relating to its financial performance, and the Committee shall review significant financial reporting issues and judgements contained therein. The Committee may also review significant financial returns to regulators and any financial information contained in any other documents as it wishes; and provide a forum for the discussion and resolution of areas of disagreement in relation to the statements and announcements e.g. between management and the external auditor. The Committee may review and challenge where necessary: the consistency of, and any material changes to, accounting policies both on a year on year basis and across the Company/Group; the methods used and the treatment of significant or unusual transactions where different approaches are possible; Page 2 of 7
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 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 an operating and financial review or business review and the corporate governance statement (insofar as it relates to the audit and risk management); and all material information in connection with corporate tax liabilities. Internal Controls and Risk Management Systems keep under review the effectiveness of the Company's internal controls and risk management systems; review and approve the statements to be included in the annual report concerning internal controls and risk management, and review the effectiveness of the methods used; and receive and review appropriate reports from Director, European Risk. Regulatory and Other Compliance receive and review appropriate reports from the Head of Compliance; receive copies of all regulatory audit reports, significant findings and all letters received from the Financial Services Authority of a significant regulatory compliance nature together with management's responses; review issues arising from the requirements of the Financial Services and Markets Act 2000 or other appropriate legislation and related relevant UK and European legislation as they apply to the Company and its European branches; review issues arising from the requirements of relevant UK and local legislation as they apply to the Company's activities in non-eu Member Countries and/or countries in which the Company was not operating through a Branch Office (to include operations through Representative Offices and subsidiary companies and other non-branch legal trading entities); review money laundering compliance; review litigation actions which could involve significant costs; review significant matters including appropriate Unusual Events; and review as appropriate inputs to the Company's Individual Liquidity Adequacy Assessment (ILAA) and Internal Capital Adequacy Assessment Process (ICAAP) documents. Page 3 of 7
Whistleblowing and fraud the Committee may review the Company's arrangements for its employees to raise concerns, in confidence, about possible wrongdoing in financial reporting or other matters and review compliance with any appropriate FCE policies and procedures. The Committee also may review the arrangements for appropriate follow-up action; the Committee may request detailed reports from management (or outside experts) on any fraud or 'whistle-blowing event', initially at the discretion of the Committee Chairman; and review the Company's procedures for detecting fraud. 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; ensure co-ordination between the Internal Control Office, the General Audit Office and external auditors; consider and review the remit and the resources of the Company's internal audit function and ensure it has appropriate access to information to enable it to perform its function 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; review and assess the annual internal audit plan; review appropriate reports on the Company from the Internal Control Office and the General Audit Office; review and monitor management's responsiveness to the findings and recommendations of the Internal Control Office and the General Audit Office including action plans where needed; meet the Heads of the Internal Control Office and the General Audit Office at least once a year without management being present to discuss their remit and any issues arising from the internal audits carried out. In addition, the heads of the Internal Control Office and the General Audit Office have the right of direct access to the Chairman of the Board and to the Committee; and discuss problems/reservations/opportunities raised by ICO/Management Selfassessment Processes and internal audit. External Audit after consultation with ultimate parent company representatives where necessary, consider and make recommendations to the Board, which would be put to shareholders for approval at the Annual General Meeting, in relation to the appointment, reappointment or removal of the Company's external auditor. 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): o approval of their remuneration and the analysis of fees for audit and nonaudit services; o review of the terms of engagement, including any engagement letter issued at the start of each statutory audit and the scope of the audit; Page 4 of 7
o receipt of annual confirmation that a review has been undertaken by the Ford of: the continued independence and objectivity of the external auditors and the relationship with the auditor as a whole, including the provision of any non-audit services; any significant relationships the external auditor has with Ford and Ford affiliates; the external auditor's compliance with relevant ethical and professional guidance on the rotation of audit partners and other related requirements; the performance of the external auditor and the effectiveness of the audit process including a report from the external auditor on their own internal quality procedures; and any policy on the employment of former employees of the company's auditor and subsequent monitoring of this policy; meet regularly with the external auditor, including once at the planning stage before the audit to discuss the nature and scope of 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 their 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; and review the findings of the audit with the external auditor. This shall include, but not be limited to, the following: o a discussion of any major issues which arose during the audit; o any accounting and audit judgements; o levels of errors identified during the audit; o significant adjustments resulting from the audit; and o any matters the auditor may wish to discuss (in the absence of management where necessary). The Committee shall review the effectiveness of the statutory audit and: review any representation letter(s) requested by the external auditor before they are recommended to management for signature; review the management letter and management's response to the auditor's findings and recommendations. Miscellaneous consider other topics as may be defined by the Board from time to time; request and receive such other management reports deemed necessary by the Committee, either on an ad hoc or regular basis; raise any issues that the Committee members may consider relevant; Page 5 of 7
give due consideration to laws and regulations, the Senior Management Arrangements, Systems and Controls section within the Financial Services Authority Handbook, the provisions of the UK Corporate Governance Code and the requirements of the UK Listing Authority's Listing, Prospectus and Disclosure and Transparency Rules as appropriate; review the co-ordination between the internal and external auditors; and oversee any investigation of activities which are within its terms of reference and act as a court of the last resort. Other matters be informed by management, Internal Control Office, General Audit Office and/or the external auditor, should there be an event, or sequence of events which may have material consequences on the reported capital adequacy or net asset value of the Company; have access to sufficient resources in order to carry out its duties, including access to the Legal and other departments for assistance as required; and be provided with appropriate and timely training, both in the form of an induction programme for new members and on an on-going basis for all members. Review and Reporting Responsibilities The Company shall, at least once a year, 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. The Committee Chairman shall report formally to the Board on its proceedings after each meeting on all matters within its duties and responsibilities. The Committee shall make whatever recommendations to the Board it deems appropriate on any area within its remit where action or improvement is needed. Membership of the Committee and attendance will be noted in the annual accounts. Authority The Committee is authorised: to investigate any activity within its terms of reference; 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; and to call any employee to be questioned at a meeting of the Committee as and when required. Page 6 of 7
Risks Covered Audit risks Control risks Regulatory compliance risks Subcommittees/Wor king Groups The Committee may call for the establishment of project based sub-committees and/or working groups, after consultation with the Chairman of the Board. Annual calendar of work The Committee normally will carry out its programme of work in accordance with the calendar below: OUTLINE ANNUAL PROGRAMME FOR AUDIT COMMITTEE MEETINGS There will be four programmed s each year to be held in March, June, August and November or adjacent months. March June August - Review draft Annual Accounts for previous calendar year ended 31 December - Review Management Letter - Review external auditors' report and issues arising - Review other published reports or disclosures (ex. Remuneration Code disclosures, Pillar 3 Declaration) - Capital and liquidity adequacy reporting, planning and implementation - External Auditor Annual Review - Regulatory Compliance mid-year update - Review draft Interim Accounts for the six months ended 30 June - Review Management letter - Review external auditors' report and issues arising - General Auditors Office annual review November - Members to meet separately with external auditors without Executive Board directors or management present - Accounting Policies and disclosure changes for the next annual accounts - Regulatory Compliance Annual Review Page 7 of 7