Adopted by resolution of the Board on 8 th July 2010 FLYBE GROUP LIMITED (renamed Flybe Group plc on 7 th December 2010) Audit Committee Terms of Reference
FLYBE GROUP LIMITED (renamed Flybe Group plc on 7 th December 2010) AUDIT COMMITTEE TERMS OF REFERENCE 1. PURPOSE 1.1 The purpose of the Committee is to provide formal and transparent arrangements for considering how to apply the financial reporting and internal control principles set out in the Combined Code, and to maintain an appropriate relationship with the Company s auditors. 2. CONSTITUTION AND MEMBERSHIP 2.1 The Audit Committee has been established as a committee of the Board by resolution of the Board. 2.2 Appointment to the Committee is for a period of up to three years which may be extended for two further three-year periods, provided the director remains independent. 2.3 At the date of adoption of these terms of reference the membership of the Committee is Charlie Scott (Chairman), Alan Smith and David Brown. The Chairman of the Committee is an independent non-executive director of the Company. 2.4 If, following the date of adoption of these terms of reference, the Company obtains a listing on the Official List of the London Stock Exchange, the Committee shall (unless the Company meets the smaller company criteria of the Combined Code) comprise at least three members, all of whom shall be independent non-executive directors. In the event that the Company meets the smaller company criteria of the Combined Code, the Committee shall comprise at least two independent non-executive directors. 2.5 If, following the date of adoption of these terms of reference, the Company does not obtain a listing on the Official List of the London Stock Exchange, the membership of the Committee shall be at least two non-executive directors. 2.6 The members of the Committee shall be appointed by the Board, on the recommendation of the Nomination Committee. The Chairman of the Company shall not be a member of the Committee and at least one member of the Committee should have recent and relevant financial experience. 2.7 The chairman of the Committee shall be appointed by the Board, on the recommendation of the Nomination Committee. In the absence of the chairman
of the Committee, the members present shall select one of their number present to chair the meeting. 2.8 The Company Secretary shall act as the Secretary of the Committee. Where the Secretary is also an executive director, the Committee may nominate one of its members to act as Secretary for any meeting which the Committee wishes to hold without executive directors being present. 3. ATTENDANCE 3.1 The Committee may invite a representative of the external auditors and (if applicable) the head of the internal audit function to attend all meetings of the Committee. The Committee should have at least one meeting, or part of a meeting, with the external auditors without management being present. 3.2 The Committee may request the Chairman of the Company, Chief Executive Officer, Chief Financial Officer and any relevant senior management to attend meetings of the Committee, either regularly or by invitation, but such invitees have no right of attendance. 3.3 The head of the internal audit function shall have the right of direct access to the chairman of the Committee. 4. FREQUENCY OF MEETINGS, AND PROCEEDINGS 4.1 The Committee will meet at least four times per annum, having regard to the Company s financial reporting cycle, and at such other times as the chairman of the Committee shall think fit. 4.2 Meetings of the Committee will be arranged to tie in with the publication of the Company s financial statements. 4.3 The external auditors or the internal auditors may (through the chairman of the Committee) request a meeting of the Committee if they consider that one is necessary. 4.4 Meetings of the Committee shall be convened by the Secretary of the Committee at the request of any member. 4.5 Unless otherwise agreed by all members of the Committee, notice of meetings, confirming the venue, time and date together with an agenda and all relevant papers, should be circulated to each member of the Committee, to any other person required or invited to attend, and to all other non-executive directors, in a timely manner so as to enable full and proper consideration to be given to the issues in advance of the meeting. 4.6 The quorum for meetings of the Committee shall be two members.
4.7 Decisions of the Committee will be made by majority vote. In the event of an equality of votes, the chairman of the Committee will have a second or casting vote. 5. REPORTING 5.1 The Secretary shall minute the proceedings and resolutions of all meetings of the Committee. Minutes of Committee meetings shall be circulated promptly to all members of the Committee and, once agreed, to all members of the Board unless a conflict of interests exists. 5.2 The Committee or its chairman shall report regularly to the Board of the Company on the tasks undertaken by the Committee on behalf of the board and, as appropriate, shall meet with the Board to discuss such matters as the Annual Report and the relationship with the external auditors. 5.3 The Committee shall make whatever recommendations to the Board that it deems appropriate in the context of the scope of its responsibilities. 5.4 The Committee shall prepare a report each year to be included in the Company s annual report and accounts. 5.5 The chairman of the Committee should be present at the Company s annual general meeting to respond to questions on matters within the responsibility of the Committee. 6. DUTIES OF THE COMMITTEE The duties of the Committee, in respect of the Company, major subsidiary undertakings and the corporate group as a whole (as appropriate) are: Financial Statements 6.1 to monitor the integrity of the financial statements (including summary financial statements) of the Company and any formal announcements (including significant returns to regulators, interim management statements and Regulated Information Service announcements) relating to the Company s financial performance and/or containing financial content (and to review any significant financial reporting issues and / or judgements contained therein). 6.2 to keep under review the consistency of, and any changes to, accounting policies, both on a year to year basis and across the Group. 6.3 to review and challenge where necessary the Company s financial statements (including the actions and judgements of management in relation to them), before submission to the Board, taking into account, in particular:
6.3.1 accounting policies and practices year on year and within the group, and any changes in them; 6.3.2 decisions requiring a major element of judgement; 6.3.3 the extent to which the financial statements are affected by any significant or unusual transactions or circumstances; 6.3.4 the clarity of disclosures; 6.3.5 significant adjustments resulting from the audit; 6.3.6 the going concern assumption; 6.3.7 compliance with accounting standards; 6.3.8 the views of the external auditor; and 6.3.9 compliance with stock exchange and other regulatory and legal requirements, 6.4 to consider management s response to any major external or internal audit recommendations. 6.5 to review the annual financial statements of the pension funds, where not reviewed by the Board as a whole. 6.6 to review and challenge where necessary the operating and financial/business review and corporate governance statement insofar as it relates to audit matters or risk management. Internal Control and Risk Assessment Systems 6.7 to keep under review the effectiveness of the Company s financial reporting and internal control policies and systems, covering all material controls, including financial, operational and compliance controls, and the Company s procedures for the identification, assessment, management and reporting of risks, as well as approving the statements in the annual report concerning such internal controls and risk management. Internal Audit 6.8 The Committee shall, consistent with the provisions of the Combined Code, consider annually whether there is a need for an internal audit function and make a recommendation to the Board. In the event that the Committee recommend that such internal audit function is required and the recommendation is adopted by the Board, the duties of the Committee shall include those set out at paragraphs 6.9 to 6.14 (inclusive below).
6.9 to monitor and review the effectiveness of the Company s internal audit function. 6.10 to consider applications for the post of and appoint the head of the internal audit function, and to approve any dismissal of that post holder. 6.11 to consider and approve the terms of reference of the internal audit function, to consider the planned programme of internal audits and the reasons for any changes or delays in the programme. 6.12 to ensure that the internal audit function is adequately resourced, and has appropriate standing in the Company. 6.13 to review the management's responsiveness to the findings and recommendations of the internal audit function and to ensure that the internal auditors have sufficient freedom from management. 6.14 to review promptly all reports on the Company from the internal auditors. External Audit 6.15 to make recommendations to the Board in relation to the appointment of the external auditors and to approve the remuneration and terms of engagement of the external auditors. 6.16 to monitor and review the external auditors independence, objectivity and effectiveness, taking into consideration relevant UK professional and regulatory requirements and the levels of audit and non-audit work carried out by the external auditors. 6.17 to oversee the selection process, consider and make recommendations to the Board in relation to the appointment and re-appointment of the Company s external auditors, and to ensure that the key partners within the appointed firm are rotated from time to time. 6.18 to investigate any issues which result in or are connected to the resignation of external auditors and decide whether any action is required. 6.19 to meet with the external auditors at least twice each year, including at the audit planning stage, when the nature and scope of the audit, quality control procedures and steps taken by the auditors in response to regulatory and other requirements will be considered, and post 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. 6.20 to review any auditors management letters and management s responses.
6.21 to review any representation letter(s) requested by the external auditors before they are signed by management. 6.22 to keep under review the relationship with the external auditors including (but not limited to): 6.22.1 the independence and objectivity of the external auditors; 6.22.2 the consideration of audit fees which should be paid, as well as any other fees which are payable to auditors in respect of non-audit activities; and 6.22.3 discussions with the external auditors concerning such issues as compliance with accounting standards and any proposals which the external auditors have made in relation to the Company s internal auditing standards. 6.23 to develop and implement policy on the engagement of the external auditors to supply non-audit services, taking into account relevant ethical guidance regarding the provision of non-audit services by the relevant external audit firm, and such policy shall specify: 6.23.1 the Chief Financial Officer shall arrange for a report to be provided to the Chairman of the Committee at each meeting summarising fees incurred in respect of non-audit services provided by the external auditors 6.23.2 in relation to matters where the fees payable to the external auditors for such non-audit services will exceed 10,000, that the external auditors shall not be engaged in respect of such matters without the approval of the Committee; and 6.23.3 in respect of matters where the fees will be 10,000 or less, the types of non-audit work: 6.23.3.1 from which the external auditors are excluded; and 6.23.3.2 for which a case by case decision from the Committee is necessary 6.23.4 that the cumulative fees payable to the external auditors for such non-audit services shall not in the aggregrate exceed 50,000 in any one year unless the Committee has given its approval to exceed that limit.
Other matters 6.24 to give due consideration to relevant laws and regulations including the requirements of the Listing Rules and Disclosure and Transparency Rules of the Financial Services Authority. 6.25 to co-ordinate the internal and external auditors. 6.26 to review the Company s procedures by which staff may raise concerns about possible improprieties in matters of financial reporting or other matters, and to ensure that arrangements are in place for proportionate and independent investigation of such matters and for appropriate follow-up action. 6.27 to review the company s procedures for detecting fraud. 6.28 to oversee any investigation of activities which are within its terms of reference, and to act as a court of last resort. 6.29 to review at least once a year the Committee s own performance, constitution and terms of reference, and make recommendations to the Board as necessary, to ensure that it is operating at maximum effectiveness. 7. DIRECTORS DUTIES 7.1 Each member of the Committee will be required to comply with his duties and responsibilities as a director in force from time to time pursuant to common law and equitable principles and the Companies Act 2006. In particular, the Companies Act 2006 introduced a statutory statement of the general duties of directors which replaces the corresponding common law duties and equitable principles as follows: 7.1.1 to act within powers, ie in accordance with the Company s constitution and to only exercise powers for the purposes for which they are conferred; 7.1.2 to act in a way the director considers, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole and in doing so have regard to the following (non-exhaustive) factors: 7.1.2.1 the likely consequences of any decision in the long term; 7.1.2.2 the interests of the Company s employees; 7.1.2.3 the need to foster the Company s business relationships with suppliers, customers and others;
7.1.2.4 the impact of the Company s operations on the community and the environment; 7.1.2.5 the desirability of the Company maintaining a reputation for high standards of business conduct; and 7.1.2.6 the need to act fairly as between members of the Company; 7.1.3 to exercise independent judgment; 7.1.4 to exercise reasonable care, skill and diligence; 7.1.5 to avoid conflicts of interest; and 7.1.6 to declare to the Board interests in proposed transactions or arrangements with the Company and to declare to the Board interests in existing transactions or arrangements with the Company. 7.2 Each member of the Committee should also note that the purpose of the business review in relevant financial statements is to inform members of the Company and help them assess how the directors have performed their duty to promote the success of the Company (see paragraph 7.1.2 above). 8. AUTHORITY 8.1 The Committee is authorised by the Board to investigate any activity or state of affairs within its terms of reference. 8.2 The Committee is authorised to seek any information it requires from any employees or officers and to call any member of staff to be questioned at a meeting of the Committee as and when required. 8.3 The Committee is authorised by the Board, at the Company s expense, to obtain expert advice from the Company s auditors, professional advisers or otherwise, and to take independent professional advice and to require the attendance of outsiders with relevant experience and expertise if it considers it necessary. These terms of reference were adopted in place of the previous terms of reference by resolution of the Board passed on 8 th July 2010.