RECKITT BENCKISER GROUP plc AUDIT COMMITTEE Adopted by resolution on 28 July 2016 The Board of Directors of the Company (the Board) resolved on 4 September 2007 to establish a Committee of the Board to be known as the Audit Committee (the Committee). The Board resolved on 10 February 2015 to amend the Terms of Reference of the Committee. These Terms of Reference replace in their entirety those adopted on 21 July 2011, 4 November 2011, 16 November 2012, 8 November 2013 and 10 February 2015. 1. Membership and quorum 1.1 The Audit Committee shall be appointed by the Board and all members of the Committee shall be independent non executive directors of the company. The Committee shall consist of at least three members. 1.2 A quorum 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 vesting in or exercisable by the Committee. 1.3 The Chairman of the Committee shall be appointed by the Board from amongst the independent non executive directors. The chairman of the Board shall not be a member of the Committee. 1.4 One member of the Committee should have significant, recent and relevant financial experience ideally with a professional qualification from one of the professional accountancy bodies. 1.5 Committee members should serve for an initial period of up to three years, with the option to extend by no more than two additional three-year periods so long as the members continue to be independent. In exceptional circumstances, with the Board s approval, membership may be extended past a 9 year period if the Board determines that the member remains independent. 2. Secretary The secretary of the company or her nominee shall act as the secretary of the Committee and shall ensure that the Committee receives information and papers in a timely manner to enable full and proper consideration to be given to issues. 3. Attendance at meetings 3.1 Only members of the Committee have the right to attend Committee meetings. However, the external auditor, the Group Head of Internal Audit and the CFO shall be invited to attend the meeting of the Committee on a regular basis and other individuals such as the chairman of the Board, CEO, other directors, and representatives from the finance function, or other persons shall attend meetings at the invitation of the Committee. 3.2 There should be at least one meeting a year, or part thereof, where the Committee meets the external auditor and the Group Head of Internal Audit without executive Board members present. 4. Frequency of meetings 4.1 Meetings shall be held not less than four times a year at times in the company s financial reporting cycle that allow the Committee to fulfil its duties effectively and at such other times as the Chairman of the Committee shall require. 4.2 The external auditor or the Group Head of Internal Audit may request a meeting if they consider that one is necessary. Page 1 of 6
4.3 Outside the formal meeting programme, the Chairman of the Committee shall maintain a dialogue with key individuals involved in the company s governance, including the chairman of the Board, the CEO, the CFO, the external audit lead partner and the Group Head of Internal Audit. 5. Authority The Committee is authorised by the Board to: 5.1 Investigate any activity within its terms of reference; 5.2 Seek any information that it requires from any employee of the company and all employees are directed to co-operate with any request made by the Committee; 5.3 Obtain outside legal or independent professional advice and secure the attendance of outsiders with relevant experience and expertise if it considers this necessary; and 5.4 Carry out its duties for the parent company, major subsidiary undertakings and the group as a whole, as appropriate. 6. Duties External Auditor and the Audit Process The duties of the Committee shall be to: 6.1 consider, and make recommendations to the Board to put to shareholders for approval at the AGM, on the appointment, reappointment and removal of the external auditor; 6.2 ensure that at least once every ten years the audit services contract is put out to tender to enable comparison of the quality and effectiveness of the services provided by the incumbent auditor with those of other audit firms; and in respect of such tender oversee the selection process and ensure that all tendering firms have such access as is necessary to information and individuals during the duration of the tendering process. The Committee shall have regard to the Competition and Markets Authority Order to hold periodic tenders of the external audit contract and the European Union Regulation imposing periodic mandatory audit firm rotation as these become effective; the Committee shall ensure that any audit tenders are held in a form that accords with the regulatory requirements of both the Competition and Markets Authority Order and European Union Regulation ; 6.3 approve the remuneration to be paid to the external auditor, including the fees for audit services, and ensure that the level of fees is appropriate to enable an effective and high quality audit to be conducted; 6.4 approve the terms of engagement including the scope of the audit and any engagement letter issued at the start of each audit; 6.5 devise procedures to assess annually the independence and objectivity of the external auditor, taking into consideration relevant professional and regulatory requirements and the relationship with the external auditor as a whole, including the provision of any non-audit services; 6.6 seek reassurance that the external auditor and its staff have no family, financial, employment, investment or business relationship with the company (other than those in the normal course of business) which could adversely affect the auditor s independence and objectivity; 6.7 annually assess the qualifications, expertise and resources of the external auditor and the effectiveness of the audit process, such assessment to include a report from the external auditor on its own internal quality procedures; 6.8 monitor 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 as a proportion of the overall fee income of the firm, office and partner and other related regulatory requirements; Page 2 of 6
6.9 agree with the Board and monitor the company s policy for the employment of former employees of the external auditor; 6.10 develop, implement and keep under review, the company s policy in relation to the provision of non audit services by the external auditor and routinely monitor the appropriateness and quantum of spend on non-audit services to avoid any threat to auditor independence and objectivity taking into account any relevant ethical guidance on the matter; 6.11 evaluate the risks to the quality and effectiveness of the financial reporting process and consider in that evaluation the risk of the withdrawal of the external auditor from the audit market; 6.12 review and approve the annual audit plan and ensure that it is consistent with the scope of the audit engagement, having regard to the seniority, expertise and experience of the audit team; 6.13 review with the external auditor, the findings of its 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 and significant adjustments resulting from the audit, obtaining explanations from management and, where necessary, the external auditor, as to why certain errors might remain unadjusted; 6.14 review the audit representation letters before signature by management and give particular consideration to matters where representation has been requested that relate to non-standard issues; and 6.15 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. 7. Duties Internal Audit function The duties of the Committee shall be to: 7.1. review the internal audit programme and ensure that the internal audit function has the necessary resources and access to information to enable it to fulfil its mandate, and is equipped to perform in accordance with appropriate professional standards for internal auditors; 7.2. ensure that the Group Head of Internal Audit has direct access to the chairman of the Board and to the Committee and is accountable to the Committee, and meets at least once a year without the presence of management; 7.3. review and assess the annual internal audit work plan; 7.4. receive a report on the results of the work of the internal audit function on a periodic basis; 7.5. review and monitor management s responsiveness to the findings and recommendations of the internal audit function; 7.6. monitor and assess the role and effectiveness of the internal audit function in the overall context of the company s risk management system; and 7.7. approve the appointment or dismissal of the Group Head of Internal Audit. Page 3 of 6
8. Duties Financial Reporting The Committee shall monitor the integrity of the financial statements of the company including its interim management statements, preliminary announcements and related formal statements and shall review, and challenge where necessary, the actions and judgements of management, in relation to the company s financial statements, interim management statements, preliminary announcements and related formal statements, paying particular attention to: 8.1. the consistency of, and any changes to critical accounting policies and practices both on a year on year basis and across the company and group; 8.2. whether the company has followed appropriate accounting standards and made appropriate estimates and judgements, taking into account the views of the external auditor; 8.3. the extent to which the financial statements are affected by any significant or unusual transactions in the year and how they are disclosed including the methods used to account for such transactions where different approaches are possible; 8.4. the clarity and completeness of disclosures in the company s financial reports and the context in which statements are made; 8.5. all material information presented with the financial statements; 8.6. the going concern assumption; 8.7. the separate requirement for a statement in respect of the viability of the Company (comprising its long term solvency and liquidity) over a specified period, being significantly longer than twelve months from the date of approval of the annual financial statements; and 8.8. compliance with laws and regulations, the provisions of the Code and the requirements of the UK Listing Authority s Listing, Prospectus and Disclosure and Transparency Rules and any other applicable rules, as appropriate. Where the Committee is not satisfied with any aspect of the proposed financial reporting by the company, it shall report its views to the Board. Where requested by the Board, the Committee will provide advice on how, taking into account the Company s position and principal risks, the prospects of the Company have been assessed, over what period and why the period is regarded as appropriate. The Committee should also provide advice on whether there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the said period, drawing attention to any qualifications or assumptions as necessary, prior to the Directors making their statement in the Annual Report thereon. 9. Duties Narrative reporting Where requested by the Board, the Committee should review the content of the annual report and financial statements 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. 10. Duties Internal Control and Risk Management The duties of the Committee shall be to: 10.1 review and monitor the scope and effectiveness of the systems established by management on an ongoing basis to identify, assess, manage and monitor internal financial controls, non financial controls and risks: 10.2 review and approve management's and the internal auditor s reports on the effectiveness of the systems for internal control, financial reporting and risk management prior to endorsement by the Board ; and Page 4 of 6
10.3 consider the major findings of internal investigations within the Committee s remit and management s response. Where requested by the Board, the Committee will provide them with assurance on the robustness of their assessment and management of principal risks prior to the Directors making their statement thereon. The Committee will support the Board in making its decision what, if anything, to report around significant failings or weaknesses in risk management and intenal control. 11. Duties Whistleblowing and Fraud arrangements The duties of the Committee shall be to review the company s: 11.1 procedures for whistleblowing and ensure that secure 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. The Committee shall ensure that these arrangements allow proportionate and independent investigation of such matters and appropriate follow up action; 11.2 procedures for detecting fraud; and 11.3 systems and procedures for the prevention of bribery. 12. Reporting 12.1 The Secretary shall circulate the minutes of meetings of the Committee to all members of the Board unless it would be inappropriate to do so in the opinion of the Chairman of the Committee. 12.2 The Chairman of the Committee shall report formally to the Board on its proceedings after each meeting on all matters within its duties and responsibilities including: the significant issues that it considered in relation to the financial statements and how these were addressed; its assessment of the effectiveness of the external audit process and its recommendation on the appointment or re-appointment of the external auditor; and any other issue on which the Board has requested the Committee s opinion. The report shall include how these responsibilities were discharged. 12.3 The Committee shall undertake an annual review of its terms of reference and of its own effectiveness and recommend any necessary changes to the Board. 12.4 The role and responsibilities of the Committee and the actions taken by the Committ3ee to discharge those responsibilities shall be disclosed in the annual report. Such a report should specifically include: i ii a summary of the role of the Committee; the names and qualifications of all members of the Committee during the period; iii the number of Committee meetings and attendance by each member; iv an explanation of how the Committee has addressed the effectiveness of the external audit process; v 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 external auditor, and all other information set out in the Code; and vi in relation to the provision of non audit services by the external auditors, the reason(s) why the Committee approved management s decision to use the external auditor for each specific engagement over the required threshold (as set under the Group s financial policy on non-audit services) and how it has ensured that auditor objectivity and independence is safeguarded. 12.5 In compiling its reports the Committee should exercise judgement in deciding which of the issues it considers are significant in relation to the financial statements but should include at least those matters that have informed the Board s assessment of whether the company is a going concern. The report to shareholders need not repeat information disclosed elsewhere in the annual report and financial statements, but could provide cross-references to that information. Page 5 of 6
12.6 Where disagreements between the Committee and the Board cannot be resolved, the Committee shall report the issue to the shareholders as part of the report on its activities in the company s annual report. 12.7 If the Board does not accept the Committee s recommendation regarding the appointment, reappointment and removal of the external auditors, the Committee shall include a statement explaining its recommendation and reasons why the Board has taken a different stance in the annual report. 12.8 The Chairman of the Committee should attend the AGM and respond to any questions from shareholders on the Committee s activities and its responsibilities. 13. Training 13.1 The Committee members should receive periodic training (including an induction programme for new members) and be entitled to attend training courses on corporate governance and financial reporting related matters to assist in the performance of their duties. Page 6 of 6