Xchanging plc Audit Committee Terms of Reference Date: 1 May 2013 Version: 1 Owner: Sara Tyldesley
1 TERMS OF REFERENCEE AUDIT COMMITTEEE (As approved by the Board of Directors off Xchanging plc (the Company ) on 1 th May 2013) The Audit Committee is a sub-committee of the Board appointed in accordance with the Company's articles of association and the Financial Reporting Council's Combined Code on Corporate Governance, whose purpose is to assist the board in the effective discharge of its responsibilitiess for corporate governance, financial reporting and internal control. The Audit Committee has no executive powers with regard to its recommendations and does not relieve the directors of their responsibilities for these matters. 2
2 COMPOSITION 2.1 The Audit Committee shall be a Committee of the Board and its members appointed by the Board. The members of the Committee shall serve onn the Committee at the discretion of the Board and may be removed by the Board. Members shall be appointed for an initial three year term which may be extended for two further three year periods. 2.22 The Committee shall comprise not less than three independent non-executive directors of the t Company of which at least one memberr will have recent and relevant financial experience. The Board shall appoint the Chairman of the Committee. 2.3 The Committee may invite the Chairman of the Board, Chief Executive, Chief Finance Officer, other directors, the heads of risk, compliance and internal audit and representatives from the finance functionn to attend for all or part of any meeting, as and when appropriate. 2. The Chairman of the Board shall not be a member of the Committee. 2.5 The external auditors shall attend meetings of the Committee on a regular basis. At least once a year, the Committee shall meet with the external and internal auditors, without senior management, to discuss matters relating to its remit and any issuess arising from the audit. 2.6 The Company Secretary or his nominee shall be the Secretary to the t Committee. 2.7 The Chairman and members shall be listed each year in the Company's Annual Report. 3
3 MEETINGS 3.1 The quorum for any meeting shall be two of the committee members present at all times orr by telephone. 3.2 The Committee shall normally meet at least three times a year andd additionallyy as and when required. The Chairman of the Committee may convene meetings at his discretion. A meeting of the Committee may be called by any member of the Committee or by the Secretary. The Chairman of the Committee shall meet at least annually with the Chairmen of the Audit Committees of eachh Enterprise Partnership. 3.33 Notice of each meeting confirming the venue, date and time together with an agenda of items to be discussed and supporting papers where appropriate shall be forwarded at least three working days in advance to each member of the Committee and to each other person invited too attend. All reasonable efforts shall be made to give notice of meetings of the Committee to t all members of it and to t arrange such meetings so that members are able to attend them. 3. A member of the Committee may participate in a Committee meeting by telephone. 3.5 In the event of equality of votes, the Chairman of the Committee shall have a casting vote. 3.6 If any member of the Committee is unablee to act for any reason, the Chairman of the Committee may appoint another non-executivee director of the Company agreed by other members of the Committee to act as that member's alternate. 3.7 Each member of the Committee shall disclose to the Committee: Any personal financial interest (other than as a shareholder) inn any matter to be decided by the Committee; or Any potential conflict of interest arisingg from a cross-directorship. Any such member shall abstain from voting on resolutions of the Committee C inn relation to which such interest exists and from participating in thee discussionss concerningg such resolutions and (iff so requested by the Board) shall resign from the Committee.
RESPONSIBILITIES The committee should carry out the dutiess below for the company:.1 Financial Reporting.1.1 Monitor the integrity of the financial statements of the Company, ncluding its annual and interim reports, preliminary results announcements and any other formal announcement relating to its financial performance, reviewing significant financial reporting issues and judgements which they contain;.1.2 Review summary financial statements, significant financial returns to regulatorss and any financial information contained in certain other documents, such as announcements of a price sensitive nature. The executive management shall be responsible for the preparation of all documents to be reviewed by the Committee;.1.3 Review and challenge where necessary: the consistency of, appropriateness of, and any changes to, t accounting policies on a year on year basis and recommend to thee Board any material changes; the methods used to account for significant or unusual transactions where different approaches are possible; whether the Company has followed appropriate accounting standards and made appropriate estimatess and judgements, takingg into account the views of o the external auditor; the clarity of disclosure in the Company s financial reports and the context in whichh statementss are made; effectiveness of management procedures for financial reporting including the clarity and completeness of disclosures in thee financial statements; considering whether disclosures are set properly in context; and all material information presented with the financial statements, such as the operating and financial review and the corporatee governancee statement (insofar( as it relates to the audit and risk management). Note: The review of relevant pension s information is effected by a separate Board Pensions sub- report and committee..2 Narrative Reporting Where requested by the board, the audit committee should revieww the content of the annual accounts and advise the on board on whether, taken as a whole, itt is fair, balanced and understandablee and provides the information necessary for shareholders to assesss the company s performance, business model and strategy. 5
RESPONSIBILITIES.3 Internal controls and risk management systems The Committee shall:.3.1 Evaluate the process of identifying the nature and extent of the more significant risks the Company is willing to take in achieving its strategic objectives;.3.2 Keep under review the effectiveness of thee Company s internal controls and risk management systems;.3.3 Review and report to the Board any instances of financial irregularities or financial fraud;.3. Consider major findings of internal investigations and management's response;.3.5 Review and approve the statements to bee included in the Annual Report R concerning internal controls and risk management; and.3.6 Review the minutes of the audit committees of the Enterprise Partnerships.. Whistleblowing The Committee shall review the Company s arrangements for its employees e too raise concerns, in confidence, about possible wrongdoing in financial reporting or other matters. The Committee shall ensure that thesee arrangements allow proportionate and independent investigation of such matters and appropriate follow up action. As stated in the Whistleblowing Policy, the Chairman of The Committee will receive regular updates on any information disclosed by employees through the Company s whistleblowing arrangements..5 Internal audit The Committee shall:.5.1 Monitor and review the effectiveness of the Company s internal audit function in the context of the Company s overall risk management system;.5.2 Consider and approve the remit of the internal audit function and ensure e it has s adequate resources and appropriate access to information to enable it to perform its function effectivelyy and in accordance with the relevant professional standards. The Committee shall also ensure the function has adequate standing and is independent of senior managemen t or other restrictions;.5.3 Review and assess the annual internal audit plan and ensure that it is agreed with both the Chief Executive Officer and Chief Finance Officer;.5. Review promptly all reports on the Company submitted to it from the internal auditors;.5.5 Review and monitor management s responsiveness to the findingss and recommendations of the internal auditor;.5.6 Approve the appointment or termination of appointmen of the head of internal audit and ensure his/her development and.5.7 Meet the head of internal audit at least once a year, without management being present, to discuss their remit and any issues arising from the internal audits carried out. Inn addition, thee head of internal audit shall be given the right of direct access to the Chairman of the Board and to the Committee. 6
RESPONSIBILITIES.6 External audit The Committee shall:.6.1 Consider and make recommendations to the Board, to be put to shareholders for approval at the Annual General Meeting, in relation to the appointment, re-appointment and removal of the Company s external auditor. The Committee shall oversee the selection process for new auditors and if an auditor resigns the Committee shall investigate the issues leading to this and decide whether w any action is required;.6.2 Oversee the relationship with the external auditor including (but not limited to): Review their remunerationn and recommend to the Board for approval, whether fees forr audit or non- audit servicess and that the level of fees is appropriate to enable an adequate audit to be conducted; to review and agree the engagement letter with the external auditor at the start of each audit; to discuss with the external auditors before the audit commencess and keep under review the scope and results of the audit, as well as whether the level of fee payablee is appropriate for the provision of those services; and ensure co-ordination where more than onee audit firm iss involved; To consider the auditors' work plan for the annual and any interim audit and proposed resources in light of the scope of the audit; To monitor the planned programme off audits and to ascertain the reason for any change or delay in the programme; assessing annually their independence and objectivity taking into account relevant UK professional and regulatory requirements and the relationship with the auditor as a whole, including the provision of any non audit services; ; Satisfying itself that there are no relationships (such as family, employment, investment, financial or business) between the auditor and thee Company (other than inn the ordinary course of business); Agreeing with the Board a policy on the employment of formerr employees of the Company s auditor, then monitoring the implementation off this policy; monitoring the auditor s compliance with relevant ethical and professional p guidance on the rotation of audit partners, the level of fees paid by the Company compared to the overall fee income of the firm, office and partner and other related requirements; Assessing annually their qualifications s, expertise and resources and the effectiveness of the audit process which shall include a report from the external auditor on o their own internal quality procedures; Meet regularly with the external auditor, including once at the planning p stage before 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 andd any issues arising from the audit; Review and approve the annual audit plan and ensure that it iss consistent with the scope of the audit engagement; 7
RESPONSIBILITIES Review the findings of the audit with the external auditor. This shall includee but not be limited to, the following: o o o o A discussion of any major issues which arose during the audit andd subsequently have been resolved and those issues that have been left unresolved; Any key accounting and auditt judgements; Levels of errors identified during the audit; obtaining explanations from management and, wheree necessary, the external auditors as to why certain errors may remain unadjusted, and The effectivenesss of the audit; Review any representation letter(s) requested by the external auditor before they are signed by management; and Review the management letter and management s response to the auditor s findings and recommendations; the audit committee should consider whether the information provided is complete and appropriate based on its own knowledge;.6.3 Develop and implement a policy on the supply of non-audithe matter; this shall include non audit services which are: services by the external auditor, taking into account any relevant ethical guidance on Pre- approved Do not require specific approval from the audit committee before contracting Excluded from the external auditor.6. pre- approval of non audit service is considered appropriate wheree the threat too auditor independence is considered low, guidelines forr which are included within the policy for provisionn of non audit services, and.6.5 At the end of the annual auditt cycle, assess the effectiveness of the audit process. In the course of doing so the audit committee should: review whether the auditor has met the agreed audit plan and understand the reasons for any changes, including changes in perceived audit risks and the work w undertaken by the external auditors to address those risks; Consider the robustness and perceptiveness of the auditors inn their handling of the key accounting and audit judgements identified and inn responding to questionss from the audit committee, and in their commentary where appropriate on thee systems of internal control; Obtain feedback about the conduct off the audit from key people involved, for example the Chief Finance Officer and the Head of Internal Audit; 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 ss business and establish whether recommendations have been acted upon and, if not, the reasons why theyy have not been acted upon; and Report to the board on the effectiveness of the external audit process. p 8
RESPONSIBILITIES.7 Reporting Responsibilities The Committee shall:.7.1 Review the statement by the directors to be included in the annuall accounts onn the going concern status of the Company and any supporting assumptions and qualifications;.7.2 assist the Board by preparing a statementt for inclusionn in the directors' report for the Annual Report describing the roles and responsibilities off the Committee and actions taken byy the Committee to discharge those responsibilities; as well ass listing the names and qualificationsq s of all members of the committee, the number of committee meetings and attendance by each member;.7.3 Produce for the Board's approval the statement for inclusion in thee Annual Report in relation to internal control and the management of risk;.7. If the external auditor is permitted to provide non-audit services, too provide an explanation for inclusion in the Annual Report of how auditor objectivity and independence is safeguarded; and.7.5 report to the Board as it deems appropriate, identifying any matters within its remit, in respect of which it considers that action or improvement is needed and making recommendationss as to the steps to be taken;.7.6 The audit committee should report to the board on how it has discharged its responsibilities, including: The significant issues that it considered in relation to the financial statements and how these issuess were addressed; Its assessment of the effectiveness off the external audit process and its recommendation on the appointment or reappointment of the external auditor; and Any other issues on whichh the board has requested the committee s opinion. 9
5 ANNUAL GENERAL MEETING The Chairman of the Committee shall attend the Annual General Meeting M prepared to respond to any shareholder questions on the Committee ss activities. 6 REPORTING PROCEDURE 6.1 The Chairman of the Committee shall make a verbal report to the next meetingg of the Board of matters considered by the Committee. 6.2 The Secretary shall circulate to t all members of the Board the minutes of the meetings of the Committeee after the approval and signature by the Chairman. 6.3 The external auditors shall be invited to attend the Board meeting at which the e minutes from the Annual Accounts review are submitted to the Board. 7 TERMS OF REFERENCEE REVIEW The Committee 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 r any changes it considerss necessary to the Board for approval. 8 AUTHORITY 8.1 The Committee is authorised to seek any information it requires from any employee of the company in orderr to perform its duties. 8.2 The Committee is authorised to seek, at the company s expense, appropriate a and timely training, both in the form of an induction programme for new members and on an ongoing o basis for all members. 8.3 The Committee is authorised to obtain, at the company s expense, outside legal or other professional advice on any matters within its i terms of reference. 10
Revision history Version Date Author Brief description 3 Leadenhall Street London, EC3A 1AX, UK Telephone + (0)200 7780 6999 Facsimile + (0)200 7780 6998 Email Website info@xchanging.com www.xchanging.com 2013 Xchanging