Audit Committee

Membership
The members of the Committee shall be at least three non-executive directors. Members of the Committee will be independent of management and free of any business or other relationships (including, without limitation, cross directorships or day to day involvement in the management of the business) which could interfere with the exercise of their independent judgement. At least one member must have recent and relevant financial experience.

The Chairman of the Committee shall be appointed by the Board.

The quorum of the Committee shall be two members.

Secretary
The secretary of the Company shall be the secretary of the Committee.

Attendance
The Group Chairman, CEO and CFO, the Head of Internal Audit and a representative of the external auditors shall normally attend meetings. Other Board members shall also be entitled to attend by invitation.

At least once a year the Committee shall meet (i) the external auditors and (ii) the internal audit function, in each case without executive directors present.

Frequency of meetings
Meetings shall be held at least four times a year. The external auditors may request a meeting if they consider that one is necessary.

Operation
The Committee reports its activities and makes recommendations to the Board. The principal function of the Committee is to ensure that appropriate controls and processes are in place to identify all significant business, strategic, statutory and financial risks and that these risks are being effectively monitored and managed. The Committee also reviews accounting policies affecting QinetiQ and disclosure in the financial statements of the group accounts.

The Committee is authorised by the Board to investigate any activity within its terms of reference, including any areas of concern as to financial impropriety. It is authorised to seek any information it requires from any employee and all employees are directed to co-operate with any request made by the Committee.

The Committee is authorised by the Board to obtain outside legal or other independent professional advice and to secure the attendance of outsiders with relevant experience and expertise if it considers it necessary.

Duties
The duties of the Committee shall be to:

• Consider the appointment/re-appointment of the external auditor, the audit fee, and any questions of resignation or dismissal of the external auditors and make recommendations to the Board accordingly;
• Discuss and agree with the external auditor before the annual audit cycle the nature and scope of the audit and that appropriate planning is in place for the audit;
• Review annually the cost effectiveness of the audit and assess the qualifications, skills and resources, effectiveness and independence of the external auditors.
• Assess the procedures in place to ensure the independence and objectivity of the external auditor annually and develop and recommend to the Board appropriate policies in relation to the provision of non-audit services by the external auditors;
• Review the significant financial reporting issues and judgements, and the completeness of disclosures made, in connection with the preparation of the Group's financial statements, interim reports and formal statements, focusing particularly on:
  - any changes in accounting policies and practice;
  - major judgmental areas;
  - significant adjustments resulting from the audit;
  - the going concern assumption;
  - compliance with accounting standards; and
  - compliance with Stock Exchange Listing Rules and other legal requirements;
• Discuss any problems and reservations arising from the interim and final audits, and any matters the auditors may wish to discuss (in the absence of management where necessary) and at the end of the audit cycle, assess the effectiveness of the audit process;
• Review the external auditors management letter and management’s response;
• Monitor the integrity of the Group’s system of internal control (including financial, operational, compliance and risk management), assess the scope and effectiveness of the systems established by management to identify, assess, manage and monitor financial and non financial risks and make recommendations to the Board;
• Review the proposed statement on the director’s review of the group’s system of internal control (including financial, operational, compliance and risk management) prior to endorsement by the Board;
• Review from time to time the internal audit programme, approve the appointment or termination of appointment of the head of internal audit, ensure co-ordination between the internal and external auditors and ensure that the internal audit function has adequate resources and maintains an appropriate standing within the group;
• Review annually the appropriateness of the process for reporting and investigating allegations of malpractice pursuant to the QinetiQ whistleblower policy;
• Consider the major findings of internal investigations and management’s response;
• Review the Group’s operating, financial and accounting policies and practices;
• Consider other matters as defined by the Board;
• Report on all of the above to the Board; and
• Review on an annual basis the Committee's effectiveness and recommend to the Board any necessary changes.