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 a member of the Risk & Security or any successor Committee. The Audit Committee as a whole should have competence relevant to the sector in which QinetiQ operates.
The Chairman of the Committee shall be appointed by the Board.
The quorum of the Committee shall be two members.
The secretary of the Company, or his or her nominee, shall be the secretary of the Committee.
The CFO, the Head of Internal Audit, the Group Financial Controller and representatives of the external auditors shall normally attend meetings. The Chairman, the CEO and other Board members shall also attend on 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.
Annual General Meeting
The Committee Chairman should attend the annual general meeting to answer shareholder questions.
Role of the Committee
The Committee is authorised by the Board and its purpose is to assist the Board in carrying out its responsibilities relating to financial reporting, internal control (and related governance), in accordance with regulation, legislation and acceptable ethical standards by:
- Providing oversight and guidance to the Company and its management in relation to the above matters and to assist in identifying issues requiring management’s attention;
- Acting as a focal point for discussion and communication of matters regarding the oversight of financial reporting, internal control, compliance (and governance);
- Giving sufficient attention to presented issues and information to determine which areas might require further review, additional attention and escalation.
- The Committee’s role is one of oversight, recognising that management remains responsible for the actual preparation of financial statements of the Company, development and maintenance of internal controls and appropriate governance processes, and that ultimate responsibility rests with the Board.
- The Committee is responsible for the oversight of the activities and performance of the Company’s External Auditor (‘External Auditor’). It is also responsible for the development and implementation of an audit and assurance policy.
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.
The duties of the Committee shall be to (in relation to each main area of responsibility):
- 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;
- Develop and oversee the selection procedure for the appointment of the audit firm, ensuring that all tendering firms have access to all necessary information and individuals during the tendering process;
- If an external auditor resigns, investigate the issues leading to this and decide whether any action is required;
- 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 effectiveness of the audit and assess the qualifications, skills and resources, and cost-effectiveness of the external auditors and the overall external audit process;
- 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; and
- Run audit tenders on a periodic basis, and as prescribed by legislation.
- 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 judgemental areas;
- significant adjustments resulting from the audit;
- the going concern assumption, and the viability statement;
- compliance with present and future accounting standards;
- compliance with Stock Exchange Listing Rules and other legal requirements; and
- financial risk management (including in relation to treasury, interest rates, currency, liquidity, financial instruments, maturity of financial liabilities, interest rate and currency sensitivity analyses).
- When requested by the Board, the Committee should review the content of the annual report and accounts 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 Group’s performance, business model and strategy, and whether it supports the Board’s statement in the annual report on these matters that is required under the Code;
- Discuss any problems and reservations arising from the Interim Review and full year audit, 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 auditor's management letter and management's response;
- Monitor the integrity and effectiveness of the Group's system of internal control relating to financial reporting and make recommendations to the Board;
- Review the group's financial and accounting policies and practices;
- Determine with the external auditors (and review periodically) the basis on which the Audit Committee maintains oversight of the external audit process, audit points and control findings to the extent required to exercise its financial reporting oversight responsibilities;
- Review, together with the Risk & Security Committee, the proposed statement on the directors' review of the group's system of internal control prior to endorsement by the Board; and
- Liaise with the Remuneration Committee on quality of earnings in respect of bonus and share plan performance metrics.
- Reviewing periodic reports from management, Internal Audit, Risk & Governance functions and assessing whether all material issues relevant to the Company, of a risk management and control nature, are being appropriately addressed by management in a timely manner. This amounts to the oversight of a total assurance framework, (or Board Assurance Map)
- Reviewing statements to be included in the Annual Report concerning internal controls.
- Oversee all aspects of the work of Internal Audit, with the Audit Committee being the primary reporting line for internal audit;
- Liaise with the Risk & Security Committee in relation to audits of risk management systems and internal controls which fall within the Risk & Security Committee's remit;
- Review twice-yearly the internal audit programme; whilst retaining overall responsibility for approving the internal audit plans, the Committee will co-ordinate its response with the Risk & Security Committee in relation to internal audit review of risk management systems;
- Approve the appointment/termination of appointment of the Head of Internal Audit and be consulted on his/her remuneration including any bonus awards;
- Consider the level of co-ordination between the internal and external auditors;
- Ensure that the internal audit function has adequate resources and maintains an appropriate standing within the group;
- Review reports from internal audit relating to any areas of activity which may impact the quality of financial reporting or compliance with reporting requirements and accounting standards;
- Review annually the effectiveness of the internal audit function and the alignment of its activities with international internal audit standards;
- Review the actions taken by management to implement the recommendations of internal audit and to support the effective working of the internal audit function;
- Consider whether an independent, third party review of process is appropriate;
- Consider other matters as defined by the Board; and
- Report on all of the above to the Board.
The minutes of meetings of the Committee shall be circulated to all members of the Board.
The Committee shall review on an annual basis the Committee's effectiveness and recommend to the Board any necessary changes.