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 Chair 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 Chair 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, Group Director - Internal Audit, the Group Financial Controller, the Group Director Risk, and representatives of the external auditors shall normally attend meetings. The Group Chair, 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 Chair should attend the annual general meeting to answer shareholder questions.
The Committee reports its activities and makes recommendations to the Board.
The principal functions of the Committee are:
- to ensure the integrity of the financial statements and the systems of accounting, risk management and control, which underpin sound financial management. As part of this role, the Committee oversees the relationships with the external auditors;
- to oversee the internal audit function;
- to monitor evolving external environments; and
- to monitor the group-wide control and assurance framework, comprising the three lines, known as the Board Assurance Map, and make recommendations regarding its development and effectiveness.
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.
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.
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;
- 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 quality of the audit including its cost effectiveness an and assessment of the qualifications, skills and resources, effectiveness and independence 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.
Financial controls and reporting
- 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, and the viability statement;
- compliance with 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 informs the Board’s statement in the annual report on these matters that is required under the Code;
- Discuss any observations 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), including the external auditor’s management letter and management’s response;
- Monitor the integrity and effectiveness of the Group’s system of internal control and risk management relating to financial matters; including reviewing the Group’s procedures for detecting fraud and controls for preventing bribery;
- Review the evidence and reports supporting the proposed statement on the directors’ review of the group’s system of internal control and risk management prior to endorsement by the Board; and
- Liaise with the Remuneration Committee on quality of earnings in respect of share plan performance metrics.
Control and Assurance Framework – Board Assurance Map
Oversee the development of a comprehensive, effective and efficient control and assurance framework, comprising the three lines and other external assurance providers.
- Oversee all aspects of the work of Internal Audit, with the Audit Committee being the primary reporting line for internal audit;
- Review twice-yearly the internal audit programme and authorise changes;
- Approve the appointment/termination of appointment of the Group Director - Internal Audit and be consulted on his/her remuneration including any bonus awards;
- Ensure that the internal audit function has adequate resources and maintains an appropriate standing within the group;
- Review reports from internal audit, including proposed mitigation actions by management and monitor closure of internal audit actions;
- Review annually the effectiveness of the internal audit function and the alignment of its activities with international internal audit standards;
- Review annually the effectiveness of the process for reporting and investigating allegations of malpractice pursuant to the QinetiQ Confidential Reporting policy;
- Review a summary report on issues raised through the Confidential Reporting system and consider the major findings of internal investigations and management’s response; and
- Consider whether an independent, third party review of process is appropriate.