Audit Committee

Headlam Group plc
– terms of reference, approved 23 October 2009

A description of the activities of the Audit Committee can be found in our Annual Report and Accounts.

Members

Terms of reference

1.1 Authority

The Committee is authorised by the board to:

• monitor the integrity of the financial statements of the company and any formal announcements relating to the company’s financial performance, reviewing significant financial reporting judgements contained in them;
• review the company’s internal financial controls and internal control and risk management systems; and
• establish and oversee the company's relationship with the external auditor.

In fulfilling this authority, the committee is further authorised by the board to:

• investigate or commission investigations into any activity within its terms of reference;
• 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;
• have unrestricted access to company documents, company information and to the external auditor; and
• obtain outside legal or independent professional advice and secure the attendance of outsiders with relevant experience and expertise if it considers this necessary.

1.2 Duties

Without limiting the scope of the authority set out above, the duties of the committee shall be to:

1.2.1   monitor the integrity of the financial statements of the company and any formal announcements relating to the company’s financial performance, reviewing significant financial reporting judgements contained in them:

• review, and challenge where necessary, the actions and judgements of management, in relation to the company’s financial statements, operating and financial review, interim reports, preliminary announcements and related formal statements before submission to the board, paying particular attention to:
  • significant accounting policies and practices, and any changes in them;
  • significant financial reporting issues, estimates and decisions requiring a major element of judgement;
  • the extent to which the financial statements are affected by any significant or unusual transactions in the year and how they are disclosed;
  • the clarity and completeness of disclosures;
  • significant adjustments resulting from the audit;
  • the going concern assumption;
  • compliance with accounting standards;
  • compliance with regulatory and legal requirements;
  • reviewing the company’s statement on internal control and risk management prior to endorsement by the board; and
  • reporting its views to the board when it is not satisfied with any aspect of the proposed financial reporting;

1.2.2   review the company’s internal financial controls and internal control and risk management systems:

• review the company’s arrangements by which staff may, in confidence, raise concerns about possible improprieties in matters of financial reporting, financial control or any other matters and by which the company ensures appropriate investigation and follow-up action; monitor the integrity of the company’s internal financial controls, including reviewing management’s reports on the effectiveness of systems of internal financial control, financial reporting and risk management;
• review the steps taken to ensure that new products, operations and activities are integrated into the framework and philosophy of internal control;
• assess the scope and effectiveness of the systems established by management to identify, assess, manage and monitor financial and non-financial risks and the related internal control systems; and
• review and recommend to the board the statements included in the annual report on internal control and  management of risk.

1.2.3   establish and oversee the company’s relationships with the external auditor:

• oversee, and make recommendations through the board to the shareholders to consider at the AGM, or at any time during the year, on the appointment, reappointment and removal of the external auditor;
• approve the terms of engagement and the remuneration to be paid to the external auditor in respect of audit services provided, recommending the audit fee to the board;
• assess the qualification, expertise and resources of the external auditors annually;
• assess the independence and objectivity of the external auditor annually;
• monitor the external audit firm’s compliance with United Kingdom ethical guidance and its policies and      procedures for maintaining independence and monitoring compliance with relevant requirements;
• develop, recommend to the board and implement the company’s policy in relation to the provision of non-audit services by the auditor, taking into account relevant ethical guidance, and ensure that the provision of such services does not impair the external auditor’s independence or objectivity, taking into account the criteria which govern the compensation of the individuals performing the external audit;
• ensure that the annual report adequately explains to shareholders how auditor objectivity and independence are safeguarded;
• agree with the board and monitor the company’s policy for the employment of former employees of the external auditor;
• discuss with the external auditor, at the start of each annual cycle, the nature and scope of the audit in order to ensure that appropriate plans are in place;
• review with the external auditors the findings of their work, including any major issues, resolved and unresolved; key accounting and audit judgements; levels of errors identified; and obtaining explanations for unadjusted errors;
• review the audit representation letters before signature by management;
• assess, at the end of the annual external audit cycle, the effectiveness of the external audit process, taking into account relevant UK professional and regulatory requirements; review and monitor the content of the external auditor’s management letter and other, major internal control recommendations and management’s responses to the findings and recommendations;
• investigate the issues and consider appropriate actions in the event that the external auditor resigns;
• develop and apply a formal process on reviewing the existing audit contract and the criteria and arrangements for re-tendering that contract;

1.2.4   oversee other matters

• review the arrangements and where relevant the work and outputs of other external advisors appointed in areas that fall within or overlap the committee’s responsibilities; and consider other topics, as defined by the board.

1.3 Reporting

The Committee shall report to the board, identifying any matters in respect of which it considers that action or improvement is needed and making recommendations as to the steps to be taken.

The secretary shall circulate the minutes of meetings of the committee to all members of the board, and the chairman of the committee shall, as a minimum, attend the board meeting at which the accounts are approved.

The committee shall annually review its terms of reference and its own effectiveness and recommend any necessary changes to the board.

The role and responsibilities of the committee and the actions taken by the committee to discharge those responsibilities shall be disclosed in the annual report and accounts.

The chairman of the committee shall attend the AGM and shall answer questions, through the chairman of the board, on the committee’s activities and their responsibilities.

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