TBC Bank Group PLC
(the “Company”)
Audit Committee
Terms of Reference
1.
General remarks
1.1
These Terms of Reference identify and formalise the roles, tasks and responsibilities of the
Audit Committee of the Company (the "Committee") and the authority delegated to the
Committee by the board of directors of the Company (the “Board”). References to the
“Group” shall mean the Company and its subsidiaries.
1.2
These Terms of Reference have been adopted by the Board based on the requirements of UK
law. They define the Committee’s purpose and the role of the Committee in the activities of
the Company, as well as its structure, membership, details of the meetings and other
procedural questions related to the Committee’s activities.
1.3
In carrying out their responsibilities, Committee members shall act in accordance with these
Terms of Reference, the articles of association of the Company, the provisions of the UK
Corporate Governance Code (the "Code"), together with any relevant guidance, the
requirements of the UK Financial Conduct Authority's Listing, Prospectus, Disclosure and
Transparency Rules and any other applicable rules, as appropriate.
1.4
In performing its duties, the Committee should maintain an effective working relationship
with the Board and the internal and external auditors of the Group,.
1.5
The Committee may only exercise such powers as are explicitly attributed or delegated to it
and not make decisions that, by law, should be taken by the Board.
2.
Committee Membership and Composition, Members Rights and Obligations
2.1
The Committee shall be formed of at least four individual members, all of whom shall be
independent non-executive directors. The Chief Executive Officer, deputy chairman of the
Board and the chairman of the Board of the Company must not be members of the
Committee.
2.2
Committee members should have adequate qualifications, necessary knowledge and
experience in matters within the Committee’s competence and at least one member of the
Committee should have recent and relevant financial experience. To perform his or her role
effectively, each Committee member should obtain an understanding of the detailed
responsibilities of Committee as well as the Group's business, operations and risks.
2.3
Committee members are appointed by the Board by a majority of the votes present for a
term of four years. Reappointment is allowed without restriction, provided that a member
still meets the criteria for Committee membership.
2.4
Committee members shall have the following rights:
1
2.5
(a)
to request documents, reports, explanations and other relevant information from the
officers, executives and employees of the Group;
(b)
to invite the Group’s officers, executives and employees to its meetings as observers
in order to question them, and seek explanations and clarification;
(c)
to utilise the services of outside consultants, experts and advisors if necessary;
(d)
to perform any other duties as may be required by the Board within the scope of
authority of the Committee as set forth herein;
(e)
to contribute written suggestions and propositions in order for improvement of
Committee activities;
(f)
to initiate meetings of the Committee;
(g)
to place questions on the agenda of the Committee meeting;
(h)
to vote on any questions in the agenda;
(i)
to demand inclusion to the Committee meeting minutes of his or her individual
opinion;
(j)
to conduct special meetings with the Group's external or internal auditors in order to
consider questions requiring confidential discussion;
(k)
to contribute recommendations on the improvement of current policy for the
consideration of the Board;
(l)
on giving reasonable notice, to resign from the Committee;
(m)
sub-delegate any or all of its powers and authority and may establish sub-committees
which are to report back to the Committee.
Committee members shall have the following obligations:
(a)
to participate in the activities and work of the Committee, and attend all meetings;
(b)
to treat as confidential all information that becomes known to him/her in the course
of performing his or her duties;
(c)
to inform the Board of any changes in his or her independent status or any conflicting
interest regarding decisions to be made by the Committee;
(d)
to adhere to all applicable laws and these Terms of Reference whilst carrying out his
or her activities;
(e)
to act in the best interests of the Company’s shareholders;
(f)
not less than once per annum to report to the chairman of the Board on the results
of his or her work as a Committee member.
3.
Committee Functions, Role and Responsibility
3.1
Internal Control and Risk Management
The Committee’s responsibilities with regards to the Group’s internal control systems are as
follows:
2
(a)
to review the Company's internal financial controls and internal control and risk
management systems;
(b)
to review the implementation of the Group's key accounting policies and financial
reporting;
(c)
to review recommendations on improvement developed by internal audit of the
internal controls and risk management policies and procedures established by the
Group;
(d)
in conjunction with the Company's Risk, Ethics and Compliance Committee, to assess
the Group’s internal control, risk management, compliance and governance functions’
consistency with appropriate policies and procedures;
(e)
to review the implementation status of:
(i)
(f)
3.2
the recommendations of the Group's internal auditors on internal control
system improvement; and
the correction of internal control deficiencies, revealed by the Group's external
auditors.
Internal Audit
The Committee’s responsibilities with regards to the Group's internal audit activities are as
follows:
(a)
to monitor and review the effectiveness of the internal audit activities;
(b)
the approval of the annual internal audit plan;
(c)
the approval of the quarterly and annual internal audit reports and the reporting of
audit results to the Board;
(d)
the approval of the Internal Audit Regulation;
(e)
the appointment or dismissal of the head of internal audit and his or her terms of
employment;
(f)
to monitor any internal audit findings follow-up undertaken by Group's management;
(g)
to conduct meetings at least quarterly with the head of the Internal Audit without
the presence of the Group's management;
(h)
the approval and subsequent monitoring of the internal audit quality assurance and
improvement program, developed and maintained by the head of internal audit;
(i)
consideration and analysis of internal audit quality self-assessment and external
assessment results, where applicable; and
(j)
annual analysis of planned versus actual work done by the Group's internal audit
function.
(k)
if, at any time, an internal audit function does not exist, the Audit Committee should
consider annually whether there is a need for an internal audit function and make a
recommendation thereon to the Board, and the reasons for the absence of such
function should be explained to the relevant section of the annual report.
3
3.3
External Audit
The Committee’s responsibilities with regards to the Group's external audit are as follows:
3.4
(a)
making recommendations to the Board, for it to put to the shareholders for their
approval in general meeting, in relation to the appointment, re-appointment and
removal of the external auditor and to approve the remuneration and terms of
engagement of the Group's external auditor;
(b)
ensure that the external audit contract is put out to tender at least every ten years. If
the Board does not accept the Committee’s recommendation, it should include in the
annual report, and in any papers recommending appointment or re-appointment, a
statement from the Committee explaining the recommendation and should set out
reasons why the Board has taken a different position;
(c)
developing and implementing policy on the engagement of the external auditor to
supply non-audit services, taking into account relevant ethical guidance regarding the
provision of non-audit services by the external audit firm; and to 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;
(d)
reviewing and monitoring the independence and objectivity of the external auditor
and the effectiveness of the audit process, taking into consideration relevant UK
professional and regulatory requirements;
(e)
discussion with external auditor on the nature and extent of audit procedures on
forthcoming financial year. The Committee may set special focus on required topics
or accounts for the external auditor to cover with procedures. The Committee may
initiate external audit assignments on areas/accounts/classes of transactions if the
Committee considers this is required;
(f)
review of the external audit findings and discussion of adjustments to financial
statements;
(g)
assessment of external audit quality and review of audit report before presenting it
to a shareholders' meeting; and
(h)
obtaining assurance that significant findings and recommendations made by the
external auditors are implemented properly.
Narrative Reporting
Where requested by the Board, the Committee shall 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 position and performance, business model and strategy.
3.5
Ongoing viability
The Committee shall also advise on whether there is a reasonable expectation that the Group
will be able to continue in operation and meet its liabilities as they fall due over the period,
drawing attention to any qualifications or assumptions as necessary.
3.6
Financial reporting
The Committee’s responsibilities with regards to financial reporting are as follows:
4
(a)
to monitor the integrity of the Group’s financial statements and any formal
announcements relating to the Group's financial performance, reviewing significant
financial reporting judgements contained in them;
(b)
to review the Group’s financial accounting policy, developing recommendations on
its improvement;
(c)
discussion with the internal and external auditors about any identified instances of
fraud, illegal acts, internal control deficiencies or other similar issues;
(d)
to review significant accounting and reporting issues, including recent professional
and regulatory announcements, and understand their impact on the financial
statements;
(e)
to review the quarterly and annual financial statements and determine whether they
are accurate, complete and consistent with the information known by the Committee;
assess whether the financial statements are prepared in compliance with the
accepted principles and standards of accounting;
(f)
to challenge the Board's explanation of the principal risks facing the Group to go into
the annual report, including those which would threaten its business model, future
performance, solvency or liquidity and the management and mitigation of those risks;
and
(g)
to challenge the assumptions or qualifications of the Board in support of the going
concern statement (including any material uncertainties as to the Group's ability to
continue as a going concern over a period of at least twelve months from the date of
approval of the financial statements) and the longer term viability statement
(including an assessment of the prospects of the Group looking forward over an
appropriate and justified period); and
(h)
to review the financial statements and the audit findings with the external auditors.
4.
Non Audit Services
4.1
This section sets out the policy and summarises the procedures for the engagement and
remuneration of the auditor for the conduct of non-audit related work.
4.2
Specific approval from the Committee is required before the external auditor is contracted
(permitted non-audit services).
4.3
The advance written approval of the Committee must be obtained prior to the engagement
of the Group's external auditor with respect of any permitted non-audit services on a case by
case basis.
4.4
In addition to obtaining the Committee’s approval in advance to the undertaking of the
activity, it is also necessary to obtain the Committee’s approval for any proposed fee to be
charged by the external auditor for undertaking the permitted non-audit service.
4.5
Specific written request for authorisation for the provision of non-audit services must be
submitted to the Committee. Each request must include:
(a)
a description of the nature of the non-audit service to be provided;
5
(b)
whether there are any safeguards in place to eliminate or reduce to an acceptable
level any potential threat to auditor objectivity and independence that may result
from the provision of the services; and
(c)
an estimate of the total fees (including reasonable expenses) that will accrue to the
external auditor in the provision of the services, both for individual services and in
aggregate, noting the period over which they will be incurred and the amount
relative to the audit fee (including the basis on which fees are calculated).
4.6
When submitting the request to the Committee it shall include a statement outlining the
rationale for using the external auditor (for example, by specifying other service providers
considered and explaining why the skills, knowledge and experience of the external auditor
make it appropriate to appoint the external auditor).
4.7
The external auditor may only be engaged to conduct the services in question once the
written submission has been formally approved by the Chairman.
4.8
Where no Committee meeting is scheduled within an appropriate time frame, approval
should be sought from the Chairman.
4.9
Reporting of fees paid to the external auditor for non-audit work
The Committee will receive a written annual report from the Group's Chief Financial Officer
at the end of each financial year describing the fees paid to the external auditor for any nonaudit work undertaken during that year. The report shall include fees for any pre-approved
permitted non-audit services undertaken.
5.
Compliance with Legal and Regulatory Requirements
5.1
The Committee’s responsibilities with regard to compliance with applicable legal and
regulatory requirements are as follows:
(a)
to evaluate the monitoring procedures in terms of compliance of the Group's
operations with applicable statutory laws and regulations and internal policies and
procedures;
(b)
to review acts of non-compliance and to assess the efficiency of corrective measures;
(c)
to review findings of any examinations/audits performed by statutory regulatory
agencies; and
(d)
to consider all revealed or reported cases of fraud and/or misconduct committed by
management or other employees, analysis of efficiency of measures undertaken as a
result of these findings.
(e)
to review the group’s arrangements for its employees and contractors to raise
concerns, in confidence, about possible improprieties in financial reporting or other
matters, with the aim of ensuring that these arrangements allow proportionate and
independent investigation of such matters and appropriate follow-up actions.
6.
Other Responsibilities
6.1
In addition to the responsibilities set out above, the Committee shall:
(a)
perform other functions as requested by the Board;
6
(b)
if necessary, initiate special investigations and where appropriate hire special counsel,
external consultants or experts to assist in such investigations; and
(c)
present proposals to the Board on updating these Terms of Reference.
7.
Committee Structure and Meetings
7.1
Chairman – one of the independent members from among the Committee members shall be
elected by the Board as the chairman of the Committee (the "Chairman"). In the absence of
the Chairman, the remaining members present shall elect one of themselves to chair the
meeting.
7.2
Secretary – the Company Secretary shall act as the secretary of the Committee (the
"Secretary") and shall attend all Committee meetings. The Secretary shall ensure that the
Committee receives all necessary information in a timely manner to enable full and proper
consideration to be given to the issues.
7.3
Meetings - Committee meetings shall meet as often as it deems necessary but in any case at
least on a quarterly basis. All Committee members are expected to attend the meetings, in
person or via telephone or video conference. The Chairman, chairman of the Board, deputy
chairman of the Board, or the Chief Executive Officer of the Company may convene the
Committee meeting at any time, to consider any matters falling within the competence of
the Committee. The Committee meeting agenda will be prepared and provided in advance to
the members, along with appropriate material.
7.4
Notice of the Meetings - meetings of the Committee shall be summoned by the Secretary at
the request of the Chairman. Unless otherwise agreed, notice of each meeting confirming the
venue, time and date, together with an agenda of items to be discussed, shall be forwarded
to each member of the Committee, any other person required to attend and all other nonexecutive directors not less than seven working days prior to the date of the meeting.
Supporting papers shall be sent to members of the Committee, and to other attendees as
appropriate, at the same time.
7.5
Quorum – the quorum for each Committee meeting shall be three. Each member shall have
one vote. The Chairman shall have a casting vote.
7.6
Attendees – only the members of the Committee and other independent Board members of
the Company have the right to attend Committee meetings. The chairman of the Board,
deputy chairman of the Board, Chief Executive Officer or other persons may be invited by the
Chairman to attend the meeting, if appropriate. If a regular member is unable to act due to
absence, illness or any other cause, the Chairman may appoint another independent nonexecutive director of the Company to serve as an alternate member.
7.7
Support – the Committee shall be supported by the Group's Internal Audit Department. The
Company shall provide any other necessary support to the Committee’s activities, including
financial support, if applicable.
7.8
Minutes – the Secretary shall minute the proceedings and the decisions of all meetings of the
Committee, including recording the names of those present, absent and in attendance. The
Secretary shall prepare and circulate the draft minutes of the Committee meetings promptly
to all members and other attendees of the relevant meeting. Minutes of any meeting shall be
announced as final, once approved by the Chairman. Unlimited access to all of the minutes of
the Committee meetings must be granted to all Board members at any time. The Secretary is
the key responsible person to provide such access.
7
8.
Committee Self Assessment and Reporting
8.1
Apart from the regular reporting to the Board on the outcomes of activities of the Committee,
the Committee shall conduct an annual self-assessment (including the evaluation of the
Committee’s compliance with these Terms of Reference) and report any conclusions and
recommendations to the Board not later than in the three month period from the end of the
relevant year.
8.2
The Committee must report on how the Committee has discharged its responsibilities to the
annual general meeting of the Company on an annual basis and to the Board on quarterly
basis. The Committee must ensure that the Board is aware of matters which may significantly
impact the Group’s financial condition or activities.
8.3
The Committee must make available these Terms of Reference explaining clearly its role and
the authority delegated to it by the Board.
9.
Disclosure of Information on the Committee Operations
9.1
The Committee shall each year prepare a report which should be presented to the Board for
approval and be published per the Company’s disclosure policy. Committee information,
including the membership of the Committee and the description of the Committee’s duties
and activities during the year, shall be disclosed on the Group’s website.
9.2
The Committee shall produce a report on its activities to be included in the Company’s
annual report. The report should include:
(a)
details of the membership of the Committee, number of meetings held and
attendance over the course of the year;
(b)
an explanation of how the Committee has addressed the effectiveness of the
external audit process and the approach taken to the appointment or reappointment
of the external auditor, and information on the length of tenure of the current audit
firm and when a tender was last conducted;
(c)
where a competitive tender process has not been completed in a five year period for
the appointment of an external auditor, ensure that the annual report disclosure
contains an explanation of why such tender process was not deemed necessary and a
confirmation of when the next tender will be;
(d)
if the external auditor provides non-audit services, an explanation of how auditor
objectivity and independence are safeguarded; and
(e)
the significant issues that the Committee considered in relation to the financial
statements and how these issues were addressed.
10.
Concluding Remarks
10.1
Amendments – these Terms of Reference may be amended by the Board at its sole
discretion without prior notification.
10.2
Inconsistency with UK Law– where these Terms of Reference are inconsistent with UK law or
other applicable UK regulations, the latter shall prevail.
8