terms of reference of audit committee (the “committee”)
(revised in march 2016)
the committee is a standing committee under the board of directors of the company (the “board”) and is set up to assist the board in carrying out the following supervisory duties:
· to review the truthfulness of the financial statements;
· to monitor the company’s internal control system and financial reporting system; to ensure the compliance with the relevant accounting standard and practice, laws and regulation in respect of the disclosure requirement of financial information; and
· to assess the qualification, independence and performance of the external auditors.
2.1 require the company and its subsidiaries’ (the “group”) management to provide administrative support to the work of the committee and the committee may contact the group’s senior management independently. the committee may require any senior management or employee to attend the meeting of the committee or to reply the question raised by any member of the committee in detail and promptly.
2.2 is authorized by the board under the terms of reference to investigate the internal control system of the group with the co-operation of all employees, shall report and make recommendations to the board of its findings of any fraud or irregularity, defect in internal control system and non-compliance with law and regulations.
2.3 is authorized by the board to seek legal and independent professional advice; if necessary, may invite external parties who possess relevant experience and professional knowledge to attend meeting at the expenses of the group.
3.1 the committee shall comprise at least three members who are independent non-executive directors.
3.2 the board shall appoint the chairman of the committee who shall be an independent non-executive director responsible to lead the committee and ensure that the committee operates and discharges its duties efficiently.
3.3 members of the committee shall be provided with appropriate authority and shall possess required technical knowledge and experience. one of the independent non-executive directors shall have appropriate professional qualification, accounting or relevant financial management experience.
3.4 the company secretary or his nominee shall act as secretary of the committee.
4. duties and functions
4.1 reviewing financial information
4.1.1 to review the interim and annual financial statements before submitting to the board with recommendation of approval. the committee should focus on the following:
(i) changes in accounting policies and practices;
(ii) major judgmental areas;
(iii) significant audit adjustments;
(iv) going concern assumptions and any qualifications;
(v) the extent of compliance with accounting standards;
(vi) the completeness, accuracy and fairness of the financial statements;
4.1.2 to consider any significant or unusual items that are, or are needed to be, reflected in the annual and interim reports; to give due consideration to any matters that have been raised by the group’s staff responsible for the accounting and financial reporting function, compliance officer or auditors; and
4.1.3 to review the external auditor’s management letter and the management’s responses.
4.2 overseeing financial reporting system and internal control system
4.2.1 to review with the management annually about the effectiveness of the internal control system, including financial, operating and legal compliance, etc., with particular attention to the following issues:
· the changes, since the last annual review, in the nature and seriousness of significant risks, and the company’s ability to respond to the changes in its business and the external environment;
· the scope and quality of the management’s ongoing monitoring of the internal control system and the function of the internal audit;
· external auditor’s management letter to management and any material queries raised by the auditor about the accounting records, financial accounts or system of control and management’s response;
· to scrutinise matters reported by employees of the company, in confidence about possible improprieties in financial reporting, internal control or other matters. the committee should ensure that proper arrangements are in place for fair and independent investigation of these matters and take appropriate follow up actions;
4.2.2 to consider major investigation findings on internal control matters and management’s response on these findings as delegated by the board or by taking the committee’s initiative, and demand the management to rectify;
4.2.3 to ensure co-ordination between the internal and external auditors, and to ensure that the internal audit function is supported with adequately resources and has appropriate authority, and to review and monitor its effectiveness;
4.2.4 to review the group’s financial and accounting policies and practices;
4.2.5 to discuss the internal control system with management to ensure that managements has performed its duty in establishing an effective internal control system. the discussion should include the adequacy of resources, staff qualifications and experience, training programs provided to the company’s accounting and financial reporting function and assess the budget whether are adequate;
4.2.6 to ensure that the board provide a timely response to the issues raised in the external auditor’s management letter; and
4.2.7 to report to the board on the matters reviewed and recommended by the committee within its the terms of reference.
4.3 dealing with external auditors
4.3.1 to make recommendations to the board on the appointment, reappointment and removal of the external auditor, and to approve the remuneration and terms of engagement of the external auditor, and deal with matters relating its resignation or dismissal;
4.3.2 to review and monitor the external auditor’s independence and objectivity and the effectiveness of the audit procedures undertaken in accordance with applicable standards. the committee should discuss with the auditor the nature and scope of its audit and reporting obligations before the audit commences;
4.3.3 to discuss with external auditors any queries and concerns reflected in the annual financial statements and other matters the auditors may wish to raise;
4.3.4 to develop and implement policies governing the engagement of the same auditor in providing significant non-audit services and set up a fee standard on such services, ensuring that the external auditor’s provision of non-audit services does not impair its independence or objectivity; and
4.3.5 to act as the key representative for overseeing the company’s relations with the external auditor.
4.4 to consider other topics, as defined by the board.
5.1 the committee shall convene meeting on regular basis and shall meet with external auditors at least twice a year and report to the boards after meeting.
5.2 the external auditors or the chairman of the committee may convene meeting of the committee when necessary.
5.3 the procedure for convening meeting of the committee shall follow the procedures for convening meeting of the board as stipulated in the bye-laws of the company.
5.4 the company secretary shall assist the committee to convene meeting and to file minutes of the meeting.
6. annual assessment
6.1 the committee shall review its operation procedures, performance and effectiveness and assess and report to the board at least once a year. the board shall then revert with recommendations for improvement.
6.2 the board shall, from time to time, assess the sustainability and effectiveness of the terms of reference of the committee and amend the terms when appropriate.
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