The Audit Committee is established as a Committee of SThree plc pursuant to Article 96 of the SThree plc Articles of Association. Its purpose is to assist the Board in the effective discharge of its responsibilities for corporate governance, financial reporting, and corporate control. The Audit Committee has no Executive powers regarding its recommendations and does not relieve the Directors of their responsibilities for these matters.
All powers are subject to the limitations of authority as detailed within the ‘Schedule of Matters Reserved for the SThree plc Board/Committees and subsidiary Company control framework’ and Group Authorities Matrix, as amended from time to time.
2.1 The Committee shall comprise at least three members, who together should have competence relevant to the sector and, where possible, one member of the Remuneration Committee. Members of the Committee shall be appointed by the Board, on the recommendation of the Nomination Committee in consultation with the Chair of the Audit Committee.
2.2 Members of the Committee shall, generally, be independent Non-Executive Directors at least one of whom shall have recent and relevant financial experience, ideally with a professional qualification from one of the professional accountancy bodies. The Chair of the Board may be a member of the Committee.
2.3 Only members of the Committee have the right to attend Committee meetings. However, other individuals such as the Chair of the Board, Chief Executive Officer, Chief Financial Officer, other Directors, Internal Audit and representatives from the finance function may be invited to attend all or part of any meeting as and when appropriate and necessary.
2.4 The external auditor will be invited to attend meetings of the Committee on a regular basis.
2.5 Appointments to the Committee shall be for any period, although typically an initial period of up to three years, which may be extended for further periods of up to three years, provided the Director still meets the criteria for membership of the Committee.
2.6 The Board shall appoint the Committee Chair who shall be an independent Non-Executive Director. In the absence of the Committee Chair and/or an appointed deputy, the remaining members present shall elect one of themselves to chair the meeting.
The Group Company Secretary or his or her nominee shall act as the secretary of the Committee and will ensure that the committee receives information and papers in a timely manner to enable full and proper consideration to be given to issues.
The quorum necessary for the transaction of business shall be two members. A duly convened meeting of the Committee at which a quorum is present shall be competent to exercise all or any of the authorities, powers and discretions vested in or exercisable by the Committee.
The Committee shall meet at least three times a year at appropriate times in the reporting and audit cycle and otherwise as required.
5.1 The Committee shall, at least twice a year, meet with the external auditors, without management being present, to discuss matters relating to its remit and any issues arising from the audit or interim review.
5.2 The Committee shall, at least twice a year, meet with internal audit, without management being present, to discuss matters relating to its remit.
5.3 Outside the formal meeting programme, the Committee Chair will maintain a dialogue with key individuals involved in the Company’s governance, including the Board Chair, the Group CEO, the CFO and/or the Group Company Secretary.
6.1 Meetings of the Committee shall be called by the secretary of the Committee at the request of any of its members or at the request of external or internal auditor if they consider it necessary.
6.2 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 (if agreed), to all other Non Executive Directors, no later than five working days before the date of the meeting. Supporting papers shall be sent to Committee members and to other attendees as appropriate, at the same time.
7.1 The secretary shall minute the proceedings and decisions of all meetings of the Committee, including recording the names of those present and in attendance.
7.2 Draft minutes of Committee meetings shall be circulated promptly to all members of the Committee. Once approved, minutes should be circulated to all other members of the Board unless it would be inappropriate to do so.
The Committee Chair should attend the Annual General Meeting to answer any shareholder questions on the Committee’s activities. In addition, the Committee Chair should seek engagement with shareholders on significant matters related to the Committee’s areas of responsibility.
The Committee should carry out the duties below (and such other duties as are required by any regulation) for the parent Company, major subsidiary undertakings, and the Group as a whole, as appropriate. The Committee shall provide an independent overview of the integrity of the Company’s system of internal control, whistleblowing investigation, risk management and financial reporting processes through the co-ordination and supervision of the quality, independence and effectiveness of the internal and external auditors and reviewing the Company’s financial reporting.
9.1 Financial reporting
9.1.1 The Committee shall monitor the financial statements’ audit and reporting processes, including the findings or conclusions and integrity of the financial statements of the Company, making appropriate recommendations to ensure integrity. These include the annual and half-yearly reports, interim management statements, and any other formal announcement relating to its financial performance, reviewing significant financial reporting issues and judgements which
9.1.2 In particular, the Committee shall review and challenge where necessary:
188.8.131.52 the consistency of, and any changes to, accounting policies both on a year on year basis and across the Company/Group;
184.108.40.206 the methods used to account for significant or unusual transactions where different approaches are possible;
220.127.116.11 whether the Company has followed appropriate accounting standards and made appropriate estimates and judgements, taking into account the views of the external auditor on the financial statements;
18.104.22.168 the clarity of disclosure in the Company’s financial reports and the context in which statements are made;
22.214.171.124 the outcome of the statutory audit, explaining its contribution to the integrity of the financial statements;
126.96.36.199 all material information presented with the financial statements, such as the business review/operating and financial review and the corporate governance statement (insofar as it relates to the audit and risk management).
9.1.3 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 Company’s performance, business model and strategy. This review shall assess whether the narrative in the front of the report is consistent with the accounting information in the back.
9.1.4 The Committee shall review any other statements requiring board approval which contain financial information first, where to carry out a review prior to board approval would be practicable and consistent with any prompt reporting requirements under any law or regulation including the Listing Rules or Disclosure Guidance and Transparency Rules sourcebook.
9.1.5 Where the committee is not satisfied with any aspect of the proposed financial reporting by the company, it shall report its views to the Board.
9.2 Internal controls and risk management systems
The Committee shall:
9.2.1 Monitor and keep under review the adequacy and effectiveness of the Company’s internal financial controls and internal control and risk management systems, including quality controls;
9.2.2 review and recommend approval to the Board of the statements to be included in the Annual Report concerning internal controls, the viability statement and risk management, including the assessment of principal risks and emerging risks;
9.2.3 work with the Board to develop the Company’s overall risk appetite, tolerance and strategy, taking account of the current and prospective macroeconomic and financial environment drawing on such financial stability assessments as may be relevant for the Company’s risk policies;
9.2.4 oversee and advise the Board on the current risk exposures of the Company and future risk strategy;
9.2.5 in relation to risk assessment, to work with the Board to:
188.8.131.52 keep under review the Company’s overall risk assessment processes that inform the Board’s decision making, ensuring both qualitative and quantitative metrics are used;
184.108.40.206 review regularly and approve the parameters used in these measures and the methodology adopted;
220.127.116.11 set a standard for the accurate and timely monitoring of large exposures and certain risk types of critical importance;
9.2.6 review the Company’s capability to identify and manage new risk types;
9.2.7 before a decision to proceed is taken by the Board, where requested by the Board, advise the Board on proposed strategic transactions including acquisitions or disposals, ensuring that a due diligence appraisal of the proposition is undertaken, focusing in particular on risk aspects and implications for the risk appetite and tolerance of the Company, and taking independent external advice
where appropriate and available;
9.2.8 review reports on any material breaches of risk limits and the adequacy of proposed action;
9.2.9 keep under review the effectiveness of the Company’s internal financial controls and internal controls and risk management systems and review and approve the statements to be included in the Annual Report concerning internal controls and risk management;
9.2.10 provide qualitative and quantitative advice to the remuneration Committee on risk weightings to be applied to performance objectives incorporated in Executive
9.2.11 recommend to the Board the appointment and/or removal of the chief risk officer (or any equivalent position);
9.2.12 review promptly all reports on the Company from the chief risk officer (or any equivalent position);
9.2.13 review and monitor management’s responsiveness to the findings and recommendations of the chief risk officer (or any equivalent position);
9.2.14 the chief risk officer (or any equivalent position) shall be given the right of direct access to the Chair of the Board and to the Committee.
9.3 Compliance, whistleblowing and fraud
The Committee shall:
9.3.1 review the adequacy and security of the Company’s arrangements for its employees and contractors to raise concerns, in confidence, about possible wrongdoing in financial reporting or other matters. The Committee shall ensure that these arrangements allow proportionate and independent investigation of such matters and appropriate follow up action;
9.3.2 review the Company’s procedures for detecting fraud;
9.3.3 review the Company’s systems and controls for the prevention of bribery and receive reports on non-compliance;
9.3.4 review regular reports from the Money Laundering Reporting Officer, Treasury, Internal Audit (or equivalent) and the adequacy and effectiveness of the company’s anti-money laundering systems and controls;
9.3.5 review regular reports from the Compliance Officer and keep under review the adequacy and effectiveness of the Company’s compliance function.
9.4 Internal Audit
The Committee shall:
9.4.1 monitor and review the effectiveness of the Company’s Internal Audit Function in the context of the Company’s overall risk management system and the work of compliance, finance and the external auditor, and to determine whether it is satisfied that the quality, experience and expertise of Internal Audit is appropriate
for the business;
9.4.2 approve the appointment and removal of the Head of the Internal Audit Function;
9.4.3 annually consider and approve the remit of the Internal Audit Function and ensure it has unrestricted scope, the necessary resources and that there is open
communication between different functions, of which the effectiveness is monitored as part of the Internal Audit plan, and appropriate access to information to enable it to perform its function effectively in accordance with the relevant professional standards. The Committee shall also ensure the function has adequate standing and is free from management or other restrictions;
9.4.4 review and assess the annual Internal Audit plan to ensure it is aligned to the key risks of the business, and receive regular reports on work carried out;
9.4.5 receive and review reports addressed to the Committee from the internal auditor and monitor management’s closure of findings;
9.4.6 review and monitor management’s actions and responsiveness to the findings and recommendations of the internal auditor and to support the effective working of
the Internal Audit function;
9.4.7 meet the Head of Internal Audit at least twice a year, without management being present, to discuss their remit and any issues arising from the internal audits carried out. In addition, the Head of Internal Audit shall be given the right of direct access to the Chair of the Board and to the Committee;
9.4.8 Consider whether an independent, third party review of processes is appropriate;
9.5 External Audit
The Committee shall:
9.5.1 consider and make recommendations to the Board, to be put to shareholders for approval at the AGM, in relation to the appointment, re-appointment and removal of the Company’s external auditor. The Committee shall oversee the selection process for a new auditor in accordance with applicable UK Corporate Governance Code (‘the Code’) and regulatory requirements, ensuring that all tendering firms have access to all necessary information and individuals during the process, and if an auditor resigns the Committee shall investigate the issues leading to this and decide whether any action is required;
9.5.2 oversee the relationship with the external auditor including (but not limited to):
18.104.22.168 recommendations on their remuneration, whether fees for audit or non-audit services and that the level of fees is appropriate to enable an effective and high-quality audit to be conducted;
22.214.171.124 approval of their terms of engagement, including any engagement letter issued at the start of each audit and the scope of the audit;
9.5.3 assessing annually their independence and objectivity taking into account relevant UK professional and regulatory requirements and the relationship with the auditor as a whole, including any threats to the auditor’s independence and the safeguards applied to mitigate those threats, such as the provision of any non-audit services, as well as the annual report from the auditor, with appropriate discussion with the auditor of key issues and mitigation actions;
9.5.4 satisfying itself that there are no relationships (such as family, employment, investment, financial or business) between the auditor and the Company (other than in the ordinary course of business) which could adversely affect the auditor’s independence and objectivity;
9.5.5 agreeing with the Board a policy on the employment of former employees of the Company’s auditor, taking into account the Ethical Standard and legal requirements, then monitoring the implementation of this policy;
9.5.6 monitoring the auditor’s process for maintaining independence, its compliance with relevant ethical and professional guidance on the rotation of audit partner, the level of fees paid by the Company compared to the overall fee income of the firm, office and partner and other related requirements;
9.5.7 assessing annually the qualifications, expertise and resources of the auditor and the effectiveness of the audit process, which shall include a report from the external auditor on their own internal quality procedures;
9.5.8 seeking to ensure co-ordination with the activities of the Internal Audit Function;
9.5.9 evaluate the risks to the quality and effectiveness of the financial reporting process in the light of the external auditor’s communications with the committee;
9.5.10 develop and recommend to the board the company’s formal policy on the provision of non-audit services by the auditor, including approval of non-audit services by the committee and specifying the types of non-audit service to be pre-approved, and assessment of whether non-audit services have a direct or material effect on the audited financial statements. The policy should include consideration of the following matters:
126.96.36.199 threats to the independence and objectivity of the external auditor and any safeguards in place;
188.8.131.52 the nature of the non-audit services;
184.108.40.206 whether the external audit firm is the most suitable supplier of the non-audit service;
220.127.116.11 the fees for the non-audit services, both individually and in aggregate, relative to the audit fee; and
18.104.22.168 the criteria governing compensation;
9.5.11 meet regularly with the external auditor, including once at the planning stage before the audit and once after the audit at the reporting stage. The Committee shall meet the external auditor at least once a year, without management being present, to discuss the auditor’s remit and any issues arising from the audit;
9.5.12 discuss with the external auditor the factors that could affect audit quality and review and approve the annual audit plan and ensure that it is consistent with the scope of the audit engagement, having regard to the seniority, expertise and experience of the audit team;
9.5.13 review the findings of the audit with the external auditor. This shall include but not be limited to, the following:
22.214.171.124 a discussion of any major issues which arose during the audit;
126.96.36.199 any accounting and audit judgements;
188.8.131.52 levels of errors identified during the audit;
184.108.40.206 the effectiveness of the audit;
220.127.116.11 the auditor’s explanation of how the risks to audit quality were addressed;
18.104.22.168 levels of errors identified during the audit.
The Committee shall also:
9.5.14 review any representation letter(s) requested by the external auditor before they are signed by management;
9.5.15 review the management letter and management’s response to the auditor’s findings and recommendations;
9.5.16 develop and implement a policy on the supply of non-audit services by the external auditor, in compliance with appropriate regulations, including any fee cap, and also taking into account any relevant ethical guidance on the matter, so as to allow appropriate oversight of the external auditor’s assessment of such services and fee cap calculation;
9.5.17 oversee the external auditor’s compliance with any reporting requirements in the audit report or other reports to the Committee, as required by regulation;
9.5.18 review the effectiveness of the audit process, including an assessment of the quality of the audit, the handling of key judgements by the auditor, and the auditor’s response to questions from the Committee.
10.1 The Committee Chair shall report formally to the Board on its proceedings after each meeting on all matters within its duties and responsibilities. This report shall include:
10.1.1 the significant issues that it considered in relation to the financial statements and how these were addressed;
10.1.2 its assessment of the effectiveness of the external audit process, the approach taken to the appointment or reappointment of the external auditor, length of tenure of audit firm, when a tender was last conducted and advance notice of any retendering plans;
10.1.3 any other issues on which the Board has requested the Committee’s opinion.
10.2 The Committee shall make whatever recommendations to the Board it deems appropriate on any area within its remit where action or improvement is needed.
10.3 The Committee shall compile a report to shareholders describing its work in discharging its responsibilities to be included in the Company’s Annual Report and Accounts. This report shall typically include:
10.3.1 a summary of the role of the Committee;
10.3.2 the names and relevant qualifications of all members of the Committee during the period;
10.3.3 the number of Committee meetings;
10.3.4 the significant issues that the Committee considered in relation to the financial statements1 and how these issues were addressed, having regard to
matters communicated to it by the auditors;
10.3.5 an explanation of how it has assessed the effectiveness of the external audit process and the approach taken to the appointment or reappointment of the external auditor, and the information on the length of tenure of the current audit firm, when a tender was last conducted, and any contractual obligations that acted to restrict the Committee’s choice of external auditors; and
10.3.6 In compiling the reports referred to in 10.1 and 10.3, the Committee should exercise judgement in deciding which of the issues it considers in relation to the financial statements are significant, but should include at least those matters that have informed the board’s assessment of whether the company is a going concern and the inputs to the board’s viability statement. The report to shareholders need not repeat information disclosed elsewhere in the annual report and accounts, but could provide cross-references to that information;
10.3.7 if the external auditor provides non-audit services, how auditor objectivity and independence is safeguarded2.
1 The Committee will need to exercise judgement in deciding which if the issues it considered in relation to the financial statements are significant and should include at least those matters that have informed the board’s assessment of whether the Company is a going concern. The Committee should aim to describe the significant issues in a concise and understandable form. The statement need not repeat information disclosed elsewhere in the annual report and accounts, but could provide cross-references to that information. The Committee should not disclose information which, in its opinion, would be prejudicial to the interests of the Company.
2 The explanation should describe the work of the Committee in discharging its responsibilities; set out the Committee’s policy on the engagement of the external auditor to supply non-audit services in sufficient detail to describe each of the elements in paragraph 4.39 of the UK Corporate Governance Code or cross-refer to where this information can be found on the Company’s website; and set-out, or cross refer to, fees paid to the auditor for audit services, audit related services and other non-audit services and, if the auditor provides non-audit services, other than audit related services, explain for each significant engagement or category of engagements what the services were, why the Committee concluded that it was in the interests of the Company to purchase them from the auditor (rather than another supplier) and how auditor objectivity and independence has been safeguarded.
The Committee shall:
11.1 have access to sufficient resources to carry out its duties, including access to the Company secretariat for assistance as required;
11.2 be provided with appropriate and timely training, both in the form of an induction programme for new members and on an ongoing basis for all members;
11.3 give due consideration to laws and regulations, the provisions of the Code and the requirements of the FCA’s Listing Rules, Prospectus Rules and Disclosure Guidance and Transparency Rules sourcebook and any other applicable rules, as appropriate;
11.4 be responsible for co-ordination of the internal and external auditors;
11.5 oversee any investigation of activities which are within its terms of reference;
11.6 arrange for periodic reviews of its own performance and, at least bi-annually, review its constitution and terms of reference to ensure it is operating at maximum effectiveness and recommend any changes it considers necessary to the Board for approval.
11.7 The Chair of the Committee shall be available to any member of the senior management to discuss any matters of concern, in relation to financial reporting matters, internal controls or compliance with the Group’s legal and regulatory
11.8 work and liaise as necessary with all other board committees, taking account of the impact of risk management and internal controls being delegated to different
The Committee is authorised:
12.1 to seek any information it requires from any employee of the Company in order to perform its duties;
12.2 to obtain, at the Company’s expense, outside legal or other professional advice on any matter within its terms of reference;
12.3 to call any employee to be questioned at a meeting of the Committee as and when required;
12.4 to have the right to publish in the Company’s Annual Report details of any issues that cannot be resolved between the Committee and the Board. If the Board has not accepted the Committee’s recommendation on the external auditor appointment, reappointment or removal, the Annual Report should include a statement explaining the Committee’s recommendations and the reasons why the Board has taken a different position.