The Audit Committee (the Committee) is a committee of the Board of Directors of Renold plc (the Board), from which it derives its authority and to which it regularly reports.
1. Membership
1.1 Members of the Audit Committee will be appointed by the Board, on the recommendation of the Nomination Committee, in consultation with the Chair of the Audit Committee. The Audit Committee will be made up of a Chair and at least one other member.
1.2 All members of the Audit Committee will be independent Non-Executive Directors at least one of whom will have recent and relevant financial experience, ideally with a professional qualification from one of the professional accounting bodies. The Chair of the Board will not be a member of the Audit Committee.
1.3 Only members of the Audit Committee have the right to attend Audit Committee meetings. However, other individuals such as the Chair of the Board, Chief Executive, Group Finance Director, other Directors, and representatives from the Finance function may be invited to attend all, or part of any meeting as and when appropriate.
1.4 The external auditor will be invited to attend meetings of the Audit Committee on a regular basis as will any external party to which the internal audit function and /or risk management function have been outsourced.
1.5 The Board will appoint the Chair of the Audit Committee, who will be an independent Non-Executive Director. In the absence of the Audit Committee Chair and/or an appointed deputy, the remaining members present will elect one of themselves to chair the meeting.
1.6 Appointments to the Audit Committee will be for a 12 month rolling period subject to re-election of the member at each Annual General Meeting and provided that the member still meets the criteria for membership of the Audit Committee and that the majority of the Audit Committee members remain independent.
2. Secretary
2.1 The Company Secretary will act as the secretary of the Audit Committee and will ensure that the Audit Committee receives information and papers in a timely manner to enable full and proper consideration to be given to issues.
3. Quorum
3.1 The quorum necessary for the transaction of business will be two members. A duly convened meeting of the Audit Committee at which a quorum is present will be competent to exercise all, or any of the authorities, powers and discretions vested in, or exercisable by the Audit Committee.
4. Frequency of Meetings
4.1 The Audit Committee will meet at least four times a year at appropriate times in the reporting and audit cycle and otherwise as required.
4.2 Outside of the formal meeting programme, the Chair of the Audit Committee will maintain a dialogue with key individuals involved in the Company’s governance, including the Board Chair, the Chief Executive, the Group Finance Director the external audit lead partner and any external party to which the internal audit function and /or risk management function have been outsourced.
5. Notice of Meetings
5.1 Meetings of the Audit Committee will be called by the Company Secretary at the request of any of its members or at the request of the external auditor if they consider it necessary.
5.2 Unless otherwise agreed, notice of each meeting confirming the venue, time, and date, together with an agenda of items to be discussed, will be forwarded to each member of the Audit Committee, any other person required to attend and all other Non-Executive Directors, in good time, in advance of the date of the meeting. Supporting papers will be sent to Audit Committee members and to other attendees as appropriate, at the same time.
6. Minutes of Meetings
6.1 The Company Secretary will minute the proceedings and resolutions of all meetings of the Audit Committee, including recording the names of those present and in attendance.
6.2 Draft minutes of Audit Committee meetings will be circulated promptly to all members of the Audit Committee and once agreed, to all members of the Board, unless it would be inappropriate to do so in the opinion of the Chair of the Audit Committee.
6.3 Engagement with shareholders .The Chair of the Audit Committee should attend the Annual General Meeting and be prepared to respond to any shareholder questions on the Audit Committee's activities.
7. Duties
The Audit Committee should carry out the duties below for the Company, and the Group as a whole.
Financial Reporting
7.1 The Audit Committee will monitor the integrity of the financial statements of the Company, including its annual and half-yearly reports, preliminary results' announcements and any other formal announcement relating to its financial performance and review and where appropriate report to the Board on the significant financial reporting issues and judgements which those statements contain having regard to matters communicated to it by the external auditor.
a) The Audit Committee will review and challenge where necessary the financial statements, taking into account: the application of significant accounting policies and any changes to them;
b) the methods used to account for significant or unusual transactions where different approaches are possible;
c) whether the Company has adopted and followed appropriate accounting standards and policies and made appropriate estimates and judgements, taking into account the views of the external auditor;
d) the clarity and completeness of disclosure in the Company's financial reports and the context in which statements are made;
e) all material information presented with the financial statements such as the strategic report, risk management and governance statements;
f) 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 AIM Rules and the Disclosure Guidance and Transparency Rules;
g) 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.
Narrative Reporting
7.2 Where 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 Company’s performance, business model and strategy.
Internal Controls and Risk Management Systems
a) keep under review the Group’s internal control systems, in particular those that identify, assess, manage and monitor financial risks; and
b) review and approve the statements to be included in the Company's annual report concerning internal controls and the viability statement.
Whistleblowing and Fraud
a) ensure that in relation to the Group’s arrangements for its employees and contractors and external parties to raise concerns, any allegations which give rise to possible wrongdoing in financial reporting or other matters within the remit of the Committee, allow proportionate and independent investigation of such matters and appropriate follow up action by the Committee;
b) review the Group’s procedures for detecting monitoring and managing the risk of fraud. All confirmed instances of fraud should be reported to the Audit Committee; and
c) review the Group’s systems and controls for the prevention of bribery and corruption and receive reports on non-compliance.
Internal Audit
a) approve the appointment or termination of appointment of the party responsible for the internal audit function;
b) review and approve the role and mandate of internal audit, monitor and review the effectiveness of its work;
c) review and approve 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;
d) ensure that the internal audit function has unrestricted scope, the necessary resources and access to information to enable it to fulfil its mandate, ensure there is open communication between different functions and that the internal audit function evaluates the effectiveness of these functions as part of its internal audit plan, and ensure that the internal audit function is equipped to perform in accordance with appropriate professional standards for internal auditors;
e) ensure the internal auditor has direct access to the Board chair and to the Committee chair, providing independence from the executive and accountability to the Committee;
f) carry out an annual assessment of the effectiveness of the internal audit function and as part of this assessment;
g) meet with the party responsible for the internal audit function without the presence of management to discuss the effectiveness of the function ;
h) review and assess the annual internal audit work plan;
i) receive a report on the results of the work of the internal audit function;
j) determine whether it is satisfied that the quality, experience and expertise of internal audit is appropriate for the business;
k) review the actions taken by management to implement the recommendations of internal audit and to support the effective working of the internal audit function;
l) monitor and assess the role and effectiveness of the internal audit function in the overall context of the company’s risk management system and the work of compliance, finance and the external auditor;
m) consider whether an independent, third party review of processes is appropriate.
External Audit
a) consider and make recommendations to the Board, to be put to shareholders for approval at the annual general meeting of the Company, in relation to the appointment, re-appointment and removal of the Company's external auditor;
b) develop and oversee the selection procedure for the appointment of the audit firm in accordance with any applicable regulatory requirements, ensuring that all tendering firms have access to all necessary information and individuals during the tendering process;
c) if an external auditor resigns, the Audit Committee will investigate the issues leading to this and decide whether any action is required;
d) oversee the relationship with the external auditor : In this context the Committee shall:
(i) approve their remuneration, including both 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;
(ii) approve their terms of engagement, including any engagement letter issued at the start of each audit and the scope of the audit;
(iii) assess annually their independence and objectivity taking into account relevant law, regulation, and other professional requirements and the Group’s relationship with the auditor as a whole, including any threats to the auditor’s independence and the safeguards applied to mitigate those threats;
(iv) satisfy itself that there are no relationships between the external auditor and the Company (other than in the ordinary course of business) which could adversely affect the external auditor’s independence and objectivity;
(v) agree with the Board a policy on the employment of former employees of the Company's auditor, then monitor the implementation of this policy;
(vi) monitor the auditor’s processes for maintaining independence, its compliance with relevant law, regulation and other professional requirements, including the guidance on the rotation of audit partner and staff;
(vii) monitor the level of fees paid by the Company to the external auditor compared to the overall fee income of the firm, office and partner and assess these in the context of relevant legal, professional and regulatory requirements and guidance;
(vi) assess annually the qualifications, expertise and resources, and independence of the external auditor and the effectiveness of the external audit process, which shall include a report from the external auditor on their own internal quality procedures;
(viii) seek to ensure coordination of the external audit with the activities of the internal audit function;
(ix) 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;
(x) 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 Audit Committee will meet the external auditor at least once a year, without management being present, to discuss the external auditor’s remit and any issues arising from the audit;
(xi) discuss with the external auditor the factors that could affect audit quality and review and approve the annual audit plan, ensuring it is consistent with the scope of the audit engagement, having regard to the seniority, expertise and experience of the audit team;
(xii) review and approve the findings from the audit with the external auditor. This will include but not be limited to the following:
a) a discussion of any major issues which arose during the audit;
b) the auditor’s explanation of how the risks to audit quality were addressed;
c) key accounting and audit judgements;
d) the auditor’s view of their interactions with senior management; and
e) levels of errors identified during the audit.
e) review any representation letter(s) requested by the external auditor before they are signed by management;
f) review the management letter and management's response to the auditor's findings and recommendations;
g) 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;
h) develop and implement a policy on the supply of non-audit services by the external auditor including prior approval of non-audit services by the Committee and specifying the types of non-audit service to be preapproved, 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;
i) threats to the independence and objectivity of the external auditor and any safeguards in place;
j) the nature of the non-audit services;
k) whether the external audit firm is the most suitable supplier of the non-audit service;
l) the fees for the non-audit services, both individually and in aggregate, relative to the audit fee ;
m) the criteria governing compensation.
7.7 The Audit Committee Chair will report formally to the Board on its proceedings after each meeting on all matters within its duties and responsibilities and shall also formally report to the Board on how it has discharged its responsibilities. This report shall include:
a) the significant issues that it considered in relation to the financial statements and how these were addressed;
b) its assessment of the effectiveness of the external audit process and its recommendation on 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; and
c) any other issues on which the Board has requested the Committee’s opinion.
7.8 The Audit Committee will make whatever recommendations to the Board it deems appropriate on any area within its remit where action or improvement is needed.
7.9 The Committee shall compile a report on its activities to be included in the Company’s annual report. The report should include:
a) the significant issues that the Committee considered in relation to the financial statements and how these issues were addressed;
b) an explanation of how the Committee has assessed the independence and effectiveness of the external audit process and the approach taken to the appointment or reappointment of the external auditor, information on the length of tenure of the current audit firm, when a tender was last conducted and advance notice of any retendering plans;
c) an explanation of how auditor independence and objectivity are safeguarded if the external auditor provides non-audit services, having regard to matters communicated to it by the auditor and all other information requirements. In compiling the reports referred to in 7.7 and 7.9, 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.
8 Other Matters
a) have access to sufficient resources in order to carry out its duties, including access to the Company Secretary for assistance as required;
b) 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;
c) give due consideration to laws and regulations and published guidelines or recommendations relevant to its activities (including but not limited to the Quoted Companies Alliance Code of Governance);
d) be responsible for the co-ordination of the internal audit function, the risk management function and external auditor;
e) work and liaise as necessary with all other Board Committees ensuring interaction between Committees and with the Board is reviewed regularly, taking particular account of the impact of risk management and internal controls being delegated to different Committees;
f) ensure that a periodic evaluation of the Committee’s performance is carried out;
g) at least 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.
9 Authority
9.1 The Audit Committee is authorised:
a) to seek any information, it requires from any employee of the Group in order to perform its duties;
b) to obtain, at the Company's expense, independent legal, accounting or other professional advice on any matter it believes necessary to do so;
c) Call any employee to be questioned at a meeting of the Committee as and when required.
9.2 In these Terms of Reference:
Approved and adopted by the Audit Committee on 16 January 2024
