1. Membership
1.1 The Audit Committee (the “Committee”) is a committee of the Board and, as such, is appointed by and reports to the Board.
1.2 The Committee shall comprise not less than three members. All members of the Committee shall be independent non-executive directors, at least one of whom shall have recent and relevant financial experience. The Chairman of the Board shall not be a member of the Committee. Members of the Committee shall be appointed by the Board, on the recommendation of the Nomination Committee in consultation with the Chairman of the Audit Committee.
1.3 The Board, based on the recommendation of the Nomination Committee, shall appoint the Committee chairman who shall be an independent non-executive director. In the absence of the Committee chairman and/or a deputy appointed by the Committee, the remaining members present shall elect one of themselves to chair the meeting.
1.4 Appointments to the Committee shall continue for so long as the director still meets the criteria for membership of the Committee.
1.5 Only members of the Committee have the right to attend Committee meetings. However, other individuals such as the Chairman of the Board, the Chief Executive, the Group Finance Director, the Head of Internal Audit and representatives from the finance and other functions may be invited to attend all or part of any meeting as and when appropriate and necessary. The chairman of the Committee may request the attendance of others at meetings including external advisors and, if so requested, Executive Directors will also make themselves available.
1.6 The external auditor will be invited to attend meetings of the Committee on a regular basis.
2. Secretary
The Company Secretary shall act as secretary of the Committee.
3. Quorum
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.
4. Frequency of Meetings
The Committee shall meet at least four times a year at appropriate times in the reporting and audit cycle and otherwise as required.
5. Notice of Meetings
5.1 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 auditors 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, shall be provided to each member of the Committee and any other person required to attend no later than four business days before the date of the meeting or within such time period as shall be agreed from time to time with the chairman of the Committee. Supporting papers shall be provided to Committee members and to other attendees as appropriate, at the same time.
6. Minutes of Meetings
6.1 The secretary of the Committee, or his or her nominee, shall minute the proceedings and decisions of all meetings of the Committee, including recording the names of those present and in attendance.
6.2 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.
7. Annual General Meeting
The Committee chairman shall attend the Annual General Meeting to answer shareholder questions on the Committee’s activities.
8. Responsibilities
The Committee shall carry out the following responsibilities for Johnson Matthey plc (the “Company”) and the JM group (the “Group”), as appropriate.
8.1 Financial Reporting
8.1.1 The Committee shall monitor the integrity of the reported financial information, including the financial statements of the Company and Group, included in its 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 they contain.
8.1.2 In particular, the Committee shall review:
(i) the assumptions used in going concern assessments;
(ii) the consistency of, and any changes to, significant accounting policies both on a year on year basis and across the Company and Group;
(iii) the methods used to account for significant or unusual transactions where different approaches are possible;
(iv) whether the Company and Group have followed appropriate accounting standards and that any estimates and judgements that are made are appropriate, taking into account the views of the external auditor;
(v) the clarity of disclosure in the Company’s and Group’s financial reports and the context in which statements are made; and
(vi) all related 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).
8.2 Internal Control and Risk Management Systems
The Committee shall:
8.2.1 keep under review the adequacy and effectiveness of the Company’s internal financial controls and internal control and risk management systems including in respect of risks associated with metal holdings, credit and fraud;
8.2.2 review and approve the statements to be included in the annual report concerning internal controls and risk management; and
8.2.3 review the Company’s procedures for handling allegations from whistleblowers. The Committee shall ensure that these procedures allow proportionate and independent investigation of such matters and appropriate follow-up action.
8.3 Internal Audit
The Committee shall
8.3.1 monitor and review the effectiveness of the Company’s internal audit function;
8.3.2 approve the appointment and removal of the head of the internal audit function;
8.3.3 consider and approve the remit of the internal audit function and ensure it has adequate resources and appropriate access to information to enable it to perform its function effectively and in accordance with relevant professional standards. The Committee shall also ensure the function has adequate standing and is free from management or other restrictions;
8.3.4 review and approve the annual internal audit plan;
8.3.5 review reports addressed to the Committee from the internal auditor;
8.3.6 review and monitor management’s responsiveness to the findings and recommendations of the internal auditor; and
8.3.7 meet the head of internal audit at least once a year, without management 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 right of access to the Chairman of the Board and to the Committee.
8.4 External Audit
The Committee shall:
8.4.1 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 and if an auditor resigns the Committee shall investigate the issues leading to this and decide whether any action is required;
8.4.2 oversee the relationship with the external auditor including (but not limited to):
(i) approving their fee for audit services, ensuring that such fee is appropriate to enable adequate audit to be conducted;
(ii) approving their terms of engagement, including any engagement letter issued at the start of each audit and the scope of the audit;
(iii) assessing annually their independence and objectivity, taking into account relevant UK professional and regulatory requirements and the relationship with the external auditor as a whole, including the provision of any non-audit services, and assessing their compliance with guidelines on rotation of audit partner and staff;
(iv) monitoring compliance with the Company’s policy on the employment of former employees of the Company’s auditor;
(v) assessing annually the 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;
(vi) developing and implementing a policy on the supply of non-audit services by the external auditor, taking into account any ethical guidance on this matter; and keeping this policy and any fees paid to the external auditor in respect of the supply of non-audit services under review;
(vii) seeking to ensure co-ordination with the activities of the internal audit function;
(viii) meeting regularly with the external auditor, including at least once a year, without management being present, to discuss the auditor’s remit and any issues arising from the audit;
(ix) reviewing and approving the annual external audit plan and ensuring that it is consistent with the scope of the audit engagement;
(x) reviewing the findings of the audit with the external auditor. This shall include but not be limited to the following:
- a discussion of any major issues which arose during the audit;
- any key accounting and audit judgements; and
- levels of errors identified during the audit.
The Committee shall also:
(xi) review any audit representation letter(s) as requested by the external auditor before they are signed on behalf of the Board; and
(xii) review the external auditor’s findings and recommendations and management’s response thereto.
9. Reporting Responsibilities
9.1 The Committee chairman shall formally report to the Board on the proceedings after each meeting on all matters within its duties and responsibilities.
9.2 The Committee shall make whatever recommendations to the Board as it deems appropriate on any area within its remit where action or improvement is needed.
9.3 The Committee shall produce a report on its activities to be included in the Company’s annual report.
10. Other Matters
The Committee shall:
10.1 have access to sufficient resources in order to carry out its duties, including access to the company secretariat for assistance as required;
10.2 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;
10.3 give due consideration to laws and regulations, the provisions of the UK Corporate Governance Code and the requirements of the UK Listing Authority’s Listing, Prospectus and Disclosure and Transparency Rules and any other applicable rules as appropriate; and
10.4 arrange for periodic reviews of its own performance and, 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.
11. Authority
The Committee is authorised:
11.1 to seek any information it requires from any employee of the Company in order to perform its duties;
11.2 to obtain, at the Company’s expense, outside legal or other professional advice on any matter within its terms of reference when it reasonably believes it is necessary to do so;
11.3 to call any employee to be questioned at a meeting of the Committee as and when required; and
11.4 to publish in the Company’s annual report details of any issues that cannot be resolved between the Committee and the Board.
Adopted by resolution of the Board of Directors on 22nd November 2011
