Terms of Reference for the Audit Committee
Overall purpose and objectives
The primary responsibility of the committee will be to assist the board in fulfilling its oversight responsibilities for the Yorkshire Building Society Group, including all subsidiaries, hereafter referred to as the Society. Specifically, the committee will review, monitor and assess:
- The integrity of the financial statements and any formal announcements relating to financial performance, reviewing significant financial reporting judgements contained in them.
- The systems of internal control.
- The internal and external audit processes.
- Compliance with applicable laws and regulations in relation to the preparation of financial statememtns and reporting.
- The Society?s ethical and business standards.
Where such monitoring and review activities reveal cause for concern or scope for improvement, the committee should make recommendations to the board on action needed to address the issue or to make improvements.
In performing its duties the committee will remain independent of executive management.
To perform their role effectively, each member of the committee will obtain an understanding of the detailed responsibilities of committee membership as well as the Society?s business, operations and risks.
Authority
The board authorises the committee, within the scope of its responsibilities, to:
- Seek any information it requires from any employee or external party. (All employees are directed to co-operate with any request made by the committee and have an obligation to ensure the committee is kept properly informed).
- Obtain outside legal or other professional advice as deemed necessary in the discharge of its duties.
- Require the attendance of company officers at meetings as appropriate.
Organisation
Membership
- The committee will comprise a minimum of four non-executive directors of which at least one will have recent and relevant financial experience. This individual will also have a relevant professional qualification.
- Each member will be capable of making a valuable contribution to the committee and will be subject to a formal annual appraisal.
- The chairman of the committee will be nominated by the board.
- The chairman of the board may be a committee member if it is deemed appropriate based on specialised knowledge, independence and value of contribution. This will be disclosed in the annual report as required by the code.
- Members will be appointed by the board for a three year period, with a maximum of two additional three year periods at the board?s discretion.
- The secretary of the committee will be the Group Secretary.
- All new members of the committee will undergo appropriate induction training supplemented with an ongoing programme of training for all members.
Attendance at meetings
- The committee may invite such other persons to its meetings as deemed necessary ? this would typically be the Chief Executive, Finance Director, Head of Group Audit and the external auditors.
- The internal and external auditors will be invited to make presentations to the committee as deemed appropriate and at least annually.
- Meetings will be held four times each year and where necessary special meetings may be convened as required. Internal auditors and external auditors may convene a meeting if they consider that this is necessary. One of the meetings will be dedicated to a review of the annual report and financial statements.
- Each month there will be a private meeting between the chair of the committee and the Head of Group Internal Audit.
- At least annually and as required there will be a private meeting between the committee and the external auditor.
- Sufficient time will be granted at meetings to allow appropriate discussion to take place.
- A quorum for any meeting of the committee will be three non-executive directors and in the absence of any of the standing members of the committee any other suitable non-executive director may be co-opted.
Roles and responsibilities
The audit committee will:
Internal Control
- Evaluate whether management is setting the appropriate control culture by communicating the importance of internal control and ensuring that all employees have an understanding of their roles and responsibilities in this regard.
- Consider how management is managing and assessing risk and implementing appropriate counter measures.
- Consider whether internal control recommendations made by internal and external auditors have been implemented by management.
- Consider reports from management on the effectiveness of the systems of internal control in mitigating key risks to the Society.
Financial reporting
General
- Consider significant accounting policies and any changes to them, including any judgements or estimates made by management in connection with them.
- Understand key financial risks and how management is managing these effectively.
- Consider with internal and external auditors any fraud, illegal acts, deficiencies in internal control or other similar issues.
- Review significant accounting and reporting issues, including recent professional and regulatory pronouncements and understand their impact on financial statements.
- Ask management about significant risks and their plans to minimise them. Determine whether this is consistent with the views of internal and external auditors.
- Review any legal matters that could significantly impact the financial statements.
Annual Financial Statements (Report and Accounts)
- Subject to satisfactory review, recommend the report and accounts to the board.
- Review the annual financial statements and determine whether they are complete and consistent with the information known to committee members; assess whether the financial statements reflect appropriate accounting principles.
- Pay particular attention to complex and/or unusual transactions such as restructuring charges and derivative disclosures.
- Focus on judgmental areas, for example those involving valuation of assets and liabilities; warranty, product or other liability; litigation reserves; and other commitments and contingencies.
- Meet with management and the external auditors to review the financial statements and the results of the audit.
- Review the other sections of the annual report before its release and consider whether the information is understandable and consistent with members? knowledge about the Society and its operations. Areas of review would include corporate governance, risk management and internal control statements.
Internal Audit
- Review the activities and organisational structure of the internal audit function and ensure no unjustified restrictions or limitations are made.
- Review the qualifications of internal audit personnel and concur in the appointment, replacement, reassignment or dismissal of the Head of Group Internal Audit.
- Review the effectiveness of the internal audit function and determine if it is allocated sufficient resource to execute its responsibilities.
- Determine whether significant findings and recommendations made by the internal auditors are received and discussed on a timely basis.
- Determine if management responds appropriately to recommendations by the internal auditors.
- Review and assess the adequacy of the audit programme and receive reports on the results of audit work on a periodic basis.
External Audit
- Review the external auditors? proposed audit scope, resource and approach and ensure no unjustified restrictions or limitations have been placed on the scope.
- Periodically review the performance of the external auditors
- Consider relevant ethical and professional guidance on the activities of external auditors and their relationships with the Society, particularly financial or family links.
- Consider the fee structure to ensure an effective external audit service can be provided for such a fee.
- Consider the independence of the external auditor, including reviewing the range of services provided in the context of all consulting services provided by the company.
- Make recommendations to the board regarding the appointment, reappointment and removal of the external auditors. Any dispute between the committee and the board on this matter should be disclosed to members in the annual report.
- Consider the reason behind any resignation of the external auditor.
- Meet separately with the external auditors at least annually to discuss any matters that the committee or auditors believe should be discussed privately.
- Ensure that significant findings and recommendations made by the external auditors are received and discussed on a timely basis.
- Ensure that management responds to recommendations by the external auditors.
Compliance with the Society?s Standards of Conduct
- Ensure that the standards of conduct are documented and that arrangements are made for all employees to be aware of them.
- Evaluate whether management is setting the appropriate ?tone at the top? by communicating the importance of the standards of conduct and the guidelines for acceptable behaviour.
- Review the process for monitoring compliance with the standards of conduct.
- Obtain periodic updates from management regarding compliance.
Reporting Responsibilities
- Ensure that any dispute between the committee and the board will be disclosed in the annual report to members.
- Regularly update the board about committee activities and make appropriate recommendations.
- Ensure the board is aware of matters which may significantly impact the financial condition or affairs of the business.
- Ensure a detailed report describing the work of the committee is included in the annual report to members.
Other Responsibilities
- Perform other oversight functions as requested by the full board.
- If necessary, institute special investigations and, if appropriate, hire special counsel or experts to assist.
- Consider the adequacy of processes that allow staff of the Society to raise concerns in confidence about possible improprieties.
- Periodically review and update the committee's roles and responsibilities and receive approval for changes from the board.
- The board will evaluate the committee?s own performance on a periodic basis.
- The chairman and members of the committee will maintain continuing communication with the board Chairman, the Chief Executive, the Finance Director, the external audit lead partner and the Head of Group Internal Audit.
