1 Composition of the Committee:
- The Audit and Compliance Committee is a sub‐committee of Hinckley and Rugby Building Society Board of Directors. A summary of each meeting will be made available at the next Board meeting following the Audit & Compliance meeting.
- The Audit & Compliance Committee Terms of Reference shall be reviewed at least annually.
2 Membership & Quorum:
- Members of the Committee shall be appointed by the Board.
- The Committee shall comprise of three non‐executive directors.
- The Chair of the Committee must have recent and relevant financial experience.
- Any other non‐member non‐executive Directors may attend the Committee.
- The holder of SMF2 Chief Financial Officer and SMF4 Chief Risk Officer are expected to attend meetings.
- Other members of the Executive team may also attend meetings, at the request of the Committee.
- The Compliance Manager may also attend meetings, for compliance monitoring purposes.
- The Governance Manager and Secretary, or their nominee, shall act as Secretary of the Committee. Minutes of each meeting will be taken and circulated to each member prior to the next meeting.
- Representatives of KPMG LLP being the Society’s External Auditors shall also attend as required, with or without Executive Directors present, either at the request of the Committee or at any time they wish to do so.
- Representatives of Deloitte LLP, being the Society’s Internal Auditors shall attend the meeting.
- The Committee will meet the External and Internal Auditors at least annually without the Board
- Chairman or Executive Directors being present to discuss matters relating to its remit and any issues arising from their audit work, to include the flow of relevant audit information.
- The quorum necessary for the transaction of business shall be two members.
- If the Chair is not present within fifteen minutes after the time appointed for the meeting, the Members present at that meeting shall elect one of their number to be the Chair, for the purposes of that meeting.
- 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.
- 3.1 The Committee will meet at least five times per year and more frequently if considered necessary by a member of the Committee.
- 3.2 Unless otherwise agreed, notice of each meeting confirming the venue, time and date together with an agenda of items to be discussed and supporting papers, shall be forwarded to each member of the Committee and any other person required to attend, not less than five working days before the date of the meeting.
4 Responsibilities of the Committee:
- 4.1.1 To make recommendations to the Board, for it to put to the members for their approval in general meeting, in relation to the appointment of the External Auditor;
- 4.1.2 To approve the remuneration and terms of engagement of the External Auditor;
- 4.1.3 To review and monitor the External Auditor’s independence and objectivity and the effectiveness of the audit process;
- 4.1.4 To develop and implement policy on the engagement of the External Auditor to supply non audit services;
- 4.1.5 To monitor the integrity of the financial statements of the Society and any formal announcements relating to the Society’s financial performance, reviewing significant financial reporting judgements contained in them;
- 4.1.6 To review the Society’s internal financial controls and internal control systems;
- 4.1.7 To monitor and review the effectiveness of the Society’s Internal Audit function and to appoint and remove Internal Auditors, as appropriate;
- 4.1.8 To monitor and review the effectiveness of the Society’s Compliance Monitoring function;
- 4.1.9 To report to the Board, identifying any matters in respect of which it considers that action or improvement is needed, and making recommendations as to the steps to be taken; and
- 4.1.10 To report to the Board on how it has discharged its responsibilities.
- 4.2.1 The Committee will ensure that the UK Corporate Governance Code is considered having regard to relevant guidance issued by the Building Societies Association.
- 4.2.2 The Committee will take into account as appropriate the Financial Reporting Council’s “Guidance on Audit Committees”.
- 4.2.3 The Committee will take into account, as appropriate, all other regulatory guidance as appropriate.
- 4.2.4 The Committee will ensure that it has access to sufficient resources in order to carry out its duties and is authorised by the Board to obtain, at the Society’s expense, outside legal or other professional advice on any matters within its terms of reference.
- 4.2.5 Consider any training and development needs for Committee members and to provide appropriate training on a timely basis.
- 4.2.6 Many of the core functions of the Committees as set out in these Terms of Reference are expressed in terms of ‘oversight’, ‘assessment’ and ‘review’ of a particular function. It is not the duty of the Committee to carry out functions that properly belong to others, such as the Society’s Management in the preparation of the financial statements or the Auditors in the planning or conducting of audits.
- 4.2.7 The Committee will be forward looking in its assessment of developments in corporate reporting, accounting standards and regulation.
- 4.3.1 The Committee Chairman will report to the Board on its proceedings after each meeting on all matters within its duties and responsibilities.
- 4.3.2 The Committee will make whatever recommendations to the Board it deems appropriate on any area within its remit where action or improvement is needed.
- 4.3.3 The Committee’s Terms of Reference will be made available to Members on the Society’s website.
- 4.3.4 In accordance with the UK Corporate Governance Code the work of the Committee will be explained in a separate section of the Society’s Annual Report and Accounts. The Committee section should include, inter alia:
– a summary of the role of the Committee; the names and qualifications of all members of the Committee during the period;
– the number of Committee meetings; the significant issues that the Committee considered in relation to the financial statements and how these issues were addressed, having regard to matters communicated to it by the Auditors;
– 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 information on the length of tenure of the current audit firm, the current External Audit partner’s name and for how long the partner has held the role, when a tender was last conducted, and any contractual obligations that acted to restrict the Committee’s choice of external auditors;
– advance notice of any plans to retender the External Audit;
– if the External Auditor provides non‐audit services, how auditor objectivity and independence is safeguarded and the Committee’s policy for approval of non‐audit services;
– the significant issues that the Committee considered in relation to the financial statements and how these issues were addressed;
– how the performance evaluation of the Committee has been addressed; and
– an explanation of how the Committee has assessed the effectiveness of Internal Audit and satisfied itself that the quality, experience and expertise of the function is appropriate for the business.
- 4.3.5 The Committee will report to the Board on how it has discharged its responsibilities, including:
– the significant issues that it considered in relation to the financial statements and how these issues were addressed;
– its assessment of the effectiveness of the External Audit process and its recommendation on the appointment or reappointment of the External Auditor; and
– any other issues on which the Board has requested the Committee’s opinion.
- 4.3.6 The Committee will review, and report to the Board on, the significant financial reporting issues and judgements made in connection with the preparation of the Society’s financial statements (having regard to matters communicated to it by the Auditors).
- 4.3.7 It is Management’s, not the Committee’s, responsibility to prepare complete and accurate financial statements and disclosures in accordance with financial reporting standards and applicable rules and regulations. However, the Committee should consider significant accounting policies, any changes to them and any significant estimates and judgements. Management should inform the Committee of the methods used to account for significant or unusual transactions where the accounting treatment is open to different approaches. Taking into account the External Auditor’s view, the Committee will consider whether the Society has adopted appropriate accounting policies and, where necessary, made appropriate estimates and judgements. The Committee will review the clarity and completeness of disclosures in the financial statements and consider whether the disclosures made are set properly in context.
- 4.3.8 Where, following its review, the Committee is not satisfied with any aspect of the proposed financial reporting by the Society, it will report its views to the Board.
- 4.3.9 The Committee will review related information presented with the financial statements, including the business review and corporate governance statements.
- 4.3.10 The Committee will 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 stakeholders to assess the Society’s performance, business model and strategy.
The External Audit process:
- 4.4.1 The Committee is the body responsible for overseeing the Society’s relations with the External Auditor.
- 4.4.2 The Committee has primary responsibility for making a recommendation on the appointment, reappointment or removal of the External Auditors, including influencing the appointment of an engagement partner and for initiating a tender process.
- 4.4.3 The Committee will assess on an annual basis, and report to the Board on, the qualification, expertise and resources, and independence of the External Auditors and the effectiveness of the audit process, with a recommendation on whether to propose to the members that the External Auditor be reappointed.
- 4.4.4 If the External Auditor resigns, the Committee will investigate the issues giving rise to such resignation and consider whether any action is required.
- 4.4.5 The Audit & Compliance Committee section of the Annual Report and Accounts will include an explanation of how the Committee has assessed the effectiveness of the External Audit process and of the approach taken to the appointment or reappointment of the External Auditor, in order that members can understand why it recommended either to reappoint or change the auditors.
- 4.4.6 The Committee will approve the terms of engagement and the remuneration to be paid to the External Auditor in respect of audit services provided. The Committee will satisfy itself that the level of fee payable in respect of the audit services provided is appropriate and that an effective, high quality, audit can be conducted for such a fee.
- 4.4.7 The Committee will review the engagement letter issued by the External Auditor at the start of each audit, ensuring that it has been updated to reflect changes in circumstances arising since the previous year and make recommendations to the Board regarding the terms of the engagement.
- 4.4.8 At the start of each annual audit cycle, the Committee will ensure that appropriate plans are in place for the audit. The Committee will consider whether the Auditor’s overall work plan, including planned levels of materiality, and proposed resources to execute the audit plan appears consistent with the scope of the audit engagement.
- 4.4.9 The Committee will review, with the External Auditors, the findings of their work. In the course of its review, the Committee will:
– discuss with the External Auditor major issues that arose during the course of the audit and have subsequently been resolved and those issues that have been left unresolved;
– review key accounting and audit judgements; and
– review levels of errors identified during the Audit, obtaining explanations from Management and, where necessary, the External Auditors as to why certain errors might remain unadjusted.
- 4.4.10 The Committee will also review the Audit representation letters before signature and give particular consideration to matters where representation has been requested that relate to nonstandard issues. This will include a review of evidence provided by Management and supporting opinions that allow the Letter of Representation to be signed.
- 4.4.11 As part of the on‐going monitoring process, the Committee will review the External Auditor’s Management Letter and review and monitor Management’s responsiveness to the External Auditor’s findings and recommendations.
- 4.4.12 The Committee will assess the independence and objectivity of the External Auditor annually, taking into consideration relevant UK law, regulation and professional requirements. This assessment will involve a consideration of all relationships between the Society and the audit firm (including the provision of non‐audit services) and any safeguards established by the External Auditor.
- 4.4.13 The Committee will seek reassurance that the Auditors and their staff have no financial, business, employment or family and other personal relationship with the Society which could adversely affect the Auditor’s independence and objectivity, taking account of relevant Ethical Standards for Auditors. The Committee will seek from the audit firm, on an annual basis, information about policies and processes for maintaining independence and monitoring compliance with relevant requirements, including current requirements regarding the rotation of audit partners and staff.
- 4.4.14 The Committee will develop and recommend to the Board the Society’s policy in relation to the provision of non‐audit services by the Auditor and keep the policy under review. The Committee’s objective being to ensure that the provision of such services does not impair the External Auditor’s independence or objectivity. In addition, the Annual Report will explain to members how, if the Auditor provides non‐audit services, Auditor objectivity and independence are safeguarded.
The Internal Audit process:
- 4.5.1 The Committee will assess, monitor and review the effectiveness of the Society’s Internal Audit function and will appoint and remove Internal Auditors as appropriate.
- 4.5.2 The Committee will review and approve the Internal Audit function’s remit, having regard to the complementary roles of the Internal and External audit functions. The Committee will ensure that the function has the necessary resources and access to information to enable it to fulfil its mandate and is equipped to perform in accordance with appropriate professional standards for Internal Auditors.
- 4.5.3 In its review of the work of the Internal Audit function, the Committee will:
‐ ensure that the Internal Auditor has direct access to the Board Chairman, to the Committee including the Chairman, and is accountable to the Committee.
‐ ensure that the Internal Auditor has unrestricted scope and evaluates the effectiveness of the risk, compliance and finance function as part of its internal audit plan;
‐ review and assess the annual Internal Audit work plan;
‐ to approve the remuneration and terms of engagement of the Internal Auditor;
‐ receive a report on the results of the Internal Auditors’ work on a periodic basis;
‐ review and monitor Management’s responsiveness to the Internal Auditor’s findings and recommendations;
‐ meet with the Internal Auditor at least once a year without the presence of Management; and
‐ monitor and assess the role and effectiveness of the Internal Audit function.
The Compliance Monitoring function:
- 4.6.1 The Committee will monitor and review the effectiveness of the Society’s Compliance Monitoring function which monitors and, on a regular basis, assesses the adequacy and effectiveness of the measures and procedures put in place and the actions taken to address any deficiencies in the Society’s compliance with its obligations, including FCA and PRA regulatory requirements, Codes of Practice and implementation of new legislation or rules.
- 4.6.2 The Committee will review and approve the Compliance Monitoring function’s remit, having regard to the complementary roles of the Internal Audit and Compliance Monitoring functions. The Committee will ensure that the function has the necessary resources and access to information to enable it to fulfil its mandate.
- 4.6.3 In its review of the work of the Compliance Monitoring function, the Committee will:
‐ review, assess and approve the Compliance Monitoring work plan.
‐ receive a report on the results of the Compliance Monitoring function’s work at each Committee meeting.
‐ review and monitor Management’s responsiveness to the Compliance Monitoring function’s findings and recommendations.
‐ monitor and assess the role and effectiveness of the Compliance Monitoring function taking into account the work of the Internal Auditor.
5 Reviews of strategic documents
The following documents will be reviewed and approved at least annually and will be recommended to the Board for ratification, where appropriate.
‐Data Governance & Security Policy
‐Third Party Due Diligence
‐Third Party Due Diligence Matrix
6 Committee Effectiveness
The Committee shall at least annually carry out a review of its own effectiveness and make
recommendations to the Board of any necessary changes.