Howden Joinery Group Plc

Terms of Reference of the Audit Committee

Last approved: 19 January 2017

1.

Membership

1.1 Members of the Committee shall be appointed by the Board, on the recommendation of the Nomination Committee and in consultation with the Chairman of the Audit Committee. The Committee shall be made up of at least three members, at least one of whom shall have recent and relevant financial experience and a competence in accounting and/or auditing evidenced by a professional qualification from a professional accountancy body. The Committee as a whole should have competence relevant to the sector in which the Company is operating. The Chairman of the Board shall not be a member of the Committee.
1.2 The Committee Chairman shall review membership of the Committee annually, as part of the annual performance evaluation of the Committee.
1.3 All members of the Committee shall be independent non-executive directors as determined by the Board (in accordance with the principles of the UK Corporate Governance Code).
1.4 Only members of the Committee have the right to attend Committee meetings. However, other individuals, including, but not limited to, the Chairman of the Board, CEO, CFO, other directors, the Head of Risk and Internal audit and representatives from the Finance function may be invited to attend all or part of any meeting as and when appropriate.
1.5 The external auditors will be invited to attend meetings of the Committee on a regular basis.
1.6 Appointments to the Committee shall be for a period of up to three years, which may be extended, provided the director remains independent.
1.7 The Board shall appoint the Committee Chairman who shall be an independent non-executive director. In the absence of the Committee Chairman and/or an appointed deputy, the remaining members present shall elect one of themselves to chair the meeting.

2.

Secretary

2.1 The Company Secretary shall act as the Secretary to the Committee.

3.

Quorum

3.1 The quorum necessary for the transaction of business shall be two members present in person or by electronic communication (where he or she is able to speak and to be heard by all those deemed to be present simultaneously). 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.

Meetings

4.1 The Committee shall meet at least three times a year and otherwise as required.
4.2 Outside of the formal meeting programme, the Committee Chairman will maintain a dialogue with key individuals involved in the Company's governance, including the Board Chairman, the CEO, CFO, the external audit lead partner and the Head of Internal Audit.

5.

Notice of Meetings

5.1 Meetings of the Committee shall be summoned 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 forwarded to each member of the Committee, any other person required to attend and 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.

6.

Minutes of the Meetings

6.1 The Secretary shall minute the proceedings and resolutions of all meetings of the Committee, including recording the names of those present and in attendance.
6.2 The Secretary shall ascertain at the beginning of each meeting, the existence of any conflicts of interest and minute them accordingly.
6.3 Minutes of Committee meetings shall be circulated to all members of the Committee and, if requested, to all members of the Board, unless a conflict of interest exists.

7.

Annual General Meeting

7.1 The Chairman of the Committee shall attend the Annual General Meeting prepared to respond to any shareholder questions on the Committee's activities.

8.

Duties

  The Committee should carry out the duties below for the Parent Company, major subsidiary undertakings and the Group as a whole, as appropriate.
  Financial Reporting  
8.1 The Committee shall monitor the integrity of the financial statements of the Company, including:
  8.1.1 its annual and half yearly reports;
  8.1.2 interim management reports;
  8.1.3 preliminary results' announcements; and
  8.1.4 any other formal announcement relating to its financial performance.
8.2 The Company shall review and report to the Board on significant financial reporting issues and judgements which they contain having regard to matters communicated to it by the auditor. The Committee shall also review summary financial statements, significant financial returns to regulators and any financial information contained in certain other documents, such as announcements of a price sensitive nature.
8.3 The Committee shall review and challenge where necessary:
  8.3.1 the consistency of, and any changes to, accounting policies both on a year on year basis and across the Company/Group;
  8.3.2 the methods used to account for significant or unusual transactions where different approaches are possible;
  8.3.3 whether the Company has followed appropriate accounting standards and made appropriate estimates and judgements, taking into account the views of the external auditor;
  8.3.4 the clarity of disclosure in the Company's financial reports and the context in which statements are made;
  8.3.5 all material information presented with the financial statements, such as the business review and the corporate governance statement (in so far as it relates to the audit and risk management); and
  8.3.6 the assumptions or qualifications in support of the going concern statement (including any material uncertainties as the Company's ability to continue as a going concern over a period of at least 12 months from the date of approval of the financial statements) and the longer term viability statement (including an assessment of the prospects of the Company and the Group looking forward over an appropriate and justified period).
8.4 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
8.5 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.
   

9.

Internal Controls and Risk Management Systems

  The Committee shall:
9.1 keep under review the adequacy and effectiveness of the Company's internal controls and risk management systems;
9.2 review and approve the statements to be included in the Annual Report concerning internal controls and risk management;
9.3 where requested by the Board, provide advice on how, taking into account the Company's position and principal risks, the Company's prospects have been assessed, over what period and why the period is regarded as appropriate in relation to on-going viability. The Committee shall also advise on whether there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the said period, drawing attention to any qualifications or assumptions as necessary.

10.

Internal Audit

  The Committee shall:
10.1 monitor and review the effectiveness of the Company's Internal Audit function
in the context of the Company's overall risk management system;
10.2 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 the relevant professional standards. The Committee shall also ensure the function has adequate standing and is free from management or other restrictions;
10.3 review and assess the annual Internal Audit plan;
10.4 receive a report on the results of the internal auditors' work on a periodic basis;
10.5 review and monitor management's responsiveness to the findings and recommendations of the internal auditor;
10.6 meet the Head of Internal Audit at least once a year without the presence of management to discuss the remit and any issues arising from the internal audits carried out. The Head of Internal Audit shall be given the right of direct access to the Chairman of the Board and to the Committee; and
10.7 approve the appointment or termination of appointment of the Head of Internal Audit.

11.

External Audit

  The Committee shall:
11.1 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;
11.2 ensure the audit is put out to tender in compliance with applicable legislation. In respect of any such tender, the Committee shall compare the quality and effectiveness of the services provided by the incumbent auditor with those of other audit firms, oversee the selection process and ensure that all tendering firms have such access as is necessary to information and individuals during the tendering process;
11.3 [previously part of 11.1] oversee the selection process for new auditors and if an auditor resigns the Committee shall investigate the issues leading to this and decide whether any action is required;
11.4 oversee the relationship with the external auditor including (but not limited to):
  11.4.1 approval of their remuneration, whether fees for audit or non-audit services and that the level of fees is appropriate to enable an audit to be conducted;
  11.4.2 approval of their terms of engagement, including any engagement letter issued at the start of each audit and the scope of the audit;
  11.4.3 assessing annually their independence and objectivity taking into account relevant professional and regulatory requirements and the relationship with the auditor as a whole, including the provision of any non-audit services;
  11.4.4 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;
  11.4.5 agreeing with the Board a policy on the employment of former employees of the company's auditor, then monitoring the implementation of this policy;
  11.4.6 monitoring the auditor's compliance with relevant ethical and professional guidance on the rotation of audit partners, the level of fees paid by the Company compared to the overall fee income of the firm and other related requirements;
  11.4.7 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;
  11.4.8 seeking to ensure co-ordination with the activities of the internal audit function; and
  11.4.9 evaluating the risks to the quality and effectiveness of the financial reporting process and consideration of the need to include the risk of the withdrawal of their auditor from the market in that evaluation.
11.5 meet regularly with the external auditor without the presence of management, 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 the presence of management to discuss their remit and any issues arising from the audit;
11.6 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 ;
11.7 review the findings of the audit with the external auditor. This shall include but
not be limited to, the following;
  11.7.1 a discussion of any major issues which arose during the audit,
  11.7.2 any accounting and audit judgements, and
  11.7.3 levels of errors identified during the audit.
11.8 review the effectiveness of the audit;
11.9 review any representation letter(s) requested by the external auditor;
11.10 review the management letter and management's response to the auditor's findings and recommendations; and
11.11 develop and implement a policy on the supply of non-audit services by the external auditor, taking into account any relevant ethical guidance on the matter.

12.

Reporting Responsibilities

12.1 The Committee Chairman shall report to the Board on its proceedings on all matters within its duties and responsibilities and shall also report to the Board on how it has discharged its responsibilities. This report shall include:
  12.1.1 the significant issues that it considered in relation to the financial statements (required under paragraph 8.1) and how these were addressed;
  12.1.2 its assessment of the effectiveness of the external audit process (required under paragraph 11.2.7) and its recommendation on the appointment or reappointment of the external auditor; and
  12.1.3 any other issues on which the Board has requested the Committee's opinion.
12.2 The Committee shall make whatever recommendations to the Board it deems appropriate on any area within its remit where action or improvement is needed.
12.3 The Committee shall compile a report to shareholders on its activities to be included in the Company's Annual Report. The report should include an explanation of how the Committee has addressed the effectiveness of the external audit process; 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 auditor; and all other information requirements set out in the Code.

13.

Conflicts of Interest

  The Committee shall:
13.1 in respect of each Director, review any interests the Director may have which conflict or may conflict with the interests of the Company;
13.2 make recommendations to the Board as to whether any such conflict should be authorised and, if so, as to the terms and conditions on which any such authorisation should be given by the Board;
13.3 review on an annual basis any authorisation given by the Board in order to determine whether the authorisation given should stand on the terms and conditions on which it has been given or whether additional terms and conditions should be imposed or whether the authorisation should be removed (subject to giving the relevant Director notice of the proposed revocation); and
13.4 in the case of review of the interests of and authorisations given by the Board to members of the Committee, the affected director shall not participate in the review or in discussions or decisions of the Committee which relate to that Director.

14.

Other Matters

  The Committee shall:
14.1 have access to sufficient resources in order to carry out its duties including access to the company secretariat for assistance as required;
14.2 be provided with appropriate and timely training, both in the form of an induction programme for new members and on an on-going basis for all members;
14.3 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 Rules. Prospectus and Disclosure & Transparency Rules as appropriate;
14.4 be responsible for co-ordination of the internal and external auditors;
14.5 oversee any investigation of activities which are within its terms of reference and act as a court of the last resort; and
14.6 at least once a year, review its own performance, 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.

15.

Compliance, Whistleblowing and Fraud

  The Committee shall:
15.1 review the adequacy and security of the company's arrangements for its employees and
contractors to raise concerns about possible improprieties in matters of financial reporting or other matters;
15.2 ensure that arrangements are in place for the proportionate and independent investigation of such matters and for appropriate follow-up action;
15.3 review the Company's procedures for detecting fraud; and
15.4 review the Company's systems and controls for the prevention of bribery and receive reports on non-compliance.

16.

Authority

16.1 to seek any information it requires from any employee of the Company in order to
perform its duties;
16.2 to obtain, at the Company's expense, outside legal or other professional advice on
any matter it believes it necessary to do so; and
16.3 to call any employee to be questioned at a meeting of the Committee as and when
required.