1 Overall purpose and objectives
1.1 The primary responsibility of the Committee is to assist the Board in fulfilling its oversight responsibilities for the Derbyshire Building Society Group, including all subsidiaries, (referred to as "the Society").
1.2 Principally, the Committee will provide independent review, monitoring and assessment of the:
- Effectiveness of risk assessment and management processes, and of management's systems of internal control.
- Effectiveness of the Internal Audit function and processes.
- Arrangements for, independence and effectiveness of external auditors and related processes.
- Integrity of the financial statements and formal financial performance announcements, reviewing accounting policies and significant financial reporting judgements.
- Society's ethical and business standards.
1.3 Where the monitoring and review activities reveal cause for concern or scope for improvement, the Committee will make recommendations to the Board to address the issue or to make improvements.
2 Authority
2.1 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 employees of the Society at meetings as appropriate.
2.2 In performing its duties the Committee will remain independent of executive management.
3 Membership
3.1 The Committee will comprise a minimum of three non-executive directors of whom at least one will have recent and relevant financial experience. This individual will also have a relevant professional qualification.
3.2 The Board will nominate members and the Chairman of the Committee.
3.3 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 Combined Code on Corporate Governance. The Chairman of the Board will not be the Chairman of the Committee.
3.4 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.
3.5 The Secretary of the Committee will be the Group Secretary.
3.6 Each member will be capable of making a valuable contribution to the Committee and will maintain an understanding of the detailed responsibilities of Committee membership as well as the Society's business, operations, regulatory responsibilities and risks.
3.7 All new members of the Committee will undergo appropriate induction training supplemented with an ongoing programme of training for all members.
4 Meetings
4.1 Meetings will be held at least four times each year and where necessary special meetings may be convened as required. Head of Audit and External Auditors may each convene a meeting if they consider it is necessary.
4.2 A quorum is at least two Committee members.
4.3 Only Committee members will be entitled to attend all Committee meetings. Other non-executive directors may attend particular meetings on request. The Committee will invite such other persons to its meetings as deemed necessary – this would normally include:
For all meetings
- Group Secretary
- Head of Audit
For some meetings/part of meetings
- Chief Executive
- Finance Director
- Other staff having Risk and Compliance responsibilities
- Management having responsibility for areas under consideration
- Representatives of the External Auditors
4.4 Sufficient time will be granted at meetings to allow appropriate amounts of discussion.
4.5 Minutes of the meetings will be taken by the Secretary.
4.6 One of the meetings each year will review the Annual Report and Financial Statements.
4.7 At least two of the meetings each year will include provision for the Committee to meet privately with all or any of the Head of Audit or external audit representatives.
5 Committee Review and Evaluation
5.1 The Committee will review arrangements for training and development of Committee members, and ensure that appropriate procedures are maintained.
5.2 The Committee will annually review its Terms of Reference, skills, experience and effectiveness, and make recommendations for changes to the Board.
5.3 The Board will evaluate the Committee's performance on an annual basis making use of the Committee's own review as mentioned above.
6 Reporting Responsibilities
6.1 To keep the Board regularly updated on Committee activities and make appropriate recommendations. Following each Committee meeting, the Chairman of the Committee will report to the next appropriate Board meeting.
6.2 To ensure the Board is aware of matters which may significantly impact the financial condition or affairs of the business.
6.3 To ensure that a detailed report describing the work of the Committee is included in the Annual Report to members, and that the Committee Chairman is present at the AGM to answer questions from members on the work of the Committee.
6.4 To ensure that any dispute between the Committee and the Board, which remains unresolved following consideration by the full Board, is disclosed in the Annual Report.
7 Risk Assessment & Management and Internal Controls Responsibilities
7.1 To consider and assess the adequacy of the Society's processes for evaluating and managing risks in relation to existing and future business.
7.2 To consider and assess reports from management on the effectiveness of their risk management and their systems of internal control in mitigating key risks to the Society across their areas of responsibility; and to carry out an annual review of the scope and quality of the system of internal control.
7.3 To consider reports on risk related matters received from the Risk Committee (e.g. via draft minutes), and to communicate its findings to that Committee.
8 Internal Audit Responsibilities
8.1 To review the activities, organisation structure and reporting lines (including direct reporting lines to the Committee and as necessary, the Chairman of the Board) of the Internal Audit function to ensure that they are effective in maintaining an independent and objective assurance service to the business and to ensure no unjustified restrictions or limitations are made upon the function.
8.2 To be consulted in the appointment, replacement, reassignment or dismissal of the Head of Audit.
8.3 To review the qualifications of Internal Audit personnel, and to determine if it is allocated sufficient and suitable resource to execute its responsibilities.
8.4 To review and assess the adequacy of the Internal Audit plan.
8.5 To receive and consider reports on the results of assurance work, and to review and monitor management's responsiveness to the findings and recommendations.
8.6 To monitor and asses the role and effectiveness of the Internal Audit function in the overall context of the Society's risk management systems, regulatory requirements and appropriate professional standards.
9 External Audit Responsibilities
9.1 To make recommendation to the Board in relation to the appointment, reappointment or removal of external auditors, and to approve their remuneration and terms of reference. It should be ensured that the level of fee is appropriate to ensure that an effective external audit service can be provided. Any dispute between the Committee and the Board on the appointment or removal of external auditors will be disclosed in the Annual Report.
9.2 Taking into consideration the UK professional and regulatory requirements, to assess annually the suitability (including qualifications, expertise, resources, objectivity and independence) of the external auditors, and the effectiveness of their audit processes and approach.
9.3 To keep under review, and make recommendations to the Board on, the Society's policy in relation to the provision of non-audit services by the external auditors so that the provision of such services does not impair the external auditors' independence or objectivity.
9.4 To review the external auditors' proposed annual audit scope, resource and approach, and to ensure no unjustified restrictions or limitations have been placed on the scope.
9.5 To review with the external auditors the findings of their work, including any major issues that arose during the course of the audit and have subsequently been resolved and those issues that have been left unresolved; key accounting and audit judgements; 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.
9.6 To review the audit representation letters before consideration by the Board, giving particular consideration to matters that relate to non-standard issues.
9.7 To receive and monitor the content of the external auditors' management letter, in order to assess whether it is based on a good understanding of the Society's business and establish whether recommendations have been acted upon and, if not, the reasons why they have not been acted upon.
9.8 To consider the reason behind any resignation of the external auditors.
10 Financial Reporting Responsibilities
10.1 To consider significant accounting policies and any changes to them, including any judgements or estimates made by management in connection with them.
10.2 To review accounting and reporting issues (including recent professional and regulatory pronouncements) and any legal matters that could significantly impact the financial statements, and understand and assess their impact on financial statements.
10.3 To review the full annual financial statements and determine whether they are complete and consistent with the information known to Committee members; and to assess whether the financial statements reflect appropriate accounting principles.
10.4 To pay particular attention to complex and/or unusual transactions and to focus on judgemental areas, for example those involving valuation of assets and liabilities; warranty, product or other liability; litigation reserves; other commitments and contingencies; significant adjustments resulting from the audit; and clarity of disclosures.
10.5 To 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.
10.6 To be satisfied that all regulatory compliance matters have been considered in the preparation of the financial statements.
10.7 Subject to satisfactory review, to recommend the Report and Accounts to the Board.
11 Society's Ethical and Business Standards Responsibilities
11.1 To consider the adequacy of the Society's processes for communicating the importance of fairness, ethical and suitability standards expected of a UK financial services firm, and ensuring that all employees have an understanding of their roles and responsibilities in this regard. In particular, attention should be given to compliance with the FSA's High Level Standards of authorised firms, including:
- Senior Management Arrangements
- Principles for Businesses, and
- (as relevant), the Combined Code on Corporate Governance.
12 Laws and Regulations Responsibilities
12.1 As part of the Committee's responsibilities regarding review of systems and controls, to review the effectiveness of the system for monitoring compliance with laws and regulations including but not limited to:
- Overall legal and regulatory compliance
- Money laundering
- Designated investment compliance oversight
- Voluntary Codes.
13 Other Responsibilities
13.1 To consider the adequacy of processes that allow staff of the Society to raise concerns in confidence about possible improprieties ("whistleblowing").
13.2 To perform other oversight functions as requested by the full Board.
13.3 If necessary, to institute special investigations and, if appropriate, hire special counsel or experts to assist.