Audit, Compliance & Risk Committee Terms of Reference
The Audit, Compliance & Risk Committee (the “Committee”) is a committee of the Board of Directors (the “Board”) of Shire plc (the “Company”) with the purpose of overseeing the accounting and financial reporting processes of the Company, the audits of the financial statements of the Company and the effectiveness of the Company’s risk management and internal control framework.
2.1. The Committee shall consist of not less than three members, each of whom shall be appointed by the Board on the recommendation of the Nomination Committee in consultation with the Chairman of the Committee. The members of the Committee shall be chosen from amongst the non-executive directors of the Company who are independent for the purposes of the UK Corporate Governance Code and the NASDAQ rules and shall be selected on the basis of their knowledge and experience of financial matters, financial reporting, risk management and internal control.
2.2. Committee members will hold office for an initial period of two years, and subject to continuing to be independent, the period of office may be extended for such duration as may be determined by the Board.
2.3. At least one member of the Committee shall have recent and relevant financial experience.
2.4. The Board shall appoint the Chairman of the Committee and determine the period for which he is to hold office. If no such Chairman shall have been appointed, or if at any meeting the Chairman is not present within a reasonable time from the time appointed for the meeting, the members present shall choose one of their number to act as chairman of the meeting.
2.5. If any member of the Committee is unable to act for any reason, the Chairman of the Committee may appoint any other independent non-executive director of the Company to act as alternate for that member.
The Company Secretary or their nominee shall act as Secretary of the Committee.
The quorum necessary for the transaction of the business of the Committee 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.
5. Frequency of Meetings
5.1. Meetings shall be held not less than four times a year (to coincide with key dates in the Company’s financial reporting cycle) and shall be arranged by the Secretary of the Committee.
5.2. In addition to the routine meetings of the Committee, any member of the Committee, the external auditor, the Head of Internal Audit or the Chief Financial Officer may at any time request the Secretary of the Committee to arrange a meeting if they consider that one is necessary. The external auditor, the Chief Financial Officer, the Head of Internal Audit and the Chief Compliance and Risk Officer may have access to the Chairman of the Committee or any other member of the Committee as required in relation to any matter falling within the remit of the Committee.
6. Conduct of Business
The Committee shall conduct its business as it thinks fit. Decisions of the Committee shall be by majority decision. In the case of an equality of votes, the Chairman of the Committee shall have a second or casting vote. Save as otherwise required by these terms of reference or agreed by the Committee all provisions relating to the conduct of business of the Board in the articles of association from time to time of the Company shall equally apply to the conduct of business of the Committee.
7. Attendance at Meetings
Subject to paragraph 8 below, the Chief Financial Officer, the Group Financial Controller, the Head of Internal Audit, the Chief Compliance and Risk Officer and representatives of the external auditor of the Company will normally be expected to attend and, if requested by Committee members, shall attend meetings of the Committee. Other members of the Board who are not members of the Committee shall also have the right to attend such meetings.
8. Annual meeting with external and internal auditors
At least once a year the Committee shall meet with each of the external auditor, the Head of Internal Audit and the Chief Compliance and Risk Officer without any executive member of the Board in attendance.
The duties of the Committee shall be:
9.1 Financial Reporting
(a) to monitor the integrity of the financial statements of the Company, including its annual and quarterly reports, preliminary results announcements and any other Company announcement relating to its financial performance or other financial information to be made public, focusing particularly on:
(i) compliance with accounting standards and the consistency of application of, and any changes in, accounting policies both on a year on year basis and across the Company;
(ii) any important areas where judgement must be exercised, taking into account the views of the external auditor;
(iii) the methods used to account for significant or unusual transactions where different approaches are possible;
(iv) significant adjustments resulting from the external audit;
(v) the going concern assumption; and
(vi) material information presented with the financial statements, such as the corporate governance statement (insofar as it relates to audit and risk);
(b) to ensure clarity of disclosure in financial reporting and the presentation of a balanced and understandable assessment of the Company’s financial position;
9.2 External Audit
(a) to have the primary responsibility for recommending to shareholders (for approval at the AGM) the appointment, re-appointment and removal of the Company’s external auditor;
(b) to have the primary responsibility for determining the terms of engagement and remuneration of the Company’s external auditor for audit services and overseeing the relationship with the Company’s external auditor;
(c) to oversee the selection process for a new external auditor and, if the external auditor resigns, to investigate the reasons for the resignation and decide on any action to be taken;
(d) to assess, at least annually, the objectivity and independence of the external auditor taking into account relevant regulatory requirements including obtaining and reviewing a report or reports from the Company’s external auditor describing all relationships between it and the Company consistent with the U.S. Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees;
(e) to assess at least annually the auditor’s qualifications, experience and resources and the effectiveness of the audit process which shall include a report from the external auditor on its own internal quality procedures;
(f) to review and approve the annual external audit plan and ensure it is consistent with the scope of the audit engagement;
(g) to review the external auditor’s management letter and management’s response to the external auditor’s findings and recommendations;
(h) to review and discuss the audited financial statements with management and with the external auditor and to address any issues which arose during the audit;
(i) to monitor the external auditor’s compliance with applicable legislation and guidance on the rotation of audit partners;
(j) to be responsible for the resolution of disagreements between management and any auditor regarding the Company’s financial reporting;
(k) to monitor the Company’s policy for the employment of former employees of the external auditor;
(l) to review and discuss issues and recommendations arising from the external audit, and any matters the auditors may wish to discuss (in the absence, where requested by the Committee, of executive members of the Board and other persons having a right to attend meetings of the Committee but who are not members of the Committee);
(m) to consider whether the skills and experience of the external audit firm make it a suitable supplier of non-audit services;
(n) to set and apply a formal policy in relation to the provision of non-audit services by the external auditor specifying the types of non-audit work: (i) for which the external auditor is excluded; (ii) for which the external auditor can be engaged without referral to the Committee; and (iii) for which a case by case decision is necessary, with a view to preserving the auditor’s independence and objectivity;
(o) to establish and apply pre-approval policies and procedures whereby audit services and non-audit services may be provided by the Company’s external auditor without specific referral to the Committee (which procedures must provide that the Committee is updated regularly on the audit and non-audit services that are provided under the pre-approval procedures);
(p) to pre-approve on a case-by-case basis audit and non-audit services which may be provided by the Company’s external auditor (which authority may be delegated to one or more Committee members, provided that such member(s) present any such approvals to the full Committee at the next Committee meeting); and
(q) to consider the nature of the non-audit services provided by the external auditor, the fees paid and whether the fee levels individually and in aggregate relative to the audit fee is appropriate to enable a proper audit to be conducted;
9.3 Compliance and Whistleblowing
(a) to review procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters;
(b) to review, with the Chief Compliance and Risk Officer, the Company’s arrangements for the confidential, anonymous submission by employees of the Company of concerns regarding matters which could have a material impact on the Company, and to ensure that these arrangements allow proportionate and independent investigation of such matters and appropriate follow up action;
(c) to review the Company’s procedures for detecting fraud and to review the investigation and remediation of any alleged or suspected fraud;
(d) to review the status of the compliance programme (policies, training, monitoring and audit) at the Company to ensure adherence to applicable legal and regulatory standards and to the Code of Ethics where there may be a material impact on the Company; and
(e) to review, with the Chief Compliance and Risk Officer or the Company General Counsel, as appropriate, the major findings of internal investigations and management’s response and material inquiries received from regulators or governmental agencies;
9.4 Internal Audit, Risk Management and Internal Control
(a) to monitor and review the integrity of the internal audit programme, consider the findings from the internal audit programme and review and monitor management’s response to them and ensure efficient co-ordination between the Company’s internal and external auditors;
(b) to approve the appointment and removal of the Head of Internal Audit and the Chief Compliance and Risk Officer and to ensure that the Head of Internal Audit and the Chief Compliance and Risk Officer have direct access to the Chairman of the Board and to the Committee and are accountable to the Committee;
(c) to 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 independent of management or other restrictions;
(d) to review and approve the annual internal audit plan;
(e) to meet the Head of Internal Audit at least once a year without management being present to discuss their remit and any issues arising from the internal audits carried out;
(f) to review, at least annually, the effectiveness of the Company’s internal control and risk management systems and review any statement on internal controls and/or risk management to be included in the Annual Report or other public filing before submission to the Board for its approval;
(g) to review twice annually the business risks faced by the Company and review any risk schedules on behalf of the Board; and
(h) to review with the Chief Compliance and Risk Officer, at least annually, the status of the enterprise risk management program;
9.5 Other Duties
(a) to approve all proposed material tax structuring projects (which authority may be delegated to the Chairman of the Committee, provided that he presents any such approvals to the full Committee at the next Committee meeting);
(b) to review annually the Treasury policies of the Company and monitor adherence to those policies through the year;
(c) to review with management, the Head of Internal Audit and the external auditor, in separate meetings if the Committee deems it necessary, related-party transactions;
(d) to review the renewal terms of the Group’s Insurance Programme; and
(e) to consider other matters as notified from time to time by the Board.
10. Other Matters
10.1 The Committee Chairman shall report formally to the Board on the Committee’s proceedings after each meeting.
10.2 The Committee shall be provided with appropriate and timely training both in the form of an induction for new members and ongoing training for all members.
10.3 The Committee shall, once a year, consider its own performance, membership and terms of reference to ensure it is operating at maximum effectiveness and recommend any changes necessary to the Board for approval.
10.4 The Committee shall review annually these Terms of Reference and make any recommendations to the Board on any areas where action or improvement is needed.
11.1. The Committee is authorised to investigate any activity within its Terms of Reference and to be responsible for the resolution of disagreements between management and any auditor regarding the Company’s financial reporting.
11.2. The Committee is authorised to seek any information it requires from any employee of the Company in order to perform its duties and to call any employee to be questioned at a meeting of the Committee as and when required.
11.3. In connection with the performance of its duties, the Committee is authorised, at the Company’s expense:
(a) to obtain outside legal or other independent professional advice and to secure the attendance of external professional advisers at its meetings if it considers this necessary;
(b) to pay compensation to any accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company; and
(c) to incur other administrative expenses that are necessary or appropriate in carrying out its duties.
12.1 The members of the Committee shall cause minutes to be made of all resolutions and proceedings of the Committee including the names of all those present and in attendance at meetings of the Committee.
12.2 The Secretary of the Committee shall circulate the minutes of meetings of the Committee to all members of the Committee and as requested, or where relevant, once they have been agreed, to all members of the Board and to the external and internal auditors and other advisers of the Company.
13. Annual General Meeting
The Chairman of the Committee shall attend the Company’s Annual General Meeting to answer shareholders’ questions about the Committee’s activities.