Audit Committee Charter
Purpose
The Audit Committee's (Committee) purpose is to assist the Board of ImpediMed Limited (Company) to fulfill its responsibilities in relation to the Company's accounting and financial reporting practices. The Committee makes recommendations to the Board and does not have any power to commit the Board or management to these recommendations. The Committee has unrestricted access to executives of the Company, and to the internal and external auditors in order to fulfill its purpose and undertake its duties.The Committee Role is to Oversee:
- the adequacy of the Company's accounting system and internal control environment;
- the adequacy of the Company's system for compliance with relevant laws, regulations, standards and codes;
- the effectiveness of their internal accounting controls;
- the identification of improvements that can or should be made to the Company's internal controls, policies and financial disclosures;
- that the internal auditor has an unobstructed and clear communication channel to the Committee;
- the frequency and significance of all transactions with related parties and assesses their propriety;
- the integrity and quality of the Company's financial information including financial information provided to ASIC, Australian Stock Exchange and shareholders; and
- the independence, objectivity, scope and quality of the external audit.
Composition
The Committee will comprise at least three members, a majority of which are independent directors. The Committee Members must be:- non- executive directors;
- appropriately financially literate and at least one member must have accounting or associated financial management expertise; and
- independent of management and free of any relationship or arrangement that may, in the opinion of the Board, be construed as comprising a conflict of interest.
If a member of the Committee retires, is removed or resigns from the Board, that member ceases to be a member of the Committee. The Board will appoint the successor.
The Committee, if considered appropriate, may invite any executive management team members or other individuals to attend meetings of the Committee. The company secretary will be the secretary of the Committee.
Meetings
The chairman will convene at least four meetings of the Committee each year and any additional meeting that the chairman considers necessary or appropriate to carry out the Committee's responsibilities. In addition, the chairman must call a meeting of the Committee if required by any committee member, the Company's chief executive officer, the Board or the external auditor.Any committee members or the secretary may call a meeting of the Committee. A notice of each meeting confirming the date, time, venue and agenda will be forwarded to each member of the Committee in the week prior to the date of the meeting. The notice for members will include relevant supporting papers for the agenda items to be discussed.
Minutes
Minutes of proceedings and resolutions of Committee meetings will be kept by the secretary. Minutes will be distributed to all Committee members and the chairman of the Board, after the Committee chairman has given the preliminary approval. Minutes, agenda and supporting papers, will be included in the papers for the next full Board meeting after each Committee meeting.Advice
The Committee may have access to employees of the Company and to appropriate external advisers. The Committee may meet with these external advisers without management being present.Report to Board
The chairman of the Committee reports the findings and recommendations of the Committee to the Board after each Committee meeting. The report must contain all matters relevant to the Committee's responsibilities including:- assessing the external reporting including whether it:
- is consistent with members information and knowledge; and
- is adequate for shareholder needs;
- assessing the management processes supporting external reporting;
- procedures for selecting and appointing the external auditor and for the rotation of external audit engagement partners;
- recommendations for the appointment or removal of an auditor;
- assessing the performance and independence of the external auditors and whether the Committee is satisfied that this independence has been maintained having regard to the provision of non-audit services;
- assessing the performance and objectivity of the internal audit function; and
- the results of its review of risk management and internal compliance and control systems.
Duties and Responsibilities
Relying on the external auditor, financial management and the internal auditor, the Committee is expected to exercise a high level of due diligence in relation to the accuracy of:- assessing preparation and distribution of full and half year reports (full or concise) reconciled with any preliminary final report;
- information likely to have a material effect on the value of securities, as and when the Company becomes aware of it; and
- preliminary final report in the form set out in Appendix 4B of the Australian Stock Exchange Listing Rules. The Committee will also have the following duties:
- to review and consider all the Company's publicly released material concerning financial information;
- to review and assess the appropriateness of the Company's accounting policies and principles.
- any changes in accounting policies or their application during the reporting period;
- whether the methods chosen by management are consistent with the applicable accounting standards and concepts; and
- the methods used to account for unusual transactions, for which there may be no specific accounting standard, including management's reasoning in determining that method.
- to review and assess any significant estimates and judgments in financial reports.
- upon receipt of information from management relating to accounting policy choice or method for making significant estimates and judgments, the Committee may seek the opinion and views of both internal and external auditors in relation to that choice or method. This opinion should include the appropriateness, and not just the acceptability of that choice or method.
- to review and assess the processes used by management to monitor and ensure compliance with laws, regulations and other requirements relating to external reporting by the Company of financial and non-financial information. These include, but are not limited to:
- Australian Accounting Standards;
- Corporations Act 2001 (Cth);
- Listing Rules of Australian Stock Exchange; and
- where applicable, the requirements of other countries.
- to review and assess information from internal and external auditors that may affect the quality of financial reports.
- review and assess documents and reports to regulators and make recommendations to the Board on their approval or amendment.
- based on the assessment by the Committee, recommend to the Board whether the financial and non-financial statements should be signed.
- where management does not offer information required to make any of the reviews or assessments required under this section, ensure that the Committee acquires that information from management.
Related Party Transactions
The Committee should review and monitor related party transactions and assess their propriety. The Audit Committee will:- ensure that the Company complies with all laws and regulations in respect to director-related party transactions;
- approve the following contracts with directors, or the related party of a director, in advance of committing the Company:
- contracts for the supply of goods and/or services which extend beyond one year, or where the total value of goods and/or services supplied under the contract will exceed $50,000 in any one year,
- all agreements to lease and/or leases of property, and
- all agreements for the purchase or sale of freehold and/or leasehold property.
- review the reports of the chief financial officer, internal audit and the external auditors relating to director related party transactions; and
- approve all external disclosures regarding director-related party transactions.
Internal Control and Risk Management
The Committee should review and assess internal processes for determining, monitoring and assessing key risk areas. In particular, the Committee should consider:- non-compliance with laws, regulations, standards and best practice guidelines;
- important judgments and accounting estimates;
- litigation and claims;
- fraud and theft; and
- any other business risks that are not dealt with by a specific board committee. In relation to these risk areas, the Committee should ensure:
- that the Company has an effective risk management system in place, including for macro risks, and that the Committee assesses this system;
- that the Company has an effective internal control system in place, and that the Committee assesses this system;
- that the Company has a system in place for unusual and/or high risk transactions and that the Committee assesses this system;
- that the Company has a clear policy and procedure for reporting, actioning and documenting breaches of laws, including fraud and theft;
- that it receives from management reports on all actual and suspected breaches of laws, including fraud and theft; and
- that it meets periodically with management, and external and internal auditors to discuss the Company's control environment, including the processes for improvement in place.
External Audit
The Committee and the Board will select and appoint an external auditor in accordance with Annexure 1. The Committee should review and assess key areas relating to the external audit of the Company. In particular the Committee should:- make recommendations to the Board on the appointment, reappointment or replacement, remuneration, monitoring of the effectiveness, and independence of the external auditor;
- if the Board disagrees with any of these recommendations, it must disclose its decision and reasons in the annual report;
- review and assess the independence of the external auditor, including but not limited to any relationships with the Company or any other entity that may impair or appear to impair the external auditor's judgment or independence in respect of the Company;
- review and assess any prospect of auditor replacement and/or tender suggested by management. Before any decision is made, the Committee should report the results of its investigation to the Board and make recommendations;
- where the decision for replacement or a new tender is made, this tender should then be conducted by the Committee;
- review and agree on the terms of engagement for the external auditor at the start of each audit;
- review the scope of the external audit with the external auditor including identified risk areas and any additional agreed-upon procedures;
- monitor the activities and performance of the external auditor by:
- obtaining the proposed audit plan for each audit, and agreeing the audit plan with the auditor prior to commencement;
- liaising with the auditor to ensure that each audit is conducted effectively;
- reviewing the auditor's assessment of financial statement materially;
- ascertaining “root causes” of any significant external audit year end adjustments;
- appraising the quality of audit work;
- ensuring that no management restrictions or limitations are placed on the auditor; and
- asking the external auditor for an independent judgment of the appropriateness, not just the acceptability, of the accounting principles used and the clarity of the financial disclosure used or proposed to be used by the Company.
- reviewing the external audit findings in respect of any significant deficiencies or weaknesses in controls, and ensuring that management agrees to and implements appropriate and timely corrective action.
- review and assess non-audit service (NAS) provision by the external auditor, with particular consideration given to the potential for the provision of these services to impair or appear to impair the external auditor's judgment or independence in respect of the Company;
- the Committee must disclose in the annual report whether or not it believes the level of NAS provision by the external auditor is compatible with maintaining auditor independence, and should include reasons where appropriate;
- review the external auditor's audit fee, and be satisfied that an effective, comprehensive and complete audit can be conducted for that fee;
- in addition to reviewing the audit fee, the Committee should review and assess total fees paid to the external auditor, considering in particular fees paid for NAS provision, and these fees as a proportion of total fees;
- review and monitor management's responsiveness to the external auditor's findings and recommendations;
- review with the external auditor any significant disagreements between the external auditor and management, irrespective of whether they have been resolved;
- review all representation letters signed by management, and be satisfied that the information provided is complete and appropriate;
- monitor the number of former employees of the external auditor currently employed in senior positions in the Company and assess whether this impairs or appears to impair the auditor's judgment or independence in respect of the Company;
- consider whether taken as a whole, the various relationships between the Company and the external auditor impairs or appears to impair the auditor's judgment or independence in respect of the Company;
- consider whether the compensation of the individuals employed by the external auditor who are performing the audit of the Company is tied to the provision of non-audit services and, if so, consider whether this impairs or appears to impair the external auditor's judgment or independence in respect of the Company;
- review the economic importance of the Company (in terms of fees paid to the external auditor for the audit as well as fees paid to the external auditor for the provision of non-audit services) to the external auditor and assess whether the economic importance of the Company to the external auditor impairs or appears to impair the external auditor's judgment or independence in respect of the Company; and
- at least annually, meet with the external auditor without the presence of management.
Internal Audit
The Committee should review and assess key areas relating to internal audits of the Company. In particular the Committee should:- review the internal auditor's mission, charter and resources;
- communicate the Committee's expectations to the internal auditors in writing;
- review and assess the scope of the internal audit and the internal auditor's audit plan and work program, as well as the systems in place to monitor and evaluate the effectiveness of the internal auditor;
- monitor and assess the progress of the internal audit and any implications that may arise for the control environment;
- review and monitor management's responsiveness to the internal auditor's findings and recommendations;
- oversee the co-ordination of the internal and external auditors; and
- ensure that the internal auditor reports directly to the managing director and the Committee.
Internal Monitoring
The Committee should conduct internal monitoring of the Company by:- ensuring that an appropriate internal control framework is established and maintained, including systems for:
- incurring and recording liabilities and expenses, and arranging for payment;
- recording, monitoring and maintaining assets;
- managing and investing liquid funds; and
- measuring financial performance of individual employees, groups and business units, and monitoring their performance against budget.
- assessing internal processes for identifying and managing risk areas including:
- compliance with laws, regulations, standards and best practice guidelines;
- important judgments and accounting estimates;
- litigation and claims; and
- fraud and theft.
- receiving reports on all suspected and actual frauds, thefts and breaches of the law.
- reviewing in draft any financial report and directors' report that the Company proposes to distribute to shareholders and other external parties with particular emphasis on the accuracy and completeness of information and key disclosures, changes from prior periods, and important judgment questions impacting the overall integrity of the information.
- when satisfied with the propriety and accuracy of the draft financial report and directors' report, recommending the financial report and directors' report to the Board for approval and release.
- assessing the management of non-financial information in internal and external documents to ensure the information does not conflict inappropriately with the financial report and directors' report.
Compliance
The Committee must ensure that they have an appropriate understanding of any relevant laws, regulations, Listing Rules, and codes of particular significance to the Company, and its programs to ensure compliance including with respect to:- trade practices;
- workplace health and safety;
- equal opportunity; and
- other matters.
Disclosure
In order to maintain transparency the role of the Committee is to be fully and fairly reported. Consistent with the Company's Disclosure policy the Committee will review all public disclosures and statements concerning the matter the subject of this policy including disclosures in:- Australian Stock Exchange filings;
- the annual report; and
- press releases.
New Candidate Identification
Having regard to the skills required and the skills currently represented on the Committee; the Committee will implement a process for the identification of suitable candidates for appointment to the Committee. In determining the process for the identification of suitable candidates, the Committee will ordinarily ensure that a search is undertaken by an appropriately qualified independent third party acting on a brief prepared by the Committee which identifies the skills sought. The Committee will make recommendations to the Board on candidates it considers appropriate for appointment.Induction of New Committee Members
New Committee members must be given a copy of this charter, together with sufficient information about the Company and its:- business operations and industry in which it operates;
- financial performance;
- risk management system;
- internal control system;
- financial reporting policies including related-party issues;
- legal and regulatory requirements including external reporting and compliance responsibilities;
- code of ethical conduct; and
- unusual transactions.
Review
The Committee will review its performance and compliance with its terms of reference on an annual basis.ANNEXURE 1 - PROCEDURE FOR THE SELECTION AND APPOINTMENT OF AN EXTERNAL AUDITOR
The Board is responsible for the initial appointment of the external auditor. The members at the next annual general meeting must ratify the appointment of an external auditor.When a vacancy occurs, the Audit Committee (Committee) will meet and determine whether a replacement auditor should be selected by way of a formal tender or some other method. The Board is responsible for the appointment of the external auditor. The members at the next annual general meeting must ratify the appointment of an external auditor to fill a vacancy.
The selection and appointment process is the responsibility of the Committee. The Committee must conduct the selection process and recommend a preferred external auditor to the Board. If it thinks fit, the Board will appoint the preferred external auditor recommended by the Committee.
Role of Chief Financial Officer
If requested to do so by the Committee, the chief financial officer will assist the Committee in the selection and appointment process. If requested to do so by the Committee, the chief financial officer will submit to the Committee the details of a proposed external auditor together with a written supporting submission.Formal Tender Request for Submissions
The Committee may elect to undertake a formal tender process. If so, the chief financial officer will prepare a draft request for submissions that will be reviewed by the Committee. The Committee may make such changes to the draft, as it considers appropriate.The final request for submissions must contain sufficient information to enable a potential auditor to provide a proposal and fee estimate to the Company. Such information should include information about the Company, its operations, its key personnel and any other relevant information about the structure of the Company and its financial statements. The chief financial officer will assist the Committee to distribute the request for submissions and to arrange for candidates to meet with the selection panel.
Selection Panel
The Committee will establish a selection panel comprising the Committee, the chief financial officer and any other person the Committee considers appropriate to assess the suitability of the external auditor (Selection Panel). The Committee will consult with the other members of the Selection Panel as to the preferred auditor, however, it is the responsibility of the Committee to recommend a preferred external auditor to the Board.Selection Criteria
The candidate selected by the Committee, as the preferred external auditor must satisfy the selection criteria whether or not it is selected by way of a formal tender.Fees
A candidate must provide a fixed fee quotation for its audit services. However price will not be the sole determining factor in the selection of a preferred external auditor.Independence
A candidate must satisfy the Committee that it is independent and outline the procedures it has in place to maintain its independence. The external auditor must be independent from the Company and be seen to be independent from the Company. The independence of the external auditor is integral to the role of auditor and the Committee will give due consideration to this requirement when selecting a preferred auditor for recommendation to the Board.The main requirement for auditor independence is to avoid a “conflict of interest situation”. This requirement will be contravened where an auditor engages in audit activity that involves a conflict of interest situation, and the auditor was aware of the conflict of interest and did not take all reasonable steps to ensure that it ceased to exist. Where the auditor is unaware of the conflict of interest, the auditor will be prohibited from engaging in audit activity if the auditor would have been aware of the conflict of interest situation if they had in place a quality control system reasonably capable of making them aware of the conflict.
A conflict of interest situation will exist in relation to the Company if:
- the auditor is incapable of exercising objective and impartial judgment in relation to the conduct of the audit of the Company; or
- a reasonable person, with full knowledge of all relevant facts and circumstances, would conclude that the auditor is incapable of exercising objective and impartial judgment in relation to the conduct of the audit of the Company.
Auditors must provide a written declaration to the board of directors of the Company at the time of delivery of their audit report. The declaration must state that the auditor has complied with the auditor independence requirements of the Corporations Act, the Corporations Regulations and any other applicable codes of professional conduct. A copy of this declaration must be included in the annual and half-year directors' reports.
Material Matters
A candidate must outline its proposed procedures to address any issue of material significance or matter of disagreement with the Company management. The external auditor and the chief financial officer will be required to disclose to the Committee all issues of material significance and all matters of disagreement with the Company management, whether resolved or unresolved, and to assist the Committee to review such matters.Non-audit Work
A candidate must detail its approach to the provision of non-audit related services to the Company. The Committee must consider the circumstances in which the Company might use the external auditor for non-audit services. Matters to be considered include the potential quantum of non-audit fees and any circumstance where the external auditor may be required to review and rely upon work conducted by it in a non-audit capacity.Other Matters
The selection criteria may include such other matters as the Committee thinks fit.Policy on Audit and Non-audit Services
The Committee will develop a policy that sets out the circumstances in which the Company may use the external auditor for other services. A copy of this policy will be provided to the external auditor. The policy will be based on the following principles:- the auditor may provide audit and audit-related services that, while outside the scope of the statutory audit, are consistent with the role of auditor;
- the external auditor should not provide services that are perceived to be materially in conflict with the role of auditor;
- the external auditor may be permitted to provide non-audit services that are not perceived to be materially in conflict with the role of auditor, subject to the approval of the Committee;
- exceptions may be made to the policy where the variation is in the interests of the Company and arrangements are put in place to preserve the integrity of the external audit process. The Board must specifically approve any such exception.