Terms of Reference of Audit and Risk Committee
- The Board of Directors of ESB (the "Board") shall appoint the members of the Audit and Risk Committee (the "Committee"). All members of the Committee shall be independent non-executive directors of ESB. The Committee shall consist of no less than three members. A quorum shall be two members.
- The Board shall appoint the Chairman of the Committee from amongst the independent non-executive directors. A Board member, other than the Chairman of the Board, should chair the committee.
- At least one member of the Committee should have recent and relevant financial experience.
2. Secretary and Minutes
- The Secretary of ESB shall be the Secretary of the Committee.
- The Secretary of the Committee shall minute the proceedings and decisions of all meetings of the Committee.
- Draft minutes of Committee meetings shall be circulated promptly to all Committee members. Once approved, minutes should be circulated to all other members of the Board unless, in the Committee Chairman's opinion, it would be inappropriate to do so.
3. Attendance at Meetings
- No one other than the Committee members shall be entitled to attend Committee meetings.
- The Chairman and other non-executive directors may be invited to attend and may also request to attend meetings of the Committee.
- The Chief Executive, Executive Director – Finance and Commercial, Head of Internal Audit, and representatives of the external auditors, shall normally attend meetings of the Committee except for any meetings or part of meetings which the Chairman of the Committee wishes to reserve for Committee members only. The Committee may from time to time invite other persons to attend at all or part of and/or to present to, the Committee.
- At least once per calendar year the Committee should meet (i) the external auditors and (ii) the internal auditors without executive Board members present. This need not be the same meeting.
4. Frequency of Meetings
- Meetings shall be held no less than four times a year (to coincide with key dates in ESB's financial reporting cycle).
- External auditors, internal auditors or senior management may request a meeting if they consider that one is necessary.
The Committee is authorised by the Board to:
- Investigate any activity within these Terms of Reference.
- Seek any information that it requires from any employee of ESB Group¹ and all employees are directed to co-operate with any request made by the Committee.
- Obtain outside legal or independent professional advice, at ESB's expense, and secure the attendance of outsiders with relevant experience and expertise if it considers this to be necessary.
The duties of the Committee shall be as follows:
- Financial Reporting
- The Committee shall monitor the integrity of the annual and half-yearly financial statements of ESB, and the annual financial statements of ESB Finance Limited, reviewing and reporting to the Board on all significant financial reporting issues and judgements which they contain having regard to matters communicated to it by the external auditor. In particular, the Committee shall review and challenge where necessary:
- the consistency of, and any changes to, significant accounting policies on a year-on-year basis across the ESB Group;
- the methods used to account for significant or unusual transactions where different approaches are possible;
- whether ESB has followed appropriate accounting standards and made appropriate estimates and judgements,
- taking into account the views of the external auditor;
- the clarity and completeness of disclosures in the financial statements of ESB and ESB Finance Limited and the context in which the disclosures are made; and
- all material information presented with the financial statements of ESB and ESB Finance Limited, such as the business review and the corporate governance statements relating to the audit and to risk management.
- The Committee shall review the content of the ESB annual report (including the ESB financial statements) and advise the Board on whether, taken as a whole,
- it is fair, balanced and understandable,
- provides the information necessary for shareholders to assess the ESB Group's performance, business model and strategy and;
- satisfies the requirements in relation to the preparation of an annual report applying under the Code of Practice for the Governance of State Bodies and/or the ESB Regulations.
- Where the Committee is not satisfied with any aspect of the proposed financial statements of either ESB or ESB Finance Limited, it shall report its views to the board(s) of ESB and/or ESB Finance Limited, as applicable.
Audit and Risk Committee of the ESB Board
ESB has an Audit and Risk Committee in place to assist the Board with its responsibilities in relation to financial reporting, internal control, risk management and its interactions with the external and internal auditor.
Reporting and Other Matters
- The Committee Chairman shall report formally to the Board on its proceedings after each meeting on all matters within its duties and responsibilities and shall also formally report to the Board on how it has discharged its responsibilities. This report shall include the significant issues that it considered in relation to the annual report and financial statements and how these were addressed; its assessment of the effectiveness of the external audit process and its recommendation on the appointment or reappointment of the external auditor.
- The Committee shall make whatever recommendations to the Board it deems appropriate on any area within its remit where action or improvement is needed.
- The Committee shall compile a report on its activities to be included in the ESB 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 external auditor. In the compiling this report, the Committee should exercise judgement in deciding which of the issues it considers in relation to the financial statements are significant, but should include at least those matters that have informed the Board's assessment of whether the ESB Group is a going concern. The report of the Committee need not repeat information disclosed elsewhere in the ESB annual report (including in the financial statements set out therein), but may provide cross-references to that information.
- The Committee Chairman shall attend the AGM and shall answer questions, through the Chairman of the Board, on the Committee's activities and its responsibilities.
- The Committee shall arrange for periodic reviews of its own performance and annually review its Terms of Reference and recommend any necessary changes to the Board.
- The Committee shall keep its own training needs under review and ensure appropriate and timely induction for new members.
- The Committee shall work and liaise as necessary with all other Board Committees and in this regard the Committee Chairman will meet regularly with the Chairman of the other Board Committees to agree and update as appropriate the specific responsibilities of these Committees.
¹ The term "ESB Group" includes ESB and all subsidiaries including ESB Finance Limited, ESB Networks Limited and NIE Group Companies.