Audit Committee Charter
In 2003 ASX introduced listing rule 4.10.3 which requires listed entities to disclose in their Annual Report the extent to which they have followed the best practice recommendations of the ASX Corporate Governance Council (the “Council”) during the reporting period. A second edition of the ASX Corporate Governance Council Principles and Recommendations (“Principles and Recommendations”) was issued by the Council in 2007 and a third edition was released in March 2014. Recommendation 4.1 of the Council’s recommendations is that the board of a company should establish an Audit Committee consisting of:
- Only non-executive directors;
- At least three members.
- A majority of independent directors; and
- An independent chairperson, who is not chairman of the board
Listing Rule 12.7 mandates Audit Committees for all companies in the S&P All Ordinaries Index – AKP joined the S&P All Ordinaries Index in March 2012. Companies within the top 300 of that index must comply with the best practice recommendations. AKP is not a top 300 company as at 29 August 2014 and is not required to have an Audit Committee complying with ASX best practice requirements; however it must still have an Audit Committee. All three directors have previously acted as the Audit Committee.
The Board of AKP has determined to form an Audit Committee at its meeting held on 29 August 2014. The Board noted that it was not able to comply with all the Council’s above Principles and Recommendations due to the small size of the Board and the fact that all three directors were not considered independent of management. The Audit Committee will be given the necessary power and resources to meet its charter. This will include rights of access to management and to auditors (external and internal) without management present and right to seek explanations and additional information.
Companies within the S&P All Ordinaries Index are required by ASX Listing Rule 12.7 to have an Audit Committee and companies within the Top 300 must comply with the best practice recommendations of Council concerning the composition, operation and responsibility of audit committees.
As at 29 August 2014 AKP was not in the Top 300 companies and does not need to have an Audit Committee compliant with ASX best practice requirements, however as it is in the S&P All Ordinaries Index it needs to have an Audit Committee.
Whilst the Council suggests that companies should aspire to satisfy recommendation 4.1 as soon as practical, in order to avoid undue disruption, it need not be applied until such time as AKP becomes part of the S&P 300.
Role and responsibility
The Audit Committee should review the integrity of the company’s financial reporting process and oversee the independence of the external auditors.
Composition, structure and membership requirements
The Audit Committee should try and satisfy all the best practice recommendations of Council and comply with the ASX listing rules when it becomes part of the S&P 300.
The initial members of the Audit Committee will be all three Directors, Mr Fred Bart, Ms Cheryl Bart and Mr Ian Dennis. Mr Ian Dennis will be Chairman of the Audit Committee.
The Chairman may invite other management to participate in Audit Committee Meetings if deemed appropriate.
The Audit Committee should meet often enough to undertake its role effectively.
The Audit Committee should keep minutes of its meetings and these should ordinarily be included in the papers for the full next board meeting after each Audit Committee meeting.
Members of the Audit Committee may attend meetings by telephone or teleconferencing.
The Audit Committee should report to the board. The report should contain all matters relevant to the committee’s role and responsibilities, including:
- assessment of whether external reporting is consistent with committee members’ information and knowledge and is adequate for shareholder needs
- assessment of the management processes supporting external reporting
- procedures for the selection and appointment of the external auditor and for the rotation of external audit engagement partners
- recommendations for the appointment and removal of an auditor
- assessment of the performance and independence of the external auditors and whether the audit committee is satisfied that independence of this function has been maintained having regard to the provision of non-audit services
- assessment of the performance and objectivity of the internal audit function
- The results of its review of risk management and internal compliance and control systems.
Dated this 29 August 2014
Commentary on the Audit Committee Charter and Composition
AKP had noted in its Corporate Governance Statement on page 48 of the 2013 Annual Report that it did not have an Audit Committee and the whole Board acted as the Audit Committee. This statement was required as AKP did not meet the current best practice recommendations of the ASX. The ASX states that if you do not comply with their best practice recommendations that you must explain why.
AKP was not part of the S&P 300 as at 29 August 2014 and accordingly its Audit Committee does not need to satisfy the ASX best practice criteria. AKP fails the criteria in that it does not have a majority of independent directors as all three directors are not considered independent.
Fred Bart is CEO and is a substantial shareholder and is not considered an independent director.
Cheryl Bart is not an independent director as she is associated with a substantial shareholder, Fred Bart.
Ian Dennis is not an independent director as he is a consultant to AKP and Company Secretary.
AKP was added to the S&P All Ordinaries Index in March 2012 and was required under listing rule 12.7 to have an audit committee from the beginning of the financial year beginning, namely 1 January 2013.