The Board has resolved to establish and maintain a Committee of the Board, to be known as the Audit Committee, to assist the Board in fulfilling its oversight responsibilities.

The Audit Committee is a Committee of the Board as defined within the Company's Articles of Association. Its powers and discretions are delegated to it by the Board of Directors of the Company as set out below.

Members of the Committee shall be appointed by the Board and shall be made up of the Independent Non-Executive Directors as follows:

• Bruce Anderson (Chairman)
• David Shearer
• Jim McMahon

Only members of the Committee have the right to attend Committee meetings. However, other individuals such as the Chief Executive, Finance Director, Internal Auditor and external auditors and advisers may be invited to attend for all or part of any meeting as and when appropriate.

The Board shall appoint the Committee Chairman who shall be an independent non-executive director. In the absence of the Committee Chairman and/or an appointed deputy, the remaining members present shall elect one of their number to chair the meeting. The Chairman of the Board shall not be Chairman of the Committee.

At least one member of the Audit Committee should have significant, recent and relevant financial experience.

The Company Secretary shall act as the Secretary of the Committee.

The quorum necessary for the transaction of business shall be two. 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.

The Committee shall meet at least twice a year and at such other times as the Chairman of the Committee shall require.

External or internal auditors may request a meeting if they consider that one is necessary.

Meetings of the Committee shall be summoned by the Secretary of the Committee at the request of any of its members.

Unless otherwise agreed, notice of each meeting confirming the venue, time and date together with an agenda of items to be discussed, shall be forwarded to each member of the Committee and any other person required to attend, no later than four days before the date of the meeting. Supporting papers shall be sent to Committee members and to other attendees as appropriate, at the same time.

The Secretary shall circulate Minutes of meetings of the Committee and the Chairman of the Committee shall, as a minimum, attend the Board meeting at which the accounts are approved.

The Audit Committee shall annually review its Terms of Reference and its own effectiveness and recommend any necessary changes to the Board.

The Audit Committee shall prepare a report on its role and responsibilities and the actions it has taken to discharge those responsibilities for inclusion in the annual report and accounts. Such a report should specifically include:

• a summary of the role of the Committee:
• the names and qualifications of all members of the Audit Committee during the period;
• the number of Audit Committee meetings and attendance by each member; and
• the way the Audit Committee has discharged its responsibilities.

Where disagreements between the Audit Committee and the Board cannot be resolved, the Audit Committee shall report the issue to the shareholders as part of the report on its activities in the company's annual report.

If the Board does not accept the Audit Committee's recommendation regarding the appointment, reappointment or removal of the external auditors, the Audit Committee shall include a statement explaining its recommendation and reasons why the Board has taken a different stance in the annual report.

The Audit Committee Chairman shall attend the AGM and shall answer questions, through the Chairman of the Board, on the Audit Committee's activities and its responsibilities.

The duties of the Committee shall be:-
Financial Statements/Reporting

• To review, and challenge where necessary, the actions and judgements of management in relation to the Company's financial statements before submission to, and approval by the Board, and before clearance by the auditors. Particular attention should be paid to:
  • critical accounting policies and practices, and any changes to them;
  • decisions requiring a significant element of judgement;
  • the extent to which the financial statements are affected by any unusual transactions in the year and how they are disclosed;
  • the clarity of disclosures;
  • significant adjustments resulting from the audit;
  • the going concern assumption;
  • compliance with accounting standards;
  • compliance with legal requirements.
• To consider other topics, as defined by the Board.

• To review the Company's procedures for detecting fraud and whistle blowing and ensure that arrangements are in place by which staff may, in confidence, raise concerns about possible improprieties in matters of financial report, financial control or any other matters;
• To review management's and the internal auditor's reports on the effectiveness of the systems for internal financial control, financial reporting and risk management;
• To monitor the integrity of the Company's internal financial controls;
• To review the statement in the annual report and accounts on the Company's internal controls and risk management framework;
• To assess the scope and effectiveness of the systems established by management to identify, assess, manage and monitor financial and non-financial risks. However, the Board retains responsibility for the review of the effectiveness of the system of internal control and must form its own opinion.

• To consider annually whether there is a need for an internal audit function where no such function exists;
• To review the internal audit programme and ensure that the internal audit function is adequately resourced and has appropriate standing within the Company;
• To ensure that the internal auditor has direct access to the Audit Chairman and is accountable to the Audit Committee;
• To receive a report on the results of the internal auditors' work on a periodic basis;
• To review and monitor management's responsiveness to the internal auditor's findings and recommendations;
• To monitor and assess the role and effectiveness of the internal audit function in the overall context of the Company's risk management system;
• To appoint or dismiss the head of internal audit.

• To oversee the Company's relations with the external auditor;
• To consider and make recommendations on the appointment, reappointment and removal of the external auditor;
• To approve the terms of engagement and the remuneration to be paid to the external auditor in respect of audit services provided;
• To assess the qualification, expertise and resources, effectiveness and independence of the external auditors annually. Steps to consider include:
  • seeking reassurances that the auditors and their staff have no family, financial, employment, investment or business relationship with the company (other than in the normal course of business);
  • seeking from the audit firm, on an annual basis, information about policies and processes for maintaining independence and monitoring compliance with relevant requirements regarding the rotation of audit partners and staff;
  • monitoring the external audit firm's compliance with applicable ethical guidelines relating to the rotation of audit partners, the level of feesthat the Company pays in proportion to the overall fee income of the firm, office and partner and other related regulatory requirements;
  • agreeing with the Board and monitoring the Company's policy for the employment of former employees of the external auditor.
• To discuss with the external auditor, before the audit commences, the nature and scope of the audit;
• 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;
• To review the audit representation letters before consideration by the Board, giving particular consideration to matters that relate to non-standard issues;
• To assess, at the end of the audit cycle, the effectiveness of the audit process by:
  • reviewing whether the auditor has met the agreed audit plan and understanding the reasons for any changes, including changes in perceived audit risks and the work undertaken by the external auditors to address those risks;
  • consideration of the robustness and perceptiveness of the auditors in their handling of the key accounting and audit judgements identified and in responding to questions from the Audit Committee, and in their commentary, where appropriate, on the systems of internal control;
  • obtaining feedback about the conduct of the audit from key people involved;
• To review and monitor the content of the external auditor's management letter, in order to assess whether it is based on a good understanding of the Company's business and establish whether recommendations have been acted upon and, if not, the reasons why they have not been acted upon;
• To develop and recommend to the Board the Company's policy in relation to the provision of non-audit services by the auditor and ensure that the provision of such services does not impair the external auditor's independence or objectivity. In doing so, the Audit Committee should:
  • consider whether the skills and experience of the audit firm make it a suitable supplier of the non-audit services;
  • consider whether there are safeguards in place to ensure that there is no threat to objectivity and independence in the conduct of the audit resulting from the provision of such services by the external auditor;
  • consider the nature of the non-audit services, the related fee levels and the fee levels individually and in aggregate relative to the audit fee;
  • consider the criteria which govern the compensation of the individuals performing the audit;
  • set and apply a formal policy specifying the types of non-audit work: from which the external auditors are excluded; for which the external auditors can be engaged without referral to the Audit Committee; and for which a case-by-case decision is necessary.

The Committee is authorised by the Board, within its Terms of Reference, to:

• investigate any activity
• seek any information that it requires from any employee of the Company and all employees are directed to co-operate with any request made by the Committee
• obtain outside legal or independent professional advice, at the Company's expense, and secure the attendance of outsiders with relevant experience and expertise if it considers this necessary.