Terms of Reference – Audit Committee
The Audit Committee (the “Committee”) is a committee of the Board of Directors of Finsbury Growth & Income Trust PLC (the “Board”), from which it derives its authority and to which it reports.
1. Membership, Appointment and Attendees FRC Guidance 2.12 to 2.15 and AIC Principle 5
1.1 The Committee is appointed by the Board, in accordance with the Articles of Association of the Company.
1.2 The Committee shall comprise three or more independent non-executive Directors appointed by the Board.
1.3 The Chairman of the Board may be a member of the Committee but will not usually act as Chairman of the Committee.
1.4 At least one member of the Committee shall have significant, recent and relevant financial experience and competence in accounting and/or auditing.
1.5 The Committee as a whole shall have competence relevant to the sector in which the Company operates.
1.6 Members must declare any conflicts of interest or potential conflicts of interest at the start of each meeting.
1.7 Appointments to the Committee shall be for an initial period of three years which may be extended for further period(s) of three years subject to the Committee member still meeting the criteria for membership of the Committee.
1.8 All Directors seek re-election on an annual basis. Members are appointed to this Committee on the same basis.
1.9 The Chairman of the Committee shall be appointed by a majority of the Board, giving particular consideration to those Board members with relevant financial experience and may be paid an additional fee in recognition of the extra duties involved. FRC Guidance 2.28
1.10 The Company Secretary to the Board shall act as Secretary of the Committee, and provide governance and administrative support to the Committee.
1.11 Attendees FRC Guidance 2.20
(a) Any other Board members;
(b) The external auditor;
(c) A representative of the Company Secretary;
(d) Any person or persons from the AIFM or Portfolio Manager invited by the Committee;
(e) Any other person(s) who the Committee may invite from time to time.
The attendees, listed above, are not members of the Committee and accordingly will be required to leave a meeting of the Committee (permanently or temporarily) if the Committee, or the Chairman of the Committee, considers it appropriate or desirable for them to do so.
2. Meetings and Quorum FRC Guidance 2.18 to 2.22
Frequency of Meetings
2.1 Meetings will usually be held three times each year to i) review the Company’s draft Annual Report & Financial Statements, ii) review the Half Year Report of the Company, and iii) consider the audit plan prior to the start of each annual audit cycle. It may also meet at such other times as the Chairman of the Committee shall require.
2.2 A representative of the external auditors shall attend not less than one meeting per year, such meeting will include the review of the annual results. The Chairman or another member shall meet the audit partner at least once during the year to discuss the auditors remit and without management, to discuss matters relating to their remit and any issues arising from the audit.
2.3 The external auditors may request additional meetings if they consider them necessary.
Notice of Meetings
2.4 Unless otherwise agreed, notice of each meeting confirming the venue, date and time, together with an agenda of items to be discussed and supporting papers, shall be forwarded to each member of the Committee not less than five working days prior to the date of the meeting. Notices, agendas and supporting papers can be sent in electronic form where the recipient has agreed.
2.5 The Committee shall, at least once a year, evaluate its own performance, constitution and terms and make any necessary recommendations for change to the Board, to ensure the continued maximum effectiveness of the Committee. – FRC Guidance 2.11
Annual General Meeting
2.6 The Chairman of the Committee shall attend the Annual General Meeting of the Company to respond to any questions that may be raised as matters within the Committee’s area of responsibility.
2.7 The quorum necessary for the transaction of business shall be two members of the Committee.
2.8 A meeting of the Committee may consist of a conference between members some or all of whom are in different places provided that each member who participates in the meeting is able to hear and address each of the other participating members.
3. Minutes, Reporting and Disclosure
3.1 The Committee shall cause minutes of all proceedings of the Committee to be taken.
3.2 The signed minutes of each meeting of the Committee shall be circulated to all Directors and attendees as appropriate provided that no conflict or conflicts of interest would arise thereby.
Reporting FRC Guidance 3.29
3.3 The Chairman of the Committee will report to the Board on how the Committee has discharged its responsibilities.
3.4 A description of the Committee’s duties and activities during the year shall be disclosed in the Annual Report.
4. Resources, Advice and Training FRC Guidance 2.23 to 2.26
4.1 The Committee shall be provided with sufficient resources to undertake its duties.
4.2 The Committee shall have access to the services of the Company Secretary on all Committee matters including:
- assisting the Chairman of the Committee in planning the Committee’s work;
- drawing up meeting agendas;
- maintenance of minutes;
- drafting of material about its activities for the annual report;
- collection and distribution of information and provision of any necessary practical support.
4.3 The Committee shall have the power to engage independent counsel and other professional advisers at the expense of the Company.
Induction and Training FRC Guidance 2.17
4.4 The Committee shall establish any process it considers necessary for the induction of new Committee members and, where required, ongoing training of existing Committee members.
5. Scope of Authority FRC Guidance 1.5 and 1.6 and AIC Principle 13
The Committee is authorised to:
5.1 to carry out any investigation relevant to its terms of reference.
5.2 to take independent professional advice and to request any officer or adviser as they see fit, and at the expense of the Company, to attend meetings of the Committee in order to obtain such information or advice.
5.3 seek any information it reasonably requires from a representative of any third party service provider in order to perform its duties;
5.4 request a representative of a third party service provider to attend any meeting of the Committee;
5.5 have timely and unrestricted access to relevant documents relating to the affairs of the Company.
6. Responsibilities of the Committee FRC Guidance 2.10 and AIC Principle 5
6.1 The principal responsibilities of the Committee are:
- to monitor the Company’s accounting policies, the integrity of the financial statements of the Company and any formal announcements relating to the Company’s financial performance;
- to review the financial reporting of the Company and ensure that it is fair, balanced and understandable;
- to review the Company’s internal financial controls and risk management systems;
- to make recommendations to the Board in relation to the appointment of the external auditor and their remuneration;
- to annually review and monitor the scope and effectiveness of the external audit and the auditor’s independence and objectivity;
- to manage the relationship with the external auditor including the development and implementation of policy on the supply of non-audit services;
- to review compliance with regulatory and financial reporting standards; and
- to report to the Board, identifying any matters in respect of which it considers that action or improvement is needed, and making recommendations as to the steps to be taken.
The Committee members must act in accordance with the Directors’ Duties set out in ss. 171 -177 of the Companies Act 2006.
6.2 Financial Reporting FRC Guidance 3.32to 3.38
The Committee shall:
- review the significant financial reporting issues, estimates and judgments made in connection with the preparation of the Company’s financial statements, Announcements of Results and related formal statements (e.g. release of price sensitive information);
- consider the Company’s significant accounting policies and whether they are appropriate;
- review the adequacy and scope of the external audit and compliance with regulatory and financial reporting requirements, the clarity and completeness of disclosures in the financial statements and consider whether the disclosures made are set properly in context;
- satisfy itself that the Annual and Half Year Reports and any other significant published financial information are properly and carefully prepared, and taken as a whole give a fair representation of the Company's affairs;
- review related information presented with the financial statements, including all elements of the strategic report, and corporate governance statements;
- where Board approval is required for other statements containing financial information (for example, summary financial statements, significant financial returns to regulators and release of price sensitive information)review such statements first, wherever practicable.
6.3 Internal Controls and Risk Management Systems FRC Guidance 3.39 to 3.44
The Committee shall:
- review the Company’s internal financial controls which have been established by the service providers to identify, assess, manage and monitor financial risks;
- review reports from management on the effectiveness of risk management and internal control systems, including operational and compliance controls, and review reports on the conclusions of any testing carried out by the external auditor;
- review and approve the statements included in the Annual Report in relation to internal controls, the management of risk and the viability statement.
6.4 Whistleblowing and Fraud
The Committee shall review the arrangements by which staff of service providers to the Company may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other matters and satisfy itself that arrangements are in place for the proportionate and independent investigation of such matters and for appropriate follow-up action. The Committee shall review the service provider’s procedures for detecting fraud.
6.5 Internal FRC Guidance 3.46
The Committee annually shall monitor and review the need for an internal audit function, make an appropriate recommendation to the Board and where applicable ensure that the reasons for the absence of such a function are explained in the relevant section of the Annual Report.
6.6 External FRC Guidance 3.57 to 3.65
The Committee shall:
- be responsible for making recommendations to the Board on the appointment, reappointment and removal of the Company’s external auditor and on their terms of engagement and remuneration;
- review and discuss with the external auditor their engagement letter issued at the start of each audit;
- ensure that the appropriate plans are in place for the audit, at the start of each audit cycle;
- arrange for additional work to be undertaken, if the Committee is not satisfied as to the adequacy of the scope of the proposed audit;
- meet annually with the auditor to review the annual results, discuss any major issues that arose during the course of the audit and if necessary seek amendments to the Letter of Representation to be given by the Board;
- at the end of the annual audit cycle, assess the effectiveness of the audit process;
- annually assess the qualification, expertise and resources, and independence of the external auditor and the effectiveness of the audit process;
- develop and recommend to the Board the Company's policy on the provision of non-audit services by the external auditor, specifying the types of non-audit work from which the auditor is excluded, taking into account relevant ethical guidance;
- consider and if appropriate approve all non-audit work to be carried out by the external auditor and, where non-audit services are provided, ensure that the relevant disclosures are made in the Annual Report; and
- oversee the selection process, where the Committee recommends the selection of possible new appointees as external auditor.
7. Annual Report Disclosure
AIC Code Principle 5 - There should be full disclosure of information about the Board. FRC Guidance 4.81
The Committee shall ensure that the requirements of Code Principle 5 are addressed by:
- disclosing the workings of the Committee in the Annual Report including an explanation of why it believes that it is appropriate for the Company Chairman to be a member of the Committee;
- disclosing the number of Committee meetings held during the year;
- disclosing how the Committees performance evaluation has been conducted;
- disclosing how the Committee composition requirements have been addressed, and the names and qualifications of all members of the Committee during the period;
- ensuring that the Annual Report includes an explanation of how the Committee has assessed the effectiveness of the external audit process;
- disclosing any significant issues that arose during the year;
- where applicable disclosing the nature and extent of interaction (if any) with the FRC’s Corporate Reporting Review Team;
- ensuring that the Terms of Reference for the Committee are generally available upon request and by including these Terms of Reference on the Company’s website; and
- ensuring the Annual Report contains the Directors’ explanation of their responsibility for preparing the accounts and a statement by the auditor about their reporting responsibilities.
AIC Code Principle 21 - The Board should ensure that shareholders are provided with sufficient information for them to understand the risk/reward balance to which they are exposed by holding the shares.
The Committee shall ensure disclosure in the Annual Report of:
- the Company’s investment objective and investment policy and the Company’s full portfolio listing;
- those areas of decision-making reserved to the Board and those over which the investment manager has discretion including but not limited to:
a) the level of gearing set by the Board and if the investment manager operates within pre-set limits;
b) the portfolio managers’ remit regarding voting and corporate governance issues by reference to its policy in respect of the UK Stewardship Code.
- the portfolio managers’ overall performance;
- the level of ongoing charges;
- the going concern basis; and
- the viability statement.
These terms of reference have been produced to accord with the relevant Principles of The AIC Code of Corporate Governance published in July 2016 (Principles 5, 13 and 21) and, where deemed applicable, to follow the Guidance on Audit Committees published by the Financial Reporting Council in April 2016 (FRC Guidance).
The Financial Reporting Council has confirmed that AIC Member companies that report against the AIC Code of Corporate Governance and who follow the AIC’s Corporate Governance Guide for Investment Companies will be meeting their obligations in relation its UK Corporate Governance Code published in April 2016 and Listing Rule 9.8.6.
Terms of Reference – Management Engagement Committee
These terms were produced in line with the AIC Code of Corporate Governance by reference to the AIC Corporate Governance Guide for Investment Companies which were both issued in February 2006 and last revised in July 2016. The AIC Code was endorsed in February 2006 by the FRC as the only code against which investment companies are required to report.
The Management Engagement Committee shall comprise all the independent non-executive directors. Unless otherwise agreed by the Board, the Chairman of the Committee will usually be the Chairman of the Board.
The Committee shall consist of not less than two independent non-executive directors and a quorum shall be two members present.
Members shall be appointed for an initial period of 3 years, which may be renewed or extended providing the director remains independent.
Meetings and attendance
The Committee will meet at least once each year and at such other times as it sees fit.
The Company Secretary shall be the Secretary of the Committee when requested by the Chairman, otherwise a nominated Director shall act as Secretary to the Committee.
The Chairman of the Committee shall attend the Annual General Meeting of the Company to respond to any questions that may be raised as matters within the Committee’s area of responsibility.
The Committee shall, from time to time, evaluate its own performance, constitution and terms and make any necessary recommendations for change to the Board, to ensure the continued maximum effectiveness of the Committee.
The members of the Committee are authorised by the Board to carry out any action or investigation relevant to its terms of reference. Members are authorised to seek any information they require from any Company officer and to obtain expert advice from the Company’s external auditors, professional advisers or otherwise, and to take independent professional advice and to request any officer or adviser as they see fit, and at the expense of the Company, to attend meetings of the Committee in order to obtain such information or advice.
The Committee will at all times comply with the Listing Rules published by the Financial Conduct Authority (“the Listing Rules”), the recommendations of the Combined Code (Principles of Good Governance and Code of Best Practice – last revised in September 2014, also renamed The UK Corporate Governance Code) and guidance from the Association of Investment Companies published in February 2006 and last revised in July 2016.
In particular, the duties of the Committee are:
- to regularly review the terms of engagement of the Alternative Investment Fund Manager ('AIFM') and Portfolio Manager and to make any recommendations for change;
- to review the level of fees payable to the AIFM and Portfolio Manager and to make recommendations to the Board;
- to keep under review the contract notice period of the AIFM and Portfolio Management Agreements; and
- to review the additional marketing, company secretarial, third party agreements and other sundry services provided by the AIFM and Portfolio Manager.
The Secretary of the Committee shall minute the proceedings and resolutions of all meetings and will produce and circulate the minutes to all Committee members. Once agreed, the minutes will be circulated to all members of the Board, unless a conflict of interests exists, at the next scheduled Board meeting following the Committee meeting. The Chairman of the Committee shall report formally to the Board where it is deemed necessary.