Principality Building Society
Terms of Reference
Audit Committee
1. Main Purpose:
To assist the Board in fulfilling its oversight responsibilities for the Principality Group, including all
subsidiaries.
2. Meetings:
2.1 Nature & Frequency:
This is a Board Committee, and will meet no less than six times per annum.
2.2 Members:
Members of the Committee are appointed by the Board and all Members shall be Non-Executive
Directors. The Committee shall comprise not less than three Members. Individual members of the
Committee will have the potential to develop a good level of understanding of the Group’s
operations and regulatory environment, financial literacy, risk management, conduct of business
systems and controls, and collectively have a breadth of skills covering the scope of activity
described below and have appropriate competence relevant to the sector in which the Society
operates. The Chairman of the Society’s Board shall not be a member of the Committee.
The Chair of the Committee shall be appointed by the Board and shall have recent and relevant
financial experience and a relevant professional qualification.
The Secretary of the Committee shall be the Group Secretary or his nominee.
2.3 Quorum:
Two Members.
2.4 Attendance: Normally, the Chief Executive Officer, the Group Finance Director, Chief Internal
Auditor, Group Secretary, and a representative from the Group’s External Auditor shall attend
meetings of the Committee [or part of it] and the Committee may invite the attendance of any
other person.
3. Committee Functions:
3.1 External Audit
3.1.1
Make recommendations to the Board in relation to the appointment of the Group’s External
Auditors, review their terms of appointment, monitor their performance and consider any
questions relating to the resignation or recommendation for replacement of auditors to the
Group.
3.1.2
Review the scope and costs of external audits and make recommendations to the Board.
Approve the annual Audit Plan and ensure that it is consistent with the scope of the audit
engagement. The Committee shall meet with the External Auditor at least once a year without
management being present, to discuss their remit and any issues arising from the audit.
3.1.3
Review and monitor the independence and objectivity of the Group’s External Auditors,
including the nature and extent of non-audit services provided by them in order to ensure that
that the provision of such services does not impair the external auditor’s independence or
objectivity.
3.1.4
Review the aggregate remuneration paid to the Auditors for audit and other services provided
by them.
3.1.5
Monitor and discuss with management and the external auditor the integrity of the Group’s
financial statements including annual and half year financial statements, Pillar 3 disclosures,
regulatory reporting and any other formal announcement relating to financial performance
3.1.6
Review issues raised by the Group’s External Auditors in their management letter including
(but not limited to) consideration of any major issues which arose during the audit, and
accounting and audit judgements and level of errors identified during the audit and ensure
management’s responses and actions are appropriate.
3.1.7
Review any letters of representation requested by the Group’s External Auditors before being
signed by management.
3.2
Financial Reporting
3.2.1 Review significant financial reports where they contain judgements before reporting to the
Board, focusing particularly on:
 the quality and appropriateness of the accounting policies and practices including, without
limitation, critical accounting policies and practices, all alternative accounting treatments
within generally accepted accounting principles for policies and procedures related to material
items that have been discussed with management, ramifications of the use of such alternative
treatments and the treatment preferred by the external auditor; and financial reporting
disclosures and changes thereto, including a review of any material items of correspondence
between the Society and the external auditor;
 areas involving significant judgment, estimation or uncertainty in the Group’s financial results;
 the extent to which the financial statements are affected by any unusual transactions or any
off–balance sheet arrangements, including any disclosable guarantees, indemnification
agreements or interests in unconsolidated special purpose entities, in the year and how they
are disclosed;
 the clarity of disclosures;
 significant implemented adjustments resulting from the audit or review;
 misstatements reported to the Audit Committee by the auditor that individually or in aggregate
have not been corrected and management’s explanations as to why they have not been
adjusted;
 possible impairments of the Group’s assets;
 the basis for the going-concern assumption; and
 compliance with financial reporting standards and relevant financial and governance reporting
requirements
3.2.2
Provide the Board with advice on whether the annual report and accounts, taken as a whole,
is fair, balanced and understandable and provides the information necessary for members
and interested parties to assess the Group's performance, business model and strategy.
3.2.3
Review, challenge and approve on behalf of the Board any proposed changes to accounting
policies and practice.
3.3 Internal Control and Risk Management
3.3.1
Examine management’s processes for ensuring the appropriateness and effectiveness of
systems and controls, risk management and in relation to financial reporting.
3.3.2
Monitor the adequacy of systems and controls for assessing risk inherent in the Group’s
business arrangements on an ongoing basis.
3.3.3
Receive reports on at least two occasions in each year from the Group Finance Director on
the adequacy of financial controls.
3.4 Internal Audit
3.4.1 To oversee the functioning of the Internal Audit function and to provide an interface between
management and the Group’s External Auditors and facilitate co-ordination between internal
and external audit functions where appropriate and support the Chief Internal Auditor in
discharging his prescribed responsibilities under the FCA’s Senior Manager’s Regime.
3.4.2 Review a report at least 4 times in each year from the Chief Internal Auditor on the scope,
policies and experience of internal audit since the previous report. The Committee shall review
and monitor management’s responsiveness to the findings and recommendations made by
Internal Audit.
3.4.3 Review the adequacy of the internal audit arrangements to ensure that they are appropriate
and adequate, based on and reflecting the risk profile of the various businesses operated by
the Group and on the Group’s Board approved Risk Appetite Statement.
3.4.4 Ensure that Group Internal Audit is adequately resourced and monitor the standing of Internal
Audit function within the business.
3.4.5 Review and agree the Internal Audit plan and Budget for each year.
3.4.6 Meet the Chief Internal Auditor at least twice a year, without management being present, to
discuss his remit and any issues arising from the work performed by the Internal Audit team. In
addition the Chief Internal Auditor shall have the right of direct access to the Chairman of the
Board.
3.4.7 Approve the appointment or dismissal of the person fulfilling the role of Chief Internal Auditor.
The Chief Internal Auditor has a dual reporting line to the Group Chief Executive and Chair of
the Audit Committee.
3.5 Whistleblowing, Fraud and Bribery Prevention
3.5.1 Review annually systems and controls for the prevention of bribery and receive reports on noncompliance.
3.5.2 Ensure all significant control weaknesses and significant losses are investigated and reported to
the Board .
3.5.3 Review the arrangements for employees and contractors to raise concerns in confidence about
possible wrongdoing. The Committee shall ensure that these arrangements allow proportionate
and independent investigation of such matters and appropriate follow up action.
3.6 Other Matters:
3.6.1 Maintain awareness of evolving best practice on corporate governance in relation to Audit
Committees and make recommendations to the Board as appropriate.
3.6.2 Review the findings in all reports from reporting accountants appointed at the behest of the
regulatory authorities to examine any aspect of the Group’s business.
3.6.3 At least once per year, the Committee shall review its own performance and terms of reference
to ensure it is operating at maximum effectiveness and recommend any changes it considers
necessary to the Board for approval. Unless otherwise agreed with the Society’s Chairman, the
Committee shall commission an external review of its own effectiveness every five years.
3.6.4 Determine appropriate training and development for Committee Members both on appointment
and on an ongoing basis to ensure that Members of the Committee are appropriately skilled.
3.6.5 Perform such other oversight functions as the Board may request.
3.6.6 Review and approve the statements to be included in the Annual Report concerning the role and
responsibilities of the Committee and the action it has taken to discharge those responsibilities.
3.6.7 Ensure that in performing its function, it does so in such a way as to ensure that the systems
and
controls in place across the Group contribute to achieving fair outcomes for customers.
3.6.8 Receive significant correspondence between the Society and its subsidiary businesses and the
regulatory authorities.
4. Reporting to the Committee:
4.1 The Committee may investigate any activity within its terms of reference and may obtain such
information as it considers necessary from any employee or officer of the Group and may obtain
legal or other professional advice as it considers necessary. All employees and officers are
directed to co-operate with any request made by the Committee.
4.2 The Committee shall receive the reports as set out in the attached Appendix.
4.3 The Secretary of the Committee shall circulate the Agenda and papers for each meeting of the
Committee no less than three working days in advance of the relevant meeting.
4.4 Each employee or officer shall ensure that, where practicable, reports for consideration at the
Committee are with the Secretary of the Committee no less than five working days in advance of
the relevant meeting.
5. Reporting from the Committee:
This Committee reports to the Society’s Board and to the Board of any Subsidiary in respect of which
it is discharging the responsibilities of Audit Committee.
5.1 Formal Minutes, approved by the Chair of the Committee shall be submitted to the Board
following each meeting of the Committee.
5.2 The Chair of the Committee will provide a verbal report on the activities of the Committee to the
Board following each meeting of the Committee.
5.3 The Committee shall publish a report in the Annual Report and Accounts detailing any issues
which have not been resolved between the Committee and the Board.
6. Annual General Meeting
6.1 The Chair of the Committee shall attend the annual general meeting to answer member questions
on the Committee’s activities.
Audit Committee– Agenda Items February 2017
Standing Agenda Items
Declaration of Interests.
Minutes of Previous Meeting.
Statement on Auditors Independence
Material incidents including losses, frauds, Report
on material control weaknesses
Annual Reports/Activities
January
Going Concern Review/ Liquidity and
Funding.
Review of Annual Financial Statements.
March
April
Pillar 3 Disclosures
Approval of Final Subsidiary Company
Accounts.
Management Letter.
Annual evaluation of auditor’s performance.
Policy Review - Auditors Independence [As
appropriate].
Financial Controls Report.
Annual Review of Audit Fees.
Review of External Auditors Plan.
Going Concern Review/ Liquidity and
Funding Review.
Half Year Accounting Judgements and
Estimates.
Review of Half Year Financial Statements.
Review of Annual Accounts Timetable.
Annual Review of adequacy of Resources –
Review of Business Standards and Ethics
Policy [As appropriate]
Financial Controls Report.
Review of Tax Compliance Policy
Statement [As appropriate]
Annual Review of Quality Assurance –
Group Internal Audit
Annual Review of Committee Terms of
Reference.
July
September
December
Data Protection Officer’s Annual Report
Financial Controls Report.
Report by the Chief Internal Auditor on the
overall effectiveness of the Group’s risk and
control framework
Other
Report from the Chief Internal Auditor
Assessment of Auditors Independence.
Report from the Chief Internal Auditor
Review of PRA/FCA Risk Mitigation
Programme.
Report from the Chief Internal Auditor.
Report from the Chief Internal Auditor
Review of Major Accounting Policies and
Judgements [Including Dividend Policy].
Review of Committee’s Practice.
Annual Review of Whistleblowing Policy.
Approval of Group Internal Audit Annual
Plans.