The Terms of Reference (“TOR”) and functions of the Board of Directors’ (“Board”) Audit Committee of Sapura Energy Berhad (“Sapura Energy”) (“BAC” or “the Committee”) are prepared based on the Main Market Listing Requirements of Bursa Malaysia Securities Berhad (“Bursa Malaysia”) (“MMLR”) and the Malaysian Code on Corporate Governance 2012. The TOR and the functions of the BAC shall be approved by the Board.
1. OBJECTIVES OF THE BAC
The BAC shall assist the Board of Sapura Energy as follows:
a. in complying with specified accounting standards and required disclosures as administered by Bursa Malaysia, the relevant bodies of accounting standards, and any other laws and regulations as amended from time to time;
b. in presenting a balanced and understandable assessment of Sapura Energy’s financial position and prospects;
c. in establishing a formal and transparent arrangement for maintaining an appropriate relationship with the external auditors and internal auditors;
d. in maintaining a sound system of internal control to safeguard the interest of shareholders in Sapura Energy and its subsidiaries (collectively “Group”);
e. in acting upon the Board’s request to investigate and report any issues or concerns pertaining to the Management of the Group; and
f. in promoting and strengthening the confidence of the public in the Group’s reported results.
2. COMPOSITION AND SIZE
The BAC members shall be appointed by the Board from among its members and shall comprise at least three members, all of whom are non-executive directors with the majority of them being independent directors.
The BAC members must have the required skills to engage with the Management and auditors and be prepared to raise key and probing questions about the Group’s financial and operational risks, compliance with approved financial reporting standards and other relevant regulatory requirements.
All BAC members should be financially literate with at least one member of the BAC being:
a. a member of the Malaysian Institute of Accountants (“MIA”); or
b. if he/she is not a member of the MIA, he/she must have at least three years working experience and:
i. he/she must have passed the examinations specified in Part 1 of the First Schedule of the Accountants Act 1967; or
ii. he/she must be a member of one of the associations of accountants specified in Part II of the First Schedule of the Accountants Act 1967; or
c. fulfils such other requirements as prescribed or approved by Bursa Malaysia.
No alternate director shall be appointed as a member of the BAC.
In the event of any vacancy resulting in non-compliance of the minimum three members and the election of an independent chairman, the Board shall, upon the recommendation of the Board Nomination Committee, appoint such number of members to fill the vacancy and/or elect an independent chairman within three months of the event.
The appointment of Chairman of the BAC shall be approved by the Board and the Chairman shall be an independent non-executive director.
The Chairman should assume, amongst others, the following responsibilities:
a. to steer the BAC to achieve the goals it sets;
b. to consult the Company Secretary of Sapura Energy for guidance on matters related to BAC’s responsibilities under the applicable rules and regulations, to which they are subject to;
c. to organise and present the agenda for BAC meetings with the assistance of the Company Secretary / Secretary of the BAC based on input from members of the BAC for discussion on matters raised;
d. to provide leadership to the BAC and to ensure proper flow of information to the BAC by reviewing the adequacy of and timing for the making available of documentation;
e. to ensure that all members are encouraged to play their roles in its activities;
f. to ensure that consensus is reached on every BAC resolution and where considered necessary, call for a vote; and
g. to manage the processes and working of the BAC and to ensure that the BAC discharges its responsibilities without interference from the Management.
The Company Secretary or other appropriate senior officers of Sapura Energy shall act as the secretary of the BAC.
The Secretary, together with the Chairman of the BAC, shall be responsible for drawing up the notice and agenda for the meeting and the same shall be distributed to members and other attendees of the BAC two weeks before the meeting date. Consent from all members of the BAC shall be obtained for any meetings of BAC called shorter than this notice period.
The Company Secretary shall also be responsible for keeping the minutes of meetings of the BAC and circulating them to the BAC members.
The BAC shall meet at least four times in a financial year. Additional meetings may be called at any time if so requested by any BAC member, the Management, internal auditors or external auditors.
The quorum for a BAC meeting shall be a majority of independent directors.
The BAC may, from to time, regulate its own procedure and, conduct of the BAC meeting. Such procedure shall be approved in the meeting of the BAC and attached to this TOR as Practice Notes.
Attendance at a meeting may be by being present in person or by participating in the meeting by video or teleconference. Members of the BAC who participate in a meeting of the BAC by video or teleconference or any other communication equipment shall be deemed to be present in person at the meeting and shall be entitled to vote or be counted in a quorum accordingly.
The BAC should record its deliberations, in terms of the issues discussed and the conclusions in discharging its duties and responsibilities, with the minutes kept and distributed to each member of BAC and the Board. The Chairman of the BAC shall provide the Board with a report of the BAC meetings at each Board meeting immediately following the BAC meetings.
6. CIRCULAR RESOLUTION
A circular resolution in writing (if only deemed necessary by the BAC Chairman) shall be valid and effectual if it is approved and signed by ALL members of the BAC as if it had been passed at a meeting of the BAC. All such resolutions shall be described as “Board Audit Committee Members’ Circular Resolution/(s)”.
Any discussions, including any concerns raised and the rationale for the decisions so made in the resolution, shall be tabled at the BAC meeting taking place immediately after the passing of the resolution, for a formal record keeping of the same.
Any such resolution may consist of several documents in like form, each signed by one or more BAC members.
7. RIGHTS AND AUTHORITIES
The BAC shall have the following rights in carrying out its duties and responsibilities:
a. explicit authority to investigate any matter within its TOR;
b. access to the resources which are required to perform its duties;
c. full, free and unrestricted access to any information, records, properties and personnel of the Group;
d. direct communication channels with the external auditors and internal auditors;
e. obtain independent professional or other advice and to invite external parties with relevant experience to attend the BAC meetings (if required) and to brief the BAC thereof;
f. authority to invite other directors and/or employees of the Group to attend BAC meetings specific to the relevant agenda; and
g. immediate access to reports on findings and recommendations from the Group Internal Audit (“GIA”) in respect of any fraud or irregularities discovered;
8. DUTIES AND RESPONSIBILITIES
The duties and responsibilities of the BAC shall be as follows:
a) Assessing the Control Environment
i. determine whether the Management has implemented policies ensuring that controls in place are adequate, and functioning properly to address the risks; and
ii. review the adequacy and integrity of the Group’s internal control systems and management information systems, including systems for compliance with the applicable laws, rules, directives and guidelines.
b) Overseeing Financial Reporting
i. BAC to review the quarterly results and year-end financial statements, before approval by the Board, focusing particularly on the following:
ii. changes in or implementation of accounting policies and practices;
iii. significant matters including financial reporting issues, significant judgments made by Management, significant and unusual events or transactions, and how these matters are addressed;
iv. significant adjustments arising from audit;
v. the going concern assumption; and
vi. compliance with accounting standards and other regulatory requirements.
c) Discussing the following with the External Auditors:
i. their audit plan and scope of audit;
ii. their evaluation of the system of internal controls and management information system;
iii. their audit report and the Management’s response including problems and reservations arising from their interim or final audits and any other matter the auditors may wish to discuss, at least twice a year without the presence of other directors, Management and/or employees of Sapura Energy Group, whenever deemed necessary;
iv. the assistance given by the employees to the external auditors;
v. the coordination where more than one audit firm is involved; and
vi. audit fees.
BAC shall monitor the extent of non-audit work to be performed by the external auditors to ensure that the provision of non-audit services does not impair their independence and objectivity.
BAC shall consider if there is reason (supported by grounds) to believe that the external auditors are not suitable for appointment or reappointment before recommending the appointment or reappointment of the external auditors and their audit fees.
BAC shall review any letter of resignation from the external auditors of the Group.
d) Group Internal Audit (“GIA”)
i. review and approve the Internal Audit Charter, which defines the authority, accountability, responsibility, independence of the internal audit function in the Group;
ii. review the adequacy of the scope, functions, competency and resources of the internal audit function, and ensure it has the necessary authority to carry out its work;
iii. review and approve Internal Audit Plan;
iv. review the internal audit programme, processes and results of the internal audit work or investigation undertaken and where necessary, ensure that appropriate actions are taken on the recommendations of the GIA;
v. to meet and discuss with the internal auditors without the attendance of other Directors, Management and/or employees of Sapura Energy, whenever deemed necessary;
vi. review and approve the appointment of the candidate for the position of Chief Internal Auditor (“CIA”), whenever it falls vacant;
vii. review the resignation of CIA and the reason(s) for the resignation;
viii. the annual performance review of the CIA should be decided by the BAC after taking into consideration the performance review conducted by the Executive Director to whom the CIA reports to administratively;
ix. be informed, referred to and agree on the initiation, commencement and mechanism of any disciplinary proceedings or investigations, including the nature and reasons for the said disciplinary proceedings or investigations, as well as the subsequent findings and proposed disciplinary actions against the CIA and senior staff members of GIA. As employees of Sapura Energy, the CIA and senior staff members of GIA are subject to Sapura Energy’s human resource policies and procedures, including disciplinary proceedings or investigations and actions;
x. review the assistance and co-operation given by the employees of the Group to the internal auditors. The GIA function should be independent of the activities they audit and should be performed with impartiality, proficiency and due professional care. The Sapura Energy Board or the BAC should determine the merit of the internal audit function; and
xi. take cognisance of resignations of senior GIA members (i.e. Manager position and above) and provide the resigning staff member an opportunity to submit his reasons for resigning.
e) Reviewing Related Party Transactions (“RPTs”) and Conflict of Interest Situations
i. ensure that Management establishes adequate processes and procedures to monitor, track and identify RPTs. Such a framework should be able to provide sufficient assurance that RPTs and conflict of interest situations, including recurrent related party transactions, are identified, evaluated, presented for review and approval and reported, where required.
ii. review the RPTs and determine the following:
a. whether the transaction is in the best interest of Sapura Energy;
b. whether the transaction is fair, reasonable and on normal commercial terms; and
c. that the transaction is not detrimental to the interest of minority shareholders.
f) Whistle blowing and Fraud
i. review the Group’s arrangements for its employees to raise concerns, in confidence, about any possible wrongdoing in financial reporting or other matters. The BAC shall ensure that these arrangements allow proportionate and independent investigation of such matters and appropriate follow-up actions. The BAC shall do so while ensuring the confidentiality of the anonymous submission of concerns regarding malpractice, illegal acts, questionable accounting or auditing matters;
ii. investigate whenever the Management or members of the Board are implicated in a possible fraud, illegal act or violation of the code of conduct;
iii. to discuss and review the major findings of internal investigations and Management’s response and provide independent assessment; and
iv. review the Group’s procedures for detecting fraud.
g) Other Matters
i. to ensure the reports of GIA should include management commentary prior to submission to the BAC;
ii. to review the following contents of Annual Report which shall be included in the Annual Report prior to recommending the same to the Board for approval;
• Statement on Corporate Governance
• Report of the Audit Committee
• Statement on Risk Management and Internal Control
• Statement on Directors’ Responsibility
• Additional Compliance Information
and/or any other contents of Annual Report which require review by the BAC may be required by the Regulator from time to time;
iii. to promptly report to Bursa Malaysia where a matter reported by the BAC to the Board has not been satisfactorily resolved resulting in a breach of the MMLR;
iv. to seek continuing professional education to keep abreast of developments not only in the area of financial reporting but also in regulatory compliance, technology, business risks and the implications of significant changes that may affect the Group;
v. to keep abreast of the latest corporate governance guidelines in relation to the BAC and the Board as the whole; and
vi. to consider any other matter that may reasonably fall within the ambit of this TOR, and as may be directed by the Board from time to time.
9. AMENDMENT OF THE TERMS OF REFERENCE
Any amendment to the TOR of the BAC, as proposed by BAC or any other third party, shall first be presented to the Board for approval. Upon the Board’s approval, the said amendment shall form part of the TOR of the BAC, of which shall be considered duly amended.
In the event of any discrepancies between the TOR and other relevant Acts, Guidelines, Circulars or other documents issued by relevant regulators (“collectively Regulators’ Documents”), the Regulators’ Documents shall prevail.
11. PUBLICATION OF TOR
The TOR of the BAC shall be made available on Sapura Energy’s website.