To monitor and review the formal arrangements established by the Board in respect of:
The Committee is a committee of the Board of the Company. The committee is authorised by the Board to:
1.2.1 investigate any activity within its terms of reference and have such direct access to the resources of the Group as it may reasonably require;
1.2.2 seek any information that it requires from any employee, and all employees are directed to co-operate with any request made by the committee;
1.2.3 obtain assurances and, when appropriate, reports from the boards of subsidiary companies which have appointed separate audit committees; and
1.2.4 engage outside legal or other independent professional advisers and obtain appropriate funding for the payment of relevant fees and expenses.
The responsibilities of the committee shall be as follows:
2.1 The Financial Statements and Reporting of the Group
2.1.1 monitor the integrity of the financial statements of the Group, including annual and half-yearly reports, interim management statements and other formal announcements relating to the Group's financial performance, reviewing significant financial reporting issues and the judgements which they contain;
2.1.2 review, and challenge where necessary, the actions and judgements of management, in relation to the interim and annual financial statements before submission to the Board, paying particular attention to:
2.1.3 review any significant adjustments to financial reporting resulting from the audit, and resolve any disagreements between management and the external auditors regarding financial reporting;
2.1.4 review and recommend to the Board for approval, in connection with the Bank for International Settlements Basel Accord - Basel II - Pillar 3, the Group's Pillar 3 disclosure policy; assess annually whether the frequency of the Group's Pillar 3 disclosures remains appropriate; receive periodic independent review reports conducted on the Pillar 3 disclosures; and review and recommend to the Board for publication the Group's periodic Pillar 3 reporting;
2.2 Internal Controls and the Risk Management Framework
2.2.1 review management’s reports on the effectiveness of systems for internal control and financial reporting;
2.2.2 review Internal Audit's reports on the effectiveness of systems for internal control;
2.2.3 review management's reports on critical control issues that have an impact on financial reporting;
2.2.4 review the Group’s procedures for detecting financial reporting fraud;
2.2.5 review the Group's procedures for handling:
2.2.6 consider the major findings of any relevant internal investigations into control weaknesses, fraud or misconduct and management’s response (in the absence of management where appropriate);
2.2.7 review management’s and the Chief Risk Officer’s reports on the effectiveness of systems for risk management;
2.2.8 review the Group’s statement on internal control and risk management systems for the purposes of the Turnbull Guidance on internal control, prior to endorsement by the Board;
2.3 Internal Audit
2.3.1 Monitor and review the effectiveness of the Group's internal audit function in the context of the Group's overall risk management system;
2.3.2 approve the appointment or removal of the Group Audit Director;
2.3.3 review the internal audit programme and ensure that the internal audit function is adequately resourced and has appropriate access to information and standing within the Group; and
2.3.4 consider the major findings of any significant internal audit escalated to the committee by the Group Audit Director, and consider management’s response to Internal Audit's recommendations;
2.4 The Group's Relationship with its External Auditors
2.4.1 make recommendations to the Board, to be put to shareholders for approval at the Annual General Meeting, on the appointment, reappointment and removal of the external auditor. The Audit Committee shall oversee the process for selecting the external auditor;
2.4.2 oversee the relationship with the external auditor, including:
2.4.3 review and approve the annual audit plan, and ensure that it is consistent with the scope of the audit engagement, and co-ordinated with the activities of the Internal Audit function;
2.4.4 discuss with the external auditor, before the audit commences, the nature and scope of the audit and review the auditor’s quality control procedures and steps taken by the auditor to respond to changes in regulatory and other requirements;
2.4.5 review the findings of the audit with the external auditor, considering the external auditor’s management letter and management’s response to the auditor's findings and recommendations; and
2.4.6 review such reports prepared by the external auditor as the Audit Committee shall require, considering management’s response to any major external audit recommendations.
2.5 Other Matters
2.5.1 undertake similar duties for all subsidiary companies where a legal or regulatory provision requires audit committee involvement, except where the subsidiary company’s board has appointed a separate audit committee; and
2.5.2 review any other matters referred to it by the Chairman or the Board.
3. MEMBERSHIP AND ATTENDANCE
Members of the Audit Committee shall be appointed by the Nomination and Governance Committee in consultation with the chairman of the Audit Committee. Members shall be independent non-executive directors. At least one of the members of the committee is required to have recent and relevant financial experience. The members of the Audit Committee are as shown in the Appendix.
The chairman of the committee shall be appointed by the Board. In the chairman’s temporary absence, one of the directors nominated by the chairman or elected by the other members of the committee will act as chairman.
3.3 Regular Attendees
Only members of the Audit Committee have the right to attend meetings. However, the Group Finance Director, the Group Audit Director, the Chief Risk Officer and a representative of the external auditors will normally attend meetings, and other members of management will attend as appropriate.
The Chairman of the Group, the Group Chief Executive and other board members will attend if requested by the committee.
Quorum for meetings of the Audit Committee will be three members. If members are unavailable for a particular meeting, any two members may co-opt an independent non-executive director if necessary to constitute a quorum.
4. COMMITTEE MANAGEMENT
The secretary to the committee will be the Company Secretary or their nominee.
Group Secretariat will support the chairman in managing the business of the committee. The agenda and papers will be circulated to all members of the committee at least 4 working days before the meeting.
The secretary shall minute the proceedings of all meetings of the committee, including recording the names of those present and in attendance. Minutes of committee meetings will be circulated promptly to all members of the committee, and the committee chairman will report formally to the Board on the committee's proceedings.
Meetings shall be held as circumstances require, but at least twice a year. The external auditors and the Group Audit Director may request a meeting with the committee or its chairman if they consider that one is necessary.
At least once a year, without the presence of executive management, the committee shall meet with the external auditors and with the Group Audit Director.
5. AUTHORITY TO DELEGATE
The Committee may appoint a sub-committee comprising one or more members of the Committee, one of which must be the chairman, to fulfill its responsibilities. This shall not prevent other members of the Committee from participating in the meeting if they wish to do so.
6. VERSION CONTROL
6.1 Review Requirements
These terms of reference are subject to review by the Nomination and Governance Committee at least annually, or as required by the Board.
Appendix – Membership
Details of committee membership can be obtained from the Lloyds Banking Group plc Annual Report and Accounts 2012.